SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 13, 1997
(August 1, 1997)
GRAY COMMUNICATIONS SYSTEMS, INC.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
- -----------------------------------------------------------------------------
Georgia 1-13796 58-0285030
- -------------------------------- ----------------------------- ----------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer Identification
of incorporation) Number)
126 N. Washington Street,
Albany, GA 31701
- ------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
(912) 888-9390
----------------------------------------------------------------
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On August 1, 1997, Gray Communications Systems, Inc. (the "Company")
purchased from Raycom-U.S., Inc. (the "Seller") substantially all of the assets
used in the operation of television station WITN-TV, Inc. broadcast on Channel
7, the NBC affiliate in the Greenville-Washington-New Bern, North Carolina
market (the "WITN Acquisition"). The purchase price of approximately $41.4
million consisted of $40.6 million cash, $400,000 in acquisition related costs,
and approximately $400,000 in liabilities which were assumed by the Company.
Based on a preliminary allocation of the purchase price, the excess of the
purchase price over the fair value of net tangible assets acquired was
approximately $37.1 million. The Company funded the costs of this acquisition
through a senior credit facility (the "Senior Credit Facility") with KeyBank
National Association, NationsBank, N.A. (South), CIBC, Inc., CoreStates Bank,
N.A. and the Bank of New York. The Company will pay Bull Run Corporation, an
affiliate of the Company, a fee equal to 1% of the purchase price for services
performed in connection with this acquisition.
The terms of the acquisition, including the consideration paid by the Company
therefore, were determined in arms-length negotiations between the Company and
the Seller.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following unaudited interim financial statements of WITN-TV, Inc. are
included in Appendix A hereto and incorporated herein by reference:
Condensed Balance Sheet as of June 30, 1997 (unaudited)
Condensed Statements of Operations for the six months ended June 30,
1997 and 1996 (unaudited)
Condensed Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 (unaudited)
Note to Condensed
Financial Statements (unaudited)
The following audited financial statements of WITN-TV, Inc. are included in
Appendix B hereto and incorporated herein by reference:
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended December 31, 1996 and 1995
Statements of Stockholder's Equity for the years ended December 31,
1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information.
The pro forma financial information is included in Appendix C hereto and
incorporated herein by reference.
2
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 hereunto duly authorized.
Gray Communications Systems, Inc.
By: /s/ William A. Fielder, III
----------------------------
William A. Fielder, III
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Date: October 13, 1997
3
APPENDIX A
WITN-TV, Inc.
Condensed Balance Sheet (unaudited)
June 30, 1997
ASSETS
CURRENT ASSETS
Cash $ 102,428
Trade accounts receivable, less allowance for doubtful
accounts of $99,077 1,364,320
Program broadcast rights 94,217
Other current assets 43,003
------------
Total current assets 1,603,968
PROPERTY, PLANT AND EQUIPMENT, net 2,156,643
OTHER ASSETS
FCC licenses and network affiliation rights, net 36,161,314
Other invested assets 35,631
------------
36,196,945
------------
$ 39,957,556
============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Program broadcast obligations $ 92,897
Trade accounts payable 63,541
Intercompany payable 608,891
Accrued interest 951,502
Accrued expenses 18,375
------------
Total current liabilities 1,735,206
INTERCOMPANY NOTES PAYABLE 38,379,907
STOCKHOLDER'S EQUITY (DEFICIT)
Preferred stock, $10 par value; 25,000 shares
authorized; zero share issued -0-
Common stock, $10 par value; 25,000 shares
authorized; 24,800 shares issued and outstanding 248,000
Retained (deficit) (405,557)
------------
(157,557)
------------
(39,957,556)
===========
See note to condensed financial statements
A-1
WITN-TV, Inc.
Condensed Statements of Operations (unaudited)
Six Months Ended
June 30,
1997 1996
------------- ------------
REVENUES
Total gross revenues $ 4,468,921 $ 4,499,307
Less total commissions (564,399) (621,606)
------------- ------------
Net revenues 3,904,522 3,877,701
EXPENSES
Program 511,969 492,080
Sales 556,600 503,597
Engineering 266,378 274,245
News 606,053 596,608
General and administrative 296,065 365,780
Depreciation and amortization 545,474 431,165
Other 82,353 94,530
------------- ------------
2,864,892 2,758,005
------------- ------------
1,039,630 1,119,696
------------- ------------
Other expense (income):
Corporate management fees 93,612 32,526
Other expense (income) (4,151) -0-
------------- ------------
Total other expenses 89,461 32,526
------------- ------------
950,169 1,087,170
Interest expense 951,502 -0-
------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,333) 1,087,170
Federal and state income tax expense (benefit) (103) 60,000
------------- ------------
NET INCOME (LOSS) $ (1,230) $ 1,027,170
============= ============
SEE NOTE TO CONDENSED FINANCIAL STATEMENTS
A-2
WITN-TV, Inc.
Condensed Statements of Cash Flows (unaudited)
Six Months Ended
June 30,
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ (1,230) $ 1,027,170
Items which did not use (provide) cash:
Depreciation 191,331 174,321
Amortization of intangible assets 354,143 256,844
(Gain) on disposal of assets (5,053) -0-
Deferred income taxes (62,072) -0-
Changes in operating assets and liabilities:
Receivables, film rights and other current assets 484,437 (1,079,119)
Accounts payable, film liabilities and other liabilities 1,189,243 45,515
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,150,799 424,731
INVESTING ACTIVITIES
Purchase of intangible assets in connection with
the purchase by Raycom - US, Inc. (39,575,963) -0-
Purchase of property and equipment (101,089) (431,345)
Proceeds from sale of assets 5,053 -0-
Other (8,085) -0-
------------ ------------
CASH USED IN INVESTING ACTIVITIES (39,680,084) (431,345)
FINANCING ACTIVITIES
Borrowings on intercompany notes payable 38,379,907 -0-
Return of capital - net (973,220) -0-
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 37,406,687 -0-
------------ ------------
DECREASE IN CASH AND CASH EQUIVILENTS (122,598) (6,614)
Cash and cash equivalents at beginning of period 225,026 85,624
------------ ------------
CASH AND CASH EQUIVILENTS
AT END OF PERIOD $ 102,428 $ 79,010
============ ============
SEE NOTE TO CONDENSED FINANCIAL STATEMENTS
A-3
WITN-TV, INC.
NOTE TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996 AND 1997
A. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of WITN-TV,
Inc. ("WITN") have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the audited
financial statements and footnotes for the years ended December 31, 1996 and
1995 included elsewhere herein.
WITN was purchased by AFLAC Broadcast Group, Inc. (AFBG) on July 1,
1985 from North Carolina Television. AFBG is a wholly owned subsidiary of AFLAC
Incorporated. WITN was purchased from AFBG by Raycom - U.S., Inc. (Raycom) on
April 15, 1997. The purchase by Raycom resulted in an increase of $21.9 million
in FCC licenses and network affiliation rights and the recording of $38.4
million in intercompany notes payable.
Current Federal Communications Commission rules do not allow Raycom's
continued ownership. Accordingly, the operations and certain assets of WITN were
sold to Gray Communications Systems, Inc. on August 1, 1997.
A-4
APPENDIX B
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Financial Statements
December 31, 1996 and 1995
With Independent Auditors' Report Thereon
B-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WITN-TV, Inc.:
We have audited the accompanying balance sheets of WITN-TV, Inc. (a wholly owned
subsidiary of AFLAC Broadcast Group, Inc.) as of December 31, 1996 and 1995, and
the related statements of income, stockholder's equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WITN-TV, Inc. at December 31,
1996 and 1995 and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
January 29, 1997
Atlanta, Georgia
B-2
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
------ ---- ----
Current assets:
Cash $ 225,026 85,624
Trade accounts receivable, less allowance for doubtful
accounts of $20,606 and $33,898 in 1996 and 1995,
respectively 1,666,293 1,286,648
Broadcast program rights 250,704 218,324
Other current assets 52,648 193,760
Intercompany receivable -- 3,202,590
----------- -----------
Total current assets
2,194,671 4,986,946
Land 66,988 66,988
Buildings and improvements at cost, less accumulated depreciation
of $526,302 and $484,487 in 1996 and 1995, respectively 393,253 435,068
Furniture and equipment, primarily transmission towers
and studio equipment, at cost, less accumulated
depreciation of $3,428,840 and $3,691,980 in
1996 and 1995, respectively 1,786,643 1,487,014
Other assets:
Broadcast program rights, excluding current portion 16,332 32,824
FCC licenses and network affiliation rights, net of
accumulated amortization of $5,908,805 and
$5,395,117 in 1996 and 1995, respectively 14,640,110 15,153,798
Other invested assets 27,547 29,014
----------- -----------
$19,125,544 22,191,652
=========== ===========
See accompanying notes to financial statements.
B-3
Liabilities and Stockholder's Equity 1996 1995
------------------------------------ ---- ----
Current liabilities:
Current portion of broadcast program liabilities $ 248,724 268,866
Accounts payable 96,144 72,802
Accrued expenses 185,093 175,581
Income taxes - (3,064)
------------ -------------
Total current liabilities 529,961 514,185
Noncurrent portion of:
Broadcast program liabilities 16,002 30,514
Deferred income taxes 62,072 65,136
Commitments and contingencies (notes 3, 4, and 7)
------------ -------------
Total liabilities 608,035 609,835
------------ -------------
Stockholder's equity:
Preferred stock, $10 par value. 25,000 shares
authorized, zero shares issued - -
Common stock, $10 par value. 25,000 shares
authorized, 24,800 shares issued and outstanding 248,000 248,000
Additional paid-in capital 27,205,275 32,835,606
Accumulated deficit (8,935,766) (11,501,789)
------------ ----------
Total stockholder's equity 18,517,509 21,581,817
------------ ----------
$ 19,125,544 22,191,652
========== ==========
B-4
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Statements of Income
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Revenue:
Total gross revenue $ 9,813,453 7,872,678
Less total commissions (1,382,187) (1,065,046)
--------- ---------
Net revenue 8,431,266 6,807,632
--------- ---------
Operating expenses:
Program 996,882 852,389
Sales 1,038,204 981,200
Engineering 578,983 536,224
News 1,217,035 1,083,765
General and administrative 804,823 686,127
Depreciation and amortization 876,712 890,472
Other 163,191 57,305
------------ ------------
Total operating expenses 5,675,830 5,087,482
--------- ---------
Net operating income 2,755,436 1,720,150
--------- ---------
Other expense (income):
Corporate management fees 37,947 65,052
Other expense (income) 1,466 25,276
------------ ------------
Total other expense 39,413 90,328
------------ ------------
Net income before income taxes 2,716,023 1,629,822
State income tax expense 150,000 -
------------ -----------
Net income $ 2,566,023 1,629,822
========= =========
See accompanying notes to financial statements.
B-5
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Statements of Stockholder's Equity
Years ended December 31, 1996 and 1995
Common stock Additional
Number paid-in Accumulated
of shares Amount capital deficit Total
December 31, 1994 24,800 $ 248,000 32,835,606 (13,131,611) 19,951,995
Net income - - - 1,629,822 1,629,822
------ -------- ----------- ----------- -----------
December 31, 1995 24,800 248,000 32,835,606 (11,501,789) 21,581,817
Net income - - - 2,566,023 2,566,023
Return of capital - - (5,630,331) - (5,630,331)
------ -------- ---------- ----------- -----------
December 31, 1996 24,800 $ 248,000 27,205,275 (8,935,766) 18,517,509
====== ======= ========== =========== ==========
See accompanying notes to financial statements.
B-6
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Cash flows from operating activities:
Net income $2,566,023 1,629,822
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation of property and equipment 363,024 376,784
Amortization of intangible assets 513,688 513,688
Loss (gain) on sale of equipment 954 (660)
Change in:
Accounts receivable (379,645) (242,714)
Broadcast program rights (15,888) (24,546)
Liability for broadcast program rights (34,654) (103,307)
Other current assets 141,112 (2,083)
Accounts payable 23,342 (30,716)
Accrued expenses 9,512 (10,668)
Income taxes payable - (3,064)
Deferred income taxes - 32,409
------------ ------------
Total adjustments 621,445 505,123
------------ ------------
Net cash provided by operating activities 3,187,468 2,134,945
--------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment (621,792) (486,247)
Proceeds from sales of property, plant, and equipment - 17,479
Decrease (increase) in other invested assets 1,467 (4,070)
------------ ------------
Net cash used in investing activities (620,325) (472,838)
------------ ------------
Cash flows from financing activities:
Decrease (increase) in intercompany receivables 3,202,590 (1,664,565)
Return of capital (5,630,331) -
--------- -----------
Net cash used in financing activities (2,427,741) (1,664,565)
--------- ---------
Net change 139,402 (2,458)
Cash at beginning of year 85,624 88,082
------------ ------------
Cash at end of year $ 225,026 85,624
============ ============
Supplemental disclosure of cash flow information -
income taxes paid $ 150,000 -
============ ===========
See accompanying notes to financial statements.
B-7
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
WITN-TV, Inc. (the "Station") was purchased on July 1, 1985 from
North Carolina Television. The Station is 100% owned by AFLAC
Broadcast Group, Inc. (AFBG). AFBG is a wholly owned subsidiary of
AFLAC Incorporated.
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements
and revenues and expenses for the reporting period. Actual results
could differ significantly from those estimates.
(b) Nature of Operations
The Station operates in North Carolina, selling advertising time to
a variety of customers.
The Station is subject to regulation by the Federal Communications
Commission (FCC).
FCC License Rights
The Station has a license agreement with the Federal
Communications Commission (FCC) which grants the Station the
right to use the public airwaves for distribution by electronic
transmission of news, entertainment programming, advertising
information, and public information announcements in a specified
geographic area using a specific frequency, effective radiated
power, and broadcast tower height. The term of the license is
five years and is renewable for indefinite subsequent five-year
periods upon satisfying certain renewal requirements.
Network Affiliation Rights
A network affiliation agreement gives the Station the exclusive
right to broadcast network programming within the Station's
FCC-licensed geographic service areas. This programming enables
the Station to attract much larger audiences than a station
without a network affiliation. These network audiences also make
up "lead-in" audiences for locally produced programs in time
periods adjacent to network program periods with the result that
the stations can sell advertising at higher rates during these
periods. The network also provides management and operational
guidance to the Station, the right to use network trade names and
logos in station promotions, and local station promotion by
network on-air personalities.
B-8
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Notes to Financial Statements
The Station is subject to various risks in the conduct of its
business, including, but not limited to, FCC license risk, network
affiliation risk, and "talent" risk. The Station mitigates these
risks by retaining an FCC attorney to notify the Station of any
possible noncompliance or of any changes to the FCC regulations and
by utilizing various programs to maintain relations with the
network and on-air "talent."
(c) Method of Accounting
The accompanying financial statements have been prepared on the
accrual basis of accounting. The Station also reports its operating
results for income tax purposes on the accrual basis.
(d) Furniture and Equipment
Furniture and equipment is recorded at cost. Depreciation is
provided using the straight-line method over estimated useful lives
of from 20 to 50 years for buildings, from three to ten years for
furniture and equipment, and from ten to 20 years for broadcasting
towers.
Expenditures for repairs and maintenance which do not materially
extend the useful lives of property are charged to expense as
incurred.
(e) Broadcast Program Rights
Broadcast program rights represent amounts paid or payable to
program suppliers for the limited rights to broadcast the
suppliers' programming, and are recorded when the license period
begins.
Broadcast program rights under film contracts are generally limited
to a contract period or a specific number of showings. Program
rights are generally amortized to expense based on the
straight-line method over the contract period or actual program
usage since multiple showings are expected to generate similar
revenues. Rights expected to be amortized within one year are
classified as current assets. The liabilities under these contracts
are recorded at the gross amount of the payments due, and are
classified as current or noncurrent in accordance with payment
terms.
(f) FCC Licenses and Network Affiliation Rights
The carrying value of the FCC licenses and network affiliation
rights in the accompanying balance sheet is the difference between
the total purchase price of the television business and other
identified assets at the time of original purchase of the Station
by AFBG, less amortization using the straight-line method over 40
years.
B-9
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Notes to Financial Statements
(g) Income Taxes
The Station joins in the filing of a consolidated U.S. Federal
income tax return with AFLAC Incorporated, which allocates current
income taxes to each subsidiary based on the taxes that each entity
would pay if it filed a separate Federal income tax return.
Deferred income taxes are allocated based on consolidated income
taxes for AFLAC Incorporated.
(2) Transactions with Affiliates
The Station has executed a management agreement with AFBG to undertake
the management and operation of the Station. The total fees paid amounted
to $37,947 and $65,052 in 1996 and 1995, respectively.
The Company had a receivable from AFBG of $-0- and $3,202,590 at December
31, 1996 and 1995, respectively. In lieu of a cash settlement for the
receivable from AFBG, during 1996, the receivable was extinguished
through a return of capital in the amount of $5.6 million.
(3) Broadcast Program Liabilities
The Station has incurred payment obligations in connection with purchases
of broadcast program rights. Scheduled contractual payments under these
contracts are as follows:
Year ending
December 31,
1998 $ 1,120
1999 14,882
--------
Total noncurrent liability $ 16,002
========
Current portion due within one year $ 248,724
=========
At December 31, 1996, the Station is committed under executed license
agreements for programming totaling $292,575 covering broadcast periods
beginning after December 31, 1996.
(4) Employee Pension Plan
The Station participates in a defined benefit pension plan sponsored by
AFBG that covers substantially all of the Station's employees. The
retirement benefits are based on years of service and salary during the
last five years preceding retirement. It is AFBG's general policy to
annually fund through a trust the accrued costs (calculated under the
frozen entry age actuarial cost method) for the plan to the extent
deductible for Federal income tax purposes.
B-10
WITN-TV, INC.
(A wholly owned subsidiary of AFLAC Broadcast Group, Inc.)
Notes to Financial Statements
(5) Financial Instruments
The carrying amounts for cash, accounts receivable, and accounts payable
approximate their fair values due to the short-term nature of these
instruments.
The Station has no derivative instruments.
(6) Sale of Station
On August 13, 1996, AFLAC Incorporated, the parent company, signed a
binding letter of intent to sell its broadcast division business,
including the Station, to Raycom Media, Inc. Management expects the sale
will close during the first half of 1997, pending approval by the FCC.
(7) Contingencies
The Station is a defendant in various litigation considered to be in the
normal course of business. Although the final results of any litigation
cannot be predicted with certainty, the Station is vigorously defending
its position and believes the outcome of the litigation will not have a
material adverse effect on the financial position of the Station.
B-11
APPENDIX C
GRAY COMMUNICATIONS SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET - JUNE 30, 1997 (UNAUDITED)
The following unaudited pro forma condensed combined balance sheet of
the Company as of June 30, 1997 is based on the condensed historical
consolidated balance sheet of the Company and the balance sheet of WITN. The
unaudited pro forma condensed combined balance sheet gives effect to the WITN
Acquisition under the purchase method of accounting and is based on a
preliminary allocation of the purchase price reflecting the assumptions and the
adjustments described in the accompanying notes.
This unaudited pro forma condensed combined balance sheet does not
purport to represent the Company's actual financial position that would have
been reported had the WITN Acquisition occurred on June 30, 1997.
The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are reasonable
under the circumstances. This unaudited pro forma condensed combined balance
sheet should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto for the year ended December 31, 1996 (as filed
in the Company's annual report on Form 10-K for the year ended December 31,
1996) and for the quarter ended June 30, 1997 (as filed in the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1997).
C-1
Gray Communications Systems, Inc.
Pro Forma Condensed Combined Balance Sheet (unaudited)
June 30, 1997
(In thousands, except share data)
Pro Forma
Adjustments
for WITN Pro Forma
Company WITN-TV, Inc. Acquisition Combined (6)
------------ ------------- --------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 523 $ 102 $ (102) (1) $ 523
Trade accounts receivable, less allowance
for doubtful accounts 16,700 1,364 -0- 18,064
Recoverable income taxes 4,166 -0- -0- 4,166
Inventories 504 -0- -0- 504
Current portion of program broadcast rights 1,505 94 -0- 1,599
Other current assets 947 44 (44) (1) 947
------------ ------------- --------------- ------------
Total current assets 24,345 1,604 (146) 25,803
PROPERTY AND EQUIPMENT - NET 39,838 2,157 723 (2) 42,718
OTHER ASSETS
Deferred acquisition costs 485 -0- (372) (2) 113
Deferred loan costs 8,665 -0- -0- 8,665
Goodwill and other intangibles 229,052 36,161 891 (2) 266,104
Other 1,625 36 (36) 1,625
------------ ------------- --------------- ------------
Total other assets 239,827 36,197 483 276,507
------------ ------------- --------------- ------------
$ 304,010 $ 39,958 $ 1,060 $ 345,028
============ ============= =============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 3,883 $ 63 $ (63) (1) $ 3,883
Intercompany payable -0- 609 (609) (1) -0-
Accrued expenses 7,362 19 (19) (1) 7,662
300 (2)
Accrued interest 4,385 952 (952) (1) 4,385
Current portion of program broadcast obligations 1,822 93 -0- 1,915
Deferred revenue 1,818 -0- -0- 1,818
Current portion of long-term debt 345 -0- -0- 345
------------ ------------- --------------- ------------
Total current liabilities 19,615 1,736 (1,343) 20,008
LONG-TERM DEBT 181,282 -0- 40,637 (3) 221,919
INTERCOMPANY NOTES PAYABLE -0- 38,380 (38,380) (1) -0-
OTHER LONG-TERM LIABILITIES 7,808 -0- (12) (2) 7,796
STOCKHOLDERS' EQUITY
Serial Preferred Stock 20,000 -0- -0- 20,000
Class A Common Stock, no par value 9,829 -0- -0- 9,829
Class B Common Stock, no par value 66,283 -0- -0- 66,283
Common Stock, $10 par value -0- 248 (248) (2) -0-
Retained earnings 9,691 (406) 406 (2) 9,691
------------ ------------- --------------- ------------
105,803 (158) 158 105,803
Treasury tock:
Class A Common Stock (7,758) -0- -0- (7,758)
Class B Common Stock (2,740) -0- -0- (2,740)
------------ ------------- --------------- ------------
95,305 (158) 158 95,305
------------ ------------- --------------- ------------
$ 304,010 $ 39,958 $ 1,060 $ 345,028
============ ============= =============== ============
SEE NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
C-2
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
1. Reflects the elimination of i) assets of WITN that were not included in
the WITN Acquisition and ii) liabilities of WITN not assumed by the
Company in the WITN Acquisition.
2. Reflects the WITN Acquisition by the Company and a preliminary
allocation of the purchase price to the tangible assets and liabilities
using estimates of current fair market value. The excess of purchase
price over amounts allocated to the net tangible assets will be
amortized on a straight-line basis over a 40 year period.
3. Reflects the additional borrowings of $40.6 million under the Company's
Senior Credit Facility to fund the WITN Acquisition.
C-3
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED) (CONTINUED)
JUNE 30, 1997
4. In connection with the First American Acquisition, the Federal
Communications Commission (the "FCC") ordered the Company to apply for
FCC approval to divest itself of WALB-TV ("WALB") in Albany, Georgia
and WJHG-TV ("WJHG") in Panama City, Florida by March 31, 1997 to
comply with regulations governing common ownership of television
stations with overlapping service areas. The FCC is currently
reexamining these regulations, and if it revises them in accordance
with the interim policy it has adopted, divestiture of WJHG would not
be required. Accordingly, the Company requested and in July of 1997
received an extension of the divestiture deadline with regard to WJHG
conditioned upon the outcome of the rulemaking proceedings. It can not
be determined when the FCC will complete its rulemaking on this
subject. Also in July of 1997, the Company obtained FCC approval to
transfer control of WALB to a trust with a view towards the trustee
effecting i) a swap of WALB's assets for assets of one or more
television stations of comparable value and with comparable broadcast
cash flow in a transaction qualifying for deferred capital gains
treatment under the "like-kind exchange" provision of Section 1031 of
the Internal Revenue Code of 1986, or ii) a sale of such assets. Under
the trust arrangement, the Company relinquished operating control of
the station to a trustee while retaining the economic risks and
benefits of ownership. If the trustee is required to effect a sale of
WALB, the Company would incur a significant gain and related tax
liability, the payment of which could have an adverse effect on the
Company's ability to acquire comparable assets without incurring
additional indebtedness. The FCC has allowed up to six months for the
trustee to file an application seeking the agency's approval of a swap
or sale. The approval process is expected to take between two and six
months.
Condensed unaudited balance sheets of WALB and WJHG are as follows (in
thousands):
June 30, 1997
---------------------
WALB WJHG
--------- -------
Current assets $2,076 $1,024
Property and equipment 1,444 908
Other assets 68 4
------ ------
Total assets $3,588 $1,936
====== ======
Current liabilities $1,855 $ 489
Other liabilities 209 -0-
Stockholder's equity 1,524 1,447
------ ------
Total liabilities and stockholder's
equity $3,588 $1,936
====== ======
C-4
GRAY COMMUNICATIONS SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
On September 30, 1996, the Company purchased from First American Media,
Inc. (the "First American Acquisition") substantially all of the assets used in
the operation of two CBS-affiliated television stations, WCTV-TV serving
Tallahassee, Florida/Thomasville, Georgia and WKXT-TV ("WKXT") in Knoxville,
Tennessee, as well as those assets used in the operation of a satellite uplink
and production services business and a communications and paging business (the
"First American Business"). Subsequent to the First American Acquisition, the
Company rebranded WKXT with the call letters WVLT as a component of its strategy
to promote the station's upgraded news product. The purchase price of
approximately $183.9 million consisted of $175.5 million in cash, $1.8 million
in acquisition-related costs, and the assumption of approximately $6.6 million
of liabilities. Based on the preliminary allocation of the purchase price, the
excess of the purchase price over the fair value of net tangible assets acquired
was approximately $159.8 million. The Company's Board of Directors agreed to pay
Bull Run Corporation ("Bull Run"), a principal stockholder of the Company, a fee
equal to $1.7 million for services performed in connection with the First
American Acquisition.
The First American Acquisition and the early retirement of the Company's
existing bank credit facility (the "Old Credit Facility") and other senior
indebtedness, were funded as follows: net proceeds of $66.1 million from the
sale of 3.5 million shares of the Company's Class B Common Stock; net proceeds
of $155.2 million from the sale of $160.0 million principal amount of the
Company's 10 5/8% Senior Subordinated Notes due 2006 (the "Notes"); $16.9
million of borrowings under the Senior Credit Facility; and $10.0 million net
proceeds from the sale of 1,000 shares of the Company's Series B Preferred Stock
with warrants to purchase 500,000 shares of the Company's Class A Common Stock
at $24 per share. The shares of Series B Preferred Stock were issued to Bull Run
and to J. Mack Robinson, Chairman of the Board of Bull Run and President and
Chief Executive Officer of the Company, and certain of his affiliates. The
Company obtained an opinion from an investment banker as to the fairness of the
terms of the sale of such Series B Preferred Stock with warrants. The Company
also converted an 8% subordinated note due January 3, 2005 in the principal
amount of $10.0 million (the "8% Note") into 1,000 shares of the Company's
Series A Preferred Stock.
The Company sold the assets of KTVE Inc. (the "KTVE Sale"), its
NBC-affiliated television station, in Monroe, Louisiana/El Dorado, Arkansas to
GOCOM Television of Ouachita, L.P. on August 20, 1996.
The following unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1996, is presented below and assumes
that the KTVE Sale; the sale of 3.5 million shares of the Company's Class B
Common Stock, the conversion of the 8% Note into 1,000 shares of the Company's
Series A Preferred Stock and the sale of 1,000 shares of the Company's Series B
Preferred Stock (the "Offering"); the sale of the Notes, the First American
Acquisition and the WITN Acquisition occurred on January 1, 1996. This unaudited
pro forma condensed combined statement of operations does not include an
extraordinary loss of approximately $5.3 million ($3.2 million after taxes or
$0.56 per common share) relating to deferred financing costs and prepayment fee
associated with the retirement of a $25.0 million senior secured note with an
institutional investor (the "Senior Note") and the Old Credit Facility.
This unaudited pro forma condensed combined statement of operations
does not purport to represent the Company's actual results of operations had
these events occurred on January 1, 1996, and should not serve as a forecast of
the Company's operating results for any future periods. The pro forma
adjustments are based solely upon certain assumptions that management believes
are reasonable under the circumstances at this time.
C-5
GRAY COMMUNICATIONS SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)
This unaudited pro forma condensed combined statement of operations should be
read in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto for the year ended December 31, 1996 (as filed in the Company's
annual report on Form 10-K for the year ended December 31, 1996).
C-6
Gray Communications Systems, Inc.
Pro Forma Condensed Combined Statement of Operations (unaudited)
Year Ended December 31, 1996
(in thousands, except per share data)
KTVE
Company Offering Sale
--------------- --------------------- ------------
OPERATING REVENUES
Broadcasting (less agency commissions) $ 54,981 $ -0- $ (2,968)
Publishing 22,845 -0- -0-
Paging 1,479 -0- -0-
--------------- --------------------- ------------
79,305 (2,968)
EXPENSES
Broadcasting 32,438 -0- (2,226)
Publishing 17,949 -0- -0-
Paging 1,078 -0- -0-
Corporate and administrative 3,219 -0- -0-
Depreciation 4,077 -0- (279)
Amortization of intangible assets 3,585 (201) (1) -0-
Non-cash compensation paid in common stock 880 -0- -0-
--------------- --------------------- ------------
63,226 (201) (2,505)
--------------- --------------------- ------------
16,079 201 (463)
Miscellaneous income and (expense), net 5,705 -0- (5,673)
--------------- --------------------- ------------
21,784 201 (6,136)
Interest expense 11,689 (6,138) (1) -0-
--------------- --------------------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST,
INCOME TAXES AND EXTRAORDINARY CHARGE 10,095 6,339 (6,136)
Minority interests -0- -0- -0-
Federal and state income taxes (benefit) 4,416 2,532 (2) (2,963)
--------------- --------------------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE 5,679 3,807 (3,173)
Extraordinary charge on extinguishment of debt 3,159 (3,159) -0-
--------------- --------------------- ------------
NET INCOME 2,520 6,966 (3,173)
Preferred dividends 377 1,023 (3) -0-
--------------- --------------------- ------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 2,143 $ 5,943 $ (3,173)
Average shares outstanding (18) ============== ===================== ============
Primary 5,626
==============
Fully diluted 5,644
==============
Primary and fully diluted earnings per common share:
Income (loss) before extraordinary charge
available to common stockholders $ 0.94
Extraordinary charge (0.56)
---------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 0.38
==============
Pro Forma Phipps Pro Forma Pro Forma
Company Business Adjustments Company
----------- ---------- ------------- --------
OPERATING REVENUES
Broadcasting (less agency commissions) $ 52,013 $ 17,163 $ -0- $ 69,176
Publishing 22,845 -0- -0- 22,845
Paging 1,479 4,040 -0- 5,519
----------- ---------- ------------- --------
76,337 21,203 -0- 97,540
EXPENSES
Broadcasting 30,212 9,307 (1,212) (4) 38,925
165 (5)
158 (6)
295 (7)
Publishing 17,949 -0- -0- 17,949
Paging 1,078 3,345 (643) (4) 3,832
52 (6)
Corporate and administrative 3,219 7,953 (7,953) (8) 3,219
Depreciation 3,798 1,757 787 (9) 6,342
Amortization of intangible assets 3,384 544 2,450 (10) 6,378
Non-cash compensation paid in common stock 880 -0- -0- 880
----------- ---------- ------------- --------
60,520 22,906 (5,901) 77,525
----------- ---------- ------------- --------
15,817 (1,703) 5,901 20,015
Miscellaneous income and (expense), net 32 57 -0- 89
----------- ---------- ------------- --------
15,849 (1,646) 5,901 20,104
Interest expense 5,551 279 (279)(11) 20,196
14,645 (12)
----------- ---------- ------------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST,
INCOME TAXES AND EXTRAORDINARY CHARGE 10,298 (1,925) (8,465) (92)
Minority interests -0- (152) 152 (13) -0-
Federal and state income taxes (benefit) 3,985 -0- (4,089) (2) (104)
----------- ---------- ------------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE 6,313 (1,773) (4,528) 12
Extraordinary charge on extinguishment of debt -0- -0- -0- -0-
----------- ---------- ------------- --------
NET INCOME 6,313 (1,773) (4,528) 12
Preferred dividends 1,400 -0- -0- 1,400
----------- ---------- ------------- --------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 4,913 $ (1,773) $ (4,528) $ (1,388)
=========== ========= ========= ========
Average shares outstanding (18)
Primary 8,179 7,952
=========== ========
Fully diluted 8,197 7,952
=========== ========
Primary and fully diluted earnings per common share:
Income (loss) before extraordinary charge
available to common stockholders $ 0.60 $ (0.17)
Extraordinary charge -0- -0-
=========== ========
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 0.60 $ (0.17)
=========== ========
Pro Forma
Adjustments
for WITN Pro Forma
WITN-TV, Inc. Acquisition Combined (19)
------------- --------------- -------------
OPERATING REVENUES
Broadcasting (less agency commissions) $ 8,431 $ -0- $ 77,607
Publishing -0- -0- 22,845
Paging -0- -0- 5,519
------------- --------------- -------------
8,431 -0- 105,971
EXPENSES
Broadcasting 4,799 -0- 43,724
Publishing -0- -0- 17,949
Paging -0- -0- 3,832
Corporate and administrative 38 (38) (14) 3,219
Depreciation 363 112 (15) 6,817
Amortization of intangible assets 514 415 (16) 7,307
Non-cash compensation paid in common stock -0- -0- 880
------------- --------------- -------------
5,714 489 83,728
------------- --------------- -------------
2,717 (489) 22,243
Miscellaneous income and (expense), net (1) -0- 88
------------- --------------- -------------
2,716 (489) 22,331
Interest expense -0- 3,401 (17) 23,597
------------- --------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST,
INCOME TAXES AND EXTRAORDINARY CHARGE 2,716 (3,890) (1,266)
Minority interests -0- -0- -0-
Federal and state income taxes (benefit) 150 (550) (2) (504)
------------- --------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE 2,566 (3,340) (762)
Extraordinary charge on extinguishment of debt -0- -0- -0-
------------- --------------- -------------
NET INCOME 2,566 (3,340) (762)
Preferred dividends -0- -0- 1,400
------------- --------------- -------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 2,566 $ (3,340) $ (2,162)
============= ================ =============
Average shares outstanding (18)
Primary 7,952
=============
Fully diluted 7,952
=============
Primary and fully diluted earnings per common share:
Income (loss) before extraordinary charge
available to common stockholders $ (0.27)
Extraordinary charge -0-
-------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (0.27)
=============
C-7
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
1. Reflects decreased amortization of deferred financing costs in
connection with retirement of the Senior Note. Also reflects decreased
interest expense of $3.3 million on the Company's Old Credit Facility
resulting from repayment of $45.3 million in principal at an estimated
weighted average interest rate of 9.0% per annum from the proceeds of
this Offering; decreased annual interest expense of $2.0 million
resulting from the retirement of the Senior Note; and a reduction of
interest expense of $800,000 on the 8% Note which was converted to
Series A Preferred Stock.
2. Reflects the adjustment of the income tax provision to the estimated
effective tax rate.
3. Reflects dividends on the Company's Series A and Series B Preferred
Stock.
4. Reflects the elimination of severance and vacation expense associated
with the First American Acquisition. Such amounts will not be incurred
by the Company in connection with its operations of the First American
Business.
5. Reflects accounting and administrative expenses associated with the
Company's operations of the First American Business subsequent to the
First American Acquisition.
6. Reflects increased pension expense for the First American Business
subsequent to the First American Acquisition.
7. Reflects increased annual tower rental expense of $393,000 associated
with the operation of the First American Business.
8. Reflects the elimination of the corporate allocation to the First
American Business. The Company in connection with its operations of the
First American Business will not incur such amounts.
9. Reflects increased depreciation resulting from the change in asset
lives in connection with the newly acquired property and equipment (at
fair market value) of the First American Business.
10. Reflects annual amortization of intangible assets associated with the
First American Acquisition over a 40-year period.
11. Reflects elimination of interest expense associated with the First
American Business that will not be assumed by the Company.
12. Reflects assumed increased interest expense of $13.0 million on the
Notes, which includes amortization expense of $500,000 resulting from
the transaction costs relating to the issuance of the Notes, interest
expense of $1.3 million relating to the additional borrowings under the
Senior Credit Facility at an estimated rate of 8.5% plus amortization
of additional deferred financing costs of $310,000.
C-8
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)
13. Reflects the elimination of minority interest associated with the First
American Business, because such minority interests will be acquired as
a part of the First American Acquisition.
14. Reflects the elimination of a corporate allocation from AFBG to WITN.
The Company in connection with its operations of WITN will not incur
such amounts.
15. Reflects increased depreciation resulting from the change in asset
lives in connection with the newly acquired property and equipment (at
fair market value) of WITN.
16. Reflects annual amortization of intangible assets associated with WITN
over a 40-year period.
17. Reflects increased interest expense associated with the borrowing of
$40.6 to fund the WITN Acquisition.
18. Average outstanding shares used to calculate pro forma earnings (loss)
per share are based on weighted average common shares outstanding
during the period, adjusted for the Offering.
C-9
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)
19. In connection with the First American Acquisition, the FCC ordered the
Company to apply for FCC approval to divest itself of WALB-TV ("WALB")
in Albany, Georgia and WJHG-TV ("WJHG") in Panama City, Florida by
March 31, 1997 to comply with regulations governing common ownership of
television stations with overlapping service areas. The FCC is
currently reexamining these regulations, and if it revises them in
accordance with the interim policy it has adopted, divestiture of WJHG
would not be required. Accordingly, the Company requested and in July
of 1997 received an extension of the divestiture deadline with regard
to WJHG conditioned upon the outcome of the rulemaking proceedings. It
can not be determined when the FCC will complete its rulemaking on this
subject. Also in July of 1997, the Company obtained FCC approval to
transfer control of WALB to a trust with a view towards the trustee
effecting i) a swap of WALB's assets for assets of one or more
television stations of comparable value and with comparable broadcast
cash flow in a transaction qualifying for deferred capital gains
treatment under the "like-kind exchange" provision of Section 1031 of
the Internal Revenue Code of 1986, or ii) a sale of such assets. Under
the trust arrangement, the Company relinquished operating control of
the station to a trustee while retaining the economic risks and
benefits of ownership. If the trustee is required to effect a sale of
WALB, the Company would incur a significant gain and related tax
liability, the payment of which could have an adverse effect on the
Company's ability to acquire comparable assets without incurring
additional indebtedness. The FCC has allowed up to six months for the
trustee to file an application seeking the agency's approval of a swap
or sale. The approval process is expected to take between two and six
months.
Condensed income statement data of WALB and WJHG are as follows:
Year Ended
December 31, 1996
-------------------------
WALB WJHG
-------- --------
Broadcasting revenues $10,611 $ 5,217
Expenses 5,070 4,131
------- -------
Operating income 5,541 1,086
Other income 7 6
------- -------
Income before income taxes $ 5,548 $ 1,092
======= =======
Net income $ 3,465 $ 685
======= =======
C-10
GRAY COMMUNICATIONS SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
The following unaudited pro forma condensed combined statement of
operations of the Company for the six months ended June 30, 1997 is based on the
historical consolidated financial statements of the Company and the financial
statements of WITN and are presented as if the WITN Acquisition had occurred on
January 1, 1997. The unaudited pro forma condensed combined statement of
operations gives effect to the WITN Acquisition under the purchase method of
accounting and is based on a preliminary allocation of the purchase price and
the assumptions and the adjustments described in the accompanying notes.
This unaudited pro forma condensed combined statement of operations
does not purport to represent the Company's actual results of operations that
would have been reported had the WITN Acquisition occurred on January 1, 1997.
The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are reasonable
under the circumstances. This unaudited pro forma condensed combined statement
of operations should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto for the year ended December 31, 1996
(as filed in the Company's annual report on Form 10-K for the year ended
December 31, 1996) and for the quarter ended June 30, 1997 (as filed in the
Company's quarterly report on Form 10-Q for the quarter ended June 30, 1997).
C-11
Gray Communications Systems, Inc.
Pro Forma Condensed Combined Statement of Operations (unuadited)
Six Months Ended June 30,1997
(In thousands, except per share data)
Pro Forma
Adjustments
for WITN Pro Forma
Company WITN-TV, Inc. Acquisition Combined (7)
--------------- --------------- ------------- -------------
OPERATING REVENUES
Broadcasting (less agency commissions) $ 33,768 $ 3,905 $ -0- $ 37,673
Publishing 11,306 -0- -0- 11,306
Paging 3,185 -0- -0- 3,185
--------------- --------------- ------------- -------------
48,259 3,905 -0- 52,164
EXPENSES
Broadcasting 19,299 2,319 -0- 21,618
Publishing 8,528 -0- -0- 8,528
Paging 1,837 -0- -0- 1,837
Corporate and administrative 1,374 93 (93) (1) 1,374
Depreciation 3,647 192 46 (2) 3,885
Amortization of intangible assets 3,113 354 106 (3) 3,573
--------------- --------------- ------------- -------------
37,798 2,958 59 40,815
--------------- --------------- ------------- -------------
10,461 947 (59) 11,349
Miscellaneous income and (expense), net (40) 4 (36)
--------------- --------------- ------------- -------------
10,421 951 (59) 11,313
Interest expense 10,057 952 772 (4) 11,781
--------------- --------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 364 (1) (831) (468)
Federal and state income taxes (benefit) 203 -0- (362) (5) (159)
--------------- --------------- ------------- -------------
NET INCOME (LOSS) 161 (1) (469) (309)
Preferred dividend 700 -0- -0- 700
--------------- --------------- ------------- -------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (539) $ (1) $ (469) $ (1,009)
=============== ================ ============= =============
Average common shares outstanding (6):
Primary 7,891 7,891
=============== =============
Fully diluted 7,891 7,891
=============== =============
Loss per share available to common stockholders
Primary $ (0.07) $ (0.13)
=============== =============
Fully diluted $ (0.07) $ (0.13)
=============== =============
SEE NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
C-12
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
1. Reflects the elimination of a corporate allocation to WITN by its
previous owner which will not be incurred by the Company.
2. Reflects increased depreciation resulting from the change in asset
lives in connection with the preliminary allocation of the purchase
price to the newly acquired property and equipment, at fair market
value.
3. Reflects amortization of intangible assets associated with WITN over a
40-year period.
4. Reflects semiannual interest of $1.7 million for increased debt levels
on the Company's Senior Credit Facility.
5. Reflects the adjustment of the income tax provision to the estimated
effective tax rate.
6. Average outstanding shares used to calculate pro forma loss per share
available to common stockholders are based upon weighted average common
shares outstanding during the period.
C-13
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) (CONTINUED)
7. In connection with the First American Acquisition, the FCC ordered the
Company to apply for FCC approval to divest itself of WALB-TV ("WALB")
in Albany, Georgia and WJHG-TV ("WJHG") in Panama City, Florida by
March 31, 1997 to comply with regulations governing common ownership of
television stations with overlapping service areas. The FCC is
currently reexamining these regulations, and if it revises them in
accordance with the interim policy it has adopted, divestiture of WJHG
would not be required. Accordingly, the Company requested and in July
of 1997 received an extension of the divestiture deadline with regard
to WJHG conditioned upon the outcome of the rulemaking proceedings. It
can not be determined when the FCC will complete its rulemaking on this
subject. Also in July of 1997, the Company obtained FCC approval to
transfer control of WALB to a trust with a view towards the trustee
effecting i) a swap of WALB's assets for assets of one or more
television stations of comparable value and with comparable broadcast
cash flow in a transaction qualifying for deferred capital gains
treatment under the "like-kind exchange" provision of Section 1031 of
the Internal Revenue Code of 1986, or ii) a sale of such assets. Under
the trust arrangement, the Company relinquished operating control of
the station to a trustee while retaining the economic risks and
benefits of ownership. If the trustee is required to effect a sale of
WALB, the Company would incur a significant gain and related tax
liability, the payment of which could have an adverse effect on the
Company's ability to acquire comparable assets without incurring
additional indebtedness. The FCC has allowed up to six months for the
trustee to file an application seeking the agency's approval of a swap
or sale. The approval process is expected to take between two and six
months.
Condensed income statement data of WALB and WJHG are as follows:
Six Months Ended
June 30, 1997
-----------------------
WALB WJHG
------ ------
Broadcasting revenues $4,931 $2,441
Expenses 2,255 1,840
------ ------
Operating income 2,676 601
Other income
-0- -0-
------ ------
Income before income taxes $2,676 $ 601
====== ======
Net income $1,660 $ 372
====== ======
C-14
