GRAY TELEVISION, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|
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|
þ |
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2005 or
|
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|
o |
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number 1-13796
Gray Television, Inc.
(Exact name of registrant as specified in its charter)
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|
Georgia
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|
58-0285030 |
|
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|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification Number) |
|
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|
4370 Peachtree Road, NE, Atlanta, Georgia
|
|
30319 |
|
|
|
(Address of principal executive offices)
|
|
(Zip code) |
(404) 504-9828
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter periods that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practical date.
|
|
|
Common Stock, (No Par Value) |
|
Class A Common Stock, (No Par Value) |
42,957,777 shares outstanding as
of October 31, 2005
|
|
5,753,020 shares outstanding as of
October 31, 2005 |
INDEX
GRAY TELEVISION, INC.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Assets: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,056 |
|
|
$ |
50,566 |
|
Trade accounts receivable, less allowance for doubtful accounts
of $682 and $947, respectively |
|
|
53,455 |
|
|
|
56,964 |
|
Inventories |
|
|
904 |
|
|
|
1,101 |
|
Current portion of program broadcast rights, net |
|
|
10,291 |
|
|
|
7,679 |
|
Related party receivable |
|
|
1,169 |
|
|
|
1,411 |
|
Other current assets |
|
|
3,448 |
|
|
|
2,188 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
73,323 |
|
|
|
119,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
19,648 |
|
|
|
18,394 |
|
Buildings and improvements |
|
|
40,472 |
|
|
|
37,225 |
|
Equipment |
|
|
225,619 |
|
|
|
200,474 |
|
|
|
|
|
|
|
|
|
|
|
285,739 |
|
|
|
256,093 |
|
Accumulated depreciation |
|
|
(129,091 |
) |
|
|
(113,884 |
) |
|
|
|
|
|
|
|
|
|
|
156,648 |
|
|
|
142,209 |
|
|
|
|
|
|
|
|
|
|
Deferred loan costs, net |
|
|
10,273 |
|
|
|
12,101 |
|
Broadcast licenses |
|
|
934,742 |
|
|
|
926,739 |
|
Goodwill |
|
|
158,378 |
|
|
|
153,858 |
|
Other intangible assets, net |
|
|
2,255 |
|
|
|
2,832 |
|
Investment in broadcasting company |
|
|
13,599 |
|
|
|
13,599 |
|
Other |
|
|
2,965 |
|
|
|
2,222 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,352,183 |
|
|
$ |
1,373,469 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
3
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
3,178 |
|
|
$ |
3,276 |
|
Employee compensation and benefits |
|
|
7,977 |
|
|
|
12,389 |
|
Current portion of accrued pension costs |
|
|
2,766 |
|
|
|
2,685 |
|
Accrued interest |
|
|
6,968 |
|
|
|
4,233 |
|
Other accrued expenses |
|
|
11,286 |
|
|
|
7,710 |
|
Dividends payable |
|
|
-0- |
|
|
|
5,871 |
|
Federal and state income taxes |
|
|
1,699 |
|
|
|
1,063 |
|
Current portion of program broadcast obligations |
|
|
11,988 |
|
|
|
9,225 |
|
Acquisition related liabilities |
|
|
641 |
|
|
|
1,231 |
|
Deferred revenue |
|
|
2,155 |
|
|
|
2,386 |
|
Current portion of long-term debt |
|
|
2,076 |
|
|
|
3,823 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
50,734 |
|
|
|
53,892 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
630,930 |
|
|
|
652,082 |
|
Program broadcast obligations, less current portion |
|
|
986 |
|
|
|
852 |
|
Deferred income taxes |
|
|
246,563 |
|
|
|
242,988 |
|
Other |
|
|
6,567 |
|
|
|
6,415 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
935,780 |
|
|
|
956,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note F) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Serial Preferred Stock, no par value; cumulative;
convertible; designated 5 shares, respectively, issued and outstanding 4
shares, respectively ($39,640 aggregate liquidation value, respectively) |
|
|
39,068 |
|
|
|
39,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common Stock, no par value; authorized 100,000 shares, issued 45,139
shares and 44,787 shares, respectively |
|
|
406,358 |
|
|
|
402,162 |
|
Class A Common Stock, no par value; authorized 15,000
shares; issued 7,332 shares, respectively |
|
|
11,037 |
|
|
|
11,037 |
|
Retained earnings |
|
|
12,048 |
|
|
|
11,669 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(1,414 |
) |
|
|
(1,414 |
) |
Unearned compensation |
|
|
(834 |
) |
|
|
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
427,195 |
|
|
|
422,398 |
|
|
|
|
|
|
|
|
|
|
Treasury Stock at cost, Common Stock, 2,092 shares and 1,693 shares,
respectively |
|
|
(27,461 |
) |
|
|
(21,934 |
) |
Treasury Stock at cost, Class A Common Stock, 1,579 shares
and 1,566 shares, respectively |
|
|
(22,399 |
) |
|
|
(22,227 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
377,335 |
|
|
|
378,237 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,352,183 |
|
|
$ |
1,373,469 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
GRAY
TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcasting (less agency commissions) |
|
$ |
62,281 |
|
|
$ |
73,658 |
|
|
$ |
188,578 |
|
|
$ |
206,802 |
|
Publishing and other |
|
|
12,837 |
|
|
|
12,965 |
|
|
|
39,314 |
|
|
|
38,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,118 |
|
|
|
86,623 |
|
|
|
227,892 |
|
|
|
244,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses before depreciation,
amortization and (gain) loss on disposal of
assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcasting |
|
|
40,019 |
|
|
|
38,311 |
|
|
|
118,298 |
|
|
|
112,762 |
|
Publishing and other |
|
|
9,999 |
|
|
|
9,337 |
|
|
|
29,339 |
|
|
|
27,262 |
|
Corporate and administrative |
|
|
4,672 |
|
|
|
2,884 |
|
|
|
11,400 |
|
|
|
7,420 |
|
Depreciation |
|
|
6,855 |
|
|
|
6,088 |
|
|
|
18,557 |
|
|
|
17,760 |
|
Amortization of intangible assets |
|
|
159 |
|
|
|
232 |
|
|
|
576 |
|
|
|
751 |
|
Amortization of restricted stock awards |
|
|
98 |
|
|
|
134 |
|
|
|
294 |
|
|
|
323 |
|
(Gain) loss on disposal of assets, net |
|
|
(446 |
) |
|
|
17 |
|
|
|
(107 |
) |
|
|
(605 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,356 |
|
|
|
57,003 |
|
|
|
178,357 |
|
|
|
165,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
13,762 |
|
|
|
29,620 |
|
|
|
49,535 |
|
|
|
79,277 |
|
Miscellaneous income, net |
|
|
256 |
|
|
|
193 |
|
|
|
709 |
|
|
|
600 |
|
Interest expense |
|
|
(11,122 |
) |
|
|
(10,418 |
) |
|
|
(33,547 |
) |
|
|
(31,353 |
) |
Loss on early extinguishment of debt |
|
|
-0- |
|
|
|
-0- |
|
|
|
(4,770 |
) |
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2,896 |
|
|
|
19,395 |
|
|
|
11,927 |
|
|
|
48,524 |
|
Income tax expense |
|
|
1,153 |
|
|
|
7,613 |
|
|
|
4,716 |
|
|
|
19,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1,743 |
|
|
|
11,782 |
|
|
|
7,211 |
|
|
|
29,482 |
|
Preferred dividends (includes accretion of
issuance cost of $22, $22, $65 and $65,
respectively) |
|
|
815 |
|
|
|
815 |
|
|
|
2,444 |
|
|
|
2,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
928 |
|
|
$ |
10,967 |
|
|
$ |
4,767 |
|
|
$ |
27,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
0.02 |
|
|
$ |
0.22 |
|
|
$ |
0.10 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,725 |
|
|
|
49,951 |
|
|
|
48,655 |
|
|
|
49,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
0.02 |
|
|
$ |
0.22 |
|
|
$ |
0.10 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
48,920 |
|
|
|
50,322 |
|
|
|
48,939 |
|
|
|
50,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
GRAY TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
(in thousands except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Class A |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Class A |
|
|
Common |
|
|
Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
Earnings |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Unearned |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
(Deficit) |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Compensation |
|
|
Total |
|
|
|
|
Balance at December 31, 2004 |
|
|
7,331,574 |
|
|
$ |
11,037 |
|
|
|
44,786,566 |
|
|
$ |
402,162 |
|
|
$ |
11,669 |
|
|
|
(1,565,754 |
) |
|
$ |
(22,227 |
) |
|
|
(1,693,150 |
) |
|
$ |
(21,934 |
) |
|
$ |
(1,414 |
) |
|
$ |
(1,056 |
) |
|
$ |
378,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
7,211 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
7,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock cash dividends
($0.09) per share |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(4,388 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(4,388 |
) |
Preferred Stock dividends |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,444 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(2,444 |
) |
Issuance of Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
97,531 |
|
|
|
1,251 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,251 |
|
Non-qualified stock plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
250,230 |
|
|
|
2,448 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
2,448 |
|
Directors restricted
stock
plan |
|
|
-0- |
|
|
|
-0- |
|
|
|
5,000 |
|
|
|
72 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(72 |
) |
|
|
-0- |
|
Amortization of unearned
compensation |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
294 |
|
|
|
294 |
|
Purchase of Common Stock |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
(12,800 |
) |
|
|
(172 |
) |
|
|
(398,400 |
) |
|
|
(5,527 |
) |
|
|
-0- |
|
|
|
-0- |
|
|
|
(5,699 |
) |
Income tax benefits relating
to stock plans |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
425 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2005 |
|
|
7,331,574 |
|
|
$ |
11,037 |
|
|
|
45,139,327 |
|
|
$ |
406,358 |
|
|
$ |
12,048 |
|
|
|
(1,578,554 |
) |
|
$ |
(22,399 |
) |
|
|
(2,091,550 |
) |
|
$ |
(27,461 |
) |
|
$ |
(1,414 |
) |
|
$ |
(834 |
) |
|
$ |
377,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,211 |
|
|
$ |
29,482 |
|
Adjustments to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
18,557 |
|
|
|
17,760 |
|
Amortization of intangible assets |
|
|
576 |
|
|
|
751 |
|
Amortization of deferred loan costs |
|
|
1,264 |
|
|
|
1,441 |
|
Amortization of bond discount |
|
|
103 |
|
|
|
108 |
|
Amortization of restricted stock award |
|
|
294 |
|
|
|
323 |
|
Amortization of program broadcast rights |
|
|
8,618 |
|
|
|
8,315 |
|
Write off loan acquisition costs from early extinguishment of debt |
|
|
2,684 |
|
|
|
-0- |
|
Payments on program broadcast obligations |
|
|
(8,572 |
) |
|
|
(8,164 |
) |
Supplemental employee benefits |
|
|
(37 |
) |
|
|
(33 |
) |
Common Stock contributed to 401(k) Plan |
|
|
1,251 |
|
|
|
1,442 |
|
Deferred income taxes |
|
|
3,575 |
|
|
|
17,198 |
|
(Gain) loss on disposal of assets, net |
|
|
(107 |
) |
|
|
(605 |
) |
Other |
|
|
1,454 |
|
|
|
(105 |
) |
Changes in operating assets and liabilities, net of business
acquisitions: |
|
|
|
|
|
|
|
|
Receivables, inventories and other current assets |
|
|
3,343 |
|
|
|
4,088 |
|
Accounts payable and other current liabilities |
|
|
(4,334 |
) |
|
|
1,836 |
|
Accrued interest |
|
|
2,735 |
|
|
|
6,577 |
|
Income taxes payable |
|
|
636 |
|
|
|
2,055 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
39,251 |
|
|
|
82,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Acquisition of television businesses and licenses, net of cash acquired |
|
|
(19,682 |
) |
|
|
(1,054 |
) |
Purchases of property and equipment |
|
|
(26,786 |
) |
|
|
(25,799 |
) |
Payments on acquisition related liabilities |
|
|
(818 |
) |
|
|
(1,517 |
) |
Other |
|
|
2,111 |
|
|
|
1,124 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(45,175 |
) |
|
|
(27,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from borrowings on long-term debt |
|
|
5,938 |
|
|
|
938 |
|
Repayments of borrowings on long-term debt |
|
|
(28,939 |
) |
|
|
(1,060 |
) |
Deferred loan costs |
|
|
(2,121 |
) |
|
|
(819 |
) |
Dividends paid, net of accreted preferred dividend |
|
|
(12,638 |
) |
|
|
(6,898 |
) |
Income tax benefit relating to stock plans |
|
|
425 |
|
|
|
-0- |
|
Proceeds from issuance of common stock |
|
|
2,448 |
|
|
|
1,693 |
|
Purchase of common stock from unrelated parties |
|
|
(5,699 |
) |
|
|
(3,674 |
) |
Purchase of common stock from related party |
|
|
-0- |
|
|
|
(360 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(40,586 |
) |
|
|
(10,180 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(46,510 |
) |
|
|
45,043 |
|
Cash and cash equivalents at beginning of period |
|
|
50,566 |
|
|
|
11,947 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,056 |
|
|
$ |
56,990 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
7
NOTE ABASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Gray Television,
Inc. (Gray, we, us, our 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 statement have been included. Operating results for the three month and nine
month periods ended September 30, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. For further information, refer to the consolidated
financial statements and footnotes thereto included in Grays Annual Report on Form 10-K for the
year ended December 31, 2004.
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
(APB 25), but disclose the pro forma effects on net income 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. Grays pro forma information follows (in thousands,
except per common share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Net income available to common stockholders, as reported |
|
$ |
928 |
|
|
$ |
10,967 |
|
|
$ |
4,767 |
|
|
$ |
27,024 |
|
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects |
|
|
(56 |
) |
|
|
(261 |
) |
|
|
(911 |
) |
|
|
(799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders, pro forma |
|
$ |
872 |
|
|
$ |
10,706 |
|
|
$ |
3,856 |
|
|
$ |
26,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, as reported |
|
$ |
0.02 |
|
|
$ |
0.22 |
|
|
$ |
0.10 |
|
|
$ |
0.54 |
|
Basic, pro forma |
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
$ |
0.08 |
|
|
$ |
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted, as reported |
|
$ |
0.02 |
|
|
$ |
0.22 |
|
|
$ |
0.10 |
|
|
$ |
0.54 |
|
Diluted, pro forma |
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
$ |
0.08 |
|
|
$ |
0.52 |
|
8
NOTE ABASIS OF PRESENTATION (Continued)
Earnings Per Share
Gray computes earnings per share in accordance with FASB Statement No. 128, Earnings Per
Share (EPS). The following table reconciles weighted average shares outstanding basic to
weighted average shares outstanding diluted for the three months and nine months ended September
30, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Weighted average shares outstanding basic |
|
|
48,725 |
|
|
|
49,951 |
|
|
|
48,655 |
|
|
|
49,922 |
|
Stock options, warrants, convertible
preferred stock and restricted stock |
|
|
195 |
|
|
|
371 |
|
|
|
284 |
|
|
|
549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
48,920 |
|
|
|
50,322 |
|
|
|
48,939 |
|
|
|
50,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months and nine months ended September 30, 2005 and 2004, the Company generated
net income; therefore, common stock equivalents related to employee stock-based compensation plans,
warrants and convertible preferred stock were included in the computation of diluted earnings per
share to the extent that their exercise costs and conversion prices exceeded market value. 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 |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Antidilutive common
stock equivalents
excluded from
diluted earnings
per share |
|
|
4,661 |
|
|
|
4,937 |
|
|
|
4,571 |
|
|
|
4,758 |
|
Recent Accounting Pronouncements
Accounting
Changes and Corrections of Errors In May 2005, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard No. 154, (SFAS No. 154),
Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement
No. 20. SFAS No. 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all
voluntary changes in accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions, those provisions should
be followed. SFAS No. 154 is effective for the Company in the first quarter of 2006.
Share-Based Payment In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 123, (revised 2005), Share-Based Payment (SFAS 123(R)), that addresses the
accounting for share-based payment transactions in which an enterprise receives employee services
in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that may be settled by the issuance of such
equity instruments. SFAS 123(R) eliminates the ability to account for share-based compensation
transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and generally would require instead that such
transactions be accounted for using a fair-value-based method. The Company is currently evaluating
SFAS 123(R) to determine which fair-value-based model and transitional provision it will follow
upon adoption. The options for transition methods as prescribed in SFAS 123(R) include either the
modified prospective or the modified retrospective methods. The modified prospective method
requires that compensation expense be recorded for all unvested stock
options and restricted stock as the requisite service is rendered beginning with the first
quarter of adoption, while the modified retrospective method would record compensation expense for
stock options and restricted stock beginning
9
NOTE ABASIS OF PRESENTATION (Continued)
Recent Accounting Pronouncements (Continued)
with the first period restated. Under the modified retrospective method, prior periods may be
restated either as of the beginning of the year of adoption or for all periods presented. SFAS
123(R) will be effective for the Company beginning in its first quarter of fiscal 2006. Although
the Company will continue to evaluate the application of SFAS 123(R), based on options issued and
outstanding at present, the Company expects that the expense will be between $125,000 and $175,000
for the year ended December 31, 2006.
American Jobs Creation Act of 2004 On October 22, 2004, the President signed the American
Jobs Creation Act of 2004 (the Act). The Act provides a deduction for income from qualified
domestic production activities, which will be phased in from 2005 through 2010. The Company is
currently evaluating which of its operations may qualify as qualified domestic production
activities under the Act and thus the financial effect that the Act may or may not have upon the
Company.
Reclassifications
Portions of prior year publishing revenue and expense in the accompanying condensed
consolidated financial statements have been reclassified to conform to the 2005 presentation. For
the three months and nine months ended September 30, 2004, $289,000 and $1,043,000, respectively,
of publishing revenue and expense that was previously recognized separately has been presented on a
net basis. The reclassification does not affect operating income, net income or cash flows.
NOTE BBUSINESS ACQUISITION
WSAZ-TV
On August 22, 2005, Gray announced that it had entered into an agreement with Emmis
Communications Corp. to acquire the assets of WSAZ-TV, the NBC affiliate in Charleston-Huntington,
West Virginia for $186 million. The agreement is subject to certain conditions and regulatory
approval. Gray currently anticipates, but can not assure, that the acquisition will be completed
before December 31, 2005.
In connection with this acquisition, Gray has obtained a financing commitment from Wachovia
Bank, National Association for a senior secured credit facility in an aggregate principal amount of
up to $600 million; a portion of this facility may be used to finance the acquisition of WSAZ-TV.
KKCO-TV
On January 31, 2005, the Company completed its acquisition of KKCO-TV, Channel 11 (KKCO)
from Eagle III Broadcasting, LLC for a purchase price of $13.5 million plus related transaction
costs of $700,000. Total cost was $14.2 million. KKCO, Channel 11 serves the Grand Junction,
Colorado television market and is an NBC affiliate. The Company used a portion of its cash on hand
to fully fund this acquisition.
The acquisition of KKCO has been accounted for under the purchase method of accounting. Under
the purchase method of accounting, the results of operations of the acquired business are included
in the accompanying condensed consolidated financial statements as of its acquisition date. The
identifiable assets and liabilities of the acquired business are recorded at their estimated fair
values with the excess of the purchase price over such identifiable net assets allocated to
goodwill.
The following table summarizes the fair values of the assets acquired and the liabilities assumed
at the date of acquisition for KKCO (in thousands):
10
NOTE BBUSINESS ACQUISITION (Continued)
|
|
|
|
|
|
|
Amount |
|
Accounts receivable |
|
$ |
442 |
|
Current portion of program broadcast rights |
|
|
35 |
|
Other current assets |
|
|
44 |
|
Property and equipment |
|
|
1,111 |
|
Intangible assets not subject to amortization: |
|
|
|
|
Broadcast licenses |
|
|
8,338 |
|
Goodwill |
|
|
4,519 |
|
Trade payables and accrued expenses |
|
|
(251 |
) |
Current portion of program broadcast obligations |
|
|
(35 |
) |
|
|
|
|
Total purchase price including expenses |
|
$ |
14,203 |
|
|
|
|
|
All of the goodwill recorded in association with the acquisition of KKCO is expected to be
deductible for income tax purposes. Broadcast licenses and goodwill are indefinite lived
intangible assets. KKCO contributed revenue of $721,000 and operating income of $55,000 to the
Companys operating results for the three months ended September 30, 2005. KKCO contributed
revenue of $1.9 million and operating income of $148,000 to the Companys operating results for the
nine months ended September 30, 2005.
NOTE CLONG-TERM DEBT
On June 28, 2005, Gray amended its existing senior credit facility. The amended agreement has
a maximum term of seven and one half years and the total amount available under the agreement is
$400 million, consisting of a $100 million revolving facility, a $100 million term loan A facility
and a $200 million term loan B facility. Gray may use the proceeds from the credit facilities for
working capital, capital expenditures made in the ordinary course of business and for certain
investments and acquisitions permitted under the facilities. The amended agreement contains
affirmative and negative covenants that Gray must comply with, including (a) limitations on
additional indebtedness, (b) limitations on liens, (c) limitations on the sale of assets, (d)
limitations on guarantees, (e) limitations on investments and acquisitions, (f) limitations on the
payment of dividends, (g) limitations on mergers, as well as other customary covenants. Also, Gray
must not let its leverage ratio and senior leverage ratio exceed certain maximum limits and Gray
can not let its interest coverage ratio or fixed charge ratio fall below certain minimum limits as
such ratios are defined in the senior credit facility.
Simultaneous with amending its senior credit facility, Gray borrowed $376 million under the
senior credit facility to retire all previous outstanding obligations under its previously existing
senior credit facility. The previous senior credit facility originally provided for borrowing of up
to $450 million, and consisted of a $375 million term facility and a $75 million revolving
facility.
Gray paid out approximately $1.6 million in cash for the amendment of the senior credit
facility and of this amount $1.2 million was capitalized as deferred financing costs which will be
amortized to interest expense over the remaining life of the agreement. The remaining $370,126 was
reported as a loss on early extinguishment of debt. Furthermore, Gray wrote off deferred financing
costs and recognized a loss on early extinguishment of debt in the amount of $1.8 million.
Therefore, the total loss on early extinguishment of debt related to the amendment of the senior
credit facility was $2.2 million.
Grays interest rate is based on the lenders base rate (generally reflecting the lenders
prime rate) plus a specified margin or a London Interbank Offered Rate (LIBOR) plus a specified
margin. The specified margin for revolving and term loan A advances is determined by Grays debt
leverage ratio as defined in the agreement.
11
NOTE CLONG-TERM DEBT (Continued)
|
|
|
|
|
|
|
Range of Applicable Margin |
|
Range of Applicable Margin |
|
|
for Base Rate Advances |
|
for LIBOR Rate Advances |
|
Revolving and term loan A advances |
|
0% to 0.25% |
|
0.75% to 1.5% |
Term loan B advances |
|
0.25% |
|
1.5% |
Gray has elected to borrow these funds under its LIBOR option. The interest rate under this
option is LIBOR plus the current margin of 1.25% for revolving and term loan A advances and a
margin of 1.5% for term loan B advances. The amount outstanding under the senior credit facility
as of September 30, 2005 was $373.5 million and was allocated as follows: revolving loan of $74
million, term loan A of $100 million and term loan B of $199.5 million. As of September 30, 2005,
Gray had $26 million of available credit under the senior credit facility.
On October 28, 2005, Gray further amended the senior credit facility to modify certain
covenants of the agreement to be less restrictive for Gray. The capacity and interest rates of
the agreement remained unchanged. Gray did not incur any fees associated with this amendment.
Effective August 19, 2005, a lender of Gray issued an irrevocable $18.6 million stand by
letter of credit on behalf of Gray in lieu of an earnest money deposit for the pending acquisition
of WSAZ-TV.
During the nine months ended September 30, 2005, Gray repurchased $21.5 million, face amount,
of its Senior Subordinated Notes due 2011 (the 91/4% Notes) in the open market. Associated with
this repurchase, Gray recorded a loss upon early extinguishment of debt of $2.6 million which included a
premium of $2.0 million, the write off of unamortized deferred finance costs of $485,000 and an
unaccreted discount of $74,000. Upon repurchase of Grays 91/4% Notes, Gray paid $749,000 in accrued
interest. Gray used cash on hand of $24.3 million for the repurchase of its 91/4% Notes which
included amounts for the face amount of the 91/4% Notes, premium and accrued interest. As of
September 30, 2005, Grays 91/4% Notes had a balance outstanding of $257.6 million excluding
unaccreted discount of $0.8 million.
The 91/4% Notes are jointly and severally guaranteed (the Subsidiary Guarantees) by all of
Grays subsidiaries (the Subsidiary Guarantors). The obligations of the Subsidiary Guarantors
under the Subsidiary Guarantees is subordinated, to the same extent as the obligations of Gray in
respect of the 91/4% Notes, to the prior payment in full of all existing and future senior debt of
the Subsidiary Guarantors (which will include any guarantee issued by such Subsidiary Guarantors of
any senior debt).
Gray 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 Gray on a consolidated basis. The Subsidiary Guarantors are, directly or indirectly, wholly
owned subsidiaries of Gray and the Subsidiary Guarantees are full, unconditional and joint and
several. All of the current and future direct and indirect subsidiaries of Gray are guarantors of
the 91/4% Notes. Accordingly, separate financial statements and other disclosures of each of the
Subsidiary Guarantors are not presented because Gray 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 Grays existing and hereafter acquired assets except for
real estate and the assets utilized in Grays publishing and paging business.
NOTE DRETIREMENT PLANS
The following table provides the components of net periodic benefit cost for Grays pension
plans for the three and nine months ended September 30, 2005 and 2004, respectively (in thousands):
12
NOTE DRETIREMENT PLANS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Service cost |
|
$ |
733 |
|
|
$ |
546 |
|
|
$ |
2,191 |
|
|
$ |
1,639 |
|
Interest cost |
|
|
325 |
|
|
|
259 |
|
|
|
975 |
|
|
|
776 |
|
Expected return on plan assets |
|
|
(236 |
) |
|
|
(202 |
) |
|
|
(707 |
) |
|
|
(605 |
) |
Loss amortization |
|
|
120 |
|
|
|
14 |
|
|
|
359 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
942 |
|
|
$ |
617 |
|
|
$ |
2,818 |
|
|
$ |
1,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the quarter ended September 30, 2005, Gray contributed $3.7 million to its pension
plans. During the remainder of 2005, Gray expects to contribute an additional $717,000 to its
pension plans.
NOTE EINFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing and paging. As of
September 30, 2005, the broadcasting segment operates 31 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 Grays three operating segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Operating revenues, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcasting |
|
$ |
62,281 |
|
|
$ |
73,658 |
|
|
$ |
188,578 |
|
|
$ |
206,802 |
|
Publishing |
|
|
11,263 |
|
|
|
11,067 |
|
|
|
34,066 |
|
|
|
32,596 |
|
Paging |
|
|
1,574 |
|
|
|
1,898 |
|
|
|
5,248 |
|
|
|
5,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
75,118 |
|
|
$ |
86,623 |
|
|
$ |
227,892 |
|
|
$ |
244,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcasting |
|
$ |
11,705 |
|
|
$ |
26,840 |
|
|
$ |
42,655 |
|
|
$ |
70,933 |
|
Publishing |
|
|
1,696 |
|
|
|
2,487 |
|
|
|
6,087 |
|
|
|
7,501 |
|
Paging |
|
|
361 |
|
|
|
293 |
|
|
|
793 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
13,762 |
|
|
|
29,620 |
|
|
|
49,535 |
|
|
|
79,277 |
|
Miscellaneous income, net |
|
|
256 |
|
|
|
193 |
|
|
|
709 |
|
|
|
600 |
|
Interest expense |
|
|
(11,122 |
) |
|
|
(10,418 |
) |
|
|
(33,547 |
) |
|
|
(31,353 |
) |
Loss on early extinguishment of debt |
|
|
-0- |
|
|
|
-0- |
|
|
|
(4,770 |
) |
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
2,896 |
|
|
$ |
19,395 |
|
|
$ |
11,927 |
|
|
$ |
48,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and administrative expenses as well as amortization of restricted stock are
allocated to operating income based on segment net revenues.
NOTE FCOMMITMENTS AND CONTINGENCIES
Tarzian Litigation
The Company has an equity investment in Sarkes Tarzian, Inc. (Tarzian) representing shares
in Tarzian which were originally held by the estate of Mary Tarzian (the Estate). As described
more fully below, the Companys ownership of the Tarzian shares is subject to certain litigation.
On February 12, 1999, Tarzian filed suit in the United States District Court for the Southern
District of Indiana against U.S. Trust Company of Florida Savings Bank as Personal Representative
of the Estate, claiming that Tarzian had a binding and enforceable contract to purchase the Tarzian
shares from the Estate. On February 3, 2003, the Court
13
NOTE FCOMMITMENTS AND CONTINGENCIES (Continued)
Tarzian Litigation (Continued)
entered judgment on a jury verdict in favor of Tarzian for breach of contract and awarding Tarzian
$4.0 million in damages. The Estate appealed the judgment and the Courts rulings on certain
post-trial motions, and Tarzian cross-appealed. On February 14, 2005, the U.S. Court of Appeals
for the Seventh Circuit issued a decision concluding that no contract was ever created between
Tarzian and the Estate, reversing the judgment of the District Court, and remanding the case to the
District Court with instructions to enter judgment for the Estate. Tarzians petition for
rehearing was denied by the Seventh Circuit Court of Appeals, and on October 3, 2005, the U.S.
Supreme Court denied Tarzians petition for certiorari. Tarzian also filed a motion for a new
trial in the District Court based on the Estates alleged failure to produce certain documents in
discovery, and the District Court denied Tarzians motion. Tarzians appeal of the District
Courts denial of its motion for new trial and entry of final judgment for the Estate is pending
before the Seventh Circuit Court of Appeals. The Company cannot predict when the final resolution
of this litigation will occur.
On March 7, 2003, Tarzian filed suit in the United States District Court for the Northern
District of Georgia against Bull Run Corporation and the Company for tortious interference with
contract and conversion. The lawsuit alleges that Bull Run Corporation and the Company purchased
the Tarzian shares with actual knowledge that Tarzian had a binding agreement to purchase the stock
from the Estate. The lawsuit seeks damages in an amount equal to the liquidation value of the
interest in Tarzian that the stock represents, which Tarzian claims to be as much as $75 million,
as well as attorneys fees, expenses, and punitive damages. The lawsuit also seeks an order
requiring the Company and Bull Run Corporation to turn over the stock certificates to Tarzian and
relinquish all claims to the stock. The stock purchase agreement with the Estate would permit the
Company to make a claim against the Estate in the event that title to the Tarzian Shares is
ultimately awarded to Tarzian. There is no assurance that the Estate would have sufficient assets
to honor any or all of such potential claims. The Company filed its answer to the lawsuit on May
14, 2003 denying any liability for Tarzians claims. On May 27, 2005, the Court issued an Order
administratively closing the case pending resolution of Tarzians lawsuit against the Estate in
Indiana federal court. The Company believes it has meritorious defenses and intends to vigorously
defend the lawsuit. The Company cannot predict when the final resolution of this litigation will
occur.
Related Party Receivable
Through a rights-sharing agreement with Host Communications, Inc. (Host), a wholly owned
subsidiary of Bull Run Corporation (Bull Run), Gray participated jointly with Host in the
marketing, selling and broadcasting of certain collegiate sporting events and in related
programming, production and other associated activities related to the University of Kentucky.
Certain executive officers and significant stockholders of Gray are also executive officers and
significant stockholders of Bull Run Corporation.
The agreement commenced April 1, 2000 and terminated April 15, 2005. Gray shared the profit
or loss from these activities with Host. Under that agreement, in certain circumstances, Gray was
called upon to advance payment directly to the respective collegiate institution for a portion of
certain upfront rights fees. Gray was given credit for any such advance payments when determining
its share of income or loss from these activities. During 2003, Gray paid $1.5 million under this
provision. No similar payments were made during 2004 or 2005. As of September 30, 2005 and
December 31, 2004, Gray had $1.2 million and $1.4 million respectively, recorded as a related party
receivable for payments made in 2003 and earlier years.
Host Commitment
On October 12, 2004, the University of Kentucky jointly awarded a new sports marketing
agreement to Gray and Host. The new agreement commenced April 16, 2005 and has an initial term of
seven years with the option to extend the license for three additional years. Aggregate license
fees to be paid to the University of Kentucky over a full ten year term for the agreement will
approximate $80.5 million. Gray and Host will share equally in the cost of the license fees.
14
NOTE G NEWSPAPER PUBLISHING AND WIRELESS BUSINESS TRANSACTIONS
Plan for Spin-off of Our Newspaper Publishing and Wireless Businesses
On August 2, 2005, Gray announced that our board of directors approved a plan to spin off our
newspaper publishing business and our paging business to our shareholders, which will result in a
newly created and separately traded public company named Triple Crown Media, Inc. (TCM). We
expect that as a result of the spin-off, both Gray and TCM will be better able to focus financial
and operational resources on their own business and executing their own strategic plan. In
addition, we believe that both Gray and TCM will have greater strategic and financial flexibility
to support future growth opportunities.
We currently conduct our newspaper publishing business and wireless business through our
subsidiary Gray Publishing, LLC and its subsidiaries. Under the proposed spin-off, we will
contribute all of the membership interests of Gray Publishing, LLC and certain other assets to TCM.
We will then distribute 100% of TCMs common stock pro rata as a dividend to our stockholders.
Upon completion of the spin-off, each common shareholder of Gray will receive as a dividend one
share of common stock of TCM for every 10 shares of Gray common stock and for every 10 shares of
Gray Class A common stock. No stockholder vote will be required to effect the spin-off, and no
consideration will be required to be paid by our shareholders in order to receive the shares of
common stock of TCM. On the date of the spin-off, TCM will distribute $40 million to us, which we
intend to use to reduce our outstanding indebtedness. TCM will also be obligated to distribute
cash to Gray for approximately 75% of the professional service costs and expenses incurred by Gray
related to the spin-off transactions.
Planned Merger of Spun-off Company with Bull Run Corporation
On August 2, 2005, Gray also announced that TCM, BR Acquisition Corp., which is a wholly owned
subsidiary of TCM, and Bull Run have entered into an agreement and plan of merger, pursuant to
which Bull Run will be merged with and into BR Acquisition Corp. immediately following our spin-off
of TCM. In the merger, each Bull Run shareholder will receive 0.0289 shares of TCM common stock
for each share of Bull Run common stock owned. In the merger, Bull Run preferred stock held by
non-affiliated holders will be redeemed for its current redemption value. Holders of preferred
stock and other loans to Bull Run who are affiliates of Bull Run, including J. Mack Robinson, our
current Chairman and Chief Executive Officer and Chairman of the Board of Bull Run, will receive
shares of TCM common stock in exchange for shares of Bull Run series F preferred stock and accrued
and unpaid dividends thereon; shares of TCM series A preferred stock in exchange for shares of Bull
Run series D and series E preferred stocks and accrued and unpaid dividends thereon; and shares of
TCM series B preferred stock in exchange for cash previously advanced to Bull Run. The agreement is
subject to certain closing conditions, including an affirmative vote of Bull Runs shareholders.
On a combined basis, after the merger, current shareholders of Gray will own approximately 95% of
the outstanding common stock of TCM and certain holders of Bull Run preferred stock and current
holders of Bull Run common stock will hold the remaining 5%. TCM has received a long-term financing
commitment from bank lenders that will accommodate the payment of the distribution to us and the
refinancing of all of Bull Runs bank and subordinated indebtedness. Bull Runs common stock is
traded on the Pink Sheets centralized quotation service for OTC securities under the symbol
BULL.PK.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Introduction
The following analysis of the financial condition and results of operations of Gray
Television, Inc. (the Company or Gray) should be read in conjunction with Grays financial
statements contained in this report and in Grays Form 10-K for the year ended December 31, 2004.
Overview
The Company derives its revenues primarily from its television broadcasting operations and to
a lesser extent, from its newspaper publishing and paging operations. The operating revenues of the
Companys television stations are derived from broadcast advertising revenues and, to a much lesser
extent, from ancillary services such as production of commercials and tower rentals as well as
compensation paid by the networks to the stations for broadcasting network programming. The
operating revenues of the Companys newspaper publishing operations are derived from advertising,
circulation and classified revenue. Paging revenue is derived primarily from the sale of pagers,
cellular telephones and related services. Certain information concerning the relative contributions
of the Companys television broadcasting, publishing and paging operations is provided in Note E.
Information on Business Segments to the Companys unaudited consolidated financial statements
included elsewhere herein.
In the Companys broadcasting operations, broadcast advertising is sold for placement either
preceding or following a television stations network programming and within local and syndicated
programming. Broadcast advertising is sold in time increments and is priced primarily on the basis
of a programs popularity among the specific audience an advertiser desires to reach, as measured
by Nielsen. In addition, broadcast advertising rates are affected by the number of advertisers
competing for the available time, the size and demographic makeup of the market served by the
station and the availability of alternative advertising media in the market area. Broadcast
advertising rates are the highest during the most desirable viewing hours, with corresponding
reductions during other hours. The ratings of a local station affiliated with a major network can
be affected by ratings of network programming.
Most broadcast advertising contracts are short-term, and generally run only for a few weeks.
Approximately 67% of the net revenues of the Companys television stations for the nine months
ended September 30, 2005 were generated from local advertising, which is sold primarily by a
stations sales staff directly to local accounts, and the remainder represented primarily by
national advertising, which is sold by a stations national advertising sales representative. The
stations generally pay commissions to advertising agencies on local, regional, and national
advertising and the stations also pay commissions to the national sales representative on national
advertising.
Broadcast advertising revenues are generally highest in the second and fourth quarters each
year, due in part to increases in consumer advertising in the spring and retail advertising in the
period leading up to and including the holiday season. In addition, broadcast advertising revenues
are generally higher during even numbered years due to spending by political candidates, which
spending typically is heaviest during the fourth quarter. The Company received significant
political advertising revenue during the prior year.
The Companys publishing operations advertising contracts are generally entered into annually
and provide for a commitment as to the volume of advertising to be purchased by an advertiser
during the year. The publishing operations advertising revenues are primarily generated from
local advertising and are generally highest in the second and fourth quarters of each year.
The Companys paging subscribers either own pagers, thereby paying solely for the use of the
Companys paging services, or lease pagers, thereby paying a periodic charge for both the pagers
and the paging services. The terms of the lease contracts are month-to-month, three months, six
months or twelve-months in duration. Paging revenues are generally equally distributed throughout
the year.
16
The broadcasting operations primary operating expenses are employee compensation, related
benefits, and programming costs. The publishing operations primary operating expenses are
employee compensation, related benefits, and newsprint costs. The paging operations primary
operating expenses are employee compensation and communications costs. In addition, the
broadcasting, publishing and paging operations incur overhead expenses, such as maintenance,
supplies, insurance, rent and utilities. A large portion of the operating expenses of the
broadcasting, publishing and paging operations is fixed, although the Company has experienced
significant variability in its newsprint costs in recent years.
Plan for Spin-off of Our Newspaper Publishing and Wireless Businesses
On August 2, 2005, Gray announced that our board of directors approved a plan to spin off our
newspaper publishing business and our paging business to our shareholders, which will result in a
newly created and separately traded public company named Triple Crown Media, Inc. (TCM). We
expect that as a result of the spin-off, both Gray and TCM will be better able to focus financial
and operational resources on their own business and executing their own strategic plan. In
addition, we believe that both Gray and TCM will have greater strategic and financial flexibility
to support future growth opportunities.
We currently conduct our newspaper publishing business and wireless business through our
subsidiary Gray Publishing, LLC and its subsidiaries. Under the proposed spin-off, we will
contribute all of the membership interests of Gray Publishing, LLC and certain other assets to TCM.
We will then distribute 100% of TCMs common stock pro rata as a dividend to our stockholders.
Upon completion of the spin-off, each common shareholder of Gray will receive as a dividend one
share of common stock of TCM for every 10 shares of Gray common stock and for every 10 shares of
Gray Class A common stock. No stockholder vote will be required to effect the spin-off, and no
consideration will be required to be paid by our shareholders in order to receive the shares of
common stock of TCM. On the date of the spin-off, TCM will distribute $40 million to us, which we
intend to use to reduce our outstanding indebtedness. TCM will also be obligated to distribute
cash to Gray for approximately 75% of the professional service costs and expenses incurred by Gray
related to the spin-off transactions.
Planned Merger of Spun-off Company with Bull Run Corporation
On August 2, 2005, Gray also announced that TCM, BR Acquisition Corp., which is a wholly owned
subsidiary of TCM, and Bull Run have entered into an agreement and plan of merger, pursuant to
which Bull Run will be merged with and into BR Acquisition Corp. immediately following our spin-off
of TCM. In the merger, each Bull Run shareholder will receive 0.0289 shares of TCM common stock
for each share of Bull Run common stock owned. In the merger, Bull Run preferred stock held by
non-affiliated holders will be redeemed for its current redemption value. Holders of preferred
stock and other loans to Bull Run who are affiliates of Bull Run, including J. Mack Robinson, our
current Chairman and Chief Executive Officer and Chairman of the Board of Bull Run, will receive
shares of TCM common stock in exchange for shares of Bull Run series F preferred stock and accrued
and unpaid dividends thereon; shares of TCM series A preferred stock in exchange for shares of Bull
Run series D and series E preferred stocks and accrued and unpaid dividends thereon; and shares of
TCM series B preferred stock in exchange for cash previously advanced to Bull Run. The agreement is
subject to certain closing conditions, including an affirmative vote of Bull Runs shareholders.
On a combined basis, after the merger, current shareholders of Gray will own approximately 95% of
the outstanding common stock of TCM and certain holders of Bull Run preferred stock and current
holders of Bull Run common stock will hold the remaining 5%. TCM has received a long-term financing
commitment from bank lenders that will accommodate the payment of the distribution to us and the
refinancing of all of Bull Runs bank and subordinated indebtedness. Bull Runs common stock is
traded on the Pink Sheets centralized quotation service for OTC securities under the symbol
BULL.PK.
Acquisition of KKCO-TV
On January 31, 2005, the Company completed its acquisition of KKCO-TV, Channel 11 (KKCO)
from Eagle III Broadcasting, LLC for a purchase price of $13.5 million plus related transaction
costs of $700,000. Total cost was $14.2 million. KKCO, Channel 11 serves the Grand Junction,
Colorado television market and is an NBC affiliate. The Company used a portion of its cash on hand
to fully fund this acquisition.
Broadcasting, Publishing and Paging Revenues
17
Set forth below are the principal types of revenues earned by Grays broadcasting, publishing
and paging operations for the periods indicated and the percentage contribution of each to Grays
total revenues (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Broadcasting net
revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
$ |
41,869 |
|
|
|
55.7 |
% |
|
$ |
39,064 |
|
|
|
45.1 |
% |
|
$ |
125,992 |
|
|
|
55.3 |
% |
|
$ |
118,442 |
|
|
|
48.4 |
% |
National |
|
|
17,201 |
|
|
|
22.9 |
|
|
|
17,872 |
|
|
|
20.6 |
|
|
|
51,266 |
|
|
|
22.5 |
|
|
|
52,918 |
|
|
|
21.6 |
|
Network compensation |
|
|
986 |
|
|
|
1.3 |
|
|
|
2,423 |
|
|
|
2.8 |
|
|
|
4,036 |
|
|
|
1.8 |
|
|
|
7,335 |
|
|
|
3.0 |
|
Political |
|
|
448 |
|
|
|
0.6 |
|
|
|
11,967 |
|
|
|
13.8 |
|
|
|
1,429 |
|
|
|
0.6 |
|
|
|
20,923 |
|
|
|
8.5 |
|
Production and other |
|
|
1,777 |
|
|
|
2.4 |
|
|
|
2,332 |
|
|
|
2.7 |
|
|
|
5,855 |
|
|
|
2.6 |
|
|
|
7,184 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
62,281 |
|
|
|
82.9 |
% |
|
$ |
73,658 |
|
|
|
85.0 |
% |
|
$ |
188,578 |
|
|
|
82.8 |
% |
|
$ |
206,802 |
|
|
|
84.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing and other
net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
6,075 |
|
|
|
8.1 |
% |
|
$ |
5,804 |
|
|
|
6.7 |
% |
|
$ |
18,327 |
|
|
|
8.0 |
% |
|
$ |
17,316 |
|
|
|
7.1 |
% |
Classified |
|
|
3,559 |
|
|
|
4.7 |
|
|
|
3,546 |
|
|
|
4.1 |
|
|
|
10,691 |
|
|
|
4.7 |
|
|
|
10,041 |
|
|
|
4.1 |
|
Circulation |
|
|
1,370 |
|
|
|
1.8 |
|
|
|
1,490 |
|
|
|
1.7 |
|
|
|
4,143 |
|
|
|
1.8 |
|
|
|
4,552 |
|
|
|
1.8 |
|
Paging lease, sales
and service |
|
|
1,574 |
|
|
|
2.1 |
|
|
|
1,898 |
|
|
|
2.2 |
|
|
|
5,248 |
|
|
|
2.3 |
|
|
|
5,552 |
|
|
|
2.3 |
|
Other |
|
|
259 |
|
|
|
0.4 |
|
|
|
227 |
|
|
|
0.3 |
|
|
|
905 |
|
|
|
0.4 |
|
|
|
687 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,837 |
|
|
|
17.1 |
% |
|
$ |
12,965 |
|
|
|
15.0 |
% |
|
$ |
39,314 |
|
|
|
17.2 |
% |
|
$ |
38,148 |
|
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,118 |
|
|
|
100.0 |
% |
|
$ |
86,623 |
|
|
|
100.0 |
% |
|
$ |
227,892 |
|
|
|
100.0 |
% |
|
$ |
244,950 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Three Months Ended September 30, 2005 Compared To Three Months Ended September 30, 2004
Revenues. Total revenues for the three months ended September 30, 2005 decreased 13% to $75.1
million as compared to the same period of the prior year.
|
|
|
Local broadcasting advertising revenues, excluding political advertising revenues,
increased 7% to $41.9 million from $39.1 million. Approximately 32%, or $885,000, of this
increase is attributable to results from Grays launch of six UPN second channels in six of
its existing television markets since June 30, 2004, results of WCAV, Charlottesville, VA
which began operations in August 2004 and the acquisition of KKCO on January 31, 2005. We
attribute the remaining increase in non-political local broadcasting advertising revenues
primarily to a moderate increase in demand for commercial time by local advertisers.
National broadcasting advertising revenues decreased 4% to $17.2 million from $17.9
million. The decrease in national broadcasting advertising revenues was due to decreased
demand from multiple categories of national advertising customers. Political advertising
revenues decreased to $448,000 from $12.0 million reflecting the cyclical influence of the
2004 Presidential election. In addition, in the 2004
period Gray recorded approximately $3.1 million of broadcast revenue associated with the
broadcast of the 2004 Summer Olympics. There were no such similar Olympic broadcast in the
current year. Network compensation revenue decreased 59% to $1.0 million from $2.4 million
due to lower revenue from renewed network affiliation agreements. Total broadcasting
revenues decreased 15% to $62.3 million. The decrease in total broadcasting revenues
reflects decreased political advertising revenues, Olympic broadcast revenues, network
compensation and national advertising revenue partially offset by increased non-political
local broadcasting advertising revenues as discussed above. |
18
|
|
|
Publishing and other revenues consists primarily of Grays newspaper publishing and
paging operations. Total publishing and other revenues decreased 1%. Publishing revenues
increased 2% to $11.3 million from $11.1 million. Publishing retail advertising increased
5% to $6.1 million from $5.8 million due primarily to growth at the Gwinnett Daily Post due
to the expansion of its Sunday newspaper. Publishing circulation revenue decreased 8% to
$1.4 million from $1.5 million. Paging revenues decreased 17% to $1.6 million from $1.9
million. The Company had approximately 34,000 and 45,000 units in service at September 30,
2005 and 2004, respectively. The number of units in service decreased due to increased
competition from other communication services and products such as cellular telephones.
Competition from these products is expected to continue in the future. |
Operating expenses. Operating expenses increased 8% to $61.4 million from $57.0 million in
the same period of the prior year.
|
|
|
Broadcasting expenses, before depreciation, amortization and loss on disposal of assets
increased 4% to $40.0 million from $38.3 million. Approximately 72%, or $1.2 million, of
this increase is attributable to operating expenses relating to Grays launch of six UPN
second channels in six of its existing television markets since June 30, 2004, expenses of
WCAV, Charlottesville, VA which began operations in August 2004 and expenses of KKCO,
acquired on January 31, 2005, offset, in part, by the sale of the Companys satellite
uplink operations on December 31, 2004. We attribute the remaining increase to routine
increases in payroll and benefits costs. |
|
|
|
|
Publishing and other expenses including paging expense, before depreciation,
amortization and loss on disposal of assets, increased 7% to $10.0 million from $9.3
million. The increase in expense was primarily due to increased transportation, payroll
and other professional services expenses of the publishing operations reflecting expanded
deliveries of the Sunday edition of the Gwinnett Daily Post. |
|
|
|
|
Corporate and administrative expenses, before depreciation, amortization and loss on
disposal of assets increased 62% to $4.7 million in the three months ended September 30,
2005 as compared to $2.9 million for the same period in 2004. Legal and other professional
service fees increased approximately $1.7 million over the third quarter of 2004. Of this
increase, $1.6 million is attributable to professional services associated with Grays
previously announced proposed spin-off of its publishing and paging businesses. The prior
period did not include similar expenses. Upon consummation of the spin-off transactions,
Triple Crown Media will distribute cash to Gray approximating 75% of the professional
service costs and expenses incurred by Gray related to the spin-off transactions. In
addition, auditing service fees increased in the third quarter of 2005 by approximately
$230,000 which was offset by a decrease in consulting fees of $253,000. |
|
|
|
|
Depreciation expense increased 13% to $6.9 million in the three months ended September
30, 2005 as compared to $6.1 million for the same period in 2004. The increase is
attributable to the purchase of equipment for our existing operating locations as well as
the acquisition of KKCO-TV in January of 2005. To a lesser extent, the increase was due to
the shortening of the useful life of leasehold improvements at one of Grays operating
locations due to an earlier than expected termination of the associated lease. |
|
|
|
|
Amortization of intangible assets was $159,000 for the three months ended September 30,
2005, as compared to $232,000 for the same period of the prior year, a decrease of 32%.
The decrease in amortization expense was due to certain definite lived intangible assets, that were acquired
in 2002, becoming fully amortized. |
|
|
|
|
Gray recorded a gain on disposal of assets, net of $446,000 for the three months ended
September 30, 2005, as compared to a loss on disposal of assets of $17,000 for the same
period of the prior year. The gain in the current year was principally the result of a
gain of $652,000 on the sale of a paging license partially offset by losses on the disposal
of other paging assets. The loss in the prior year is due to a net gain on insurance |
19
|
|
|
settlements related to certain broadcast towers damaged in 2003 and to the sale of a
building not utilized in operations. |
Interest expense. Interest expense increased 7% to $11.1 million. This increase is primarily
attributable to higher average interest rates in 2005 compared to 2004. The combined average
interest rates on the Companys senior credit facility and 91/4% Notes were 6.73% and 5.93% for the
three months ended September 30, 2005 and 2004, respectively. The increase in interest rates was
partially offset by the repurchase and extinguishment of $21.5 million of Grays 91/4% Notes during
the second quarter of 2005.
Income tax expense. An income tax expense of $1.2 million was recorded for the three months
ended September 30, 2005 as compared to an income tax expense of $7.6 million for the three months
ended September 30, 2004. The decreased expense in the current year as compared to that of the
prior year was attributable to having decreased income in the current period as compared to the
prior period. The effective income tax rate was approximately 39% for the current year and prior
year periods.
Nine Months Ended September 30, 2005 Compared To The Nine Months Ended September 30, 2004
Revenues. Total revenues for the nine months ended September 30, 2005 decreased 7% to $227.9
million as compared to the same period of the prior year.
|
|
|
Local broadcasting advertising revenues, excluding political advertising revenues,
increased 6% to $126.0 million from $118.4 million. Approximately 33%, or $2.5 million, of
this increase is attributable to results from Grays launch of six UPN second channels in
six of its existing television markets since June 30, 2004, results of WCAV,
Charlottesville, VA which began operations in August 2004 and the acquisition of KKCO on
January 31, 2005. We attribute the remaining increase in non-political local broadcasting
advertising revenues to a moderate increase in demand for commercial time by local
advertisers. National broadcasting advertising revenues decreased 3% to $51.3 million from
$52.9 million. The decrease in national broadcasting advertising revenues was due to
decreased demand from multiple categories of national advertising customers. Political
advertising revenues decreased to $1.4 million from $20.9 million reflecting the cyclical
influence of the 2004 Presidential election. In addition, in the 2004 period Gray recorded
approximately $3.1 million of broadcast revenue associated with the broadcast of the 2004
Summer Olympics. There were no such similar Olympic broadcast in the current year.
Network compensation revenue decreased 45% to $4.0 million from $7.3 million due to lower
revenue from renewed network affiliation agreements. Total broadcasting revenues decreased
9% over the same period of the prior year to $188.6 million. The decrease in broadcasting
revenues reflects decreased political advertising revenues, national advertising revenues
and network compensation, partially offset by increased non-political local broadcasting
advertising revenues as discussed above. |
|
|
|
|
Publishing and other revenues consists primarily of Grays newspaper publishing and
paging operations. Total publishing and other revenues increased 3%. Publishing revenues
increased 5% to $34.1 million from $32.6 million. Publishing retail advertising revenue
increased 6% to $18.3 million from $17.3 million. Publishing classified revenue increased
7% to $10.7 million. Publishing circulation revenue decreased 9% to $4.1 million.
Publishing retail advertising revenues and classified advertising revenues increased
primarily due to improved operating results at the Gwinnett Daily Post reflecting the
expansion of the Sunday newspaper and increased spending by existing customers. Classified
advertising increased due to improved automotive and real estate advertising. Circulation
revenues decreased primarily due to a decrease in volumes. Paging revenues decreased 6% to
$5.2 million from $5.6 million. The Company
had approximately 34,000 and 45,000 units in service at September 30, 2005 and 2004,
respectively. The number of units in service decreased due to increased competition from
other communication services and products such as cellular telephones. Competition from
these products is expected to continue in the future. |
Operating expenses. Operating expenses increased 8% to $178.4 million from $165.7 million in
the same period of the prior year.
20
|
|
|
Broadcasting expenses, before depreciation, amortization and loss on disposal of assets
increased 5% to $118.3 million from $112.8 million. Approximately 58%, or $3.2 million, of
this increase is attributable to operating expenses relating to Grays launch of six UPN
second channels in six of its existing television markets since June 30, 2004, expenses of
WCAV, Charlottesville, VA which began operations in August 2004 and expenses of KKCO,
acquired on January 31, 2005, offset, in part, by the sale of the Companys satellite
uplink operations on December 31, 2004. We attribute the remaining increase to routine
increases in payroll and benefits costs. |
|
|
|
|
Publishing and other expenses including paging expense, before depreciation,
amortization and loss on disposal of assets, increased 8% to $29.3 million from $27.3
million. The increase in expenses was primarily due to increased costs associated with the
expanded delivery of the Sunday edition of the Gwinnett Daily Post. Also newsprint
increased due to an increase in the cost per ton of newsprint partially offset by lower
consumption in the current year. |
|
|
|
|
Corporate and administrative expenses, before depreciation, amortization and loss on
disposal of assets increased 54% to $11.4 million from $7.4 million in the nine months
ended September 30, 2005 as compared to the same period in 2004. Legal and other
professional service fees increased approximately $3.4 million over the same period of 2004
and such increase is primarily attributable to an increase of $2.8 million in professional
services associated with Grays proposed spin-off of its publishing and paging businesses.
In addition, audit fees increased approximately $655,000 over the comparable period of
2004. Upon consummation of the spin-off transactions, Triple Crown Media will distribute
cash to Gray approximating 75% of the professional service costs and expenses incurred by
Gray related to the spin-off transactions. |
|
|
|
|
Depreciation expense increased 5% to $18.6 million for the nine months ended September
30, 2005 as compared to $17.8 million for the same period of the prior year. The increase
is attributable to the purchase of equipment for our existing operating locations as well
as the acquisition of KKCO-TV in January of 2005. To a lesser extent, the increase was due
to the shortening of the useful life of leasehold improvements at one of Grays operating
locations due to an earlier than expected termination of the associated lease. |
|
|
|
|
Amortization of intangible assets was $576,000 for the nine months ended September 30,
2005, as compared to $751,000 for the same period of the prior year, a decrease of $175,000
or 23%. The decrease in amortization expense was due to certain definite lived intangible
assets becoming fully amortized. |
|
|
|
|
Gain on disposal of assets, net was $107,000 for the nine months ended September 30,
2005, as compared to a gain on disposal of assets of $605,000 for the same period of the
prior year. The gain in the current year was principally the result of a third quarter
gain of $652,000 on the sale of a paging license partially offset by losses on the disposal
of other paging assets. The gain in the prior year is due to a net gain on insurance
settlements related to certain broadcast towers damaged in 2003 and to the sale of a
building not utilized in operations. |
Interest expense. Interest expense increased 7% to $33.5 million. This increase is primarily
attributable to higher average interest rates in 2005 compared to 2004. The combined average
interest rates on the Companys senior credit facility and the 91/4% Notes were 6.72% and 6.05% for
the nine months ended September 30, 2005
and 2004, respectively. The increase in interest rates was partially offset by the repurchase and
extinguishment of $21.5 million of Grays 91/4% Notes during the second quarter of 2005.
Loss on early extinguishment of debt. Gray reported a loss on early extinguishment of debt in
the amount of $4.8 million which related to two events: the repurchase by Gray of a portion of its
91/4% Notes and the amendment of Grays senior credit facility.
Gray repurchased $21.5 million, face amount, of its 91/4% Notes in the open market. Associated
with this repurchase, Gray recorded a loss upon early extinguishment of debt of $2.6 million which included
a premium of $2.0
21
million, the write off of unamortized deferred finance costs of $485,000 and an
unaccreted discount of $74,000. Upon repurchase of Grays 91/4% Notes, Gray paid $749,000 in accrued
interest.
On June 28, 2005, Gray amended its senior credit facility. Gray paid out approximately $1.6
million in cash for the amendment of the senior credit facility and of this amount $1.2 million was
capitalized as deferred financing costs which will be amortized to interest expense over the
remaining life of the agreement. The remaining $370,126 was reported as a loss on early
extinguishment of debt. Furthermore, Gray wrote off deferred financing costs and recognized a loss
on early extinguishment of debt in the amount of $1.8 million. The total loss on early
extinguishment of debt related to the amendment of the senior credit facility was $2.2 million.
Income tax expense. An income tax expense of $4.7 million was recorded for the nine months
ended September 30, 2005 as compared to an income tax expense of $19.0 million for the nine months
ended September 30, 2004. The decreased expense in the current year as compared to that of the
prior year was attributable to having less income in the current period as compared to the prior
period. The effective income tax rate was approximately 39% for the current year and prior year
periods.
Liquidity and Capital Resources
General
The following tables present certain data that Gray believes is helpful in evaluating its
liquidity and capital resources (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
Net cash provided by operating activities |
|
$ |
39,251 |
|
|
$ |
82,469 |
|
Net cash used in investing activities |
|
|
(45,175 |
) |
|
|
(27,246 |
) |
Net cash used in financing activities |
|
|
(40,586 |
) |
|
|
(10,180 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(46,510 |
) |
|
$ |
45,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
September 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Cash and cash equivalents |
|
$ |
4,056 |
|
|
$ |
50,566 |
|
Long-term debt including current portion |
|
|
633,006 |
|
|
|
655,905 |
|
Preferred stock |
|
|
39,068 |
|
|
|
39,003 |
|
Available credit under senior credit agreement |
|
|
26,000 |
|
|
|
71,250 |
|
Gray and its subsidiaries file a consolidated federal income tax return and such state or
local tax returns as are required. Although Gray expects to earn taxable operating income for the
foreseeable future, it anticipates that through the use of its available loss carryforwards it will
not pay significant amounts of federal or state income taxes in the next several years.
Management believes that current cash balances, cash flows from operations and available funds
under its senior credit facility will be adequate to provide for Grays capital expenditures, debt
service, cash dividends and working capital requirements for the foreseeable future.
Management does not believe that inflation in past years has had a significant impact on
Grays results of operations nor is inflation expected to have a significant effect upon our
business in the near future.
Net cash provided by operating
activities decreased $43.2 million in the nine months ended
September 30, 2005 as compared to the same period of 2004. The decrease was due primarily to a
decrease in net income, deferred income taxes and changes in operating liabilities.
Net cash used in investing activities increased $17.9 million. The increase was due primarily
to the acquisition of KKCO-TV representing a use of cash totaling $13.9 million and the acquisition
of a partnership whose primary
22
assets were television production equipment, land, and a television
studio building in Tallahassee, Florida for $4.8 million.
Net cash used
in financing activities increased $30.4 million. The Company repurchased
398,400 shares of Common Stock for $5.5 million and 12,800 shares of Class A Common Stock for $0.2
million. Gray also amended its senior credit facility and repurchased a portion of its 91/4% Notes.
These transactions are described in more detail below. No similar purchases were made in the prior
year. Dividends paid increased $5.9 million due to the payment in January 2005 of a special
dividend that was declared in the fourth quarter of 2004.
Capital Expenditures
Set forth below is the Companys capital expenditure activity for the nine months ended
September 30, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
Non Digital |
|
|
Digital |
|
|
Total |
|
Capital expenditure
payments made during
the nine months ended
September 30, 2005 |
|
$ |
19,183 |
|
|
$ |
7,603 |
|
|
$ |
26,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
Non Digital |
|
|
Digital |
|
|
Total |
|
Capital expenditure
payments made during
the nine months ended
September 30, 2004 |
|
$ |
16,145 |
|
|
$ |
9,654 |
|
|
$ |
25,799 |
|
|
|
|
|
|
|
|
|
|
|
The Company will increase the power output of its digital broadcast signals of certain
stations. These enhancements will be phased in by July 2006 to meet certain FCC regulations.
Debt
On June 28, 2005, Gray amended its existing senior credit facility. The amended agreement has
a maximum term of seven and one half years and the total amount available under the agreement is
$400 million, consisting of a $100 million revolving facility, a $100 million term loan A facility
and a $200 million term loan B facility. As of September 30, 2005, the balance outstanding and the
balance available under Grays senior credit facility were $373.5 million and $26 million,
respectively.
Gray paid approximately $1.6 million in cash for the amendment of the senior credit facility
and of this amount $1.2 million was capitalized as deferred financing costs which will be amortized
to interest expense over the remaining life of the agreement. The remaining $370,126 was reported
as a loss on early extinguishment of debt. Furthermore, Gray wrote off deferred financing costs
and recognized a loss on early extinguishment of debt in the amount of $1.8 million. Therefore,
the total loss on early extinguishment of debt related to the amendment
of the senior credit facility was $2.2 million. As a result of the amendment, on an annual
basis we anticipate a savings of $1.4 million in interest expense. For additional information
concerning the amendment, see Note C. Long-Term Debt to Grays unaudited condensed consolidated
financial statements included elsewhere herein.
On October 28, 2005, Gray further amended the senior credit facility to modify certain
covenants of the agreement to be less restrictive for Gray. The capacity and interest rates of
the agreement remained unchanged. Gray did not incur any fees associated with this amendment.
Effective August 19, 2005, a lender of Gray issued an irrevocable $18.6 million stand by
letter of credit on behalf of Gray in lieu of an earnest money deposit for the pending acquisition
of WSAZ-TV.
During the nine months ended September 30, 2005, Gray repurchased $21.5 million, face amount,
of its Senior Subordinated Notes due 2011 (the 91/4% Notes) in the open market. Associated with
this repurchase, Gray recorded a loss upon early extinguishment of debt of $2.6 million which included a
premium of $2.0 million, the write off of
23
unamortized deferred finance costs of $485,000 and an
unaccreted discount of $74,000. Upon repurchase of Grays 91/4% Notes, Gray paid $749,000 in accrued
interest. Gray used cash previously held in its investment account in the amount of $24.3 million
for the repurchase of its 91/4% Notes which included amounts for the face amount of the 91/4% Notes,
premium and accrued interest. As a result of these repurchases and extinguishments, on an annual
basis we anticipate a savings of $2.0 million in interest expense. As of September 30, 2005,
Grays 91/4% Notes had a balance outstanding of $257.6 million excluding unaccreted discount of $0.8
million.
Gray makes semiannual interest payments on the 91/4% Notes on June 15th and December
15th. Interest payments on the senior credit facility are made on varying dates
throughout the year.
WSAZ-TV
On August 22, 2005, Gray announced that it had entered into an agreement with Emmis
Communications Corp. to acquire the assets of WSAZ-TV, the NBC affiliate in Charleston-Huntington,
West Virginia for $186 million. The agreement is subject to certain conditions and regulatory
approval. Gray currently anticipates, but can not assure, that the acquisition will be completed
before December 31, 2005.
In connection with this acquisition, Gray has obtained a financing commitment from Wachovia
Bank, National Association for a senior secured credit facility in an aggregate principal amount of
up to $600 million; a portion of this facility may be used to finance the acquisition of WSAZ-TV.
Related Party Receivable
Through a rights-sharing agreement with Host Communications, Inc. (Host), a wholly owned
subsidiary of Bull Run Corporation (Bull Run), Gray participated jointly with Host in the
marketing, selling and broadcasting of certain collegiate sporting events and in related
programming, production and other associated activities related to the University of Kentucky.
Certain executive officers and significant stockholders of Gray are also executive officers and
significant stockholders of Bull Run Corporation.
The agreement commenced April 1, 2000 and terminated April 15, 2005. Gray shared the profit
or loss from these activities with Host. Under that agreement, in certain circumstances, Gray was
called upon to advance payment directly to the respective collegiate institution for a portion of
certain upfront rights fees. Gray was given credit for any such advance payments when determining
its share of income or loss from these activities. During 2003, Gray paid $1.5 million under this
provision. No similar payments were made during 2004 or 2005. As of September 30, 2005 and
December 31, 2004, Gray had $1.2 million and $1.4 million respectively, recorded as a related party
receivable for payments made in 2003 and earlier years.
Host Commitment
On October 12, 2004, the University of Kentucky jointly awarded a new sports marketing
agreement to Gray and Host. The new agreement commenced April 16, 2005 and has an initial term of
seven years with the option to extend the license for three additional years. Aggregate license
fees to be paid to the University of Kentucky over a full ten year term for the agreement will
approximate $80.5 million. Gray and Host will share equally in the cost of the license fees.
Other
During the quarter ended September 30, 2005, Gray contributed $3.7 million to its pension
plans. During the remainder of 2005, Gray expects to contribute an additional $717,000 to its
pension plans.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make judgments and estimations that affect the
amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates. Gray considers its
24
accounting policies relating to intangible assets and
income taxes to be critical policies that require judgments or estimations in their application
where variances in those judgments or estimations could make a significant difference to future
reported results. These critical accounting policies and estimates are more fully disclosed in
Grays Annual Report on Form 10-K for the year ended December 31, 2004.
Recent Accounting Pronouncements
Accounting
Changes and Corrections of Errors In May 2005, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard No. 154, (SFAS No. 154),
Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement
No. 20. SFAS No. 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all
voluntary changes in accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions, those provisions should
be followed. SFAS No. 154 is effective for the Company in the first quarter of 2006.
Share-Based Payment In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 123, (revised 2005), Share-Based Payment (SFAS 123(R)), that addresses the
accounting for share-based payment transactions in which an enterprise receives employee services
in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that may be settled by the issuance of such
equity instruments. SFAS 123(R) eliminates the ability to account for share-based compensation
transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and generally would require instead that such
transactions be accounted for using a fair-value-based method. The Company is currently evaluating
SFAS 123(R) to determine which fair-value-based model and transitional provision it will follow
upon adoption. The options for transition methods as prescribed in SFAS 123(R) include either the
modified prospective or the modified retrospective methods. The modified prospective method
requires that compensation expense be recorded for all unvested stock options and restricted stock
as the requisite service is rendered beginning with the first quarter of adoption, while the
modified retrospective method would record compensation expense for stock options and restricted
stock beginning with the first period restated. Under the modified retrospective method, prior
periods may be restated either as of the beginning of the year of adoption or for all periods
presented. SFAS 123(R) will be effective for the Company beginning in its first quarter of fiscal
2006. Although the Company will continue to evaluate the application of SFAS 123(R), based on
options issued and outstanding at present, the Company expects that the expense will be between
$125,000 and $175,000 for the year ended December 31, 2006.
American Jobs Creation Act of 2004 On October 22, 2004, the President signed the American
Jobs Creation Act of 2004 (the Act). The Act provides a deduction for income from qualified
domestic production activities,
which will be phased in from 2005 through 2010. The Company is currently evaluating which of
its operations may qualify as qualified domestic production activities under the Act and thus the
financial effect that the Act may or may not have upon the Company.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. When used in this
report, the words believes, expects, anticipates, should, estimates and similar words and
expressions are generally intended to identify forward-looking statements, but some of those
statements may use other phrasing. Statements that describe Grays future strategic plans, goals
or objectives are also forward-looking statements. Readers of this report are cautioned that any
forward-looking statements, including those regarding the intent, belief or current expectations of
Gray or management, are not guarantees of future performance, results or events and involve risks
and uncertainties, and that actual results and events may differ materially from those in the
forward-looking statements as a result of various factors including, but not limited to, (i)
general economic conditions in the markets in which Gray operates, (ii) competitive pressures in
the markets in which Gray operates, (iii) the effect of future legislation or regulatory changes on
Grays operations and (iv) certain other risks relating to our business, including, our dependence
on advertising revenues, our need to acquire non-network television programming, the impact of a
25
loss of any of our FCC broadcast licenses, increased competition and capital costs relating to
digital advanced television, pending litigation and our significant level of intangible assets, (v)
our high debt levels, (vi) the proposed spin-off of the publishing and paging business and (vii)
other factors described from time to time in our SEC filings. The forward-looking statements
included in this report are made only as of the date hereof. Gray disclaims any obligation to
update such forward-looking statements to reflect subsequent events or circumstances, except as
required by law.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Gray believes that the market risk of its financial instruments as of September 30, 2005 has
not materially changed since December 31, 2004. The market risk profile on December 31, 2004 is
disclosed in Grays Annual Report on Form 10-K for the year ended December 31, 2004.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was
carried out under the supervision and with the participation of management, including the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of the
Companys disclosure controls and procedures. Based on that evaluation, the CEO and the CFO have
concluded that Grays disclosure controls and procedures are effective to ensure that information
required to be disclosed by Gray in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and to ensure that such information is
accumulated and communicated to Grays management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosures. There were no changes in Grays internal
control over financial reporting during the third quarter of 2005 identified in connection with
this evaluation that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note F Commitments and Contingencies to Grays unaudited
Condensed Consolidated Financial Statements filed as part of this Quarterly Report on Form 10-Q is
incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following tables provide information about Grays repurchase of its common stock (ticker:
GTN) and its class A common stock (ticker: GTN.A) during the quarter ended September 30, 2005.
26
Issuer Purchases of Common Stock and Class A Common Stock
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(d) Maximum |
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(b) |
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(c) Total Number |
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Number of Shares |
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(a) Total |
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Average |
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of Shares |
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that May Yet Be |
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NYSE |
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Number of |
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Price Paid |
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Purchased as |
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Purchased Under |
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Shares |
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per |
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Part of Publicly |
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the Plans or |
Period |
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Symbol |
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Purchased |
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Share(1) |
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Announced Plans |
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Programs(2) |
July 1, 2005 through July 31, |
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GTN |
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-0- |
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$ |
00.00 |
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-0- |
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2005: |
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GTN.A |
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-0- |
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$ |
00.00 |
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-0- |
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1,885,900 |
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August 1, 2005 through August 31, |
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GTN |
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-0- |
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$ |
00.00 |
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-0- |
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2005: |
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GTN.A |
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-0- |
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$ |
00.00 |
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-0- |
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1,885,900 |
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September 1, 2005 through September |
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GTN |
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43,500 |
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$ |
10.62 |
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43,500 |
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30, 2005: |
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GTN.A |
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-0- |
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$ |
00.00 |
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-0- |
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1,842,400 |
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Total |
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43,500 |
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$ |
10.62 |
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43,500 |
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1,842,400 |
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(1) |
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Amount excludes standard brokerage commissions. |
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(2) |
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On November 3, 2004, the Companys Board of Directors increased, from 2 million to 4 million,
the aggregate number of shares of its Common Stock or Class A Common Stock authorized for
repurchase. On March 3, 2004, Grays Board of Directors had previously authorized the repurchase,
from time to time, of up to an aggregate of 2 million shares of the Companys Common Stock or Class
A Common Stock. As of September 30, 2005, 1,842,400 shares of the Companys Common Stock and Class
A Common Stock are available for repurchase under the increased limit of 4 million shares. There
is no expiration date for this repurchase plan. |
Item 6. Exhibits
Exhibit 10.1 This first amendment to the loan agreement is made and entered into as of this
28th day of October, 2005, by and among Gray Television Inc., Wachovia Bank,
National Association, Bank of America, N.A., and Deutsche Bank Trust Company Americas.
Exhibit 31.1 Rule 13 (a) 14(a) Certificate of Chief Executive Officer
Exhibit 31.2 Rule 13 (a) 14(a) Certificate of Chief Financial Officer
Exhibit 32.1 Section 1350 Certificate of Chief Executive Officer
Exhibit 32.2 Section 1350 Certificate of Chief Financial Officer
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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GRAY TELEVISION, INC.
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(Registrant) |
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Date: November 7, 2005
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By:
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/s/ James C. Ryan |
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James C. Ryan, |
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Senior Vice President and Chief Financial Officer |
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28
exv10w1
EXHIBIT
10.1
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this Amendment) is made and entered into as
of this 28th day of October, 2005, with an Effective Date (as defined below) as set
forth in Section 3 hereof, by and among GRAY TELEVISION, INC., a Georgia corporation (the
Borrower), the Subsidiaries of the Borrower listed on the signature pages hereto, the
banks and lending institutions party to the Loan Agreement referred to below (the
Lenders) pursuant to an authorization (in the form attached hereto as Annex A,
an Authorization), WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, in its capacity as administrative agent for the lenders (the Administrative
Agent), BANK OF AMERICA, N.A., in its capacity as syndication agent (the Syndication
Agent) and DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as documentation agent (the
Documentation Agent).
The Lenders have extended certain credit facilities to the Borrower pursuant to the Fifth
Amended and Restated Loan Agreement dated as of June 28, 2005, by and among the Borrower, the
Lenders, the Administrative Agent, the Syndication Agent and the Documentation Agent (as amended
hereby and as may be further amended, restated, supplemented or otherwise modified from time to
time, the Loan Agreement).
The parties desire to amend or modify certain provisions of the Loan Agreement in certain
respects on the terms and conditions set forth below. Subject to and in accordance with the terms
and conditions set forth herein, the Lenders party hereto are willing to consent to the requested
amendments.
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree as follows:
1. Capitalized Terms. All capitalized undefined terms used in this Amendment shall
have the meanings assigned thereto in the Loan Agreement.
2. Amendments to the Loan Agreement.
(a) Amendment to Existing Definitions. The definition of the following defined term
which is set forth in Section 1.1 of the Loan Agreement is hereby amended and restated in its
entirety as follows:
Fixed Charges shall mean, with respect to the Borrower and its Restricted
Subsidiaries, as of any date for any period, the sum of (a) all Interest Expense, (b) all required
principal payments due on the Term Loan A, the Term Loan B and, as applicable, Incremental Facility
Loan made pursuant to scheduled repayments under Section 2.7(b)(i)(A), Section
2.7(b)(i)(B) or the Notice of Incremental Facility Commitment, as applicable, (c) all principal
payments required to be made on Total Debt (other than the Loans), (e) Capital Expenditures made
during such period, (e) any federal, state or local income taxes paid in cash during such period,
(f) any purchases of common stock of the Borrower by the Borrower or any of its Restricted
1 of 9
Subsidiaries, in each case, for or during such period, plus (g) dividends made in respect of the
Ownership Interests of the Borrower or such Restricted Subsidiary (excluding dividends made in such
Ownership Interests). For purposes of calculating the Fixed Charge Coverage Ratio as of any date,
Fixed Charges shall exclude (i) actual HDTV Capital Expenditures in an amount not to exceed
$30,000,000.00 in the aggregate from the Agreement Date to the Maturity Date and (ii) commencing
with any calculation on or after September 30, 2005, the aggregate amount of the January 2005
Dividend and the December 2004 Stock Repurchase.
(b) Amendment to Add New Definitions. Section 1.1 of the Loan Agreement
is hereby amended by inserting the following new definitions in appropriate alphabetical order:
January 2005 Dividend shall mean that certain special cash dividend paid on January 4,
2005 in respect of the Ownership Interests of the Borrower in an aggregate amount of Five
Million Eight Hundred and Seventy-One Thousand Four Hundred and Ninety-One Dollars ($5,871,491).
December 2004 Stock Repurchase shall mean, collectively, the purchase(s) by the
Borrower of its common stock made during the fiscal quarter ended December 31, 2004 for an
aggregate amount of Eighteen Million Seven Hundred and Seventy-One Thousand Five Hundred and
Forty Eight Dollars ($18,771,548).
3. Effectiveness. This Amendment shall be deemed effective as of September 29,
2005 (the Effective Date) upon the satisfaction of each of the following conditions:
(a) Amendment Document. The Administrative Agent shall have received (i) a duly
executed counterpart of this Amendment executed by (A) the Borrower, (B) each Subsidiary of the
Borrower that is party to any Security Document and (C) the Administrative Agent and (ii)
Authorizations from the Required Lenders and the Required Revolving Lenders.
(b) Costs and Expenses. The Borrower shall pay all reasonable out-of-pocket costs and
expenses of the Administrative Agent in connection with the preparation, execution and delivery of
this Amendment, including, without limitation, the reasonable fees and disbursements of counsel for
the Administrative Agent.
(c) Other Documents. The Administrative Agent shall have received any other
documents, certificates or instruments reasonably requested thereby in connection with the
execution of this Amendment.
4. Effect of the Amendment. Except as expressly modified hereby, the Loan Agreement
and the other Loan Documents shall be and remain in full force and effect. This Amendment shall
not be deemed (a) to be a waiver of, or consent to, a modification or amendment of, any other term
or condition of the Loan Agreement or any other Loan Document or (b) to prejudice any other right
or rights which the Administrative Agent or the Lenders may now have or may have in the future
under or in connection with the Loan Agreement or the other Loan Documents or any of the
instruments or agreements referred to therein, as the same may be amended or modified from time to
time.
2 of 9
5. Acknowledgment by Subsidiary Guarantors; Reaffirmation of Security Documents.
(a) By their execution hereof, each of the Subsidiaries of the Borrower party hereto hereby
expressly (a) consents to the modifications and amendments set forth in this Amendment, (b)
reaffirms all of its respective covenants, representations, warranties and other obligations set
forth in the Subsidiary Guaranty and the other Loan Documents to which it is a party and (c)
acknowledges, represents and agrees that its respective covenants, representations, warranties and
other obligations set forth in the Subsidiary Guaranty and the other Loan Documents to which it is
a party remain in full force and effect.
(b) The Borrower and each of its Subsidiaries party hereto hereby confirms that each of the
Security Documents to which it is a party shall continue to be in full force and effect and are
hereby ratified and reaffirmed in all respects as if fully restated as of the date hereof by this
Agreement. In furtherance of the reaffirmations set forth in this Section 5, the Borrower
hereby grants and assigns a security interest in all collateral identified in any Security Document
as collateral security for the Obligations.
6. Representations and Warranties/No Default.
(a) By its execution hereof, the Borrower hereby certifies that (i) each of the
representations and warranties set forth in the Loan Agreement and the other Loan Documents is true
and correct as of the date hereof as if fully set forth herein unless such representations and
warranties relate to a specific date, in which case such representations and warranties shall be
true and correct as of such specific date and (ii) no Default or Event of Default has occurred and
is continuing as of the date hereof.
(b) By its execution hereof, the Borrower represents and warrants that as of the date hereof
there are no claims or offsets against or defenses or counterclaims to any of the obligations of
the Borrower under the Loan Agreement or any other Loan Document.
(c) By its execution hereof, the Borrower hereby represents and warrants that it has the
right, power and authority and has taken all necessary corporate and other action to authorize the
execution, delivery and performance of this Amendment and each other document executed in
connection herewith to which it is a party in accordance with their respective terms. This
Amendment and each other document executed in connection herewith has been duly executed and
delivered by the duly authorized officers of the Borrower and each such document constitutes the
legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms.
7. Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT
TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF) OF THE STATE OF GEORGIA.
3 of 9
8. Counterparts. This Amendment may be executed in separate counterparts, each of
which when executed and delivered is an original but all of which taken together constitute one and
the same instrument.
9. Fax Transmission. A facsimile, telecopy or other reproduction of this Amendment
may be executed by one or more parties hereto, and an executed copy of this Amendment may be
delivered by one or more parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original of this Amendment
as well as any facsimile, telecopy or other reproduction hereof.
[Signatures Pages Follow]
4 of 9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of
the date and year first above written.
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BORROWER: |
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GRAY TELEVISION, INC., as Borrower |
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By:
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/s/ James C. Ryan |
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Name: James C. Ryan |
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Title: Senior Vice President and Chief Financial Officer |
[Signature Pages Continue]
5 of 9
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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SUBSIDIARY GUARANTORS: |
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WVLT-TV, INC., as Guarantor |
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By:
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/s/ James C. Ryan |
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Name: James C. Ryan |
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Title: Vice President and Chief Financial Officer |
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GRAY TELEVISION GROUP, INC., as Guarantor |
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By:
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/s/ James C. Ryan |
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Name: James C. Ryan |
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Title: Treasurer |
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GRAY TELEVISION LICENSEE, INC., as Guarantor |
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By:
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/s/ James C. Ryan |
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Name: James C. Ryan |
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Title: Treasurer |
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GRAY TEXAS L.P., as Guarantor |
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By: GRAY TELEVISION GROUP, INC., its General Partner |
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By:
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/s/ James C. Ryan |
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Name: James C. Ryan |
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Title: Treasurer |
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GRAY TEXAS, LLC, as Guarantor |
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By:
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/s/ James C. Ryan |
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Name: James C. Ryan |
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Title: Treasurer |
[Signature Pages Continue]
6 of 9
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ADMINISTRATIVE AGENT: |
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WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent
and Lender and at the request of the Lenders party to the
Loan Agreement pursuant to the Authorizations |
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By:
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/s/ Joe Mynatt |
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Name: Joe Mynatt |
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Title: Director |
7 of 9
ANNEX A
FORM OF LENDER AUTHORIZATION
8 of 9
AUTHORIZATION
, 2005
Wachovia Bank, National Association
Charlotte Plaza, CP-8
201 South College Street
Charlotte, North Carolina 28288-0680
Attention: Syndication Agency Services
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Re: |
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First Amendment dated as of October 28, 2005 (the First Amendment) to
the Fifth Amended and Restated Loan Agreement dated as of June 28, 2005 (as amended,
restated supplemented or otherwise modified from time to time, the Loan
Agreement) by and among Gray Television, Inc. (the Borrower), the banks
and financial institutions party thereto, as lenders (the Lenders), the
subsidiaries of the Borrower party thereto, as guarantors (the
Guarantors) and Wachovia Bank, National Association, as
administrative agent (the Administrative Agent). |
This letter acknowledges our receipt and review of the First Amendment in the form posted
on the Gray Television Intralinks Workspace. By executing this letter, we hereby approve the First
Amendment and authorize the Administrative Agent to execute and deliver the First Amendment on our
behalf.
Each financial institution executing this Authorization agrees or reaffirms that it shall be a
party to the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement) to
which Lenders are parties and shall have the rights and obligations of a Lender under each such
agreement. In furtherance of the foregoing, each financial institution executing this
Authorization agrees to execute any additional documents reasonably requested by the Administrative
Agent to evidence such financial institutions rights and obligations under the Loan Agreement.
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[Insert name of applicable financial institution] |
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By: |
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Name: |
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Title: |
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9 of 9
EXHIBIT 31.1
CERTIFICATION
I, J. Mack Robinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gray
Television, Inc;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting
to be designed under our supervision, to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Date: November 7, 2005 By: /s/ J. Mack Robinson
-------------------------
Chairman and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, James C. Ryan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gray
Television, Inc;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting
to be designed under our supervision, to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Date: November 7, 2005 By: /s/ James C. Ryan
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Senior Vice President and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying quarterly report on Form 10-Q of Gray
Television, Inc. (the "Company") for the quarterly period ended September 30,
2005 (the "Periodic Report"), the undersigned Chief Executive Officer of the
Company, hereby certifies pursuant to Title 18, Section 1350 United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of his individual knowledge and belief, that the Periodic Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Periodic Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: November 7, 2005
/s/ J. Mack Robinson
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J. Mack Robinson,
Chairman and Chief Executive Officer
A signed original of this written statement required by Section 906 has
been provided to Gray Television, Inc. and will be retained by Gray Television,
Inc. and furnished to the SEC or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying quarterly report on Form 10-Q of Gray
Television, Inc. (the "Company") for the quarterly period ended September 30,
2005 (the "Periodic Report"), the undersigned Chief Financial Officer of the
Company, hereby certifies pursuant to Title 18, Section 1350 United States Code,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of his individual knowledge and belief, that the Periodic Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Periodic Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: November 7, 2005
/s/ James C. Ryan
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James C. Ryan,
Senior Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has
been provided to Gray Television, Inc. and will be retained by Gray Television,
Inc. and furnished to the SEC or its staff upon request.