UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark one)
[X]
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended March 31, 2004 or |
[ ]
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number 1-13796
Gray Television, Inc.
| Georgia | 58-0285030 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
| 4370 Peachtree Road, NE, Atlanta, Georgia | 30319 | |
| (Address of principal executive offices) | (Zip code) |
(404) 504-9828
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ü] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ü] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
| Common Stock, (No Par Value) | Class A Common Stock, (No Par Value) | |
| 44,237,501 shares outstanding as of April 29, 2004 | 5,830,820 shares outstanding as of April 29, 2004 |
INDEX
GRAY TELEVISION, INC.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAY TELEVISION, INC.
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Assets: |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 24,683 | $ | 11,947 | ||||
Trade accounts receivable, less allowance for doubtful accounts
of $1,032 and $1,145 respectively |
49,585 | 55,215 | ||||||
Inventories |
1,116 | 1,521 | ||||||
Current portion of program broadcast rights, net |
4,977 | 7,487 | ||||||
Other current assets |
3,804 | 1,865 | ||||||
Total current assets |
84,165 | 78,035 | ||||||
Property and equipment: |
||||||||
Land |
17,607 | 17,606 | ||||||
Buildings and improvements |
34,573 | 34,325 | ||||||
Equipment |
189,553 | 186,225 | ||||||
| 241,733 | 238,156 | |||||||
Allowance for depreciation |
(109,948 | ) | (104,197 | ) | ||||
| 131,785 | 133,959 | |||||||
Deferred loan costs, net |
12,644 | 13,112 | ||||||
Broadcast licenses |
925,711 | 925,711 | ||||||
Goodwill |
153,858 | 153,858 | ||||||
Other intangible assets, net |
3,524 | 3,807 | ||||||
Investment in broadcasting company |
13,599 | 13,599 | ||||||
Related party receivable |
1,610 | 1,610 | ||||||
Other |
1,476 | 1,638 | ||||||
| $ | 1,328,372 | $ | 1,325,329 | |||||
See notes to condensed consolidated financial statements.
3
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited)
(in thousands)
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Liabilities and stockholders’ equity: |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 2,867 | $ | 8,134 | ||||
Employee compensation and benefits |
12,275 | 14,195 | ||||||
Accrued interest |
10,364 | 4,040 | ||||||
Other accrued expenses |
3,690 | 4,332 | ||||||
Current portion of program broadcast obligations |
6,507 | 8,976 | ||||||
Acquisition related liabilities |
1,659 | 1,678 | ||||||
Deferred revenue |
2,991 | 3,022 | ||||||
Unrealized loss on derivatives |
197 | 210 | ||||||
Current portion of long-term debt |
107 | 124 | ||||||
Total current liabilities |
40,657 | 44,711 | ||||||
Long-term debt, less current portion |
654,848 | 655,778 | ||||||
Program broadcast obligations, less current portion |
866 | 1,014 | ||||||
Deferred income taxes |
221,220 | 217,666 | ||||||
Other |
3,369 | 4,109 | ||||||
| 920,960 | 923,278 | |||||||
Commitments and contingencies (Note E) |
||||||||
Redeemable Serial Preferred Stock, no par value; cumulative;
convertible; designated 5 shares, issued and outstanding 4
shares ($40,000 aggregate liquidation value) |
39,298 | 39,276 | ||||||
Stockholders’ equity: |
||||||||
Common Stock, no par value; authorized 50,000 shares,
respectively; issued 44,198 and 44,032, respectively |
394,563 | 392,436 | ||||||
Class A Common Stock, no par value; authorized 15,000
shares; issued 7,962 shares, respectively |
15,241 | 15,241 | ||||||
Retained earnings (deficit) |
(14,320 | ) | (17,500 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(113 | ) | (126 | ) | ||||
Unearned compensation |
(1,338 | ) | (1,357 | ) | ||||
| 394,033 | 388,694 | |||||||
Treasury Stock at cost, Common Stock, 12 shares, respectively |
(200 | ) | (200 | ) | ||||
Treasury Stock at cost, Class A Common Stock, 2,131 shares,
respectively |
(25,719 | ) | (25,719 | ) | ||||
| 368,114 | 362,775 | |||||||
| $ | 1,328,372 | $ | 1,325,329 | |||||
See notes to condensed consolidated financial statements.
4
GRAY TELEVISION, INC.
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Operating revenues: |
||||||||
Broadcasting (less agency commissions) |
$ | 61,910 | $ | 52,601 | ||||
Publishing |
10,963 | 10,397 | ||||||
Paging |
1,856 | 1,977 | ||||||
| 74,729 | 64,975 | |||||||
Operating expenses: |
||||||||
Operating expenses before depreciation, amortization
and loss on disposal of assets: |
||||||||
Broadcasting |
37,398 | 34,898 | ||||||
Publishing |
8,049 | 7,755 | ||||||
Paging |
1,353 | 1,469 | ||||||
Corporate and administrative |
2,373 | 2,136 | ||||||
Depreciation |
5,801 | 5,190 | ||||||
Amortization of intangible assets |
283 | 1,862 | ||||||
Amortization of restricted stock awards |
94 | -0- | ||||||
Loss on disposal of assets, net |
4 | 13 | ||||||
Total operating expenses |
55,355 | 53,323 | ||||||
Operating income |
19,374 | 11,652 | ||||||
Miscellaneous income (expense), net |
143 | 78 | ||||||
Interest expense |
(10,461 | ) | (11,270 | ) | ||||
Income before income taxes |
9,056 | 460 | ||||||
Federal and state income tax expense |
3,554 | 289 | ||||||
Net income |
5,502 | 171 | ||||||
Preferred dividends (includes $22 accretion of
issuance costs, respectively) |
822 | 822 | ||||||
Net income (loss) available to common stockholders |
$ | 4,680 | $ | (651 | ) | |||
Basic per share information: |
||||||||
Net income (loss) available to common stockholders |
$ | 0.09 | $ | (0.01 | ) | |||
Weighted average shares outstanding |
49,856 | 50,327 | ||||||
Diluted per share information: |
||||||||
Net income (loss) available to common stockholders |
$ | 0.09 | $ | (0.01 | ) | |||
Weighted average shares outstanding |
50,503 | 50,327 | ||||||
See notes to condensed consolidated financial statements.
5
GRAY TELEVISION, INC.
| Class A | Class A | Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
| Common Stock |
Common Stock |
Retained Earnings |
Treasury Stock |
Treasury Stock |
Other Comprehensive |
Unearned | Total Stockholders’ |
|||||||||||||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
(Deficit) |
Shares |
Amount |
Shares |
Amount |
Income (Loss) |
Compensation |
Equity |
|||||||||||||||||||||||||||||||||||||
Balance at December 31, 2003 |
7,961,574 | $ | 15,241 | 44,032,138 | $ | 392,436 | $ | (17,500 | ) | (2,130,754 | ) | $ | (25,719 | ) | (11,750 | ) | $ | (200 | ) | $ | (126 | ) | $ | (1,357 | ) | $ | 362,775 | |||||||||||||||||||||
Net income |
5,502 | 5,502 | ||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gain on
derivatives, net of
income taxes |
13 | 13 | ||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income |
5,515 | |||||||||||||||||||||||||||||||||||||||||||||||
Common Stock cash dividends
($0.03 per share) |
(1,500 | ) | (1,500 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock dividends |
(822 | ) | (822 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock: |
||||||||||||||||||||||||||||||||||||||||||||||||
401(k) plan |
68,566 | 1,017 | 1,017 | |||||||||||||||||||||||||||||||||||||||||||||
Non-qualified stock plan |
92,500 | 1,034 | 1,034 | |||||||||||||||||||||||||||||||||||||||||||||
Directors’ restricted
stock plan |
5,00 | 76 | (76 | ) | -0- | |||||||||||||||||||||||||||||||||||||||||||
Amortization of unearned
compensation |
95 | 95 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2004 |
7,961,574 | $ | 15,241 | 44,198,204 | $ | 394,563 | $ | (14,320 | ) | (2,130,754 | ) | $ | (25,719 | ) | (11,750 | ) | $ | (200 | ) | $ | (113 | ) | $ | (1,338 | ) | $ | 368,114 | |||||||||||||||||||||
See notes to condensed consolidated financial statements.
6
GRAY TELEVISION, INC.
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Operating activities: |
||||||||
Net income |
$ | 5,502 | $ | 171 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
Depreciation |
5,801 | 5,190 | ||||||
Amortization of intangible assets |
283 | 1,862 | ||||||
Amortization of deferred loan costs |
468 | 426 | ||||||
Amortization of bond discount |
36 | 36 | ||||||
Amortization of restricted stock award |
94 | 21 | ||||||
Amortization of program broadcast rights |
2,756 | 2,693 | ||||||
Payments for program broadcast rights |
(2,697 | ) | (2,404 | ) | ||||
Supplemental employee benefits |
(11 | ) | (18 | ) | ||||
Common Stock contributed to 401(k) Plan |
560 | 868 | ||||||
Deferred income taxes |
3,554 | 374 | ||||||
Loss on disposal of assets |
4 | 13 | ||||||
Changes in operating assets and liabilities: |
||||||||
Receivables, inventories and other current assets |
4,096 | 9,172 | ||||||
Accounts
payable and other current liabilities |
(2,850 | ) | (4,444 | ) | ||||
Accrued Interest |
6,325 | 9,029 | ||||||
Net cash provided by operating activities |
23,921 | 22,989 | ||||||
Investing activities: |
||||||||
Purchases of property and equipment |
(8,230 | ) | (3,730 | ) | ||||
Acquisition of television businesses |
-0- | (600 | ) | |||||
Payments on acquisition related liabilities |
(713 | ) | (5,709 | ) | ||||
Proceeds from sale of assets |
21 | 199 | ||||||
Other |
(14 | ) | (3 | ) | ||||
Net cash used in investing activities |
(8,936 | ) | (9,843 | ) | ||||
Financing activities: |
||||||||
Repayments of borrowings on long-term debt |
(983 | ) | (1,779 | ) | ||||
Deferred loan costs |
-0- | (96 | ) | |||||
Proceeds from (expenses for) issuance of Common Stock |
1,034 | (85 | ) | |||||
Dividends paid |
(2,300 | ) | (1,807 | ) | ||||
Net cash used in financing activities |
(2,249 | ) | (3,767 | ) | ||||
Increase in cash and cash equivalents |
12,736 | 9,379 | ||||||
Cash and cash equivalents at beginning of period |
11,947 | 12,915 | ||||||
Cash and cash equivalents at end of period |
$ | 24,683 | $ | 22,294 | ||||
See notes to condensed consolidated financial statements.
7
GRAY TELEVISION, INC.
NOTE A—BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Gray Television, Inc. (“Gray” or “the Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Stock-Based Compensation
The Company follows the provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, (“APB25”), but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per common share data):
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Net income (loss) available to common stockholders, as reported |
$ | 4,680 | $ | (651 | ) | |||
Add: Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects |
-0- | -0- | ||||||
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects |
(276 | ) | (409 | ) | ||||
Net income (loss) available to common stockholders, pro forma |
$ | 4,404 | $ | (1,060 | ) | |||
Net income (loss) per common share: |
||||||||
Basic, as reported |
$ | 0.09 | $ | (0.01 | ) | |||
Basic, pro forma |
$ | 0.09 | $ | (0.02 | ) | |||
Diluted, as reported |
$ | 0.09 | $ | (0.01 | ) | |||
Diluted, pro forma |
$ | 0.09 | $ | (0.02 | ) | |||
8
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE A—BASIS OF PRESENTATION (Continued)
Earnings Per Share
The Company computes earnings per share in accordance with FASB Statement No. 128, “Earnings Per Share” (“EPS”). The following table reconciles net income to net income available to common stockholders for the three months ended March 31, 2004 and 2003 (in thousands):
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Net income |
$ | 5,502 | $ | 171 | ||||
Preferred dividends |
822 | 822 | ||||||
Net income (loss) available to common stockholders |
$ | 4,680 | $ | (651 | ) | |||
Weighted average shares outstanding – basic |
49,856 | 50,327 | ||||||
Stock options, warrants and restricted stock |
647 | -0- | ||||||
Weighted average shares outstanding - diluted |
50,503 | 50,327 | ||||||
For the three month period ended March 31, 2003, the Company incurred a net loss available to common stockholders. As a result, common stock equivalents related to employee stock-based compensation plans, warrants and the effects of convertible preferred stock that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share as they would have an antidilutive effect for the period. The number of antidilutive common stock equivalents excluded from diluted earnings per share for the respective periods are as follows (in thousands):
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Antidilutive common stock equivalents excluded from diluted earnings per share |
-0- | 94 | ||||||
Reclassifications
Certain prior year amounts in the accompanying condensed consolidated financial statements have been reclassified to conform with the 2004 presentation.
NOTE B—LONG-TERM DEBT
As of March 31, 2004, the balance outstanding and the balance available under the Company’s senior credit facility were $374.0 million and $74.1 million, respectively, and the interest rate on the balance outstanding was 3.64%.
As of March 31, 2004, the Company’s Senior Subordinated Notes due 2011 (the “9¼% Notes”) had a balance outstanding of $278.9 million excluding unamortized discount of $1.1 million.
The 9¼% Notes are jointly and severally guaranteed (the “Subsidiary Guarantees”) by all of the Company’s subsidiaries (the “Subsidiary Guarantors”). The obligations of the Subsidiary Guarantors under the Subsidiary Guarantees is subordinated, to the same extent as the obligations of the Company in respect of the 9¼% Notes, to the prior payment in full of all existing and future senior debt of the Subsidiary Guarantors (which will include any guarantee issued by such Subsidiary Guarantors of any senior debt).
The Company is a holding company with no material independent assets or operations, other than its investment in its subsidiaries. The aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis. The
9
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B—LONG-TERM DEBT (Continued)
Subsidiary Guarantors are, directly or indirectly, wholly owned subsidiaries of the Company and the Subsidiary Guarantees are full, unconditional and joint and several. All of the current and future direct and indirect subsidiaries of the Company are guarantors of the 9¼% Notes. Accordingly, separate financial statements and other disclosures of each of the Subsidiary Guarantors are not presented because the Company has no independent assets or operations, the guarantees are full and unconditional and joint and several and any subsidiaries of the parent company other than the Subsidiary Guarantors are minor. The senior credit facility is collateralized by substantially all of the Company’s existing and hereafter acquired assets except real estate.
NOTE C—RETIREMENT PLANS
The following table provides the components of net periodic benefit cost for the Company’s pension plan for the three months ended March 31, 2004 and 2003 (in thousands):
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Service cost |
$ | 532 | $ | 314 | ||||
Interest cost |
250 | 211 | ||||||
Expected return on plan assets |
(200 | ) | (168 | ) | ||||
Net periodic benefit cost |
$ | 582 | $ | 357 | ||||
The Company previously disclosed in its financial statements for the year ended December 31, 2003 that it expected to contribute $1.6 million to its pension plan in 2004. As of March 31, 2004, no contributions have yet been made to the plan by the Company.
NOTE D—INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing and paging. As of March 31, 2004, the broadcasting segment operates 29 television stations located in the United States. The publishing segment operates five daily newspapers located in Georgia and Indiana. The paging operations are located in Florida, Georgia and Alabama. The following tables present certain financial information concerning the Company’s three operating segments (in thousands):
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Operating revenues: |
||||||||
Broadcasting |
$ | 61,910 | $ | 52,601 | ||||
Publishing |
10,963 | 10,397 | ||||||
Paging |
1,856 | 1,977 | ||||||
| $ | 74,729 | $ | 64,975 | |||||
10
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE D—INFORMATION ON BUSINESS SEGMENTS (Continued)
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Operating income: |
||||||||
Broadcasting |
$ | 16,903 | $ | 9,564 | ||||
Publishing |
2,235 | 1,908 | ||||||