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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark one)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2021 or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________to_________ .

 

Commission file number: 1-13796

 

Gray Television, Inc.

(Exact name of registrant as specified in its charter)

 

Georgia

 

58-0285030

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

   

4370 Peachtree Road, NE, Atlanta, Georgia

 

30319

(Address of principal executive offices)

 

(Zip code)

 

(404) 504-9828

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock (no par value)

GTN.A

New York Stock Exchange

common stock (no par value)

GTN

New York Stock Exchange

 

 

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 ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).

 

Large accelerated filer ☒  Accelerated filer ☐  Non-accelerated filer ☐  Smaller reporting company   Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

 

Common Stock (No Par Value)

 

Class A Common Stock (No Par Value)

88,632,523 shares outstanding as of April 29, 2021

 

7,171,019 shares outstanding as of April 29, 2021

 

 

 

INDEX

 

 

GRAY TELEVISION, INC.

 

 

PART I.

FINANCIAL INFORMATION

PAGE

     

Item 1.

Financial Statements

 
     
 

Condensed consolidated balance sheets (Unaudited) – March 31, 2021 and December 31, 2020

3

     
 

Condensed consolidated statements of operations (Unaudited) – three-months ended March 31, 2021 and 2020

5

     
 

Condensed consolidated statement of stockholders' equity (Unaudited) – three-months ended March 31, 2021 and 2020

6

     
 

Condensed consolidated statements of cash flows (Unaudited) – three-months ended March 31, 2021 and 2020

7

     
 

Notes to condensed consolidated financial statements (Unaudited)

8

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

     

Item 4.

Controls and Procedures

29

     

PART II.

OTHER INFORMATION

 
     

Item 1A.

Risk Factors

29

     

Item 6.

Exhibits

30

     

SIGNATURES

 

31

 

2

 

 

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 

Assets:

        

Current assets:

        

Cash

 $819  $773 

Accounts receivable, less allowance for credit losses of $10 and $10, respectively

  413   425 

Current portion of program broadcast rights, net

  16   24 

Income tax refunds receivable

  21   21 

Prepaid and other current assets

  29   61 

Total current assets

  1,298   1,304 
         

Property and equipment, net

  730   737 

Operating leases right of use asset

  56   57 

Broadcast licenses

  3,584   3,579 

Goodwill

  1,466   1,460 

Other intangible assets, net

  376   395 

Investment in broadcasting and technology companies

  95   72 

Other

  55   39 

Total assets

 $7,660  $7,643 

 

 

See notes to condensed consolidated financial statements.

 

3

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions except for share data)

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 

Liabilities and stockholders equity:

        

Current liabilities:

        

Accounts payable

 $19  $10 

Employee compensation and benefits

  56   53 

Accrued interest

  50   37 

Accrued network programming fees

  31   39 

Other accrued expenses

  19   29 

Federal and state income taxes

  26   20 

Current portion of program broadcast obligations

  17   25 

Deferred revenue

  10   22 

Dividends payable

  13   13 

Current portion of operating lease liabilities

  8   7 

Total current liabilities

  249   255 
         

Long-term debt, less current portion and deferred financing costs

  3,976   3,974 

Program broadcast obligations, less current portion

  4   5 

Deferred income taxes

  894   885 

Accrued pension costs

  43   43 

Operating lease liabilities, less current portion

  51   51 

Other

  19   27 

Total liabilities

  5,236   5,240 
         

Commitments and contingencies (Note 10)

          
         

Series A Perpetual Preferred Stock, no par value; cumulative; redeemable; designated 1,500,000 shares, issued and outstanding 650,000 shares at each date and $650 aggregate liquidation value at each date

  650   650 
         

Stockholders’ equity:

        

Common stock, no par value; authorized 200,000,000 shares, issued 103,847,337 shares and 103,100,856 shares, respectively, and outstanding 88,628,868 shares and 88,140,259 shares, respectively

  1,119   1,110 

Class A common stock, no par value; authorized 25,000,000 shares, issued 9,169,198 shares and 8,935,773 shares, respectively, and outstanding 7,171,019 shares and 7,048,006 shares, respectively

  35   34 

Retained earnings

  880   862 

Accumulated other comprehensive loss, net of income tax benefit

  (39)  (39)
   1,995   1,967 

Treasury stock at cost, common stock, 15,218,469 shares and 14,960,597 shares, respectively

  (193)  (188)

Treasury stock at cost, Class A common stock, 1,998,179 shares and 1,887,767 shares, respectively

  (28)  (26)

Total stockholders’ equity

  1,774   1,753 

Total liabilities and stockholders’ equity

 $7,660  $7,643 

 

 

See notes to condensed consolidated financial statements.

 

4

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except for per share data)

 

   

Three Months Ended

 
   

March 31,

 
   

2021

   

2020

 
                 

Revenue (less agency commissions):

               

Broadcasting

  $ 530     $ 515  

Production companies

    14       19  

Total revenue (less agency commissions)

    544       534  

Operating expenses before depreciation, amortization and gain on disposal of assets, net:

               

Broadcasting

    361       335  

Production companies

    17       19  

Corporate and administrative

    18       15  

Depreciation

    25       21  

Amortization of intangible assets

    26       26  

Gain on disposal of assets, net

    (4 )     (6 )

Operating expenses

    443       410  

Operating income

    101       124  

Other income (expense):

               

Miscellaneous income, net

    1       (1 )

Interest expense

    (48 )     (52 )

Income before income taxes

    54       71  

Income tax expense

    15       18  

Net income

    39       53  

Preferred stock dividends

    13       13  

Net income attributable to common stockholders

  $ 26     $ 40  
                 

Basic per common share information:

               

Net income

  $ 0.28     $ 0.41  

Weighted average common shares outstanding

    94       98  
                 

Diluted per common share information:

               

Net income

  $ 0.27     $ 0.40  

Weighted average common shares outstanding

    95       99  
                 

Dividends declared per common share

  $ 0.08     $ -  

 

 

See notes to condensed consolidated financial statements.

 

5

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

(in millions, except for number of shares)

 

                                                                           

Accumulated

         
   

Class A

                           

Class A

   

Common

   

Other

         
   

Common Stock

   

Common Stock

   

Retained

   

Treasury Stock

   

Treasury Stock

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Earnings

   

Shares

   

Amount

   

Shares

   

Amount

   

Loss

   

Total

 
                                                                                         

Balance at December 31, 2019

    8,768,959     $ 31       101,746,860     $ 1,093     $ 504       (1,887,767 )   $ (26 )     (9,088,498 )   $ (107 )   $ (31 )   $ 1,464  
                                                                                         

Net income

    -       -       -       -       53       -       -       -       -       -       53  
                                                                                         

Preferred stock dividends

    -       -       -       -       (13 )     -       -       -       -       -       (13 )
                                                                                         

Issuance of common stock:

                                                                                       

401(k) Plan

    -       -       430,899       4       -       -       -       -       -       -       4  

2007 Long Term Incentive Plan - stock options exercised

    -       -       274,746       -       -       -       -       (154,935 )     (2 )     -       (2 )

2017 Equity and Incentive Compensation Plan:

                                                                                       

Restricted stock awards

    166,814       -       248,543       -       -       -       -       (118,550 )     (2 )     -       (2 )

Forfeiture of restricted stock awards

    -       -       (85,630 )     -       -       -       -       -       -       -       -  
                                                                                         

Repurchase of common stock

    -       -       -       -       -       -       -       (500,923 )     (6 )     -       (6 )
                                                                                         

Share-based compensation

    -       -       -       4       -       -       -       -       -       -       4  
                                                                                         

Balance at March 31, 2020

    8,935,773     $ 31       102,615,418     $ 1,101     $ 544       (1,887,767 )   $ (26 )     (9,862,906 )   $ (117 )   $ (31 )   $ 1,502  
                                                                                         

Balance at December 31, 2020

    8,935,773     $ 34       103,100,856     $ 1,110     $ 862       (1,887,767 )   $ (26 )     (14,960,597 )   $ (188 )   $ (39 )   $ 1,753  
                                                                                         

Net income

    -       -       -       -       39       -       -       -       -       -       39  
                                                                                         

Preferred stock dividends

    -       -       -       -       (13 )     -       -       -       -       -       (13 )
                                                                                         

Common stock dividends

    -       -       -       -       (8 )     -       -       -       -       -       (8 )
                                                                                         

Issuance of common stock:

                                                                                       

401(k) Plan

    -       -       390,389       7       -       -       -       -       -       -       7  

2017 Equity and Incentive Compensation Plan:

                                                                                       

Restricted stock awards

    233,425       -       296,042       -       -       (110,412 )     (2 )     (239,597 )     (4 )     -       (6 )

Restricted stock unit awards

    -       -       60,050       -       -       -       -       (18,275 )     (1 )     -       (1 )
                                                                                         

Share-based compensation

    -       1       -       2       -       -       -       -       -       -       3  
                                                                                         

Balance at March 31, 2021

    9,169,198     $ 35       103,847,337     $ 1,119     $ 880       (1,998,179 )   $ (28 )     (15,218,469 )   $ (193 )   $ (39 )   $ 1,774  

 

 

See notes to condensed consolidated financial statements.

 

6

 

 

GRAY TELEVISION, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 (in millions)

 

   

Three Months Ended

 
   

March 31,

 
   

2021

   

2020

 

Operating activities

               

Net income

  $ 39     $ 53  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    25       21  

Amortization of intangible assets

    26       26  

Amortization of deferred loan costs

    3       3  

Amortization of restricted stock awards

    4       4  

Amortization of program broadcast rights

    9       9  

Payments on program broadcast obligations

    (9 )     (10 )

Common stock contributed to 401(k) plan

    1       -  

Deferred income taxes

    9       9  

Gain on disposal of assets, net

    (4 )     (6 )

Other

    (5 )     -  

Changes in operating assets and liabilities:

               

Accounts receivable

    12       26  

Other current assets

    31       (12 )

Accounts payable

    10       12  

Employee compensation, benefits and pension cost

    10       (20 )

Accrued network fees and other expenses

    (19 )     (3 )

Accrued interest

    12       9  

Income taxes payable

    5       9  

Deferred revenue

    (12 )     1  

Net cash provided by operating activities

    147       131  
                 

Investing activities

               

Acquisitions of television businesses and licenses, net of cash acquired

    (40 )     (1 )

Purchases of property and equipment

    (13 )     (27 )

Proceeds from asset sales

    -       1  

Proceeds from Repack reimbursement (Note 1)

    4       6  

Investments in broadcast, production and technology companies

    (24 )     -  

Other

    -       (3 )

Net cash used in investing activities

    (73 )     (24 )
                 

Financing activities

               

Payments for the repurchase of common stock

    -       (6 )

Payment of common stock dividends

    (8 )     -  

Payment of preferred stock dividends

    (13 )     (13 )

Deferred and other loan costs

    (1 )     -  

Payment for taxes related to net share settlement of equity awards

    (6 )     (4 )

Net cash used in financing activities

    (28 )     (23 )

Net increase in cash

    46       84  

Cash and restricted cash at beginning of period

    773       212  

Cash at end of period

  $ 819     $ 296  

 

 

See notes to condensed consolidated financial statements.

 

7

 

 

1.      Basis of Presentation

 

The accompanying condensed consolidated balance sheet of Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides,“Gray,” the “Company,” “we,” “us,” and “our”) as of December 31, 2020, which was derived from the Company’s audited financial statements as of December 31, 2020, and our accompanying unaudited condensed consolidated financial statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. We manage our business on the basis of two operating segments: broadcasting and production companies. Unless otherwise indicated, all station rank, in-market share and television household data herein are derived from reports prepared by Comscore, Inc. (“Comscore”). While we believe this data to be accurate and reliable, we have not independently verified such data nor have we ascertained the underlying assumptions relied upon therein and cannot guarantee the accuracy or completeness of such data. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). Our financial condition as of, and operating results for the three-months ended March 31, 2021, are not necessarily indicative of the financial condition or results that may be expected for any future interim period or for the year ending December 31, 2021.

 

Overview. We are a television broadcast company headquartered in Atlanta, Georgia, that is the largest owner of top-rated local television (“television” or “TV”) stations and digital assets in the United States. Gray currently owns and/or operates television stations and leading digital properties in 94 television markets that collectively reach approximately 24% of U.S. television households. Over calendar year 2020, Gray’s stations were ranked first in 70 markets, and ranked first and/or second in 86 markets, as calculated by Comscore’s audience measurement service. We also own video program production, marketing, and digital businesses including Raycom Sports, Tupelo-Raycom, and RTM Studios, the producer of PowerNation programs and content, which we refer to collectively as our “production companies.”

 

Investments in Broadcasting, Production and Technology Companies. We have investments in several television, production and technology companies. We account for all material investments in which we have significant influence over the investee under the equity method of accounting. Upon initial investment, we record equity method investments at cost. The amounts initially recognized are subsequently adjusted for our appropriate share of the net earnings or losses of the investee. We record any investee losses up to the carrying amount of the investment plus advances and loans made to the investee, and any financial guarantees made on behalf of the investee. We recognize our share in earnings and losses of the investee as miscellaneous (expense) income, net in our consolidated statements of operations. Investments are also increased by contributions made to and decreased by the distributions from the investee. The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired.

 

Investments in non-public businesses that do not have readily determinable pricing, and for which the Company does not have control or does not exert significant influence, are carried at cost less impairments, if any, plus or minus changes in observable prices for those investments. Gains or losses resulting from changes in the carrying value of these investments are included as miscellaneous (expense) income, net in our consolidated statements of operations. These investments are reported together as a non-current asset on our balance sheets.

 

Use of Estimates. The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The business and economic uncertainty resulting from the novel coronavirus and its related disease (collectively, “COVID-19”) has made such estimates and assumptions more difficult to calculate. Our actual results could differ materially from these estimated amounts. Our most significant estimates are our allowance for credit losses in receivables, valuation of goodwill and intangible assets, amortization of program rights and intangible assets, pension costs, income taxes, employee medical insurance claims, useful lives of property and equipment and contingencies.

 

8

 

Earnings Per Share. We compute basic earnings per share by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the relevant period. The weighted-average number of common shares outstanding does not include restricted shares. These shares, although classified as issued and outstanding, are considered contingently returnable until the restrictions lapse and, in accordance with U.S. GAAP, are not included in the basic earnings per share calculation until the shares vest. Diluted earnings per share is computed by including all potentially dilutive common shares, including restricted shares, in the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive.

 

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding for the three-months ended March 31, 2021 and 2020, respectively (in millions):

 

  

Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 
         

Weighted-average common shares outstanding-basic

  94   98 

Common stock equivalents for stock options and restricted stock

  1   1 

Weighted-average common shares outstanding-diluted

  95   99 

 

Accumulated Other Comprehensive Loss. Our accumulated other comprehensive loss balances as of March 31, 2021 and December 31, 2020, consist of adjustments to our pension liability and the related income tax effect. Our comprehensive income for the three-months ended March 31, 2021 and 2020 consisted solely of our net income. As of March 31, 2021 and December 31, 2020 the balances were as follows (in millions):

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 

Accumulated balances of items included in accumulated other comprehensive loss:

        

Increase in pension liability

 $(52) $(52)

Income tax benefit

  (13)  (13)

Accumulated other comprehensive loss

 $(39) $(39)

 

Property and Equipment. Property and equipment are carried at cost, or in the case of acquired businesses, at fair value. Depreciation is computed principally by the straight-line method. The following table lists the components of property and equipment by major category (dollars in millions):

 

          

Estimated

 
  

March 31,

  

December 31,

  

Useful Lives

 
  

2021

  

2020

  

(in years)

 

Property and equipment:

             

Land

 $124  $123      

Buildings and improvements

  306   305  7to40 

Equipment

  850   834  3to20 
   1,280   1,262      

Accumulated depreciation

  (550)  (525)     

Total property and equipment, net

 $730  $737      

 

Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized. The cost of any assets divested, sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in income or expense for the period.

 

9

 

In April 2017, the Federal Communications Commission (the “FCC”) began a process of reallocating the broadcast spectrum (the “Repack”). Specifically, the FCC is requiring certain television stations to change channels and/or modify their transmission facilities. The U.S. Congress passed legislation which provides the FCC with a $1.7 billion fund to reimburse all reasonable costs incurred by stations operating under a full power license and a portion of the costs incurred by stations operating under a low power license that are reassigned to new channels. Subsequent legislation in March 2018 appropriated an additional $1.0 billion for the Repack fund, of which up to $750 million may be made available to reimburse the Repack costs of full power, Class A television stations and multichannel video programming distributors. Other funds are earmarked to assist low power television stations and for other transition costs. The sufficiency of the FCC’s fund to reimburse for Repack costs is dependent upon a number of factors including the amounts to be reimbursed to other industry participants for Repack costs. Therefore, we cannot predict whether the fund will be sufficient to reimburse our Repack costs to the extent authorized under the legislation. 48 of our current full power stations and 37 of our current low power stations were affected by the Repack. The Repack process began in the summer of 2017 and we expect that it will conclude for nearly all of our stations before the end of 2021. The majority of our costs associated with the Repack qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net.

 

The following tables provide additional information related to gain on disposal of assets, net included in our condensed consolidated statements of operations and purchases of property and equipment included in our condensed consolidated statements of cash flows (in millions):

 

  

Three Months Ended

 
  

March 31,

 
  

2021

  

2020

 

Gain on disposal of fixed assets, net:

        

Proceeds from sale of assets

 $-  $(1)

Proceeds from Repack

  (4)  (6)

Net book value of assets disposed

  1   1 

Other

  (1)  - 

Total

 $(4) $(6)
         

Purchase of property and equipment:

        

Recurring purchases - operations

 $12  $21 

Repack

  1   6 

Total

 $13  $27 

 

Accounts Receivable and Allowance for Credit Losses. We record accounts receivable from sales and service transactions in our condensed consolidated balance sheets at amortized cost adjusted for any write-offs and net of allowance for credit losses. We are exposed to credit risk primarily through sales of broadcast and digital advertising with a variety of direct and agency-based advertising customers, retransmission consent agreements with multichannel video program distributors and program production sales and services.

 

Our allowance for credit losses is an estimate of expected losses over the remaining contractual life of our receivables based on an ongoing analysis of collectability, historical collection experience, current economic and industry conditions and reasonable and supportable forecasts. The allowance is calculated using a historical loss rate applied to the current aging analysis. We may also apply additional allowance when warranted by specific facts and circumstances. We generally write off account receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted.

 

We are closely monitoring the potential impact of the COVID-19 global pandemic on the collectability of our receivables. As such, we did not adjust our allowance for credit loss as of March 31, 2021. 

 

10

 

The following table provides a roll-forward of the allowance for credit losses. The allowance is deducted from the amortized cost basis of accounts receivable in our condensed consolidated balance sheets (in millions):

 

  

Three Months Ended

 
  

March 31, 2021

  

March 31, 2020

 

Beginning balance

 $10  $11 

Provision for credit losses

  -   1 

Amounts written off

  -   - 

Amounts recovered from previous write-offs

  -   - 

Ending balance

 $10  $12 

 

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), In response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate. The amendments in this ASU apply to all entities that elect to apply the optional guidance in Topic 848. An entity may elect to apply the amendments in this Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued. We are currently evaluating the applicability of this guidance.

 

In addition to the accounting standards described above, certain amounts in the condensed consolidated balance sheets and statements of cash flows have also been reclassified to conform to the current presentation.

 

 

2.       Revenue

 

Revenue Recognition. We recognize revenue when we have completed a specified service and effectively transferred the control of that service to a customer in return for an amount of consideration we expect to be entitled to receive. The amount of revenue recognized is determined by the amount of consideration specified in a contract with our customers. We have elected to exclude taxes assessed by a governmental authority on transactions with our customers from our revenue. Any unremitted balance is included in current liabilities on our balance sheet.

 

We record a deposit liability for cash deposits received from our customers that are to be applied as payment once the performance obligation arises and is satisfied. These deposits are recorded as deposit liabilities on our balance sheet. When we invoice our customers for completed performance obligations, we are unconditionally entitled to receive payment of the invoiced amounts. Therefore, we record invoiced amounts in accounts receivable on our balance sheet. We generally require amounts payable under advertising contracts with our political advertising customers to be paid for in advance. We record the receipt of this cash as a deposit liability. Once the advertisement has been broadcast, the revenue is earned, and we record the revenue and reduce the balance in this deposit liability account. We recorded $21 million of revenue in the three-months ended March 31, 2021 that was included in the deposit liability balance as of December 31, 2020. The deposit liability balance is included in deferred revenue on our condensed consolidated balance sheets. The deposit liability balance was $8 million and $21 million as of March 31, 2021 and December 31, 2020, respectively.

 

11

 

Disaggregation of Revenue. Revenue from our production companies segment is generated through our direct sales channel. Revenue from our broadcast and other segment is generated through both our direct and advertising agency intermediary sales channels. The following table presents our revenue from contracts with customers disaggregated by type of service and sales channel (in millions):

 

   

Three Months Ended

 
   

March 31,

 
   

2021

   

2020

 

Market and service type:

               

Broadcast advertising:

               

Local

  $ 203     $ 199  

National

    57       51  

Political

    9       36  

Total advertising

    269       286  

Retransmission consent

    247       213  

Production companies

    14       19  

Other

    14       16  

Total revenue

  $ 544     $ 534  
                 

Sales Channel:

               

Direct

  $ 357     $ 327  

Advertising agency intermediary

    187       207  

Total revenue

  $ 544     $ 534  

 

 

3.      Acquisitions

 

Lubbock Transactions. On December 31, 2020, we acquired television station KLCW-TV (CW) and certain low power television stations in the Lubbock, Texas market (DMA 142), as well as certain non-license assets of KJTV-TV (FOX) and two additional low power stations and certain real estate, for a combined purchase price of $24 million, using cash on hand. On that date, we also entered into a shared services agreement with SagamoreHill to provide news and back-office services to KJTV-TV and its associated low power stations using cash on hand (the “Lubbock Transactions”).

 

Due to the proximity of the acquisition date to the date of the filing of our annual report on Form 10-K, we were unable to complete the allocation of the purchase price until the first quarter of 2021. The following table summarizes the preliminary values of the assets acquired and resulting goodwill of the Lubbock Transactions (in millions):

 

Property and equipment

  $ 6  

Operating lease right of use asset

    1  

Goodwill

    6  

Broadcast licenses

    5  

Other intangible assets

    7  

Other liabilities

    (1 )

Total

  $ 24  

 

These amounts are based upon management’s preliminary estimate of the fair values using valuation techniques including income, cost and market approaches. In determining the preliminary fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.

 

12

 

Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years.

 

Amounts related to other intangible assets are being amortized over their estimated useful lives of approximately 1 to 4 years.

 

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, as well as future synergies that we expect to generate from each acquisition. The goodwill recognized related to this acquisition is deductible for income tax purposes.

 

Pending Acquisitions. On January 31, 2021, we entered into an agreement with Quincy Media, Inc. (“Quincy”) to acquire all of the outstanding shares of capital stock of Quincy for $925 million in cash, subject to certain adjustments, including, among other things, adjustments based on a determination of net working capital, cash, transaction expenses and indebtedness, as provided in the purchase agreement (the “Quincy Transaction”). Gray intends to finance the transaction, net of divestiture proceeds, with cash on hand and/or new debt. We have obtained a debt financing commitment under our 2019 Senior Credit Facility to finance up to the full purchase price of $925 million.

 

The completion of the Quincy Transaction is subject to the satisfaction or waiver of certain customary conditions, including, among others: (i) the receipt of approval from the FCC and the expiration or early termination of the waiting period applicable to the transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and (ii) the absence of certain legal impediments to the consummation of the Quincy Transaction. Either party may terminate the Quincy purchase agreement if the Quincy Transaction is not consummated on or before January 31, 2022, with an automatic extension to May 1, 2022 if necessary to obtain regulatory approval under the circumstances specified in the Quincy purchase agreement. The purchase agreement includes a provision that we must pay a termination fee of $25 million if the purchase agreement is terminated as a result of a failure to satisfy certain regulatory approvals.

 

On April 29, 2021, we entered into an agreement with Allen Media Broadcasting, LLC to divest Quincy’s television stations in the seven markets in which we currently operate, for $380 million in cash, in order to facilitate regulatory approvals for the Quincy Transaction. We expect to close the Quincy Transaction and related divestitures concurrently following receipt of regulatory and other approvals, in the third quarter of 2021.

 

13

 
 

4.       Long-term Debt

 

As of March 31, 2021 and December 31, 2020, long-term debt consisted of obligations under our 2019 Senior Credit Facility (as defined below), our 5.875% senior notes due 2026 (the “2026 Notes”), our 7.0% senior notes due 2027 (the “2027 Notes”) and our 4.75% senior notes due 2030 (the “2030 Notes”). as follows (in millions):

 

  

March 31,

  

December 31,

 
  

2021

  

2020

 

Long-term debt:

        

2019 Senior Credit Facility:

        

2017 Term Loan

 $595  $595 

2019 Term Loan

  1,190   1,190 

2026 Notes

  700   700 

2027 Notes

  750   750 

2030 Notes

  800   800 

Total outstanding principal, including current portion

  4,035   4,035 

Unamortized deferred loan costs - 2019 Senior Credit Facility

  (33)  (34)

Unamortized deferred loan costs - 2026 Notes

  (6)  (6)

Unamortized deferred loan costs - 2027 Notes

  (10)  (10)

Unamortized deferred loan costs - 2030 Notes

  (13)  (14)

Unamortized premium - 2026 Notes

  3   3 

Long-term debt, less current portion and deferred financing costs

 $3,976  $3,974 
         

Borrowing availability under 2019 Revolving Credit Facility

 $299  $200 

 

On February 19, 2021, we entered into the first amendment (the “Amendment”) to our Fourth Amended and Restated Credit Agreement (the “2019 Senior Credit Facility”). The Amendment, among other things, (i) increases availability under the Revolving Credit Facility from an aggregate principal amount of $200 million to an aggregate principal amount of  $300 million, (ii) extends the maturity date of borrowings under the Revolving Credit Facility to January 2, 2026 and (iii) modifies certain terms of the Revolving Credit Facility relating to the implementation of a LIBOR replacement rate. As of March 31, 2021, the 2019 Senior Credit Facility provided total commitments of approximately $2.1 billion, consisting of a $595 million term loan facility (the “2017 Term Loan”), a $1.2 billion term loan facility (the “2019 Term Loan”) and a $299 million revolving credit facility.

 

As of March 31, 2021, the interest rate on the balance outstanding under the 2019 Term Loan was 2.6%. The 2019 Term Loan matures on January 2, 2026. As of March 31, 2021, the interest rate on the balance outstanding under the 2017 Term Loan was 2.4%. The 2017 Term Loan matures on February 7, 2024. We expect to enter into a further amendment of our 2019 Senior Credit Facility that will modify its terms relating to the implementation of a LIBOR replacement rate that will apply to our current and future term loans.

 

As of March 31, 2021, the aggregate minimum principal maturities of our long term debt for the remainder of 2021 and the succeeding five years were as follows (in millions):

 

  

Minimum Principal Maturities

 

Year

 

2019 Senior

Credit

Facility

  

2026

Notes

  

2027

Notes

  

2030

Notes

  

Total

 

Remainder of 2021

 $-  $-  $-  $-  $- 

2022

  -   -   -   -   - 

2023

  -   -   -   -   - 

2024

  595   -   -   -   595 

2025

  -   -   -   -   - 

2026

  1,190   700   -   -   1,890 

Thereafter

  -   -   750   800   1,550 

Total

 $1,785  $700  $750  $800  $4,035 

 

14

 

As of March 31, 2021, there were no significant restrictions on the ability of Gray Television, Inc.'s subsidiaries to distribute cash to Gray or to the guarantor subsidiaries. The 2019 Senior Credit Facility contains affirmative and restrictive covenants with which we must comply. The 2026 Notes, the 2027 Notes and the 2030 Notes include covenants with which we must comply. As of March 31, 2021 and December 31, 2020, we were in compliance with all required covenants under all our debt obligations.

 

For all of our interest bearing obligations, we made interest payments of approximately $32 million and $39 million during the three-months ended March 31, 2021 and 2020, respectively. We did not capitalize any interest payments during the three-months ended March 31, 2021 or 2020.

 

 

5.      Fair Value Measurement

 

We measure certain assets and liabilities at fair value, which are classified by the FASB Codification within the fair value hierarchy as level 1, 2, or 3, on the basis of whether the measurement employs observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions and consider information about readily available market participant assumptions.

 

 

Level 1: Quoted prices for identical instruments in active markets

 

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets

 

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

 

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The use of different market assumptions or methodologies could have a material effect on the fair value measurement.

 

The carrying amounts of accounts receivable, prepaid and other current assets, accounts payable, employee compensation and benefits, accrued interest, other accrued expenses, and deferred revenue approximate fair value at both March 31, 2021 and December 31, 2020.

 

At each of March 31, 2021 and December 31, 2020 the carrying amount of our long-term debt was $4.0 billion, and the fair value was $4.1 billion. The fair value of our long-term debt is based on observable estimates provided by third party financial professionals as of each date, and as such is classified within Level 2 of the fair value hierarchy.

 

 

6.       Stockholders Equity

 

We are authorized to issue 245 million shares in total of all classes of stock consisting of 25 million shares of Class A common stock, 200 million shares of common stock, and 20 million shares of “blank check” preferred stock for which our Board of Directors has the authority to determine the rights, powers, limitations and restrictions. The rights of our common stock and Class A common stock are identical, except that our Class A common stock has 10 votes per share and our common stock has one vote per share.

 

Our common stock and Class A common stock are entitled to receive cash dividends if declared, on an equal per-share basis. On February 24, 2021, the Board of Directors initiated and declared a quarterly cash dividend of $0.08 per share on our common stock and Class A common stock, to shareholders of record on March 15, 2021, payable on March 31, 2021. The total dividend paid was approximately $8 million. During the three-months ending March 31, 2020, we did not declare or pay any dividends on our common stock or Class A common stock.

 

Under our various employee benefit plans, we may, at our discretion, issue authorized and unissued shares, or previously issued shares held in treasury, of our Class A common stock or common stock. As of March 31, 2021, we had reserved 3,260,467 shares and 1,103,015 shares of our common stock and Class A common stock, respectively, for future issuance under various employee benefit plans. As of December 31, 2020, we had reserved 4,006,948 shares and 1,336,440 shares of our common stock and Class A common stock, respectively, for future issuance under various employee benefit plans.

 

15

 

During the three-months ended March 31, 2021, we have not repurchased any shares of our common stock or Class A common stock under our share repurchase programs. As of March 31, 2021, approximately $204 million was available to repurchase shares of our common stock and/or Class A common stock under these programs.

 

 

7.      Retirement Plans

 

The components of our net periodic pension benefit are included in miscellaneous income in our income statement. During the three-months ended March 31, 2021, the amount recorded as a benefit was not material, and we did not make a contribution to our defined benefit pension plan. During the remainder of 2021, we expect to contribute $4 million to this plan.

 

During the three-months ended March 31, 2021, we contributed $5 million in matching cash contributions, and shares of our common stock valued at approximately $7 million for our 2020 discretionary profit-sharing contributions, to the 401(k) plan. The discretionary profit-sharing contribution was recorded as an expense in 2020 and accrued as of December 31, 2020. During the remainder of 2021, we expect to contribute approximately $8 million of matching cash contributions to this plan.

 

 

8.      Stock-based Compensation

 

We recognize compensation expense for stock-based payment awards made to our employees, consultants and directors. Our current stock-based compensation plan, is the 2017 Equity and Incentive Compensation Plan (the “2017 EICP”). Our stock-based compensation expense and related income tax benefit for the three-months ended March 31, 2021 and 2020, respectively (in millions).

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Stock-based compensation expense, gross

 $4  $4 

Income tax benefit at our statutory rate associated with stock-based compensation

  (1)  (1)

Stock-based compensation expense, net

 $3  $3 

 

All shares of common stock and Class A common stock underlying Restricted stock, restricted stock units and performance awards are counted as issued at target levels under the 2017 EICP for purposes of determining the number of shares available for future issuance.

 

During the three-months ended March 31, 2021, we granted under the 2017 EICP:

 

 

 ●

96,355 shares of restricted Class A common stock with a grant date fair value per share of $17.20 to an employee, of which 32,118 shares will vest on each of January 31, 2022 and 2023 and 32,119 shares will vest on January 31, 2024;

 

 

 ●

96,355 shares of restricted Class A common stock with a grant date fair value per share of $17.20 to an employee, subject to the achievement of certain performance measures, which will vest on February 29, 2024;

 

 

 ●

247,497 shares of restricted common stock with a grant date fair value per share of $18.21 to certain employees, of which 82,499 shares will vest on each of January 31, 2022, 2023 and 2024;

 

 

 ●

48,545 shares of restricted common stock with a grant date fair value per share of $18.21 to an employee, subject to the achievement of certain performance measures, which will vest on February 29, 2024;

 

16

 
 

 ●

restricted stock units representing 95,115 shares of our common stock, to certain employees, which will vest on March 1, 2022; and

 

 

 ●

40,715 vested shares of our Class A common stock with a grant date fair value per share of $19.87 to an employee, upon the achievement of certain performance measures.

 

During the three-months ended March 31, 2020, we granted under the 2017 EICP:

 

 

 ●

83,407 shares of restricted Class A common stock with a grant date fair value per share of $19.87 to an employee, of which 27,802 shares vested on January 31, 2021, 27,802 shares will vest on January 31, 2022 and 27,803 shares will vest on January 31, 2023;

 

 

 ●

83,407 shares of restricted Class A common stock with a grant date fair value per share of $19.87 to an employee, subject to the achievement of certain performance measures, which will vest on January 31, 2023;

 

 

 ●

207,787 shares of restricted common stock with a grant date fair value per share of $21.69 to certain employees, of which 69,262 shares vested on January 31, 2021, 69,262 shares will vest on January 31, 2022 and 69,263 shares will vest on January 31, 2023;

 

 

 ●

40,756 shares of restricted common stock with a grant date fair value per share of $21.69 to an employee, subject to the achievement of certain performance measures, which will vest on January 31, 2023;

 

 

 ●

restricted stock units representing 90,184 shares of our common stock, to certain employees, of which 60,052 shares vested on March 1, 2021, and 15,066 shares will vest on each of March 1, 2022 and 2023.

 

17

 

A summary of restricted common stock and Class A common stock activities for the three-months ended March 31, 2021 and 2020, respectively, is as follows:

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 
      

Weighted-

      

Weighted-

 
      

Average

      

Average

 
  

Number

  

Grant Date

  

Number

  

Grant Date

 
  

of

  

Fair Value

  

of

  

Fair Value

 
  

Shares

  

Per Share

  

Shares

  

Per Share

 

Restricted common stock:

                

Outstanding - beginning of period

  917,533  $16.84   977,547  $15.45 

Granted (1)

  296,042   18.21   248,543   21.69 

Forfeited

  -   -   (85,630)  15.53 

Vested

  (502,241)  16.10   (260,004)  14.20 

Outstanding - end of period

  711,334  $17.94   880,456  $17.57 
                 

Restricted Class A common stock:

                

Outstanding - beginning of period

  480,042  $16.10   449,284  $13.55 

Granted (1)

  233,425   17.67   166,814   19.87 

Vested

  (248,539)  15.00   (136,056)  12.32 

Outstanding - end of period

  464,928  $17.47   480,042  $16.10 
                 

Restricted stock units - common stock:

                

Outstanding - beginning of period

  90,184  $18.92   398,000  $18.21 

Granted

  95,115   19.05   90,184   18.92 

Vested

  (60,052)  18.92   -   - 

Outstanding - end of period

  125,247  $19.02   488,184  $18.34 

 

        (1) For awards subject to future performance conditions, amounts assume target performance.

 

 

9.      Leases

 

We determine if an arrangement is a lease at its inception. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. Right-of-use (“ROU”) assets related to our operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. Our lease terms that are used in determining our operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that we will exercise such options. We amortize our ROU assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses. We have lease agreements with lease and non-lease components, and in such cases, we generally account for the components separately with only the lease component included in the calculation of the right of use asset and lease liability.

 

We have operating leases that primarily relate to certain of our facilities, data centers and vehicles. As of March 31, 2021, our operating leases substantially have remaining terms of one year to 99 years, some of which include options to extend and/or terminate the leases. We do not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year.

 

Cash flow movements related to our lease activities are included in other assets and accounts payable and other liabilities as presented in net cash provided by operating activities in our condensed consolidated statement of cash flows for the three-months ended March 31, 2021.

 

18

 

As of March 31, 2021, the weighted average remaining term of our operating leases was 11 years. The weighted average discount rate used to calculate the values associated with our operating leases was 6.73%. The table below describes the nature of lease expense and classification of operating lease expense recognized in the three-months ended March 31, 2021 and 2020 (in millions):

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Lease expense

        

Operating lease expense

 $3  $3 

Short-term lease expense

  1   1 

Total lease expense

 $4  $4 

 

The maturities of operating lease liabilities as of March 31, 2021, for the remainder of 2021 and the succeeding five years were as follows (in millions):

 

Year ending December 31,

  

Operating Leases

 

Remainder of 2021

 $8 

2022

  10 

2023

  8 

2024

  8 

2025

  7 

Thereafter

  42 

Total lease payments

 $83 

Less: Imputed interest

  (24)

Present value of lease liabilities

 $59 

 

 

10.     Commitments and Contingencies

 

Legal Proceedings and Claims. We are and expect to continue to be subject to legal actions, proceedings and claims that arise in the normal course of our business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, proceedings and claims will not materially affect our financial position, results of operations or cash flows, although legal proceedings are subject to inherent uncertainties, and unfavorable rulings or events could have a material adverse impact on our financial position, results of operations or cash flows.

 

Pending Acquisitions. Please refer to Note 3. “Acquisitions” for a discussion of our commitments related to the pending acquisition of Quincy Media, Inc. and Note 14. “Subsequent Events” for a discussion of our recent and pending transactions. 

 

19

 
 

11.    Goodwill and Intangible Assets

 

A summary of changes in our goodwill and other intangible assets, on a net basis, for the three-months ended March 31, 2021 is as follows (in millions):

 

  

Net Balance at

              

Net Balance at

 
  

December 31,

              

March 31,

 
  

2020

  

Net Additions

  

Impairments

  

Amortization

  

2021

 
                     

Goodwill

 $1,460  $6  $-  $-  $1,466 

Broadcast licenses

  3,579   5   -   -   3,584 

Finite-lived intangible assets

  395   7   -   (26)  376 

Total intangible assets net of accumulated amortization

 $5,434  $18  $-  $(26) $5,426 

 

A summary of the changes in our goodwill, on a gross basis, for the three-months ended March 31, 2021, is as follows (in millions):

 

  

As of

          

As of

 
  

December 31,

          

March 31,

 
  

2020

  

Net Additions

  

Impairments

  

2021

 
                 

Goodwill, gross

 $1,559  $6  $-  $1,565 

Accumulated goodwill impairment

  (99)  -   -   (99)

Goodwill, net

 $1,460  $6  $-  $1,466 

 

As of March 31, 2021 and December 31, 2020, our intangible assets and related accumulated amortization consisted of the following (in millions):

 

  

As of March 31, 2021

  

As of December 31, 2020

 
      

Accumulated

          

Accumulated

     
  

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

 

Intangible assets not currently subject to amortization:

                        

Broadcast licenses

 $3,638  $(54) $3,584  $3,633  $(54) $3,579 

Goodwill

  1,466   -   1,466   1,460   -   1,460 
  $5,104  $(54) $5,050  $5,093  $(54) $5,039