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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM .
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COMMISSION FILE NUMBER 1-13796
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GRAY COMMUNICATIONS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 52-0285030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4370 PEACHTREE ROAD, NE
ATLANTA, GA 30319
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 504-9828
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Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
CLASS B COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
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Title of each class Name of each exchange on which registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 1, 2001: CLASS A AND CLASS B COMMON STOCK; NO PAR
VALUE - $190,660,391
The number of shares outstanding of the registrant's classes of common
stock as of March 1, 2001: CLASS A COMMON STOCK; NO PAR VALUE - 6,848,467
SHARES; CLASS B COMMON STOCK, NO PAR VALUE - 8,746,741 SHARES
DOCUMENTS INCORPORATED BY REFERENCE: The registrant's definitive proxy
statement for the annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A is incorporated by reference into Part III hereof.
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PART 1
ITEM 1. BUSINESS
As used herein, unless the context otherwise requires, the "Company"
means Gray Communications Systems, Inc. and its subsidiaries. Unless otherwise
indicated, the information herein has been adjusted to give effect to a
three-for-two stock split of the Company's Class A Common Stock, no par value
(the "Class A Common Stock"), and the Company's Class B Common Stock, no par
value (the "Class B Common Stock"), effected in the form of a stock dividend
declared on the respective class of common stock on August 20, 1998. Unless
otherwise indicated, all station rank, in-market share and television household
data herein are derived from the Nielsen Station Index, Viewers in Profile,
dated November 2000, as prepared by A.C. Nielsen Company ("Nielsen").
GENERAL
The Company currently owns 13 network-affiliated television stations in
11 medium-size markets in the southeastern ("Southeast"), southwestern
("Southwest") and midwestern ("Midwest") United States. In nine of the 11
markets served by the Company, its stations are ranked first in viewing audience
and it has the second ranked station in the two remaining markets. The Company
has the leading local news operation in ten of the 11 markets in which it
operates while the remaining station is ranked third for news viewers. Ten of
the stations are affiliated with the CBS Television Network, a division of CBS,
Inc. ("CBS"), and three are affiliated with the NBC Television Network, a
division of the National Broadcasting Company, Incorporated ("NBC"). The Company
also owns and operates four daily newspapers located in the Southeast and the
Midwest and a paging business located in the Southeast.
In 1993, after the acquisition of a large block of the Class A Common
Stock by Bull Run Corporation ("Bull Run"), the Company implemented a strategy
to foster growth through strategic acquisitions and certain select divestitures.
Bull Run continues to be a principal shareholder of the Company since its
investment in 1993. Since January 1, 1994, the Company's significant
acquisitions have included 12 television stations, three newspapers, a
transportable satellite uplink business and a paging business located in the
Southeast, Southwest and Midwest and the divestiture of two stations in the
Southeast. As a result of the Company's acquisitions and in support of its
growth strategy, the Company has added certain key members of management and has
greatly expanded its operations in the television broadcasting and newspaper
publishing businesses.
ACQUISITIONS AND DIVESTITURES
Option to Acquire Equity Investment in Sarkes Tarzian, Inc.
On January 28, 1999, Bull Run acquired 301,119 shares of the
outstanding common stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of
Mary Tarzian (the "Estate") for $10.0 million. The acquired shares (the "Tarzian
Shares") represent 33.5% of the total outstanding common stock of Tarzian (both
in terms of the number of shares of common stock outstanding and in terms of
voting rights), but such investment represents 73% of the equity of Tarzian for
purposes of dividends as well as distributions in the event of any liquidation,
dissolution or other termination of Tarzian. A single shareholder controls a
majority of the voting rights of the Tarzian common stock.
The Company has an agreement with Bull Run, whereby the Company has the
option of acquiring the Tarzian Shares from Bull Run for $10.0 million plus
related costs. These related costs include but are not limited to Bull Run's
investment charges on the incremental debt used to acquire the investment less
the aggregate amount of certain payments the Company has paid Bull Run to extend
the option period. The Company has the ability to extend the option period in
30-day increments at a fee of $66,700 per
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extension and has extended this option period through December 31, 2001. Total
fees capitalized relating to this option are $3,452,000 and $742,000 as of
December 31, 2000 and 1999, respectively. In connection with the option
agreement, the Company granted warrants to Bull Run to purchase up to 100,000
shares of the Company's Class B Common Stock at $13.625 per share. The warrants
vest immediately upon the Company's exercise of its option to purchase the
Tarzian Shares. The warrants expire 10 years following the date on which the
Company exercises its option. The Company cannot control when or if it would
receive any cash distributions from Tarzian including dividends or other
distributions on capital stock.
Tarzian owns and operates two television stations and four radio
stations: WRCB-TV Channel 3 in Chattanooga, Tennessee, an NBC affiliate; KTVN-TV
Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM and WTTS-FM in Bloomington,
Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana. The Chattanooga and
Reno markets are the 86th and the 109th largest television markets in the United
States, respectively, as ranked by Nielsen.
On February 12, 1999, Tarzian filed a complaint against Bull Run and
U.S. Trust Company of Florida Savings Bank as Personal Representative of the
Estate in the United States District Court for the Southern District of Indiana.
Tarzian claims that it had a binding and enforceable contract to purchase the
Tarzian Shares from the Estate prior to Bull Run's purchase of the shares, and
requested judgment providing that the contract be enforced. On May 3, 1999, the
action was dismissed without prejudice against Bull Run, leaving the Estate as
the sole defendant. The litigation between the Estate and Tarzian is ongoing and
the Company cannot predict when the final resolution of the litigation will
occur.
Neither Bull Run's investment nor the Company's potential investment is
presently attributable under the ownership rules of the Federal Communications
Commission (the "FCC"). If the Company successfully exercises the option
agreement, the Company plans to fund the acquisition through its $300.0 million
senior bank loan agreement (the "Senior Credit Facility").
Acquisition of the Texas Stations
On October 1, 1999, the Company completed its acquisition of all the
outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting
Company, as well as the assets of KXII Broadcasters Ltd. The Company acquired
the capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company
in merger transactions with the shareholders of KWTX Broadcasting Company and
Brazos Broadcasting Company receiving a combination of cash and the Company's
Class B Common Stock for their shares. The Company acquired the assets of KXII
Broadcasters Ltd. in an all cash transaction. These transactions are referred to
herein as the "Texas Acquisitions."
Aggregate consideration (net of cash acquired) paid in the Company's
Class B Common Stock and cash was approximately $146.4 million which included a
base purchase price of $139.0 million, transaction expenses of $2.8 million and
certain net working capital adjustments (excluding cash) of $4.6 million. In
addition to the amount paid, the Company assumed approximately $600,000 in
liabilities in connection with the asset purchase of KXII Broadcasters Ltd. The
Company funded the acquisitions by issuing 3,435,774 shares of the Company's
Class B Common Stock (valued at $49.5 million) to the sellers, borrowing an
additional $94.4 million under its Senior Credit Facility and using cash on hand
of approximately $2.5 million.
With the Texas Acquisitions the Company added the following television
stations to its broadcast segment: KWTX-TV, the CBS affiliate located in Waco,
Texas; KBTX-TV, the CBS affiliate located in Bryan, Texas, each serving the
Waco-Temple-Bryan, Texas television market and KXII-TV, the CBS affiliate
serving Sherman, Texas and Ada, Oklahoma. Under FCC regulations, KBTX-TV is
operated as a satellite station of KWTX-TV. The stations are collectively
referred to herein as the "Texas Stations."
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Acquisition of The Goshen News
On March 1, 1999, the Company acquired substantially all of the assets
of The Goshen News from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement (the "Goshen Acquisition"). The Goshen News is currently
an 18,000-circulation newspaper published Monday through Sunday and serves
Goshen, Indiana and surrounding areas. The Company financed the acquisition
through borrowings under its Senior Credit Facility.
Busse - WALB Transactions
On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was approximately $126.6 million, less the accreted value of
Busse's 11 5/8 % Senior Secured Notes due 2000 (the "Busse Senior Notes"). The
purchase price of the capital stock consisted of the contractual purchase price
of $112.0 million, associated transaction costs of $3.9 million, acquisition
costs associated with the Busse Senior Notes of $5.1 million and Busse's cash
and cash equivalents of $5.6 million. Immediately following the acquisition of
Busse, the Company exercised its right to satisfy and discharge the Busse Senior
Notes, effectively prefunding the Busse Senior Notes at the October 15, 1998
call price of 106, plus accrued interest. The amount necessary to satisfy and
discharge the Busse Senior Notes was approximately $69.9 million.
Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $72.6 million and estimated
deferred income taxes of approximately $28.3 million in connection with the
exchange of WALB. The Company funded the remaining costs of the acquisition of
Busse's capital stock through borrowings under the Company's Senior Credit
Facility.
As a result of these transactions, the Company acquired the following
television stations: KOLN-TV ("KOLN"), the CBS affiliate serving the
Lincoln-Hastings-Kearney, Nebraska market; its satellite station KGIN-TV
("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and WEAU, an NBC
affiliate serving the La Crosse-Eau Claire, Wisconsin market. These transactions
also satisfied the FCC's requirement for the Company to divest itself of WALB.
These transactions are referred to as the "Busse-WALB Transactions."
WITN Acquisition
In August 1997, the Company acquired substantially all of the assets of
WITN-TV ("WITN"), a NBC affiliate serving the Greenville-New Bern-Washington,
North Carolina market (the "WITN Acquisition"). The purchase price for the WITN
Acquisition was approximately $41.7 million, including fees, expenses, working
capital and other adjustments.
GulfLink Acquisition
In April 1997, the Company acquired all of the issued and outstanding
common stock of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge,
Louisiana (the "GulfLink Acquisition"). The GulfLink operations included nine
transportable satellite uplink trucks. The purchase price for the GulfLink
Acquisition approximated $5.2 million, including fees, expenses, and certain
assumed
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liabilities. Subsequent to the GulfLink Acquisition, certain other satellite
uplink truck operations of the Company were combined with GulfLink and the
operating name was changed to Lynqx Communications.
The First American Acquisition
In September 1996, the Company purchased from First American Media,
Inc. (the "First American Acquisition") substantially all of the assets of two
CBS-affiliated stations, WCTV-TV ("WCTV") serving Tallahassee,
Florida-Thomasville, Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, a
satellite uplink business and a paging business. The purchase price for the
First American Acquisition was approximately $183.9 million, including fees,
expenses, and working capital and other adjustments. Subsequent to the First
American Acquisition, the Company rebranded WKXT with the call letters WVLT
("WVLT').
Augusta Acquisition
In January 1996, the Company acquired substantially all of the assets
of WRDW-TV ("WRDW"), a CBS affiliate serving Augusta, Georgia (the "Augusta
Acquisition"). The purchase price of the Augusta Acquisition was approximately
$37.2 million, including fees, expenses, and certain assumed liabilities.
KTVE Sale
In August 1996, the Company sold the assets of KTVE Inc. ("KTVE"), its
NBC affiliate serving Monroe, Louisiana-El Dorado, Arkansas (the "KTVE Sale")
for approximately $9.5 million in cash plus the amount of accounts receivable on
the date of the closing. The Company recognized a pre-tax gain of approximately
$5.7 million and estimated income taxes of approximately $2.8 million.
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TELEVISION BROADCASTING
The Company's Stations and their Markets
As used in the tables for each of the Company's stations and in this
section (i) "Total Market Revenues" represent gross advertising revenues,
excluding barter revenues, for all commercial television stations in the market,
as reported in Investing in Television 2000 Market Report, Fourth Edition
November 2000 Ratings published by BIA Publications, Inc. (the "BIA Guide"),
except for revenues in WYMT-TV's ("WYMT") 18-county trading area which is not
separately reported in the BIA Guide; (ii) "in-market share of households
viewing television" represents the percentage of the station's audience as a
percentage of all viewing by households in the market from 6 a.m. to 2 a.m.
Sunday through Saturday, including viewing of non-commercial stations, national
cable channels and out-of-market stations broadcast or carried by cable in the
market as reported by Nielsen for November 2000; (iii) "station rank in DMA" is
based on Nielsen estimates for November 2000 for the period from 6 a.m. to 2
a.m. Sunday through Saturday; (iv)"station news rank in DMA" is based on Nielsen
estimates for November 2000, (v) estimates of population, average household
income, effective buying income and retail business sales growth projections are
as reported in the BIA Guide; and (vi) television households are as reported by
Nielsen for November 2000. Designated Market Area is defined herein as "DMA."
Station Total In-Market
Commercial Station News Market Share of
DMA Stations in Rank in Rank in Television Revenues in Households
Station Market Rank(1) DMA(2) DMA DMA Households(3) DMA for 2000 Viewing TV
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(in thousands)
WVLT Knoxville, TN 63 6 2(4) 3 462,000 $77,700 23%
WKYT Lexington, KY 66 6 1 1 424,000 61,500 35
WYMT(5) Hazard, KY 66 N/A 1 1 170,000 5,500 28
KWTX/ Waco - Temple -
KBTX (6) Bryan, TX 94 6 1 1 287,000 29,600 40
KOLN/ Lincoln-Hastings
KGIN (7) -Kearney, NE 101 5 1 1 258,000 29,400 47
WITN Greenville-
New
Bern-Washington, 106 6 2 1 242,000 33,800 31
NC
WCTV Tallahassee, FL-
Thomasville, GA 110 5 1 1 232,000 26,200 57
WRDW Augusta, GA 113 6 1(4) 1 230,000 34,500 34
WEAU La Crosse-
Eau Claire, WI 126 5 1 1 192,000 25,800 37
WJHG Panama City, FL 158 4 1 1 124,000 12,700 46
KXII Sherman, TX -
Ada, OK 161 2 1 1 114,000 8,500 72
(1) Ranking of DMA served by a station among all DMAs is measured by the
number of television households based within the DMA in the November
2000 Nielsen estimates.
(2) Includes independent broadcasting stations and excludes satellite
stations such as KBTX and KGIN.
(3) Based upon the approximate number of television households in the DMA
as reported by Nielsen for November 2000.
(4) Tied in market ranking.
(5) The market area served by WYMT is an 18-county trading area, as defined
by Nielsen, and is included in the Lexington, Kentucky DMA. WYMT's
station rank is based upon its ratings position in the 18-county
trading area.
(6) KBTX is a VHF station located in Bryan, Texas and is operated primarily
as a satellite station of KWTX, which is located in Waco, Texas.
(7) KGIN is a VHF station located in Grand Island, Nebraska and is operated
primarily as a satellite station of KOLN, which is located in Lincoln,
Nebraska.
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The percentage of the Company's total revenues contributed by the
Company's television broadcasting segment was approximately 70.5%, 67.4% and
70.6% for the years ended December 31, 2000, 1999 and 1998, respectively.
In the following description of each of the Company's stations,
information set forth below concerning estimates of population, Total Market
Revenues, average household income, projected effective buying income and
projected retail business sales growth has been derived from the BIA Guide.
Estimates of television households are as reported by Nielsen for November 2000.
WVLT, the CBS affiliate in Knoxville, Tennessee
WVLT, acquired by the Company in September 1996, began operations in
1988. Knoxville, Tennessee is the 63rd DMA in the United States, with
approximately 462,000 television households and a total population of
approximately 1.2 million. Total Market Revenues in the Knoxville DMA in 2000
were approximately $77.7 million. According to the BIA Guide, the average
household income in the Knoxville DMA in 1998 was $37,914, with effective buying
income projected to grow at an annual rate of 5.5% through 2003. Retail business
sales growth in the Knoxville DMA is projected by the BIA Guide to average 5.8%
annually during the same period. The Knoxville DMA has six licensed commercial
television stations, four of which are affiliated with major networks. The
Knoxville DMA also has two public broadcasting stations.
Market Description. The Knoxville DMA, consisting of 22 counties in
eastern Tennessee and southeastern Kentucky, includes the cities of Knoxville,
Oak Ridge and Gatlinburg, Tennessee. The Knoxville area is a center for
education, manufacturing, healthcare and tourism. The University of Tennessee's
main campus with approximately 26,000 students is located within the city of
Knoxville. Leading manufacturing employers in the area include: Lockheed Martin
Energy Systems, Inc., DeRoyal Industries, Aluminum Company of North America,
Phillips Consumer Electronics North America Corp., Clayton Homes and Sea Ray
Boats, Inc.
WKYT, the CBS affiliate in Lexington, Kentucky
WKYT, acquired by the Company in September 1994, began operations in
1957. Lexington, Kentucky is the 66th largest DMA in the United States, with
approximately 424,000 television households and a total population of
approximately 1.1 million. Total Market Revenues in the Lexington DMA in 2000
were approximately $61.5 million. According to the BIA Guide, the average
household income in the Lexington DMA in 1998 was $36,209, with effective buying
income projected to grow at an annual rate of 5.2% through 2003. Retail business
sales growth in the Lexington DMA is projected by the BIA Guide to average 5.2%
annually during the same period. The Lexington DMA has six licensed commercial
television stations, including WYMT, WKYT's sister station, five of which are
affiliated with major networks. The Lexington DMA also has one public television
station.
Market Description. The Lexington DMA consists of 39 counties in
central and eastern Kentucky. The Lexington area is a regional hub for shopping,
business, healthcare, education, and cultural activities and has a comprehensive
transportation network and low commercial utility rates. Major employers in the
Lexington area include Toyota Motor Corp., Lexmark International, Inc., Verizon
Communications Inc., Square D Company, Ashland, Inc., the University of Kentucky
and International Business Machines Corporation. Eight hospitals and numerous
medical clinics are located in Lexington, reinforcing Lexington's position as a
regional medical center. The University of Kentucky's main campus with
approximately 25,000 students is also located in Lexington.
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WYMT, the CBS affiliate in Hazard, Kentucky
WYMT, acquired by the Company in September 1994, began operations in
1985. WYMT has carved out a niche trading area comprising 18 counties in eastern
and southeastern Kentucky. This trading area is a separate marketing area of the
Lexington, Kentucky DMA with approximately 170,000 television households and a
total population of approximately 425,000. WYMT is the only commercial
television station in this 18-county trading area. Total Market Revenues in the
18-county trading area for the year ended December 31, 2000, were approximately
$5.5 million. WYMT is the sister station of WKYT and shares many resources and
simulcasts some local programming with WKYT.
Market Description. The mountain region of eastern and southeastern
Kentucky where Hazard is located is on the outer edges of four separate markets:
Bristol-Kingsport-Johnson City, Charleston-Huntington, Knoxville and Lexington.
Prior to 1985, mountain residents relied primarily on satellite dishes and cable
television carrying distant signals for their television entertainment and news.
Established in 1985, WYMT is the only local broadcast station received in its
18-county trading area and is primarily delivered by 91 separate area cable
systems. The trading area's economy is primarily centered around coal and
related industries, such as natural gas and oil.
KWTX and KBTX, the CBS affiliates in Waco-Temple-Bryan, Texas
KWTX and KBTX, acquired by the Company in October 1999, began
operations in 1955 and 1957, respectively. KWTX is a full power VHF television
station located in Waco, Texas. KBTX is a full power VHF television station
located in Bryan, Texas and, under FCC rules, is operated primarily as a
satellite station to KWTX in order to serve the entire broadcast market.
Waco-Temple-Bryan, Texas is the 94th largest DMA in the United States, with
approximately 287,000 television households and a total population of
approximately 817,000. Total Market Revenues in the Waco-Temple-Bryan DMA in
2000 were approximately $29.6 million. According to the BIA Guide, the average
household income in the Waco-Temple-Bryan DMA in 1998 was $37,557, with
effective buying income projected to grow at an annual rate of 5.2% through
2003. Retail business sales growth in the Waco-Temple-Bryan DMA is projected by
the BIA Guide to average 4.8% annually during the same period. The
Waco-Temple-Bryan DMA has six licensed commercial television stations (excluding
KBTX), five of which are affiliated with major networks. The Waco-Temple-Bryan
DMA also has three public television stations.
Market Description. The Waco-Temple-Bryan DMA consists of 14 counties
covering a large portion of central Texas and the Brazos Valley. The cities of
Waco, Temple, Killeen, Bryan and College Station are the primary economic
centers of the region. College Station, Texas is the home of Texas A&M
University with approximately 45,000 students and Baylor University is located
in Waco, Texas with approximately 13,000 students. The Waco-Temple-Bryan economy
centers on education, medical services and U.S. military installations. Leading
employers in the area include: Texas A&M University, Raytheon, Baylor
University, St. Joseph's Regional Medical Center, Killeen ISD, Scott and White
Hospital and the U.S. Army base at Fort Hood Texas.
KOLN\KGIN, the CBS affiliates in Lincoln-Hastings-Kearney, Nebraska
KOLN and KGIN, acquired by the Company in July 1998, began operations
in 1953 and 1961, respectively. KOLN is a full power VHF television station
located in Lincoln, Nebraska. KGIN is a full power VHF television station
located in Grand Island, Nebraska and, under FCC rules, is operated primarily as
a satellite station to KOLN in order to serve the western portion of the
Lincoln-Hastings-Kearney DMA. Lincoln-Hastings-Kearney, Nebraska is the 101st
largest DMA in the United States, with approximately 258,000 television
households and a total population of approximately 660,000. Total Market
Revenues in the Lincoln-Hastings-Kearney DMA in 2000 were approximately $29.4
million. According to the BIA Guide, the average household income in the
Lincoln-Hastings-Kearney DMA in
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1998 was $41,787, with effective buying income projected to grow at an annual
rate of 4.6% through 2003. Retail business sales growth in the
Lincoln-Hastings-Kearney DMA is projected by the BIA Guide to average 5.2%
annually during the same period. The Lincoln-Hastings-Kearney DMA has five
licensed commercial television stations, all of which are affiliated with major
networks. The Lincoln-Hastings-Kearney DMA also has one public television
station.
Market Description. The Lincoln-Hastings-Kearney DMA consists of 50
counties covering a large portion of the western two thirds of Nebraska and the
northern tier of Kansas. The city of Lincoln is the primary economic center of
the region, the capital of Nebraska and home to the University of Nebraska with
approximately 23,000 students. The Lincoln-Hastings-Kearney economy centers
around state government, education, medical services and agriculture. Leading
employers in the area include: the State of Nebraska, the University of
Nebraska, Gallup Inc., the Lincoln Public School System and several area
hospitals.
WITN, the NBC affiliate in Greenville-New Bern-Washington, North Carolina
WITN, acquired by the Company in August 1997, began operations in 1955.
Greenville-New Bern-Washington, North Carolina is the 106th largest DMA in the
United States, with approximately 242,000 television households and a total
population of approximately 687,000. Total Market Revenues in the Greenville-New
Bern-Washington DMA in 2000 were approximately $33.8 million. According to the
BIA Guide, the average household income in the Greenville-New Bern-Washington
DMA in 1998 was $39,018, with effective buying income projected to grow at an
annual rate of 5.6% through 2003. Retail business sales growth in the
Greenville-New Bern-Washington DMA is projected by the BIA Guide to average 6.1%
annually during the same period. The Greenville-New Bern-Washington DMA has six
licensed commercial television stations, four of which are affiliated with major
networks. The Greenville-New Bern-Washington DMA also has two public television
stations.
Market Description. The Greenville-New Bern-Washington DMA consists of
15 counties in eastern North Carolina. Greenville, North Carolina (located 100
miles east of Raleigh) is the primary economic center of the region and home to
East Carolina University with approximately 18,000 students. The Greenville-New
Bern-Washington economy centers around education, manufacturing and agriculture.
Leading employers in the area include: Pitt County Memorial Hospital, NADEP
(Naval Rework Facility), East Carolina University, Catalytica Pharmaceuticals,
Inc., PCS Phosphate, Rubber Maid Cleaning Products, Inc. and Weyerhaeuser Co.
WCTV, the CBS affiliate in Tallahassee, Florida-Thomasville, Georgia
WCTV, acquired by the Company in September 1996, began operations in
1955. Tallahassee, Florida-Thomasville, Georgia is the 110th largest DMA in the
United States, with approximately 232,000 television households and a total
population of approximately 645,000. Total Market Revenues in the
Tallahassee-Thomasville DMA in 2000 were approximately $26.2 million. According
to the BIA Guide, the average household income in the Tallahassee,
Florida-Thomasville, Georgia DMA in 1998 was $37,489, with effective buying
income projected to grow at an annual rate of 5.1% through 2003. Retail business
sales growth in the Tallahassee, Florida-Thomasville, Georgia DMA is projected
by the BIA Guide to average 5.0% annually during the same period. The
Tallahassee-Thomasville DMA has five licensed commercial television stations,
four of which are affiliated with major networks. The Tallahassee-Thomasville
DMA also has one public television station.
Market Description. The Tallahassee-Thomasville DMA, consisting of 18
counties in the panhandle of Florida and southwest Georgia, includes
Tallahassee, the capital of Florida, and Thomasville, Valdosta and Bainbridge,
Georgia. The Tallahassee-Thomasville economy centers around state and local
government as well as state and local universities which include Florida State
University with
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approximately 33,000 students, Florida A&M University with approximately 12,000
students, Tallahassee Community College, Thomas College and Valdosta State
University. Florida State University and Florida A&M University each have their
main campus located within the city of Tallahassee.
WRDW, the CBS affiliate in Augusta, Georgia
WRDW, acquired by the Company in January 1997, began operations in
1954. Augusta, Georgia is the 113th largest DMA in the United States, with
approximately 230,000 television households and a total population of
approximately 639,000. Total Market Revenues in the Augusta DMA in 2000 were
approximately $34.5 million. According to the BIA Guide, the average household
income in the Augusta DMA in 1998 was $35,341, with effective buying income
projected to grow at an annual rate of 3.7% through 2003. Retail business sales
growth in the Augusta DMA is projected by the BIA Guide to average 3.8% annually
during the same period. The Augusta DMA has six licensed commercial television
stations, four of which are affiliated with a major network. The Augusta DMA
also has two public television stations.
Market Description. The Augusta DMA consists of 19 counties in eastern
Georgia and western South Carolina, including the cities of Augusta, Georgia and
North Augusta and Aiken, South Carolina. The Augusta, Georgia area is one of
Georgia's major metropolitan/regional centers, with a particular emphasis on
health services, manufacturing and the military. The federal government employs
military and civilian personnel at the Department of Energy's Savannah River
Site, a nuclear processing plant, and Fort Gordon, a U.S. Army military
installation. Augusta has eight large hospitals, which collectively employ
approximately 20,000 and reinforce Augusta's status as a regional healthcare
center. Augusta is also home to the Masters Golf Tournament, which has been
broadcast by CBS for 45 years.
WEAU, the NBC affiliate in La Crosse-Eau Claire, Wisconsin
WEAU, acquired by the Company in July 1998, began operations in 1953.
La Crosse-Eau Claire, Wisconsin is the 126th largest DMA in the United States,
with approximately 192,000 television households and a total population of
approximately 516,000. Total Market Revenues in the La Crosse-Eau Claire,
Wisconsin DMA in 2000 were approximately $25.8 million. According to the BIA
Guide, the average household income in the La Crosse-Eau Claire, Wisconsin DMA
in 1998 was $36,348, with effective buying income projected to grow at an annual
rate of 3.8% through 2003. Retail business sales growth in the La Crosse-Eau
Claire, Wisconsin DMA is projected by the BIA Guide to average 5.0% annually
during the same period. The La Crosse-Eau Claire, Wisconsin DMA has five
licensed commercial television stations, four of which are affiliated with major
networks. The La Crosse-Eau Claire, Wisconsin DMA also has one public television
station.
Market Description. The La Crosse-Eau Claire, Wisconsin DMA, consists
of 11 counties in west central Wisconsin and two counties in eastern Minnesota.
The La Crosse and Eau Claire, Wisconsin economy centers around skilled industry,
medical services, agriculture, education and retail businesses. The University
of Wisconsin maintains a 10,000 student campus in Eau Claire. Leading employers
include Hutchinson Technologies, the University of Wisconsin at Eau Claire and
several area hospitals.
WJHG, the NBC affiliate in Panama City, Florida
WJHG, acquired by the Company in 1960, began operations in 1953. Panama
City, Florida is the 158th largest DMA in the United States, with approximately
124,000 television households and a total population of approximately 334,000.
Total Market Revenues in the Panama City DMA in 2000 were approximately $12.7
million. According to the BIA Guide, the average household income in the Panama
City DMA in 1998 was $35,858, with effective buying income projected to grow at
an annual rate of
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5.9% through 2003. Retail business sales growth in the Panama City DMA is
projected by the BIA Guide to average 6.1% annually during the same period. The
Panama City DMA has four licensed commercial television stations, three of which
are affiliated with major networks. In addition, a station in Dothan, Alabama,
an adjacent DMA, provides a CBS signal. The Panama City DMA also has one public
television station.
Market Description. The Panama City DMA consists of nine counties in
northwest Florida. The Panama City market stretches north from Florida's Gulf
Coast to Alabama's southern border. The Panama City economy centers around
tourism, military bases, manufacturing, education and financial services. Panama
City is the county seat and principal city of Bay County. Leading employers in
the area include: Tyndall Air Force Base, the U.S. Navy Coastal Systems Station,
Sallie Mae Servicing Corp., Stone Container Corporation, Arizona Chemical
Corporation and Gulf Coast Community College.
KXII, the CBS affiliate in Sherman, Texas - Ada, Oklahoma
KXII, acquired by the Company in October 1999, began operations in
1956. Sherman, Texas-Ada, Oklahoma is the 161st largest DMA in the United
States, with approximately 114,000 television households and a total population
of approximately 299,000. Total Market Revenues in the Sherman, Texas-Ada,
Oklahoma DMA in 2000 were approximately $8.5 million. According to the BIA
Guide, the average household income in the Sherman, Texas-Ada, Oklahoma DMA in
1998 was $33,692, with effective buying income projected to grow at an annual
rate of 5.2% through 2003. Retail business sales growth in the Sherman,
Texas-Ada, Oklahoma DMA is projected by the BIA Guide to average 4.9% annually
during the same period. The Sherman, Texas-Ada, Oklahoma DMA has two licensed
commercial television stations, both of which are affiliated with major
networks.
Market Description. The Sherman, Texas-Ada, Oklahoma DMA, consists of
one county in north central Texas and 10 counties in south central Oklahoma. The
Sherman, Texas-Ada, Oklahoma economy centers around medical services,
manufacturing and distribution services. Leading employers include Michelin,
MEMC Southwest, Globitech, Raytheon, CIGNA, Johnson & Johnson and Texas
Instruments.
Satellite Transmission and Production Services
The Company's satellite transmission and production services business,
Lynqx Communications, operates C-band and Ku-band transportable satellite uplink
units and provides production management services. Clients include NBC, CBS, ABC
and other broadcast and cable services. Currently Lynqx operates 15 mobile
satellite uplink units, which is one of the largest fleets in service in the
United States.
Industry Background
There are currently a limited number of channels available for
broadcasting in any one geographic area, and the license to operate a television
station is granted by the FCC. Television stations which broadcast over the very
high frequency ("VHF") band (channels 2-13) of the spectrum generally have some
competitive advantage over television stations which broadcast over the
ultra-high frequency ("UHF") band (channels above 13) of the spectrum, because
the former usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the VHF signal advantage.
Television station revenues are primarily derived from local, regional
and national advertising and, to a much lesser extent, from network compensation
and revenues from studio and tower space rental and commercial production
activities. Advertising rates are based upon a variety of factors, including a
program's popularity among the viewers an advertiser wishes to attract, the
number of advertisers
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competing for the available time, the size and demographic makeup of the market
served by the station and the availability of alternative advertising media in
the market area. Rates are also determined by a station's overall ratings and
in-market share, as well as the station's ratings and share among particular
demographic groups, which an advertiser may be targeting. Because broadcast
stations rely on advertising revenues, they are sensitive to cyclical changes in
the economy. The size of advertisers' budgets, which are affected by broad
economic trends, affect the broadcast industry in general and the revenues of
individual broadcast television stations.
All television stations in the country are grouped by Nielsen, a
national audience measuring service, into approximately 210 generally recognized
television markets that are ranked in size according to various formulae based
upon actual or potential audience. Each DMA is an exclusive geographic area
consisting of all counties in which the home-market commercial stations receive
the greatest percentage of total viewing hours. Nielsen periodically publishes
data on estimated audiences for the television stations in the various
television markets throughout the country.
Four major broadcast networks, ABC, NBC, CBS and FOX dominate broadcast
television. Additionally, United Paramount Network ("UPN") and Warner Brothers
Network ("WB") have been launched as additional television networks. An
affiliate of FOX, UPN or WB receives a smaller portion of each day's programming
from its network compared to an affiliate of ABC, NBC or CBS.
The affiliation of a station with ABC, NBC or CBS has a significant
impact on the composition of the station's programming, revenues, expenses and
operations. A typical affiliate of these networks receives the majority of each
day's programming from the network. This programming, along with cash payments
("network compensation"), is provided to the affiliate by the network in
exchange for a substantial majority of the advertising time available for sale
during the airing of network programs. The network then sells this advertising
time and retains the revenues. The affiliate retains the revenues from time sold
during breaks in and between network programs and programs the affiliate
produces or purchases from non-network sources. In acquiring programming to
supplement programming supplied by the affiliated network, the affiliates
compete primarily with other affiliates and independent stations in their
markets. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. In addition, a television station may acquire programming through
barter arrangements. Under barter arrangements, which are becoming increasingly
popular with both network affiliates and independents, a national program
distributor may receive advertising time in exchange for the programming it
supplies, with the station paying a reduced or no fee for such programming. Most
successful commercial television stations obtain their brand identity from
locally produced news programs.
In contrast to a station affiliated with a network, a fully independent
station purchases or produces all of the programming that it broadcasts,
resulting in generally higher programming costs. An independent station,
however, retains its entire inventory of advertising time and all the revenues
obtained therefrom. As a result of the smaller amount of programming provided by
its network, an affiliate of FOX, UPN or WB must purchase or produce a greater
amount of programming, resulting in generally higher programming costs. These
affiliate stations, however, retain a larger portion of the inventory of
advertising time and the revenues obtained therefrom compared to stations
affiliated with the major networks.
Cable-originated programming has emerged as a significant competitor
for viewers of broadcast television programming, although no single cable,
programming network regularly attains audience levels amounting to more than a
small fraction of any single major broadcast network. The advertising share of
cable networks has increased as a result of the growth in cable penetration (the
percentage of television households which are connected to a cable system).
Notwithstanding such increases in cable viewership
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and advertising, over-the-air broadcasting remains the dominant distribution
system for mass-market television advertising.
Network Affiliation of the Stations
Each of the Company's stations is affiliated with a major network
pursuant to an affiliation agreement. Each affiliation agreement provides the
affiliated station with the right to broadcast all programs transmitted by the
network with which the station is affiliated. In return, the network has the
right to sell a substantial majority of the advertising time during such
broadcasts. In exchange for every hour that a station elects to broadcast
network programming, the network pays the station a specific network
compensation fee, which varies with the time of day. Typically, prime-time
programming generates the highest hourly network compensation payments. Such
payments are subject to increase or decrease by the network during the term of
an affiliation agreement with provisions for advance notices and right of
termination by the station in the event of a reduction in such payments. The NBC
affiliation agreement for WJHG expires on January 1, 2002 and NBC has provided
notice to the Company of its intent to renegotiate the agreement. The NBC
affiliation agreements with WITN and WEAU expire on June 30, 2006 and December
31, 2005, respectively and the WEAU agreement renews automatically every five
years unless either party notifies the other of its intention to terminate the
agreement. The CBS affiliation agreements expire as follows: (i) WVLT, WKYT,
WYMT and WCTV, on December 31, 2004, (ii) WRDW on March 31, 2005 and (iii) KWTX,
KBTX, KOLN, KGIN and KXII on December 31, 2005. The CBS affiliation agreements
for KWTX, KBTX and KXII were renegotiated during the fourth quarter of 2000 and
the agreements were extended through December 31, 2005. For the year ended
December 31, 2000, combined network compensation for KWTX, KBTX and KXII was
$2.9 million. As a result of these negotiations, network compensation for KWTX,
KBTX and KXII will be phased out over the next few years. Although network
affiliation agreements have historically been renewed by the Company and the
respective networks, the Company can not guarantee that any agreements will be
renewed in the future under their current terms.
NEWSPAPER PUBLISHING
At December 31, 2000, the Company owned and operated five publications
comprising four daily newspapers and an advertising shopper, located in the
Southeast and Midwest. The percentage of total Company revenues contributed by
the newspaper publishing segment was approximately 24.2%, 26.3% and 22.8% for
each of the years ended December 31, 2000, 1999 and 1998, respectively.
The Albany Herald
The Albany Herald Publishing Company, Inc. ("The Albany Herald"),
located in Albany, Georgia, publishes The Albany Herald, which is a
seven-day-a-week newspaper that serves southwest Georgia. The Albany Herald's
circulation approximates 33,000 Sunday subscribers and 30,000 daily. The Albany
Herald also produces a weekly advertising shopper and other niche publications.
The Rockdale Citizen and the Gwinnett Daily Post
The Rockdale Citizen and the Gwinnett Daily Post are newspapers that
serve communities in the metro Atlanta area with complete local news, sports and
lifestyles coverage together with national stories that directly impact their
local communities.
The Rockdale Citizen/Newton Citizen is published seven days per week
with a circulation of approximately 17,000 subscribers. In 2000, the Company
began publication of The Newton Citizen for distribution into neighboring Newton
County. The Rockdale Citizen is located in Conyers, Georgia, the county seat of
Rockdale County, which is 19 miles east of downtown Atlanta. Rockdale County and
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Newton County's combined population is estimated to be approximately 131,000.
The Sunday edition of the papers commenced in February 2000.
The Gwinnett Daily Post is published Tuesday through Sunday and has a
circulation of approximately 67,000 subscribers. The Gwinnett Daily Post, which
was purchased by the Company in January 1995, is located north of Atlanta in
Gwinnett County, one of the fastest growing areas in the nation with an
estimated population of 699,000. According to Woods and Poole 2000 MSA Profile,
Gwinnett County's population is projected to grow by 25% between 1999 and 2004.
Since the purchase of the Gwinnett Daily Post, the frequency of publication has
increased from three to six days per week.
The Goshen News
The Company acquired The Goshen News on March 1, 1999. It is an 18,000
circulation newspaper published Monday through Sunday and serves Goshen, Indiana
and surrounding areas. The Goshen News also produces a weekly advertising
shopper. Since the Company acquired The Goshen News, it has added a Sunday
edition and converted the Saturday edition to morning delivery.
Industry Background
Newspaper publishing is the oldest segment of the media industry and,
as a result of the focus on local news, newspapers in general, remain an
important media for local advertising. Newspaper advertising revenues are
cyclical and have generally been affected by changes in national and regional
economic conditions. Financial instability in the retail industry, including
bankruptcies of larger retailers and consolidations among large retail chains
can result in reduced retail advertising expenditures. Classified advertising,
which makes up approximately one-third of newspaper advertising expenditures,
can be affected by an economic slowdown and its effect on employment, real
estate transactions and automotive sales. However, growth in housing starts and
automotive sales, although cyclical in nature, generally provide continued
growth in newspaper advertising expenditures.
PAGERS AND PAGING SERVICES
The Paging Business
The paging business, acquired by the Company in September 1996, is
based in Tallahassee, Florida and operates in Columbus, Macon, Albany,
Thomasville, and Valdosta, Georgia, in Dothan, Alabama, in Tallahassee,
Gainesville, Orlando and Panama City, Florida and in certain contiguous areas.
In 2000, the Company's paging operations had approximately 90,000 units in
service compared to approximately 88,000 units in service in 1999. The
percentage of total Company revenues contributed by the paging segment was
approximately 5.3%, 6.3% and 6.6% for the years ended December 31, 2000, 1999
and 1998, respectively.
The Company's paging system operates by connecting a telephone call
placed to a local telephone number with a local paging switch. The paging switch
processes a caller's information and sends the information to a link transmitter
which relays the processed information to paging transmitters, which in turn
alert an individual pager by means of a coded radio signal. This process
provides service to a "local coverage area." To enhance coverage further to its
customer base, all of the Company's local coverage areas are interconnected or
networked, providing for "wide area coverage" or "network coverage." A pager's
coverage area is programmable and can be customized to include or exclude any
particular paging switch and its respective geographic coverage area, thereby
allowing the Company's paging customers a choice of coverage areas. In addition,
the Company is able to network with other paging companies which share the
Company's paging frequencies in other markets, by means of an industry standard
network paging protocol, in order to increase the geographic coverage area in
which the Company's
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customers can receive paging service. During 1999, the Company introduced
services which allow its paging customers to receive electronic mail on their
pagers. In addition, the Company expanded its capability so that individuals may
send text messages via the Internet to the Company's paging customers by
accessing the paging businesses web page.
A subscriber to the Company's paging services either owns a pager,
thereby paying solely for the use of the Company's paging services, or leases a
pager, thereby paying a periodic charge for both the pager and the paging
services. Of the Company's pagers currently in service, approximately 70% are
customer owned and maintained ("COAM") with the remainder being leased. In
recent years, prices for pagers have fallen considerably, and thus there has
been a trend toward subscriber ownership of pagers, allowing the Company to
maintain lower inventory and fixed asset levels. COAM customers historically
stay on service longer, thus enhancing the stability of the subscriber base and
earnings. The Company is focusing its marketing efforts on increasing its base
of COAM users.
Industry Background
Three tiers of carriers have emerged in the paging industry: (i) large
nationwide providers serving multiple markets throughout the United States; (ii)
regional carriers, like the Company's paging business, which operate in regional
markets such as several contiguous states in one geographic region of the United
States; and (iii) small, single market operators.
The paging industry has traditionally marketed its services through
direct distribution by sales representatives. In recent years, additional
channels of distribution have evolved, including: (i) carrier-operated retail
stores; (ii) resellers, who purchase paging services on a wholesale basis from
carriers and resell those services on a retail basis to their own customers; and
(iii) sales agents who solicit customers and are compensated on a salary and
commission basis.
ADDITIONAL INFORMATION ON BUSINESS SEGMENTS
Reference is made to Note J of notes to consolidated financial
statements of the Company for additional information regarding business
segments.
COMPETITION
Television Industry
Competition in the television industry exists on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency.
Audience. Stations compete for audience based on program popularity,
which has a direct effect on advertising rates. A substantial portion of the
daily programming on each of the Company's stations is supplied by the network
affiliate. During those periods, the stations are totally dependent upon the
performance of the network programs to attract viewers. There can be no
assurance that such programming will achieve or maintain satisfactory viewership
levels in the future. Non-network time periods are programmed by the station
with a combination of self-produced news, public affairs and other entertainment
programming, including news and syndicated programs purchased for cash, cash and
barter, or barter only.
In addition, the development of methods of television transmission of
video programming other than over-the-air broadcasting, and in particular, cable
television, has significantly altered competition for audience in the television
industry. These other transmission methods can increase competition for a
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broadcasting station by bringing into its market distant broadcasting signals
not otherwise available to the station's audience and also by serving as a
distribution system for non-broadcast programming. Historically, cable operators
have not sought to compete with broadcast stations for a share of the local news
audience. Recently, however, certain cable operators do compete for such
audiences and the increased competition could have an adverse effect on the
Company's advertising revenues.
Other sources of competition include home entertainment systems,
"wireless cable" services, satellite master antenna television systems, low
power television stations, television translator stations, direct broadcast
satellite ("DBS") video distribution services and the internet.
Programming. Competition for programming involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. Each station competes against the broadcast station
competitors in its market for exclusive access to off-network reruns (such as
Seinfeld) and first-run product (such as Entertainment Tonight). Cable systems
generally do not compete with local stations for programming, although various
national cable networks from time to time have acquired programs that would have
otherwise been offered to local television stations. Competition exists for
exclusive news stories and features as well.
Advertising. Advertising rates are based upon the size of the market in
which the station operates, a station's overall ratings, a program's popularity
among the viewers that an advertiser wishes to attract, the number of
advertisers competing for the available time, the demographic makeup of the
market served by the station, the availability of alternative advertising media
in the market area, aggressive and knowledgeable sales forces and the
development of projects, features and programs that tie advertiser messages to
programming. Advertising revenues comprise the primary source of revenues for
the Company's stations. The Company's stations compete for such advertising
revenues with other television stations and other media in their respective
markets. The stations also compete for advertising revenue with other media,
such as newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for advertising dollars in the broadcasting industry occurs
primarily within individual markets.
Newspaper Industry
The Company's newspapers compete for advertisers with a number of other
media outlets, including magazines, radio, television and the internet, as well
as other newspapers, which also compete for readers with the Company's
publications. One of the Company's newspaper competitors is significantly larger
than the Company and operates in two of its newspaper markets. The Company
differentiates its publications from the other newspaper by focusing on local
news and local sports coverage in order to compete with its larger competitor.
The Company also seeks to establish its publications as the local newspaper by
sponsoring special events of particular community interest.
Paging Industry
The paging industry is highly competitive. Companies in the industry
compete on the basis of price, coverage area offered to subscribers, available
services offered in addition to basic numeric or tone paging, transmission
quality, system reliability and customer service. The Company competes by
maintaining competitive pricing of its product and service offerings, by
providing quality, reliable transmission networks and by furnishing subscribers
a superior level of customer service.
The Company's primary competitors include those paging companies that
provide wireless service in the same geographic areas in which the Company
operates. The Company experiences competition from one or more competitors in
all locations in which it operates. Some of the Company's competitors have
greater financial and other resources than the Company.
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The Company's paging services also compete with other wireless
communications services such as cellular service. The typical customer uses
paging as a low cost wireless communications alternative either on a stand-alone
basis or in conjunction with cellular services. However, future technological
developments in the wireless communications industry and enhancements of current
technology could create new products and services, such as personal
communications services and mobile satellite services, which are competitive
with the paging services currently offered by the Company. Recent and proposed
regulatory changes by the FCC are aimed at encouraging such technological
developments and new services and promoting competition. There can be no
assurance that the Company's paging business would not be adversely affected by
such technological developments or regulatory changes.
FEDERAL REGULATION OF THE COMPANY'S BUSINESS
Television Broadcasting
Existing Regulation. Television broadcasting is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Communications Act") and the Telecommunications Act of 1996 (the
"Telecommunications Act"). The Communications Act prohibits the operation of
television broadcasting stations except under a license issued by the FCC and
empowers the FCC, among other things, to issue, revoke and modify broadcasting
licenses, determine the locations of stations, regulate the equipment used by
stations, adopt regulations to carry out the provisions of the Communications
Act and the Telecommunications Act and impose penalties for violation of such
regulations. The Communications Act prohibits the assignment of a license or the
transfer of control of a licensee without prior approval of the FCC.
License Grant and Renewal. Television broadcasting licenses generally
are granted or renewed for a period of eight years but may be renewed for a
shorter period upon a finding by the FCC that the "public interest, convenience,
and necessity" would be served thereby. The broadcast licenses for each station
are effective through the following dates: WVLT - August 1, 2005; WKYT - August
1, 2005; WYMT- August 1, 2005; KOLN and KGIN - June 1, 2006; WITN - December 1,
2004; WRDW - April 1, 2005; WCTV - April 1, 2005; WEAU - December 1, 2005, WJHG
- - February 1, 2005, KBTX and KWTX - August 1, 2006, and KXII - August 1, 2006.
The Telecommunications Act requires a broadcast license to be renewed if the FCC
finds that: (i) the station has served the public interest, convenience and
necessity; (ii) there have been no serious violations of either the
Telecommunications Act or the FCC's rules and regulations by the licensee; and
(iii) there have been no other violations, which taken together would constitute
a pattern of abuse. At the time an application is made for renewal of a
television license, parties in interest may file petitions to deny, and such
parties, including members of the public, may comment upon the service the
station has provided during the preceding license term and urge denial of the
application. If the FCC finds that the licensee has failed to meet the
above-mentioned requirements, it could deny the renewal application or grant a
conditional approval, including renewal for a lesser term. The FCC will not
consider competing applications contemporaneously with a renewal application.
Only after denying a renewal application can the FCC accept and consider
competing applications for the license. Although in substantially all cases
broadcast licenses are renewed by the FCC even when petitions to deny or
competing applications are filed against broadcast license renewal applications,
there can be no assurance that the Company's stations' licenses will be renewed.
The Company is not aware of any facts or circumstances that could prevent the
renewal of the licenses for its stations at the end of their respective license
terms.
Multiple Ownership Restrictions. Currently, the FCC has rules that
limit the ability of individuals and entities to own or have an ownership
interest above a certain level (an "attributable" interest, as defined more
fully below) in broadcast stations, as well as other mass media entities. The
current rules limit the number of radio and television stations that may be
owned both on a national and a local basis.
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On a national basis, the rules preclude any individual or entity from having an
attributable interest in co-owned television stations whose aggregate audience
reach exceeds 35% of all United States households. Owners of television stations
that have an attributable interest in another TV station in the same Nielsen
Designated Market Area ("DMA"), or that operate a satellite station in the same
market, do not have to include those additional same-market outlets in
calculating its 35% aggregate television audience reach cap. A station owner
with an attributable interest in a station in a separate market (including
time-brokered local marketing agreements ("LMAs") and satellite stations) must
count that additional audience as part of its national aggregate audience.
On a local basis, the FCC recently revised its local market television
ownership rules, permitting station owners to realize the efficiencies of
certain types of common ownership. The FCC currently allows the common ownership
of two television stations without regard to broadcast signal contour overlap if
the stations are in separate DMAs. The FCC continues to allow common ownership
of two stations in the same DMA if their Grade B contours do not overlap.
Entities are permitted to own two television stations with the same DMA if eight
full-power independently owned television stations (commercial and
noncommercial) will remain post-merger, and one of the co-owned stations is not
among the top four-ranked stations in the market based on audience share. The
common ownership of two television stations in the same market with an
overlapping contour is permitted where the same-market licensee is the only
reasonably available buyer and the station purchased is a "failed station"
(either off the air for at least four months prior to the waiver application or
involved in involuntary bankruptcy or insolvency proceedings) or a "failing"
station (having a low audience share and financially struggling during the
previous several years). A waiver of the FCC's ownership restrictions is
possible if the applicants for waiver can show that the combination will result
in the construction of a previously unbuilt station.
The FCC also substantially modified its rules implementing TV-radio
cross-ownership restrictions (the so-called "one-to-a-market" rule). Depending
upon the particular circumstances an entity may own up to two television
stations and six radio stations or one television station and seven radio
stations in a market.
In addition, the Telecommunications Act prohibits common ownership
arrangements among the four largest networks (NBC, CBS, ABC and FOX) or between
them and UPN and WB. The Telecommunications Act also directs the FCC to revise
its rules to permit cross-ownership interests between a broadcast network and
cable system. The Telecommunications Act further authorizes the FCC to consider
revising its rules to permit common ownership of co-located broadcast stations
and cable systems.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Any relaxation of the FCC's ownership
rules may increase the level of competition in one or more of the markets in
which the Company's stations are located, particularly to the extent that the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of
certain types of securities of the Company could violate FCC regulations if that
purchaser owned or acquired an "attributable" or "meaningful" interest in other
media properties in the same areas as stations owned by the Company or in a
manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, uninsulated limited partners and
stockholders who own 5% or more of the voting power of the outstanding common
stock of a licensee (either directly or indirectly), generally will be deemed to
have an "attributable" interest in the licensee. Certain institutional
investors, which exert no control or influence over a licensee, may own up to
20% of the voting power of the outstanding common stock before attribution
occurs.
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The FCC has recently revised its broadcast ownership attribution rules.
The attribution rules define what constitutes a "cognizable interest" for
purposes of applying the ownership rules. The FCC's new attribution rule
includes a new "equity/debt plus" attribution rule that functions in addition to
the current attribution rules. Under the new rule, a holder of a financial
interest, whether equity or debt or both of 33% of licensee's total assets will
have an attributable interest in that licensee if it is either a major program
supplier to that licensee (supplying more than 15% of a station's total weekly
broadcast programming hours) or if it is a same media market entity (including
broadcasters, cable operators and newspapers). All stock, including common and
preferred, voting and nonvoting stock, will be counted toward the 33% threshold.
Time brokerage of another television station in the same market (including
LMAs), for more than 15% of the brokered station's broadcast hours per week will
result in the attribution of the time brokerage arrangement. Except for LMAs,
any interest acquired on or after November 7, 1996, is subject to the FCC's
revised ownership and attribution rules. To the best of the Company's knowledge,
no officer, director or 5% stockholder of the Company currently holds an
attributable interest in another television station, radio station, cable
television system or daily newspaper that is inconsistent with the FCC's
ownership rules and policies or with ownership by the Company of its stations.
Alien Ownership Restrictions. The Communications Act restricts the
ability of foreign entities or individuals to own or hold interests in broadcast
licenses. Foreign governments, representatives of foreign governments,
non-citizens, representatives of non-citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-citizens, collectively, may directly or indirectly own or vote up
to 20% of the capital stock of a licensee. In addition, a broadcast license may
not be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation more than one-fourth of whose capital stock
is owned or voted by non-citizens or their representatives or by foreign
governments or their representatives, or by non-U.S. corporations if the FCC
finds that the public interest will be served by the refusal or revocation of
such license. The Company has been advised that the FCC staff has interpreted
this provision of the Communications Act to require an affirmative public
interest finding before a broadcast license may be granted to or held by any
such corporation and the FCC has made such an affirmative finding only in
limited circumstances. The Company, which serves as a holding company for
wholly-owned subsidiaries that are licensees for its stations, therefore may be
restricted from having more than one-fourth of its stock owned or voted directly
or indirectly by non-citizens, foreign governments, representatives of
non-citizens or foreign governments, or foreign corporations.
Recent Developments. Congress has recently enacted legislation and the
FCC currently has under consideration or is implementing new regulations and
policies regarding a wide variety of matters that could affect, directly or
indirectly, the operation and ownership of the Company's broadcast properties.
In addition to the proposed changes noted above, such matters include, for
example, the license renewal process (particularly the weight to be given to the
expectancy of renewal for an incumbent broadcast licensee and the criteria to be
applied in deciding contested renewal applications), spectrum use fees,
political advertising rates, potential advertising restrictions on the
advertising of certain products (such as hard liquor), the rules and policies to
be applied in enforcing the FCC's equal employment opportunity regulations,
cable carriage of digital television signals, viewing of distant network signals
by direct broadcast satellite services, and the standards to govern evaluation
of television programming directed toward children and violent and indecent
programming (including the possible requirement of what is commonly referred to
as the "v-chip," which permits parents to program television sets so that
certain programming would not be accessible by children). Other matters that
could affect the Company's broadcast properties include technological
innovations and developments generally affecting competition in the mass
communications industry, such as the recent initiation of direct broadcast
satellite service, and the continued establishment of wireless cable systems and
low power television stations.
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In response to a recent decision of the U. S. Court of Appeals, the FCC
has suspended its requirement that licensees widely disseminate information
about job openings to all segments of the community to ensure that all qualified
applicants, including minorities and women, have sufficient opportunities to
compete for jobs in the broadcast industry. It is unknown whether the FCC will
reverse these rules at a future date.
Distribution of Video Services by Telephone Companies. Recent actions
by the FCC, Congress and the courts all presage significant future involvement
in the provision of video services by telephone companies. The Company cannot
predict either the timing or the extent of such involvement or its effect on the
Company.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). The FCC implemented the requirements of the 1992 Cable Act. Certain
statutory provisions, such as signal carriage, retransmission consent and equal
employment opportunity requirements, have a direct effect on television
broadcasting. Other provisions are focused exclusively on the regulation of
cable television but can still be expected to have an indirect effect on the
Company because of the competition between over-the-air television stations and
cable systems.
The signal carriage, or "must carry," provisions of the 1992 Cable Act
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with 12 or fewer usable activated channels and more than 300 subscribers
must carry the signals of at least three local commercial television stations. A
cable system with more than 12 usable activated channels, regardless of the
number of subscribers, must carry the signals of all local commercial television
stations, up to one-third of the aggregate number of usable activated channels
of such system. The 1992 Cable Act also includes a retransmission consent
provision that prohibits cable operators and other multi-channel video
programming distributors from carrying broadcast stations without obtaining
their consent in certain circumstances. The "must carry" and retransmission
consent provisions are related in that a local television broadcaster, on a
cable system-by-cable-system basis, must make a choice once every three years
whether to proceed under the "must carry" rules or to waive that right to
mandatory but uncompensated carriage and negotiate a grant of retransmission
consent to permit the cable system to carry the station's signal, in most cases
in exchange for some form of consideration from the cable operator. Cable
systems must obtain retransmission consent to carry all distant commercial
stations other than certain "super stations" delivered via satellite. Under
rules adopted to implement these "must carry" and retransmission consent
provisions, local television stations are required to make an election of "must
carry" or retransmission consent at three year intervals. Stations that fail to
elect are deemed to have elected carriage under the "must carry" provisions.
Other issues addressed in the FCC rules are market designations, the scope of
retransmission consent and procedural requirements for implementing the signal
carriage provisions. Each of the Company's stations has elected "must carry"
status on certain cable systems in its DMA. On other cable systems the Company's
stations have entered into retransmission consent agreements. This election
entitles the Company's stations to carriage on those systems until at least
December 31, 2002.
Digital Television Service. In December 1996, the FCC formally approved
technical standards for digital advanced television ("DTV"). DTV is a flexible
system that will permit broadcasters to utilize a single digital channel in
various ways, including providing one channel of high-definition television
programming with greatly enhanced image and sound quality or several channels of
lower-definition television programming ("multicasting"), and is capable of
accommodating subscription video and data services. Broadcasters may offer a
combination of services, so long as they transmit at least one stream of free
video programming on the DTV channel. The FCC has assigned to each existing full
power television station (including each station owned by the Company) a second
channel to implement DTV while present television operations are continued on
that station's existing analog channel. Although in
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some cases a station's DTV channel may only permit operation over a smaller
geographic service area than that available using its existing channel, the
FCC's stated goal in assigning channels was to provide stations with DTV service
areas that will replicate their existing service areas. Recently, the FCC
required all stations broadcasting digital signals to replicate their analog
service areas by December 31, 2004, or lose interference protection in the areas
not replicated. The FCC's DTV rules also permit stations to request new channel
assignments and other modifications to their assigned DTV facilities, allowing
them to expand their DTV service areas if certain interference criteria are met.
Under FCC rules and the Balanced Budget Act of 1997, station owners may be
required to surrender one channel in 2006 and thereafter provide service solely
in the DTV format. Generally, under current FCC rules each of the Company's
stations must construct DTV facilities and commence operations by May 2002. The
Company completed its DTV implementation at WRDW, its Augusta, Georgia station,
in early 2000. As of February 21, 2001, the Company has commenced such DTV
construction at KWTX and WEAU, its Waco, Texas and Eau Claire, Wisconsin
stations, respectively. The Company currently intends to complete the necessary
DTV construction at all of its stations by the FCC deadline.
In November 1998, the FCC issued a decision to implement the
requirement of the Telecommunications Act that it charge broadcasters a fee for
offering subscription services on the DTV channel. The FCC decision was to
impose a fee of 5% of the gross revenues generated by such services. The FCC
also is considering whether and how to extend cable systems' obligations for
mandatory carriage of broadcast stations' DTV channels. Finally, the FCC is
considering additional public interest obligations on broadcasters' digital
operations. The FCC has asked for comment on four general categories of issues:
(1) the application of television stations' public interest obligations to the
new flexibility and capabilities of digital television, such as multiple channel
transmission; (2) how television stations could best serve their communities in
terms of providing their viewers information on their public interest
activities, and using digital technology to provide emergency information in new
ways; (3) how DTV broadcasters could increase access to television programming
by people with disabilities, and further the longstanding legislative and
regulatory goals of diversity; and (4) whether broadcasters could enhance the
quality of political discourse through uses of the airwaves for political issues
and debate.
Direct Broadcasting Satellite Systems. The FCC has authorized DBS, a
service which provides video programming via satellite directly to home
subscribers. Congress has enacted the Satellite Home Viewer Improvement Act
("SHVIA") that gives satellite companies the option of providing local broadcast
stations to subscribers living in the station's local market area. This is
referred to as "local-into-local." SHVIA makes the provision of local channels a
choice, not a requirement, for the satellite company. "Local-into-local" means
that if a satellite customer lives in an area where the satellite company has
decided to provide the service, the customer can receive local television
station broadcasts. If the satellite company decides that it will not provide
local broadcast stations in an area, the consumer may still receive local
broadcast stations by using an antenna or basic cable service. SHVIA defines the
"local market" as the DMA. The Company cannot predict the impact of this new
service upon the Company's business.
Paging and SMR
Federal Regulation. The Company's paging and special mobile radio
("SMR") operations, acquired by the Company in September 1996, are subject to
regulation by the FCC under the Communications Act. The FCC has granted the
Company licenses to use the radio frequencies necessary to conduct its paging
and SMR operations.
License Grant and Renewal. The FCC paging and SMR licenses granted to
the Company are for varying terms of up to 10 years, at the end of which renewal
applications must be approved by the FCC. The Company holds various FCC radio
licenses which are used in connection with its paging and SMR operations. The
SMR license expiration dates for these licenses are staggered with only a
portion of the licenses expiring in any particular calendar year. Paging
licenses will expire during calendar year 2009.
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Licensees in the paging and SMR services normally enjoy a license renewal
expectancy and the vast majority of license renewal applications are granted in
the normal course. Although the Company is unaware of any circumstances which
could prevent the grant of renewal applications, no assurance can be given that
any of the Company's licenses will be free of competing applications or will be
renewed by the FCC. Furthermore, the FCC has the authority to restrict the
operations of licensed facilities or to revoke or modify licenses. None of the
Company's licenses have ever been revoked or modified involuntarily, and such
proceedings by the FCC are rarely undertaken.
Pursuant to Congressional mandate, the FCC has adopted rules regarding
the award of license authorizations by competitive bidding. Pursuant to those
rules, the FCC may award licenses for new or existing services by auction, as
done with the 800 MHz and 900 MHz SMR bands. The FCC began awarding geographic
area and paging licenses by auction in February 2000. There can be no assurance
that the Company will be able to procure additional spectrum, or expand its
existing paging and SMR networks into new service areas.
The winner of the geographic area license has the right to use a
certain frequency or block of frequencies throughout the licensed service area,
may construct and operate its transmitters in its authorized service area
without prior FCC approval, provided that the construction of the transmitter
would not constitute a major environmental action under the FCC rules. The
market area licensee is required, however, to protect incumbent licensees from
the potential for harmful co-channel interference. The FCC has completed
auctions to license various radio services on a market area basis including the
800 MHz trunked SMR auction, which concluded in December 1997. In these
auctions, successful bidders have made significant auction payments in order to
obtain spectrum. The Company was a successful bidder for a portion of the
spectrum licenses for the Tallahassee, Florida; Albany and Columbus, Georgia and
Auburn, Alabama Economic Area Markets. The Company received FCC grants of these
market area licenses and subsequently sold such interests to Nextel South
Corporation ("Nextel'). The Company also entered into an option agreement with
Nextel for the purchase and sale of all of its other 800 MHz geographic licenses
covering certain markets in south Georgia and north Florida. If Nextel exercises
its option, prior FCC consent to the proposed transaction is required before the
Company may consummate the sale to Nextel. In such instance, the Company
anticipates that it will obtain the FCC's consent to the transaction in the
normal course, although it is possible a competitor could file a protest against
the transaction. In the event a protest is filed, any grant of the FCC's consent
would be delayed, or could possibly be withheld.
EMPLOYEES
As of March 1, 2001, the Company had 1,284 full-time employees, of
which 863 were employees of the Company's television stations, 349 were
employees of the Company's publications, 57 were employees of the Company's
paging operations and 15 were corporate and administrative personnel. None of
the Company's employees are represented by unions. The Company believes that its
relations with its employees are satisfactory.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located at 4370 Peachtree
Road, NE, Atlanta, Georgia, 30319.
The types of properties required to support television stations include
offices, studios, transmitter sites and antenna sites. A station's studios are
generally housed with its offices in business districts. The transmitter sites
and antenna are generally located in elevated areas to provide optimal signal
strength and coverage. The types of properties required to support newspaper
publishing include offices, facilities for printing presses and production and
storage. Paging properties include leased retail, office and tower space.
The following table sets forth certain information regarding the
Company's significant properties.
TELEVISION BROADCASTING
Station/ Owned or Expiration of Lease
Property Location Use Leased Approximate Size
----------------- --- -------- ---------------- -------------------
WVLT
Knoxville, TN Office and studio Owned 18,000 sq. ft. --
building
Transmission tower site Leased Tower space Month to Month
WKYT
Lexington, KY Office, studio and Owned 34,500 sq. ft. --
transmission tower site building on 20 acres
WYMT
Hazard, KY Office and studio Owned 21,200 sq. ft. --
building on 2 acres
Hazard, KY Transmission tower site Leased -- June 2005
Hazard, KY Transmitter building and
improvements Owned 1,248 sq. ft. building --
KWTX
Waco, TX Office and studio Owned 34,000 sq. ft. --
building on 4 acres
Moody, TX Transmission tower site Owned 27.9 acres --
KBTX
Bryan, TX Office and studio Owned 7,000 sq. ft. building --
on 23.4 acres
Grimes County, TX Transmission tower site Owned 1,300 sq. ft. building
Leased on 560 acres March 2023
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Station/ Owned or Expiration of
Property Location Use Leased Approximate Size Lease
----------------- --- -------- ---------------- -------------
Calvert, TX Transmission tower site Owned 80 sq. ft. building __
and 96 sq. ft.
building on 3.1 acres
Falls County, TX Transmission tower site Owned 128 sq. ft. building ___
on 2 acres
KOLN
Beaver Crossing, NE Transmission tower site Owned 120 acres --
Lincoln, NE Office and studio Owned 28,044 sq. ft. --
building on 5 acres
Bradshaw, NE Transmission tower site Owned 8 acres --
KGIN
Heartwell, NE Transmission tower site Owned 71 acres --
Grand Island, NE Office and studio Leased 5,153 sq. ft. Dec. 2003
WITN
Washington, NC Office and studio Owned 19,600 sq. ft. building --
Grifton, NC Transmitter building Owned 4,190 sq. ft. building --
Grifton, NC Transmission tower site Leased 9 acres Jan. 2029
WCTV
Tallahassee, FL Office and studio Owned 20,000 sq. ft. --
building on
Leased 37 acres Dec. 2014
Metcalf, GA Transmission tower site Owned 182 acres --
WRDW
North Augusta, SC Office and studio Owned 17,000 sq. ft. building --
Transmission tower site Owned 143 acres --
WEAU
Eau Claire, WI Office and studio Owned 16,116 sq. ft. of --
buildings on 2 acres
Township of Fairchild, Transmitter building & Owned with 2,304 sq. ft. building --
WI Transmission tower site easement on 6 acres
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Station/ Owned or Expiration of
Property Location Use Leased Approximate Size Lease
----------------- --- -------- ---------------- -------------
WJHG
Panama City, FL Office and studio Owned 14,000 sq. ft. --
building on 4 acres
Youngstown, FL Transmission tower site Owned 17 acres --
KXII
Sherman, TX Office and studio Owned 12,813 sq. ft. --
building on 3 acres
Madill, OK Transmission tower site Owned 1,200 sq. ft. building --
on 97 acres
Ardmore,OK Studio and offices Owned 3,000 sq. ft. building --
on 1.5 acres
Paris, TX Translator tower site Owned 65 sq. ft. building on --
4.1 acres
Lynqx Communications
Baton Rouge, LA Office and repair site Leased 3,400 sq. ft. Jan. 2003
Tallahassee, FL Office Owned 1,000 sq. ft. --
PUBLISHING
Newspaper/ Owned or Expiration of
Property Location Use Leased Approximate Size Lease
----------------- --- -------- ---------------- -------------
The Albany Herald
Publishing Company,
Inc.,
Albany, GA Offices and production Owned 83,000 sq. ft. --
facility for The Albany building
Herald
Post Citizen Media, Inc.
Conyers, GA Offices for The Rockdale Owned 20,000 sq. ft.
Citizen/The Newton Citizen building
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Newspaper/ Owned or Expiration of Lease
Property Location Use Leased Approximate Size
----------------- --- -------- ---------------- -------------------
Post Citizen Media, Inc.
(Continued)
Conyers, GA Offices and production Leased 20,000 sq. ft. May 2002
facility for The Rockdale building
Citizen/The Newton Citizen
and the Gwinnett Daily Post
Lawrenceville, GA Offices for the Gwinnett Leased 11,000 sq. ft. Month to Month
Daily Post building
Goshen, IN Offices and production Owned 21,000 sq. ft. --
facility for The Goshen News building on 0.6 acres
PAGING
Owned or Expiration of
Property Location Use Leased Approximate Size Lease
----------------- --- -------- ---------------- -------------
Albany, GA Sales Office Leased 1,500 sq. ft. Apr. 2001
Columbus, GA Sales Office Leased 2,200 sq. ft. Dec. 2002
Lumpkin Road Sales Office Leased 2,800 sq. ft. May 2002
Dothan, AL Sales Office Leased 800 sq. ft. Feb. 2002
Macon, GA Sales Office Leased 1,260 sq. ft. Nov. 2001
Tallahassee, FL Sales Office Leased 1,800 sq. ft. Aug. 2002
Tallahassee, FL Gen. and Admin. Office Leased 2,400 sq. ft. Mar. 2002
Thomasville, GA Sales Office Leased 300 sq. ft. June 2002
Valdosta, GA Sales Office Leased 800 sq. ft. Month to Month
Panama City, FL Sales Office Leased 1,050 sq. ft. Month to Month
Gainesville, FL Sales Office Leased 1,100 sq. ft. Month to Month
Orlando, FL Sales Office Leased 2,000 sq. ft. Apr. 2001
The paging operations also lease space on various towers in Florida,
Georgia and Alabama. These tower lease terms range from month-to-month to
expiration dates through 2005.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings in which an adverse
outcome would have a material adverse effect, either individually or in the
aggregate, upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the executive
officers of the Company as of February 28, 2001:
J. MACK ROBINSON, age 77, has been the Company's President and Chief
Executive Officer since 1996. Mr. Robinson has served as Chairman of the Board
of Bull Run Corporation, a principal stockholder of the Company, since 1994,
Chairman of the Board and President of Delta Life Insurance Company and Delta
Fire and Casualty Insurance Company since 1958, President of Atlantic American
Corporation, an insurance holding company, from 1988 until 1995 and Chairman of
the Board of Atlantic American Corporation since 1974. He serves as a director
of the following companies: Bankers Fidelity Life Insurance Company, American
Independent Life Insurance Company, Georgia Casualty & Surety Company, American
Southern Insurance Company and American Safety Insurance Company. He is director
emeritus of Wachovia Corporation. He is the Chairman of the Executive Committee
and a member of the Management Personnel Committee of the Company's Board of
Directors. Mr. Robinson is the husband of Harriett J. Robinson and the
father-in-law of Hilton H. Howell, Jr.
ROBERT S. PRATHER, JR., age 56, has been Executive Vice
President-Acquisitions of the Company since 1996. He has served as President and
Chief Executive Officer and a director of Bull Run Corporation, a principal
stockholder of the Company, since 1992. He serves as a director of Rawlings
Sporting Goods Company, Inc. and The Morgan Group, Inc. He is a member of the
Executive Committee and Management Personnel Committee of the Company's Board of
Directors.
HILTON H. HOWELL, JR., age 39, has been the Company's Executive Vice
President since September 2000. He has served as President and Chief Executive
Officer of Atlantic American Corporation, an insurance holding company, since
1995 and Executive Vice President from 1992 to 1995. He has been Executive Vice
President and General Counsel of Delta Life Insurance Company and Delta Fire and
Casualty Insurance Company since 1991, and Vice Chairman of Bankers Fidelity
Life Insurance Company and Georgia Casualty & Surety Company since 1992. He has
been a director, Vice President and Secretary of Bull Run Corporation, a
principal stockholder of the Company, since 1994. Mr. Howell also serves as a
director of the following companies: Atlantic American Corporation, Bankers
Fidelity Life Insurance Company, Delta Life Insurance Company, Delta Fire and
Casualty Insurance Company, Georgia Casualty & Surety Company, American Southern
Insurance Company, American Safety Insurance Company, Association Casualty
Insurance Company and Association Risk Management General Agency. He is the
son-in-law of J. Mack Robinson and Harriett J. Robinson.
ROBERT A. BEIZER, age 61, has served as Vice President for Law and
Development and Secretary of the Company since 1996. From June 1994 to February
1996 he was of counsel to Venable, Baetjer, Howard & Civiletti, a law firm, in
its regulatory and legislative practice group. From 1990 to 1994, Mr. Beizer was
a partner in the law firm of Sidley & Austin and was head of their
communications practice group in Washington, D.C. He is a past president of the
Federal Communications Bar Association and has served as a member of the ABA
House of Delegates.
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JAMES C. RYAN, age 40, has served as the Company's Vice President and
Chief Financial Officer since October 1998. He was the Chief Financial Officer
of Busse Broadcasting Corporation from 1987 until its acquisition by the Company
in 1998.
THOMAS J. STULTZ, age 49, has served as Vice President of the Company
and President of the Company's Publishing Division since 1996. Prior to joining
the Company, he served as Vice President of Multimedia Newspaper Company, a
division of Multimedia, Inc. from 1988 to 1995, having responsibility for
developing and coordinating Multimedia's newspaper marketing initiatives and
directly supervising several Multimedia daily and non-daily publications.
RAY M. DEAVER, age 60, has served as the Company's Regional Vice
President-Texas since October 1999. He was the President and General Manager of
KWTX Broadcasting Company and President of Brazos Broadcasting Company from
November 1997 until their acquisition by the Company in October 1999. Since
prior to 1995, he was Vice President of KWTX Broadcasting Company and Brazos
Broadcasting Company. He has approximately 39 years of experience in the
broadcast industry. Mr. Deaver is currently the Chairman of the CBS Television
Network Affiliates Advisory Board.
FRANK J. JONAS, age 54, has served as the Company's Regional Vice
President-Midwest since June 2000. He was the President and General Manager of
KOLN/KGIN-TV, Lincoln and Grand Island, Nebraska, since 1985. The Company
acquired KOLN/KGIN-TV in 1998. Mr. Jonas has approximately 28 years of
experience in the broadcast industry.
WAYNE M. MARTIN, age 54, has served as the Company's Regional Vice
President-Television since 1998. In 1998, he was also appointed President of
WVLT-TV, the Company's subsidiary in Knoxville, Tennessee. Since 1993, Mr.
Martin has served as President of Gray Kentucky Television, Inc., a subsidiary
of the Company, which operates WKYT-TV, in Lexington, Kentucky and WYMT-TV, in
Hazard, Kentucky. Mr. Martin has approximately 15 years of experience in the
broadcast industry.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since June 30, 1995, the Company's Class A Common Stock, no par value,
(the "Class A Common Stock') has been listed and traded on The New York Stock
Exchange (the "NYSE") under the symbol "GCS." Since September 24, 1996, the date
of its initial issuance, the Company's Class B Common Stock, no par value, (the
"Class B Common Stock") has also been listed and traded on the NYSE under the
symbol "GCS.B." The following table sets forth the high and low sale prices of
the Class A Common Stock and Class B Common Stock as well as the cash dividend
declared for the periods indicated. The high and low sales prices of the Class A
Common Stock and the Class B Common Stock are as reported by the NYSE.
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------------- -------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
DECLARED DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
-------- -------- -------- -------- -------- ---------
2000
First Quarter $ 18.13 $ 11.75 $ 0.02 $ 13.69 $ 10.75 $ 0.02
Second Quarter 12.38 9.75 0.02 11.75 9.50 0.02
Third Quarter 11.50 9.94 0.02 11.13 9.50 0.02
Fourth Quarter 16.25 11.00 0.02 15.50 10.38 0.02
1999
First Quarter $ 19.38 $ 16.63 $ 0.02 $ 14.81 $ 13.13 $ 0.02
Second Quarter 20.00 15.13 0.02 14.13 12.25 0.02
Third Quarter 20.13 16.69 0.02 15.38 13.25 0.02
Fourth Quarter 18.75 16.94 0.02 14.75 11.63 0.02
As of March 1, 2001, the Company had 6,848,467 outstanding shares of
Class A Common Stock held by approximately 673 stockholders and 8,746,741
outstanding shares of Class B Common Stock held by approximately 754
stockholders. The number of stockholders includes stockholders of record and
individual participants in security position listings as furnished to the
Company pursuant to Rule 17Ad-8 under the Exchange Act.
The Company has paid a dividend on its Class A Common Stock since 1967
and its Class B Common Stock since its initial offering in 1996. In 1996, the
Company amended its Articles of Incorporation to provide that each share of
Class A Common Stock is entitled to 10 votes and each share of Class B Common
Stock is entitled to one vote. The Articles of Incorporation, as amended,
require that the Class A Common Stock and the Class B Common Stock receive
dividends on a pari passu basis. There can be no assurance of the Company's
ability to continue to pay any dividends on either class of Common Stock.
The Senior Credit Facility and the Company's Senior Subordinated Notes
due 2006 (the "Notes") each contain covenants that restrict the ability of the
Company to pay dividends on its capital stock. However, the Company does not
believe that such convenants currently limit its ability to pay dividends at the
recent quarterly rate of $0.02 per share. In addition to the foregoing, the
declaration and payment of dividends on the Class A Common Stock and the Class B
Common Stock are subject to the discretion of the Board of Directors. Any future
payments of dividends will depend on the earnings and financial position of the
Company and such other factors as the Board of Directors deems relevant.
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ITEM 6. SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial
data of the Company. This information should be read in conjunction with the
Company's audited consolidated financial statements and related notes thereto
appearing elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2000 1999(1) 1998(2) 1997(3) 1996(4)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA
Revenues $ 171,213 $ 143,953 $ 128,890 $ 103,548 $ 79,305
Operating income(5) 31,098 22,060 24,927 20,730 16,079
Net income (loss)
before extraordinary charge (6,212) (6,315) 41,659 (1,402) 5,678
Net income (loss) before extraordinary
charge available to common stockholders (7,224) (7,325) 40,342 (2,812) 5,302
Net income (loss) before extraordinary
charge available to common stockholders
per common share(6):
Basic (0.47) (0.57) 3.38 (0.24) 0.65
Diluted (0.47) (0.57) 3.25 (0.24) 0.62
Cash dividends per common share(6) $ 0.08 $ 0.08 $ 0.06 $ 0.05 $ 0.05
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $ 636,772 $ 658,157 $ 468,974 $ 345,051 $ 298,664
Long-term debt (including current portion) 374,887 381,702 270,655 227,076 173,368
Total stockholders' equity $ 155,961 $ 168,188 $ 126,703 $ 92,295 $ 95,226
(1) Reflects the operating results of the Texas Acquisitions, completed
October 1, 1999 and the Goshen Acquisition, completed on March 1, 1999,
as of their respective acquisition dates. See Note B to the Company's
audited consolidated financial statements included elsewhere herein.
(2) Reflects the operating results of the Busse-WALB Transactions as of
July 31, 1998, the closing date of the respective transactions. See
Note B to the Company's audited consolidated financial statements
included elsewhere herein.
(3) Reflects the operating results of the WITN Acquisition and the GulfLink
Acquisition, as of their respective acquisition dates, August 1, 1997
and April 24, 1997, respectively.
(4) In 1996, the Company completed the First American Acquisition, the
Augusta Acquisition and the KTVE Sale. Reflects the operating results
of the properties acquired, as well as the sale of KTVE as of their
respective acquisition, or disposition dates. The Company also incurred
an extraordinary charge of $3,158,960 in connection with an early
extinguishment of debt.
(5) Operating income excludes gain on disposition of television stations of
$72.6 million recognized for the exchange of WALB in 1998 and $5.7
million recognized for the sale of KTVE-TV in 1996. Operating income
also excludes charges relating to valuation adjustments of goodwill and
other assets of $2.1 million for the year ended December 31, 1998.
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(6) On August 20, 1998, the Company's Board of Directors declared a 50%
stock dividend, payable on September 30, 1998, to stockholders of
record of the Class A Common Stock and Class B Common Stock on
September 16, 1998. This stock dividend effected a three for two stock
split. All applicable share and per share data have been adjusted to
give effect to the stock split.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS OF THE COMPANY
Introduction
The following analysis of the financial condition and results of
operations of Gray Communications Systems, Inc. (the "Company") should be read
in conjunction with the Company's audited consolidated financial statements and
notes thereto included elsewhere herein.
As discussed below, the Company has acquired several television
stations and a newspaper since January 1, 1998. The Company's acquisitions have
been accounted for under the purchase method of accounting. Under the purchase
method of accounting, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements as of their
respective acquisition dates. The assets and liabilities of acquired businesses
are included based on an allocation of the purchase price.
1999 Acquisitions
On October 1, 1999, the Company completed its acquisition of all the
outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting
Company, as well as the assets of KXII Broadcasters Ltd. The Company acquired
the capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company
in merger transactions with the shareholders of KWTX Broadcasting Company and
Brazos Broadcasting Company receiving a combination of cash and the Company's
Class B Common Stock for their shares. The Company acquired the assets of KXII
Broadcasters Ltd. in an all cash transaction. These transactions are referred to
herein as the "Texas Acquisitions."
Aggregate consideration (net of cash acquired) paid in the Company's
Class B Common Stock and cash was approximately $146.4 million which included a
base purchase price of $139.0 million, transaction expenses of $2.8 million and
certain net working capital adjustments (excluding cash) of $4.6 million. In
addition to the amount paid, the Company assumed approximately $600,000 in
liabilities in connection with the asset purchase of KXII Broadcasters Ltd. The
Company funded the acquisitions by issuing 3,435,774 shares of the Company's
Class B Common Stock (valued at $49.5 million) to the sellers, borrowing an
additional $94.4 million under its $300.0 million senior bank loan agreement
(the "Senior Credit Facility") and using cash on hand of approximately $2.5
million.
With the Texas Acquisition the Company added the following television
stations to its broadcast segment: KWTX-TV the CBS affiliate located in Waco,
Texas; KBTX-TV the CBS affiliate located in Bryan, Texas, each serving the
Waco-Temple-Bryan, Texas television market and KXII-TV the CBS affiliate serving
Sherman, Texas and Ada, Oklahoma. Under Federal Communications Commission (the
"FCC") regulations, KBTX-TV is operated as a satellite station of KWTX-TV. The
stations are collectively referred to herein as the "Texas Stations."
On March 1, 1999, the Company acquired substantially all of the assets
of The Goshen News from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement (the "Goshen Acquisition"). Based on the allocation of the
purchase price, the excess of the purchase price over the fair value of the net
tangible assets was approximately $14.1 million. The Goshen News is currently an
18,000-circulation newspaper published Monday through Sunday and serves Goshen,
Indiana and surrounding areas. The Company financed the acquisition through
borrowings under its Senior Credit Facility.
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On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was approximately $126.6 million, less the accreted value of
Busse's 11 5/8 % Senior Secured Notes due 2000 (the "Busse Senior Notes"). The
purchase price of the capital stock consisted of the contractual purchase price
of $112.0 million, associated transaction costs of $3.9 million, acquisition
costs associated with the Busse Senior Notes of $5.1 million and Busse's cash
and cash equivalents of $5.6 million. Immediately following the acquisition of
Busse, the Company exercised its right to satisfy and discharge the Busse Senior
Notes, effectively prefunding the Busse Senior Notes at the October 15, 1998
call price of 106 plus accrued interest. The amount necessary to satisfy and
discharge the Busse Senior Notes was approximately $69.9 million. Based on the
final allocation of the purchase price, the excess of the purchase price over
the fair value of net tangible assets acquired was approximately $121.6 million.
Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation ac