UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark one)
[X] | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended |
[] | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _________ to _________ .
Commission file number 1-13796
Gray Television, Inc.
| Georgia | 58-0285030 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 4370 Peachtree Road, NE, Atlanta, Georgia | 30319 | |
| (Address of principal executive offices) | (Zip code) |
(404) 504-9828
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [þü] Noo [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [þü] Noo [ ]
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) | |
| 5,830,820 shares outstanding as of |
INDEX
INDEX
GRAY TELEVISION, INC.
| PAGE | ||||||||||
| 3 | ||||||||||
| 5 | ||||||||||
| 6 | ||||||||||
| 7 | ||||||||||
| 8 | ||||||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||||
| Quantitative and Qualitative Disclosure About Market Risk | ||||||||||
OTHER INFORMATION | ||||||||||
| Exhibits and Reports on Form 8-K | ||||||||||
| 17 | ||||||||||
| EX-31.1 SECTION 302 CERTIFICATION OF THE CEO | ||||||||||
| EX-31.2 SECTION 302 CERTIFICATION OF THE CFO | ||||||||||
| EX-32.1 SECTION 906 CERTIFICATION OF THE CEO | ||||||||||
| EX-32.2 SECTION 906 CERTIFICATION OF THE CFO | ||||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAY TELEVISION, INC.
(in thousands) September 30, December 31, 2003 2002 (Unaudited) Current assets: Cash and cash equivalents $ 10,208 $ 12,915 Trade accounts receivable, less allowance for doubtful accounts of $890 and
$1,339 respectively 50,753 54,770 Recoverable income taxes 679 234 Inventories 1,063 1,178 Current portion of program broadcast rights, net 9,956 8,082 Other current assets 2,104 1,691 Total current assets 74,763 78,870 Property and equipment: Land 17,587 16,758 Buildings and improvements 33,370 32,767 Equipment 180,530 164,834 231,487 214,359 Allowance for depreciation (101,433 ) (86,127 ) 130,054 128,232 Deferred loan costs, net 13,580 13,756 Broadcast licenses 878,108 878,108 Goodwill 174,187 173,341 Other intangible assets, net 4,193 9,423 Other 15,739 14,994 $ 1,290,624 $ 1,296,724 March 31, December 31, 2004 2003 Current assets: Cash and cash equivalents $ 24,683 $ 11,947 Trade accounts receivable, less allowance for doubtful accounts of $1,032 and $1,145 respectively 49,585 55,215 Inventories 1,116 1,521 Current portion of program broadcast rights, net 4,977 7,487 Other current assets 3,804 1,865
Total current assets 84,165 78,035
Property and equipment: Land 17,607 17,606 Buildings and improvements 34,573 34,325 Equipment 189,553 186,225
241,733 238,156 Allowance for depreciation (109,948 ) (104,197 )
131,785 133,959 Deferred loan costs, net 12,644 13,112 Broadcast licenses 925,711 925,711 Goodwill 153,858 153,858 Other intangible assets, net 3,524 3,807 Investment in broadcasting company 13,599 13,599 Related party receivable 1,610 1,610 Other 1,476 1,638
$ 1,328,372 $ 1,325,329
See notes to condensed consolidated financial statements.
3
GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited)
(in thousands)
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
Liabilities and stockholders’ equity: | ||||||||||
| Current liabilities: | ||||||||||
| Trade accounts payable | $ | 2,861 | $ | 6,044 | ||||||
| Employee compensation and benefits | 11,366 | 13,454 | ||||||||
| Accrued interest | 10,373 | 1,119 | ||||||||
| Other accrued expenses | 4,310 | 3,276 | ||||||||
| Current portion of program broadcast obligations | 11,528 | 9,472 | ||||||||
| Acquisition related liabilities | 3,208 | 8,051 | ||||||||
| Deferred revenue | 3,391 | 3,791 | ||||||||
| Current portion of long-term debt | 153 | 887 | ||||||||
| Total current liabilities | 47,190 | 46,094 | ||||||||
| Long-term debt, less current portion | 655,751 | 657,333 | ||||||||
| Program broadcast obligations, less current portion | 1,131 | 1,126 | ||||||||
| Deferred income taxes | 181,707 | 174,765 | ||||||||
| Other | 8,148 | 8,796 | ||||||||
| 893,927 | 888,114 | |||||||||
| Commitments and contingencies | ||||||||||
| Redeemable Serial Preferred Stock, no par value; cumulative; convertible; designated 5 shares, issued and outstanding 4 shares ($40,000 aggregate liquidation value) | 39,255 | 39,190 | ||||||||
| Stockholders’ equity: | ||||||||||
| Common Stock, no par value; authorized 50,000 shares, respectively; issued 43,808 and 43,436, respectively | 389,542 | 385,762 | ||||||||
| Class A Common Stock, no par value; authorized 15,000 shares; issued 7,962 shares, respectively | 15,241 | 20,173 | ||||||||
| Retained deficit | (20,894 | ) | (28,176 | ) | ||||||
| Accumulated other comprehensive loss, net of tax | (184 | ) | -0- | |||||||
| Unearned compensation | (373 | ) | -0- | |||||||
| 383,332 | 377,759 | |||||||||
| Treasury Stock at cost, Common Stock, 12 and -0- shares, respectively | (200 | ) | -0- | |||||||
| Treasury Stock at cost, Class A Common Stock, 2,131 and 1,113 shares, respectively | (25,690 | ) | (8,339 | ) | ||||||
| 357,442 | 369,420 | |||||||||
| $ | 1,290,624 | $ | 1,296,724 | |||||||
| March 31, | December 31, | |||||||
| 2004 | 2003 | |||||||
Liabilities and stockholders’ equity: | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 2,867 | $ | 8,134 | ||||
| Employee compensation and benefits | 12,275 | 14,195 | ||||||
| Accrued interest | 10,364 | 4,040 | ||||||
| Other accrued expenses | 3,690 | 4,332 | ||||||
| Current portion of program broadcast obligations | 6,507 | 8,976 | ||||||
| Acquisition related liabilities | 1,659 | 1,678 | ||||||
| Deferred revenue | 2,991 | 3,022 | ||||||
| Unrealized loss on derivatives | 197 | 210 | ||||||
| Current portion of long-term debt | 107 | 124 | ||||||
| Total current liabilities | 40,657 | 44,711 | ||||||
| Long-term debt, less current portion | 654,848 | 655,778 | ||||||
| Program broadcast obligations, less current portion | 866 | 1,014 | ||||||
| Deferred income taxes | 221,220 | 217,666 | ||||||
| Other | 3,369 | 4,109 | ||||||
| 920,960 | 923,278 | |||||||
| Commitments and contingencies (Note E) | ||||||||
| Redeemable Serial Preferred Stock, no par value; cumulative; convertible; designated 5 shares, issued and outstanding 4 shares ($40,000 aggregate liquidation value) | 39,298 | 39,276 | ||||||
| Stockholders’ equity: | ||||||||
| Common Stock, no par value; authorized 50,000 shares, respectively; issued 44,198 and 44,032, respectively | 394,563 | 392,436 | ||||||
| Class A Common Stock, no par value; authorized 15,000 shares; issued 7,962 shares, respectively | 15,241 | 15,241 | ||||||
| Retained earnings (deficit) | (14,320 | ) | (17,500 | ) | ||||
| Accumulated other comprehensive loss, net of tax | (113 | ) | (126 | ) | ||||
| Unearned compensation | (1,338 | ) | (1,357 | ) | ||||
| 394,033 | 388,694 | |||||||
| Treasury Stock at cost, Common Stock, 12 shares, respectively | (200 | ) | (200 | ) | ||||
| Treasury Stock at cost, Class A Common Stock, 2,131 shares, respectively | (25,719 | ) | (25,719 | ) | ||||
| 368,114 | 362,775 | |||||||
| $ | 1,328,372 | $ | 1,325,329 | |||||
See notes to condensed consolidated financial statements.
4
GRAY TELEVISION, INC.
(in thousands except for per share data) Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Operating revenues: Broadcasting (less agency commissions) $ 60,372 $ 29,535 $ 176,524 $ 84,541 Publishing 10,995 10,858 32,535 32,074 Paging 1,985 2,116 5,915 6,199 73,352 42,509 214,974 122,814 Operating expenses: Operating expenses before depreciation and amortization Broadcasting 35,657 16,647 106,299 48,622 Publishing 7,917 7,790 23,605 23,210 Paging 1,384 1,360 4,234 4,114 Corporate and administrative 1,916 1,169 6,159 3,285 Depreciation and amortization 6,990 3,632 21,159 11,065 Total operating expenses 53,864 30,598 161,456 90,296 Operating income 19,488 11,911 53,518 32,518 Miscellaneous income (expense), net 16 (42 ) 132 55 Appreciation in value of derivatives, net -0- 851 -0- 1,581 Interest expense (10,458 ) (8,049 ) (32,700 ) (24,915 ) Loss on early extinguishment of debt -0- -0- -0- (11,275 ) Income (loss) before income taxes and cumulative effect of accounting change 9,046 4,671 20,950 (2,036 ) Federal and state income tax expense (benefit) 3,490 1,555 8,191 (786 ) Net income (loss) before cumulative effect of accounting change 5,556 3,116 12,759 (1,250 ) Cumulative effect of accounting change, net of income tax benefit of $8,873 -0- -0- -0- (30,592 ) Net income (loss) 5,556 3,116 12,759 (31,842 ) Preferred dividends 822 800 2,465 1,603 Preferred dividends associated with the redemption of preferred stock -0- -0- -0- 3,969 Net income (loss) available to common stockholders $ 4,734 $ 2,316 $ 10,294 $ (37,414 ) Basic per share information: Net income (loss) before cumulative effect of accounting change available to common stockholders $ 0.09 $ 0.15 $ 0.20 $ (0.43 ) Cumulative effect of accounting change, net of income tax benefit 0.00 0.00 0.00 (1.95 ) Net income (loss) available to common stockholders $ 0.09 $ 0.15 $ 0.20 $ (2.38 ) Weighted average shares outstanding 50,095 15,752 50,275 15,692 Diluted per share information: Net income (loss) before cumulative effect of accounting change available to common stockholders $ 0.09 $ 0.14 $ 0.20 $ (0.43 ) Cumulative effect of accounting change, net of income tax benefit 0.00 0.00 0.00 (1.95 ) Net income (loss) available to common stockholders $ 0.09 $ 0.14 $ 0.20 $ (2.38 ) Weighted average shares outstanding 50,596 16,027 50,574 15,692 Three Months Ended March 31, 2004 2003 Operating revenues: Broadcasting (less agency commissions) $ 61,910 $ 52,601 Publishing 10,963 10,397 Paging 1,856 1,977
74,729 64,975
Operating expenses: Operating expenses before depreciation, amortization and loss on disposal of assets: Broadcasting 37,398 34,898 Publishing 8,049 7,755 Paging 1,353 1,469 Corporate and administrative 2,373 2,136 Depreciation 5,801 5,190 Amortization of intangible assets 283 1,862 Amortization of restricted stock awards 94 -0- Loss on disposal of assets, net 4 13
Total operating expenses 55,355 53,323
Operating income 19,374 11,652 Miscellaneous income (expense), net 143 78 Interest expense (10,461 ) (11,270 )
Income before income taxes 9,056 460 Federal and state income tax expense 3,554 289
Net income 5,502 171 Preferred dividends (includes $22 accretion of issuance costs, respectively) 822 822
Net income (loss) available to common stockholders $ 4,680 $ (651 )
Basic per share information: Net income (loss) available to common stockholders $ 0.09 $ (0.01 )
Weighted average shares outstanding 49,856 50,327
Diluted per share information: Net income (loss) available to common stockholders $ 0.09 $ (0.01 )
Weighted average shares outstanding 50,503 50,327
See notes to condensed consolidated financial statements.
5
GRAY TELEVISION, INC.
(in thousands except for number of shares) Class A Class A Common Stock Accumulated Common Stock Common Stock Retained
Earnings Treasury Stock Treasury Stock Other
Comprehensive Unearned Total
Stockholders’ Shares Amount Shares Amount (Deficit) Shares Amount Shares Amount Income (Loss) Compensation Equity Balance at December 31, 2003 7,961,574 $ 15,241 44,032,138 $ 392,436 $ (17,500 ) (2,130,754 ) $ (25,719 ) (11,750 ) $ (200 ) $ (126 ) $ (1,357 ) $ 362,775
Net income 5,502 5,502 Unrealized gain on derivatives, net of income taxes 13 13
Comprehensive income 5,515 Common Stock cash dividends ($0.03 per share) (1,500 ) (1,500 ) Preferred Stock dividends (822 ) (822 ) Issuance of Common Stock: 401(k) plan 68,566 1,017 1,017 Non-qualified stock plan 92,500 1,034 1,034 Directors’ restricted stock plan 5,00 76 (76 ) -0- Amortization of unearned compensation 95 95
Balance at March 31, 2004 7,961,574 $ 15,241 44,198,204 $ 394,563 $ (14,320 ) (2,130,754 ) $ (25,719 ) (11,750 ) $ (200 ) $ (113 ) $ (1,338 ) $ 368,114
Class A Class A Common Stock Common Stock Treasury Stock Retained Shares Amount Shares Amount Deficit Shares Amount Balance at December 31, 2002 7,961,574 $ 20,173 43,435,704 $ 385,762 $ (28,176 ) (1,113,107 ) $ (8,339 ) Net income for the Nine months ended September 30, 2003 12,759 Common Stock dividends ($0.06 per share) (3,012 ) Preferred Stock dividends (2,465 ) Issuance of Common Stock: 401(k) plan 142,628 1,514 Non-qualified stock plan 184,920 1,767 Directors’ stock plan 168 2 Directors’ restricted stock plan 45,000 439 Amortization of unearned compensation Cost of stock issuance (195 ) Depreciation in value of derivatives, net Purchase of stock (1,017,647 ) (17,351 ) Purchase of warrants from related party (4,932 ) Income tax benefit relating to stock plans 253 Balance at September 30, 2003 7,961,574 $ 15,241 43,808,420 $ 389,542 $ (20,894 ) (2,130,754 ) $ (25,690 )
[Additional columns below]
[Continued from above table, first column(s) repeated] Common Stock Accumulated Treasury Stock Other Total Comprehensive Unearned Stockholders’ Shares Amount (Income (Loss) Compensation Equity Balance at December 31, 2002 -0 - $ -0 - $ -0 - $ -0 - $ 369,420 Net income for the Nine months
ended September 30, 2003 12,759 Common Stock dividends ($0.06 per share) (3,012 ) Preferred Stock dividends (2,465 ) Issuance of Common Stock: 401(k) plan 1,514 Non-qualified stock plan 1,767 Directors’ stock plan 2 Directors’ restricted stock plan (439 ) -0 - Amortization of unearned compensation 66 66 Cost of stock issuance (195 ) Depreciation in value of derivatives, net (184 ) (184 ) Purchase of stock (11,750 ) (200 ) (17,551 ) Purchase of warrants from related party (4,932 ) Income tax benefit relating to stock plans 253 Balance at September 30, 2003 (11,750 ) $ (200 ) $ (184 ) $ (373 ) $ 357,442
See notes to condensed consolidated financial statements.
6
GRAY TELEVISION, INC.
(in thousands) Nine Months Ended September 30, 2003 2002 Operating activities Net income (loss) $ 12,759 $ (31,841 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change -0 - 30,592 Depreciation 15,928 10,746 Amortization of intangible assets 5,231 319 Amortization of deferred loan costs 1,328 1,083 Amortization of bond discount 108 108 Amortization of directors’ restricted stock award 66 -0 - Amortization of program broadcast rights 8,382 4,044 Write-off loan acquisition costs from early extinguishment of debt -0 - 3,030 Payments for program broadcast rights (8,257 ) (4,095 ) Supplemental employee benefits (25 ) (68 ) Common Stock contributed to 401(k) Plan 1,514 572 Deferred income taxes 7,318 (1,051 ) Appreciation in value of derivatives, net -0 - (1,581 ) (Gain) loss on asset sales 80 107 Changes in operating assets and liabilities: Receivables, inventories and other current assets 3,136 3,655 Accounts payable and other current liabilities 4,116 1,700 Net cash provided by operating activities 51,684 17,320 Investing activities Restricted cash for redemption of long-term debt -0 - 168,557 Deferred acquisition cost (7,509 ) (8,770 ) Acquisition of television businesses (797 ) -0 - Purchases of property and equipment (15,974 ) (11,386 ) Other (292 ) (256 ) Net cash provided by (used in) investing activities (24,572 ) 148,145 Financing activities Proceeds from borrowings on long-term debt -0 - 6,272 Repayments of borrowings on long-term debt (2,454 ) (179,019 ) Deferred loan costs (1,152 ) (3,070 ) Proceeds from issuance of common stock 1,769 792 Proceeds from issuance of preferred stock -0 - 30,556 Dividends paid (5,412 ) (2,546 ) Purchase of common stock from related party (17,552 ) -0 - Purchase of common stock warrants from related party (4,932 ) -0 - Other (86 ) 82 Net cash used in financing activities (29,819 ) (146,933 ) Increase (decrease) in cash and cash equivalents (2,707 ) 18,532 Cash and cash equivalents at beginning of period 12,915 558 Cash and cash equivalents at end of period $ 10,208 $ 19,090 Three Months Ended March 31, 2004 2003 Operating activities: Net income $ 5,502 $ 171 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,801 5,190 Amortization of intangible assets 283 1,862 Amortization of deferred loan costs 468 426 Amortization of bond discount 36 36 Amortization of restricted stock award 94 21 Amortization of program broadcast rights 2,756 2,693 Payments for program broadcast rights (2,697 ) (2,404 ) Supplemental employee benefits (11 ) (18 ) Common Stock contributed to 401(k) Plan 560 868 Deferred income taxes 3,554 374 Loss on disposal of assets 4 13 Changes in operating assets and liabilities: Receivables, inventories and other current assets 4,096 9,172 Accounts payable and other current liabilities (2,850 ) (4,444 ) Accrued Interest 6,325 9,029
Net cash provided by operating activities 23,921 22,989
Investing activities: Purchases of property and equipment (8,230 ) (3,730 ) Acquisition of television businesses -0- (600 ) Payments on acquisition related liabilities (713 ) (5,709 ) Proceeds from sale of assets 21 199 Other (14 ) (3 )
Net cash used in investing activities (8,936 ) (9,843 )
Financing activities: Repayments of borrowings on long-term debt (983 ) (1,779 ) Deferred loan costs -0- (96 ) Proceeds from (expenses for) issuance of Common Stock 1,034 (85 ) Dividends paid (2,300 ) (1,807 )
Net cash used in financing activities (2,249 ) (3,767 )
Increase in cash and cash equivalents 12,736 9,379 Cash and cash equivalents at beginning of period 11,947 12,915
Cash and cash equivalents at end of period $ 24,683 $ 22,294
See notes to condensed consolidated financial statements.
7
GRAY TELEVISION, INC.
NOTE A—A—BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Gray Television, Inc. (“Gray” or “the Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and the nine-month periodsperiod ended September 30, 2003March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.2003.
Stock-Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The adoption of the provisions of SFAS No. 148 did not have a material impact on the Company’s consolidated financial statements. However, the Company has modified its disclosures as required.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per common share data and ratios):
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| Net income (loss) available to common stockholders, as reported | $ | 4,734 | $ | 2,316 | $ | 10,294 | $ | (37,414 | ) | ||||||||
| Add: Stock-based employee compensation expense included in reported net income, net of related tax effects | -0- | -0- | -0- | -0- | |||||||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (311 | ) | (234 | ) | (1,035 | ) | (593 | ) | |||||||||
| Net income (loss) available to common stockholders, pro forma | $ | 4,423 | $ | 2,082 | $ | 9,259 | $ | (38,007 | ) | ||||||||
| Net income (loss) per common share, pro forma: | |||||||||||||||||
| Basic, as reported | $ | 0.09 | $ | 0.15 | $ | 0.20 | $ | (2.38 | ) | ||||||||
| Basic, pro forma | $ | 0.09 | $ | 0.13 | $ | 0.18 | $ | (2.42 | ) | ||||||||
| Diluted, as reported | $ | 0.09 | $ | 0.14 | $ | 0.20 | $ | (2.38 | ) | ||||||||
| Diluted, pro forma | $ | 0.09 | $ | 0.13 | $ | 0.18 | $ | (2.42 | ) | ||||||||
| Risk free interest rates | NA | 2.68 | % | 2.86 | % | 3.42 | % | ||||||||||
| Dividend yields | NA | 0.88 | % | 0.85 | % | 0.81 | % | ||||||||||
| Expected volatility factors | NA | 38.20 | % | 40.84 | % | 34.79 | % | ||||||||||
| Weighted average expected life of the options | NA | 4.500 | 4.500 | 4.500 | |||||||||||||
8
GRAY TELEVISION, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE A—BASIS OF PRESENTATION (Continued)
Stock-Based Compensation (Continued)
The Company follows the provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, (“APB25”), but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per common share data): Three Months Ended March 31, 2004 2003 Net income (loss) available to common stockholders, as reported $ 4,680 $ (651 ) Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects -0- -0- Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (276 ) (409 )
Net income (loss) available to common stockholders, pro forma $ 4,404 $ (1,060 )
Net income (loss) per common share: Basic, as reported $ 0.09 $ (0.01 ) Basic, pro forma $ 0.09 $ (0.02 ) Diluted, as reported $ 0.09 $ (0.01 ) Diluted, pro forma $ 0.09 $ (0.02 )
8
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE A—BASIS OF PRESENTATION (Continued)
Earnings Per Share
The Company computes earnings per share in accordance with FASB Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“EPS”). The following table reconciles net income (loss) before cumulative effect of accounting change to net income (loss) before cumulative effect of accounting change available to common stockholders for the three months ended March 31, 2004 and nine months ended September 30, 2003 and 2002 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| Net income (loss) before cumulative effect of accounting change | $ | 5,556 | $ | 3,116 | $ | 12,759 | $ | (1,250 | ) | |||||||
| Preferred dividends | 822 | 800 | 2,465 | 1,603 | ||||||||||||
| Preferred dividends associated with the redemption of preferred stock | -0- | -0- | -0- | 3,969 | ||||||||||||
| Net income (loss) before cumulative effect of accounting change available to common stockholders | $ | 4,734 | $ | 2,316 | $ | 10,294 | $ | (6,822 | ) | |||||||
| Weighted average shares outstanding — basic | 50,095 | 15,752 | 50,275 | 15,692 | ||||||||||||
| Stock options, warrants and restricted stock | 501 | 275 | 299 | -0- | ||||||||||||
| Weighted average shares outstanding — diluted | 50,596 | 16,027 | 50,574 | 15,692 | ||||||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Net income | $ | 5,502 | $ | 171 | ||||
| Preferred dividends | 822 | 822 | ||||||
| Net income (loss) available to common stockholders | $ | 4,680 | $ | (651 | ) | |||
| Weighted average shares outstanding – basic | 49,856 | 50,327 | ||||||
| Stock options, warrants and restricted stock | 647 | -0- | ||||||
| Weighted average shares outstanding - diluted | 50,503 | 50,327 | ||||||
For the ninethree month period ended September 30, 2002,March 31, 2003, the Company incurred a net loss before cumulative effect of accounting change available to common stockholders. As a result, common sharesstock equivalents related to employee stock-based compensation plans, warrants and the effects of convertible preferred stock that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share as they would have an antidilutive effect for the period. The number of antidilutive common stock equivalents excluded from diluted earnings per share for the respective periods because of their antidilutive effect are as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| Common stock equivalents excluded from diluted earnings per share | -0- | -0- | -0- | 330 | ||||||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Antidilutive common stock equivalents excluded from diluted earnings per share | -0- | 94 | ||||||
Implementation of New Accounting Principles
In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”), effective for fiscal years beginning after May 15, 2002. For most companies, SFAS 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement 4.
9
GRAY TELEVISION, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE A—BASIS OF PRESENTATION (Continued)
Implementation of New Accounting Principles (Continued)
In the first quarter of 2002, the Company redeemed its then outstanding 10 5/8% senior subordinated notes and recorded an extraordinary charge of approximately $11.3 million ($7.3 million after income tax) in connection with this early extinguishment of debt. Also in the fourth quarter of 2002, the Company amended its senior credit facility and recorded an extraordinary charge of approximately $5.6 million (approximately $3.6 million after income tax) in connection with this early extinguishment of debt. The Company adopted SFAS 145 in the first quarter of 2003. Accordingly in the first quarter financial statements for 2003, the Company has reclassified as a loss on early extinguishment of debt in income from continuing operations the $11.3 million (before effect of income tax benefit) it had recorded in 2002 as an extraordinary loss on extinguishment of debt. The related income tax benefit of $4.0 million that was deducted from the extraordinary charge in 2002 was reclassified to the income tax expense (benefit) line item.
Also in the annual financial statements for 2003, the Company will reclassify as a loss on early extinguishment of debt in income from continuing operations the $16.9 million (before effect of income tax benefit) it had recorded in 2002 as an extraordinary loss on extinguishment of debt. The related income tax benefit of $5.9 million that was deducted from the extraordinary charge in 2002 will be reclassified to the income tax expense (benefit) line item.
Reclassifications
Certain prior year amounts in the accompanying condensed consolidated financial statements have been reclassified to conform with the 20032004 presentation.
NOTE B—LONG-TERM DEBT
On June 9, 2003, Gray amended its existing senior credit facility to reduce the interest rate on its $375 million term loan. The amendment reduced Gray’s current interest rate by 0.5% annually. Gray paid approximately $1.0 million in fees to amend the agreement.
Gray’s borrowing capacity, loan maturity dates, loan covenants and other termsAs of the senior credit facility remain unchanged by the amendment.
The amended interest pricing on the term loan is presented below with certain terms as defined in the loan agreement. Gray’s interest rate is dependent upon its leverage ratio and is determined at the option of Gray based on the lender’s base rate (generally reflecting the lenders prime rate) plus the specified margin or the London Interbank Offered Rate (“LIBOR”) plus the specified margin.
| Applicable Margin for | Applicable Margin for | |||||||
| Total Leverage Ratio | Base Rate Advances | LIBOR Advances | ||||||
| Greater than or equal to 6.0:1.0 | 1.250 | % | 2.500 | % | ||||
| Less than 6.0:1.0 | 1.000 | % | 2.250 | % | ||||
At September 30, 2003,March 31, 2004, the balance outstanding and the balance available under the Company’s senior credit facility were $375.0$374.0 million and $75.0$74.1 million, respectively, and the interest rate on the balance outstanding was 3.4%.
10
GRAY TELEVISION, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B—LONG-TERM DEBT (Continued)
In January of 2003, the Company entered into three interest rate swap agreements. These agreements have a combined notional amount of $50.0 million with a weighted average fixed rate of 1.909% that will be measured against the three month LIBOR rate. These agreements qualify for hedge accounting under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and for Hedging Activities,” as amended (“SFAS 133”)3.64%.
As of September 30, 2003,March 31, 2004, the Company’s Senior Subordinated Notes due 2011 (the “9 1/4%“9¼% Notes”) had a balance outstanding of $278.8$278.9 million excluding unamortized discount of $1.2$1.1 million.
The 9 1/4%9¼% Notes are jointly and severally guaranteed (the “Subsidiary Guarantees”) by all of the Company’s subsidiaries (the “Subsidiary Guarantors”). The obligations of the Subsidiary Guarantors under the Subsidiary Guarantees is subordinated, to the same extent as the obligations of the Company in respect of the 9 1/4%9¼% Notes, to the prior payment in full of all existing and future senior debt of the Subsidiary Guarantors (which will include any guarantee issued by such Subsidiary Guarantors of any senior debt).
The Company is a holding company with no material independent assets or operations, other than its investment in its subsidiaries. The aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis. The
9
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B—LONG-TERM DEBT (Continued)
Subsidiary Guarantors are, directly or indirectly, wholly owned subsidiaries of the Company and the Subsidiary Guarantees are full, unconditional and joint and several. All of the current and future direct and indirect subsidiaries of the Company are guarantors of the 9 1/4%9¼% Notes. Accordingly, separate financial statements and other disclosures of each of the Subsidiary Guarantors are not presented because the Company has no independent assets or operations, the guarantees are full and unconditional and joint and several and any subsidiaries of the parent company other than the Subsidiary Guarantors are minor. The senior credit facility is collateralized by substantially all of the Company’s existing and hereafter acquired assets except real estate.
NOTE C—GOODWILL AND INTANGIBLE ASSETSRETIREMENT PLANS
In January 2002,The following table provides the Company adopted Statementcomponents of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which requires companies to discontinue amortizing goodwill and certain intangible assets with indefinite useful lives. Instead, SFAS 142 requires that goodwill and intangible assets deemed to have indefinite useful lives be reviewednet periodic benefit cost for impairment upon adoption of SFAS 142 and annually thereafter. The Company performs its annual impairment review during the fourth quarter of each year, or whenever events or changes in circumstances indicate that such assets might be impaired. Other intangible assets will continue to be amortized over their useful lives.
11
GRAY TELEVISION, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE C—GOODWILL AND INTANGIBLE ASSETS (Continued)
A summary of changes in the Company’s goodwill and other intangible assets during the nine month period ended September 30, 2003, by business segment is as follows (in thousands):
| Acquisitions | |||||||||||||||||
| December 31, | And | September 30, | |||||||||||||||
| 2002 | Adjustments | Amortization | 2003 | ||||||||||||||
| Goodwill: | |||||||||||||||||
| Broadcasting | $ | 156,557 | $ | 846 | $ | -0 | - | $ | 157,403 | ||||||||
| Publishing | 16,779 | -0 | - | -0 | - | 16,779 | |||||||||||
| Paging | 5 | -0 | - | -0 | - | 5 | |||||||||||
| $ | 173,341 | $ | 846 | $ | -0 | - | $ | 174,187 | |||||||||
| Broadcast licenses: | |||||||||||||||||
| Broadcasting | $ | 871,615 | $ | -0 | - | $ | -0 | - | $ | 871,615 | |||||||
| Paging | 6,493 | -0 | - | -0 | - | 6,493 | |||||||||||
| $ | 878,108 | $ | -0 | - | $ | -0 | - | $ | 878,108 | ||||||||
| Definite lived intangible assets: | |||||||||||||||||
| Broadcasting | $ | 8,948 | $ | -0 | - | $ | (4,911 | ) | $ | 4,037 | |||||||
| Publishing | 475 | -0 | - | (319 | ) | 156 | |||||||||||
| $ | 9,423 | $ | -0 | - | $ | (5,230 | ) | $ | 4,193 | ||||||||
| Total intangible assets net of accumulated amortization | $ | 1,060,872 | $ | 846 | $ | (5,230 | ) | $ | 1,056,488 | ||||||||
The $846,000 added to goodwill in the current period reflects additional costs incurredpension plan for acquisitions that were completed in the fourth quarter of 2002.
As of September 30, 2003 and December 31, 2002, the Company’s intangible assets and related accumulated amortization consisted of the following (in thousands):
| As of September 30, 2003 | As of December 31, 2002 | |||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||
| Gross | Amortization | Net | Gross | Amortization | Net | |||||||||||||||||||
| Intangible assets not subject to amortization: | ||||||||||||||||||||||||
| Broadcast licenses | $ | 928,559 | $ | (50,451 | ) | $ | 878,108 | $ | 928,559 | $ | (50,451 | ) | $ | 878,108 | ||||||||||
| Goodwill | 180,477 | (6,290 | ) | 174,187 | 179,631 | (6,290 | ) | 173,341 | ||||||||||||||||
| $ | 1,109,036 | $ | (56,741 | ) | $ | 1,052,295 | $ | 1,108,190 | $ | (56,741 | ) | $ | 1,051,449 | |||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||||||||||
| Network affiliation agreements | $ | 523 | $ | (145 | ) | $ | 378 | $ | 523 | $ | -0 | - | $ | 523 | ||||||||||
| Other definite lived intangible assets | 13,265 | (9,450 | ) | 3,815 | 13,265 | (4,365 | ) | 8,900 | ||||||||||||||||
| $ | 13,788 | $ | (9,595 | ) | $ | 4,193 | $ | 13,788 | $ | (4,365 | ) | $ | 9,423 | |||||||||||
| Total intangibles | $ | 1,122,824 | $ | (66,336 | ) | $ | 1,056,488 | $ | 1,121,978 | $ | (61,106 | ) | $ | 1,060,872 | ||||||||||
12
GRAY TELEVISION, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE C—GOODWILL AND INTANGIBLE ASSETS (Continued)
The Company recorded amortization expense of $1.6 million and $107,000 during the three months ended September 30,March 31, 2004 and 2003 and 2002, respectively.(in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Service cost | $ | 532 | $ | 314 | ||||
| Interest cost | 250 | 211 | ||||||
| Expected return on plan assets | (200 | ) | (168 | ) | ||||
| Net periodic benefit cost | $ | 582 | $ | 357 | ||||
The Company recorded amortization expense of $5.2 million and $322,000 during the nine months ended September 30, 2003 and 2002, respectively. Based on the current amount of intangible assets subject to amortization, the estimated amortization expensepreviously disclosed in its financial statements for the succeeding 5 years are as follows: 2004: $970,000; 2005: $670,000; 2006: $317,000; 2007: $259,000 and 2008: $254,000.year ended December 31, 2003 that it expected to contribute $1.6 million to its pension plan in 2004. As acquisitions and dispositions occur in the future, these amounts may vary.
In connection with a routine review of the Company’s filings with the Securities and Exchange Commission (the “SEC”), the Company and the Staff of the SECMarch 31, 2004, no contributions have yet been discussing whether, in accounting for the Company’s acquisitions of television stations during 2002, value related to network affiliation agreements should have been separately identified as an amortizable intangible asset. In connection with these discussions, which are ongoing, the Company reclassified $523,100 from broadcast licenses to network affiliation agreements. These agreements are being amortized over a useful life equalmade to the remaining contractual life ofplan by the agreement from the date of the television station acquisition in 2002. In addition to this issue, the Company continues to discuss with the Staff of the SEC certain questions relating to the method the company utilized in testing intangible assets for impairment upon adopting SFAS 142 effective January 1, 2002. If the SEC were to require the Company to change its valuation of network affiliation agreements or change the method it utilized to test for intangible asset impairment upon adopting SFAS 142, the Company would likely be required to provide additional non-cash amortization and/or non-cash impairment charges in excess of those recorded effective January 1, 2002 upon adoption of SFAS 142. The Company is presently unable to determine what, if any, impact a final resolution of these discussions with the SEC might have on the Company’s financial statements or what periods might be affected.Company.
NOTE D—INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing and paging. As of September 30, 2003,March 31, 2004, the broadcasting segment operates 29 television stations located in the United States. The publishing segment operates fourfive daily newspapers located in Georgia and Indiana. The paging operations are located in Florida, Georgia and Alabama. The following tables present certain financial information concerning the Company’s three operating segments (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| Operating revenues: | |||||||||||||||||
| Broadcasting | $ | 60,372 | $ | 29,535 | $ | 176,524 | $ | 84,541 | |||||||||
| Publishing | 10,995 | 10,858 | 32,535 | 32,074 | |||||||||||||
| Paging | 1,985 | 2,116 | 5,915 | 6,199 | |||||||||||||
| $ | 73,352 | $ | 42,509 | $ | 214,974 | $ | 122,814 | ||||||||||
| Operating income: | |||||||||||||||||
| Broadcasting | $ | 16,772 | $ | 9,119 | $ | 45,922 | $ | 24,665 | |||||||||
| Publishing | 2,397 | 2,366 | 6,827 | 6,751 | |||||||||||||
| Paging | 319 | 426 | 769 | 1,102 | |||||||||||||
| Total operating income | 19,488 | 11,911 | 53,518 | 32,518 | |||||||||||||
| Miscellaneous income (expense), net | 16 | (42 | ) | 132 | 55 | ||||||||||||
| Appreciation in value of derivatives, net | -0 | - | 851 | -0 | - | 1,581 | |||||||||||
| Interest expense | (10,458 | ) | (8,049 | ) | (32,700 | ) | (24,915 | ) | |||||||||
| Loss on early extinguishment of debt | -0 | - | -0 | - | -0 | - | (11,275 | ) | |||||||||
| Income (loss) before income taxes and cumulative effect of accounting change | $ | 9,046 | $ | 4,671 | $ | 20,950 | $ | (2,036 | ) | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Operating revenues: | ||||||||
| Broadcasting | $ | 61,910 | $ | 52,601 | ||||
| Publishing | 10,963 | 10,397 | ||||||
| Paging | 1,856 | 1,977 | ||||||
| $ | 74,729 | $ | 64,975 | |||||
Corporate and administrative expenses are allocated to operating income based on segment net revenues.10
13
GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE D—INFORMATION ON BUSINESS SEGMENTS (Continued) Three Months Ended March 31, 2004 2003 Operating income: Broadcasting $ 16,903 $ 9,564 Publishing 2,235 1,908 Paging 236 180
Total operating income 19,374 11,652 Miscellaneous income (expense), net 143 78 Interest expense (10,461 ) (11,270 )
Income before income taxes $ 9,056 $ 460
Corporate and administrative expenses as well as amortization of restricted stock are allocated to operating income based on segment net revenues.
NOTE E—INCOME TAXES
In October 2001, the Company received a notice of deficiency from the Internal Revenue Service (the “IRS”) with respect to its 1996 and 1998 federal income tax returns. On January 18, 2002, the Company filed a petition to contest the matter in the United States Tax Court.
On February 19, 2003 the IRS and the Company filed a stipulation with the Tax Court acknowledging that the IRS has withdrawn its claim relating to the taxable gain alleged to have been recognized by the Company from the sale of certain assets in 1996. This withdrawn claim accounted for virtually all of the $12.1 million tax liability in dispute before the Tax Court.
The remaining matter pending before the Tax Court is the IRS assertion that the Company’s purchase of certain assets from First American Media, Inc. in 1996 should be treated as a purchase of stock. If successful, the tax basis of such assets acquired in 1996 would be reduced by approximately $166 million and the reduction in tax basis would significantly reduce the Company’s tax deductions for depreciation and amortization with respect to the acquired assets. Nevertheless, because of the Company’s available federal net operating losses, the Company would not owe any additional cash income tax payments for the tax years ending at least through December 31, 2002 in the event of an adverse ruling from the Tax Court. The Company believes it has a meritorious position with respect to this issue and intends to defend the IRS claim vigorously. However, the Company cannot be certain when, and if, this matter will be resolved in its favor, and if it is not, the Company might incur additional cash taxes in future years.
NOTE F—CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the Company’s financial position.
The Company has an equity investment in Sarkes Tarzian, Inc. (“Tarzian”) representing shares in Tarzian which were originally held by the estate of Mary Tarzian (the “Estate”). As described more fully below, the Company’s ownership of the Tarzian shares is subject to certain litigation.
On February 12, 1999, Tarzian filed suit in the United States District Court for the Southern District of Indiana against U.S. Trust Company of Florida Savings Bank as Personal Representative of the Estate, claiming that Tarzian had a binding and enforceable contract to purchase the Tarzian shares from the Estate. On February 3, 2003, the Court entered judgment on a jury verdict in favor of Tarzian for breach of contract and awarding Tarzian $4.0 million in damages. On June 23, 2003, the Court denied the Estate’s renewed motion for judgment as a matter of law, and alternatively, for a new trial on the issue of liability; denied Tarzian’s motion to amend the judgment to award Tarzian specific performance of the contract and title to the Tarzian shares; and granted Tarzian’s motion to amend the judgment to include pre-judgment interest on the $4.0 million damage award. The Estate has appealed from the judgment and the Court’s rulings on the post-trial motions, and Tarzian has cross-appealed. The Company cannot predict when the final resolution of this litigation will occur.
On March 7, 2003, Tarzian filed suit in the United States District Court for the Northern District of Georgia against Bull Run Corporation and the Company for tortious interference with contract and conversion. The lawsuit alleges that Bull Run Corporation and Gray purchased the Tarzian shares with actual knowledge that Tarzian had a binding agreement to purchase the stock from the Estate. The lawsuit seeks damages in an amount equal to the liquidation value of the interest in Tarzian that the stock represents, which Tarzian claims to be as much as $75 million, as well as attorneys’ fees, expenses, and punitive damages. The lawsuit also seeks an order requiring the Company and Bull Run Corporation to turn over the stock certificates to Tarzian and relinquish all claims to the stock. The stock purchase agreement with the Estate would permit the Company to make a claim against the Estate in the event that title to the Tarzian Shares is ultimately awarded to Tarzian. There is no assurance that the Estate would have sufficient assets to honor any or all of such potential claims. The Company filed its answer to the lawsuit on May 14, 2003 denying any liability for Tarzian’s claims. The Company believes it has meritorious defenses and intends to vigorously defend the lawsuit. The Company cannot predict when the final resolution of this litigation will occur.
1411
GRAY TELEVISION, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE G—PURCHASE OF COMMON STOCK WARRANTS FROM RELATED PARTY
In transactions completed on April 15 and April 16, 2003, the Company purchased warrants held by Bull Run Corporation (“Bull Run”), a related party and shareholder in the Company, for an aggregate of 1,106,250 shares of Class A Common Stock and 100,000 shares of Common Stock of Gray. The total purchase price, including expenses, was $5.3 million which was paid using cash on hand. The warrants were initially granted in association with the Sarkes Tarzian transaction and the issuance of Series A and Series B Preferred Stock. The purchase of the warrants has been recorded as an increase in the Sarkes Tarzian investment of $395,000 and a decrease in Class A Common Stock of $4.9 million. The warrants were cancelled effective April 16, 2003. The independent directors of Gray approved the transaction after receiving an opinion as to the fairness of the transaction.
NOTE H—PURCHASE OF COMMON STOCK AND CLASS A COMMON STOCK FROM RELATED PARTY
On August 19, 2003 the Company repurchased from Bull Run 1,017,647 shares of the Company’s Class A Common Stock and 11,750 shares of the Company’s Common Stock. Under the terms of the stock purchase agreement between the parties, which was approved by a Special Committee of the Company’s Board of Directors, the Company paid Bull Run $16.95 per share. Gray funded the $17.6 million aggregate purchase price by utilizing cash on hand.
In a related transaction, certain family entities of Mr. J. Mack Robinson, the Company’s Chairman and CEO, collectively purchased one million shares of the Company’s class A Common Stock from Bull Run for $16.95 per share. As a result of these two transactions, Bull Run no longer holds any shares of the Company’s stock.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Introduction
The following analysis of the financial condition and results of operations of Gray Television, Inc. should be read in conjunction with the Company’s financial statements contained in this report and in the Company’s Form 10-K for the year ended December 31, 2002.2003.
The Company acquired Gray MidAmerica Television (formerly Stations Holding Company) and KOLO-TV (the “2002 Acquisitions”) during the fourth quarter of 2002. The acquisitions were accounted for under the purchase method of accounting. The operating results of the television stations acquired in the 2002 Acquisitions were included in the 2002 operating results from the date of their acquisitions and forward.
Cyclicality
Broadcast advertising revenues are generally highest in the second and fourth quarters each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. In addition, broadcast advertising revenues are generally higher during even numbered election years due to spending by political candidates and other political advocacy groups, which spending typically is heaviest during the fourth quarter.
Broadcasting, Publishing and Paging Revenues
Set forth below are the principal types of revenues earned by the Company’s broadcasting, publishing and paging operations for the periods indicated and the percentage contribution of each to the Company’s total revenues (dollars in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||||||||||||||||
| Percent | Percent | Percent | Percent | ||||||||||||||||||||||||||||||
| Amount | of Total | Amount | of Total | Amount | of Total | Amount | of Total | ||||||||||||||||||||||||||
Broadcasting net revenues: | |||||||||||||||||||||||||||||||||
| Local | $ | 37,164 | 50.7 | % | $ | 15,958 | 37.5 | % | $ | 108,741 | 50.6 | % | $ | 47,871 | 39.0 | % | |||||||||||||||||
| National | 17,829 | 24.3 | 8,082 | 19.0 | 52,147 | 24.3 | 24,095 | 19.6 | |||||||||||||||||||||||||
| Network compensation | 2,105 | 2.9 | 1,368 | 3.2 | 6,233 | 2.9 | 3,981 | 3.2 | |||||||||||||||||||||||||
| Political | 1,124 | 1.5 | 3,211 | 7.6 | 3,417 | 1.6 | 5,399 | 4.4 | |||||||||||||||||||||||||
| Production and other | 2,150 | 2.9 | 916 | 2.2 | 5,986 | 2.7 | 3,195 | 2.6 | |||||||||||||||||||||||||
| $ | 60,372 | 82.3 | % | $ | 29,535 | 69.5 | % | $ | 176,524 | 82.1 | % | $ | 84,541 | 68.8 | % | ||||||||||||||||||
Publishing net revenues: | |||||||||||||||||||||||||||||||||
| Retail | $ | 5,518 | 7.5 | % | $ | 5,258 | 12.4 | % | $ | 16,441 | 7.6 | % | $ | 15,660 | 12.8 | % | |||||||||||||||||
| Classified | 3,286 | 4.5 | 3,310 | 7.8 | 9,496 | 4.4 | 9,605 | 7.8 | |||||||||||||||||||||||||
| Circulation | 2,042 | 2.8 | 2,011 | 4.7 | 6,000 | 2.8 | 6,043 | 4.9 | |||||||||||||||||||||||||
| Other | 149 | 0.2 | 279 | 0.6 | 598 | 0.3 | 766 | 0.7 | |||||||||||||||||||||||||
| $ | 10,995 | 15.0 | % | $ | 10,858 | 25.5 | % | $ | 32,535 | 15.1 | % | $ | 32,074 | 26.2 | % | ||||||||||||||||||
Paging net revenues: | |||||||||||||||||||||||||||||||||
| Paging lease, sales and service | $ | 1,985 | 2.7 | % | $ | 2,116 | 5.0 | % | $ | 5,915 | 2.8 | % | $ | 6,199 | 5.0 | % | |||||||||||||||||
Total | $ | 73,352 | 100.0 | % | $ | 42,509 | 100.0 | % | $ | 214,974 | 100.0 | % | $ | 122,814 | 100.0 | % | |||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||
| 2004 | 2003 | |||||||||||||||
| Percent of | Percent of | |||||||||||||||
| Amount | Total | Amount | Total | |||||||||||||
Broadcasting net revenues: | ||||||||||||||||
| Local | $ | 37,358 | 50.0 | % | $ | 33,034 | 50.9 | % | ||||||||
| National | 16,243 | 21.7 | 14,921 | 23.0 | ||||||||||||
| Network compensation | 2,410 | 3.2 | 1,997 | 3.1 | ||||||||||||
| Political | 3,534 | 4.7 | 741 | 1.1 | ||||||||||||
| Production and other | 2,365 | 3.2 | 1,908 | 2.9 | ||||||||||||
| $ | 61,910 | 82.8 | % | $ | 52,601 | 81.0 | % | |||||||||
Publishing net revenues: | ||||||||||||||||
| Retail | $ | 5,521 | 7.4 | % | $ | 5,181 | 8.0 | % | ||||||||
| Classified | 3,172 | 4.3 | 2,998 | 4.6 | ||||||||||||
| Circulation | 2,050 | 2.7 | 1,996 | 3.1 | ||||||||||||
| Other | 220 | 0.3 | 222 | 0.3 | ||||||||||||
| $ | 10,963 | 14.7 | % | $ | 10,397 | 16.0 | % | |||||||||
Paging net revenues: | ||||||||||||||||
| Paging lease, sales and service | $ | 1,856 | 2.5 | % | $ | 1,977 | 3.0 | % | ||||||||
| $ | 74,729 | 100.0 | % | $ | 64,975 | 100.0 | % | |||||||||
1612
Three Months Ended September 30, 2003March 31, 2004 Compared To Three Months Ended September 30, 2002March 31, 2003
Revenues.Total revenues for the three months ended September 30, 2003March 31, 2004 increased 73%15% to $73.4$74.7 million as compared to the same period of the prior year due primarily to the results of operations of the television stations acquired in the 2002 Acquisitions.year.
| • | Broadcasting revenues increased | |||
| • | Publishing revenues increased | |||
| • | Paging revenues decreased 6% to | |||
Operating expenses. Operating expenses increased 76%4% to $53.9$55.4 million due primarily to the operating results of the television stations acquired in the 2002 Acquisitions.inflation and business growth.
| • | Broadcasting expenses, before depreciation, amortization and | |||
| • | Publishing expenses, before depreciation, amortization and | |||
| • | Paging expenses, before depreciation, amortization and | |||
| • | Corporate and administrative expenses, before depreciation, amortization and | |||
| • | Depreciation of property and equipment and amortization of intangible assets was | |||
17
Appreciation (depreciation) in value of derivatives, net.During 2002 the Company had an interest rate swap agreement that expired on October 9, 2002. During the quarter ended September 30, 2002, the Company recognized appreciation on this interest rate swap agreement. Due to the expiration of this agreement in 2002, no similar appreciation was recorded in 2003. The Company has entered into three new interest rate swap agreements in first quarter of 2003; however, these agreements qualify for hedge accounting treatment and the Company is not required to record appreciation (depreciation) on these new interest rate swap agreements in the Company’s statement of operations. The appreciation (depreciation) on these new interest rate swap agreements have been recorded in the Company’s Statement of Stockholders’ Equity as other comprehensive income.
Interest expense.Interest expense increased $2.4decreased $0.8 million to $10.5 million. This increasedecrease was due to several factors. The Company had a higher total average debt balance in 2003 compared to 2002; however, this was largely offset by lower average interest rates in 2003 compared to 2002. The total average debt balances were $657.0 million and $381.0 million foron the quarters ended September 30, 2003 and 2002, respectively. The total average interest rates were 5.94% and 7.48% for the quarters ended September 30, 2003 and 2002, respectively. These rates do not include the effect of the interest rate swap agreements that generated interest expense of $92,000 in the current quarter.Company’s senior credit facility.
Income tax expense (benefit).expense.An income tax expense of $3.5$3.6 million was recorded for the three months ended September 30, 2003March 31, 2004 as compared to an income tax expense of $1.6$0.3 million for the three months ended September 30, 2002.March 31, 2003. The recording of the
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increased expense in the current year as compared to that of the prior year was attributable to having increased income in the current period as compared to the prior period.period, partially offset by a lower effective income tax rate.
Preferred dividends.Preferred dividends increased to $821,706 forremained consistent with that of the three months ended September 30, 2003 as compared to $800,000 for the three months ended September 30, 2002. The increase was dueprior year because there were no changes to the accretion ofpreferred stock upon which the issuance cost in the amount of $21,706.dividends are paid.
Net income (loss) available to common stockholders.Net income (loss) available to common stockholders of the Company for the three months ended September 30,March 31, 2004 and 2003 and 2002 was $4.7 million and $2.3$(0.7) million, respectively.
Nine Months Ended September 30, 2003 Compared To Nine Months Ended September 30, 2002
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Operating expenses. Operating expenses increased 79% to $161.5 million due primarily to the operating results of the television stations acquired in the 2002 Acquisitions.
Appreciation (depreciation) in value of derivatives, net.During 2002, the Company had an interest rate swap agreement that expired on October 9, 2002. During the nine months ended September 30, 2002, the Company recognized appreciation on this interest rate swap agreement. Due to the expiration of this agreement in 2002, no similar appreciation was recorded in 2003. The Company has entered into three new interest rate swap agreements in first quarter of 2003; however, these agreements qualify for hedge accounting treatment and the Company is not required to record appreciation (depreciation) on these new interest rate swap agreements in the Company’s statement of operations. The appreciation (depreciation) on these new interest rate swap agreements have been recorded in the Company’s Statement of Stockholders’ Equity as other comprehensive income.
Interest expense.Interest expense increased $7.8 million to $32.7 million. This increase was due to several factors. The Company had a higher total average debt balance in 2003 compared to 2002; however, this was largely offset by lower average interest rates in 2003 compared to 2002. The total average debt balance were $657.0 million and $386.5 million for the nine months ended September 30, 2003 and 2002, respectively. The total average interest rates were 6.22% and 7.28% for the nine months ended September 30, 2003 and 2002, respectively. These rates do not include the effect of the interest rate swap agreements that generated interest expense of $230,000 in the current year.
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Loss on Early Extinguishment of Debt. As a result of implementing Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”), the Company has reclassified $11.3 million in expenses associated with the early extinguishment of debt from an extraordinary charge as previously reported for 2002 to a loss on early extinguishment of debt in the current presentation. A similar loss did not occur in first nine months of 2003.
Income tax expense (benefit).An income tax expense of $8.2 million was recorded for the nine months ended September 30, 2003 as compared to an income tax benefit of $786,000 for the nine months ended September 30, 2002. The recording of the expense in the current year as compared to the benefit in the prior year was attributable to having income in the current period as compared to a loss in the prior period.
Cumulative effect of accounting change, net of income tax benefit.On January 1, 2002, the Company adopted No. 142, “’Goodwill and Other Intangible Assets’’ (“SFAS 142’’), which requires companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, SFAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS 142 and annually thereafter. Under SFAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. As of January 1, 2002, the Company performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. As a result of the required impairment test, in the quarter ended March 31, 2002, the Company recognized a non-cash impairment of goodwill and other intangible assets of $39.5 million ($30.6 million net of income taxes). Such charge is reflected as a cumulative effect of an accounting change in the accompanying 2002 condensed consolidated statement of operations. In calculating the impairment charge, the fair value of the reporting units underlying the segments were estimated using a discounted cash flow methodology. No such write down was recorded in the first nine months of 2003.
Preferred dividends.Preferred dividends increased to $2.5 million for the nine months ended September 30, 2003 as compared to $1.6 million for the nine months ended September 30, 2002. The increase was due to the additional outstanding preferred stock that was issued in April 2002 and related accreted issuance cost. The 2003 preferred dividend amount includes $65,114 of accreted issuance cost.
Preferred dividends associated with the redemption of preferred stock.On April 22, 2002, the Company issued $40 million (4,000 shares) of a redeemable and convertible preferred stock to a group of private investors and designated it as Series C Preferred Stock. As part of the transaction, holders of the Company’s Series A and Series B Preferred Stock exchanged all of the outstanding shares of each respective series, an aggregate fair value of approximately $8.6 million, for an equal number of shares of the Series C Preferred Stock. In connection with such exchange, the Company recorded a non-cash constructive dividend of $4.0 million during the nine months ended September 30, 2002.
Net income (loss) available to common stockholders.Net income (loss) available to common stockholders of the Company for the nine months ended September 30, 2003 and 2002 was $10.3 million and ($37.4 million), respectively.
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Liquidity and Capital Resources
General
The following tables present certain data that the Company believes is helpful in evaluating the Company’s liquidity and capital resources (in thousands).
| Nine Months Ended September 30, | ||||||||
| 2003 | 2002 | |||||||
| Net cash provided by operating activities | $ | 51,684 | $ | 17,320 | ||||
| Net cash provided by (used in) investing activities | (24,572 | ) | 148,145 | |||||
| Net cash used in financing activities | (29,819 | ) | (146,933 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (2,707 | ) | 18,532 | |||||
| September 30, 2003 | December 31, 2002 | |||||||
| Cash and cash equivalents | $ | 10,208 | $ | 12,915 | ||||
| Long-term debt including current portion | 655,904 | 658,220 | ||||||
| Preferred stock | 39,255 | 39,190 | ||||||
| Available credit under senior credit agreement | 75,000 | 75,000 | ||||||
| Three Months Ended March 31, | ||||||||
| 2004 | 2003 | |||||||
| Net cash provided by operating activities | $ | 23,921 | $ | 22,989 | ||||
| Net cash used in investing activities | (8,936 | ) | (9,843 | ) | ||||
| Net cash used in financing activities | (2,249 | ) | (3,767 | ) | ||||
| Net increase in cash and cash equivalents | $ | 12,736 | $ | 9,379 | ||||
| March 31, 2004 | December 31, 2003 | |||||||
| Cash and cash equivalents | $ | 24,683 | $ | 11,947 | ||||
| Long-term debt including current portion | 654,955 | 655,902 | ||||||
| Preferred stock | 39,298 | 39,276 | ||||||
| Available credit under senior credit agreement | 74,063 | 75,000 | ||||||
The Company and its subsidiaries file a consolidated federal income tax return and such state or local tax returns as are required. Although the Company may earn taxable operating income, as of September 30, 2003March 31, 2004, the Company anticipates that through the use of its available loss carryforwards it will not pay significant amounts of federal or state income taxes in the next several years.
Management believes that current cash balances, cash flows from operations and available funds under its senior revolving credit facility will be adequate to provide for the Company’s capital expenditures, debt service, cash dividends and working capital requirements for the forseeableforeseeable future.
Management does not believe that inflation in past years has had a significant impact on the Company’s results of operations nor is inflation expected to have a significant effect upon the Company’s business in the near future.
Net cash provided by operating activities increased $34.4$0.9 million. The increase was due primarily to properties acquired in the 2002 Acquisitions. All 16 television stations that the Company acquired in the fourth quarter of 2002 have generated positive cash flow and have significantly contributed to thean increase in net cash providedincome partially offset by changes in operating activities.assets and liabilities.
Net cash provided by (used in)used in investing activities decreased $172.7$0.9 million. The decrease was due primarily to the redemptionlower payments on acquisition related liabilities partially offset by increased purchases of the Company’s 10 5/8% Senior Subordinated Notes in the first quarter of 2002 which used $168.6 million of restricted cash to satisfy the payment of the debt as well as associated interestproperty and fees. No such similar debt redemption took place in 2003.equipment .
Net cash used in financing activities decreased $117.1$1.5 million. The decrease was primarily due to cash received from the redemptionexercise of the Company’s 10 5/8% Senior Subordinated Notesstock options by employees and lower repayments of $155.2 million in 2002. In addition to this redemption, the Company repaid $21.3 million more debt in 2002 than it did in the same period of the current year. The Company issued $30.6 million of preferred stock in 2002. There were no issuances of preferred stock in 2003. The Company purchased common stock and warrants from a related party for $22.5 million in 2003 without a similar transaction in 2002.debt.
Digital Television Conversion
As of September, 30 2003,April 26, 2004, the Company was broadcasting a digital signal at 2527 of its 29 stations. The Company currently intends to have all such required installations completed as soon as practicable. The Federal Communications
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Commission (the “FCC”) required that all commercial stations be operationalbegin broadcasting a digital signal by May of 2002. As
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necessary, the Company has requested and received approval from the FCC to extend the May 2002 deadline by varying periods of time for all of the Company’s remaining stations that are not currently broadcasting in digital. Given the Company’s good faith efforts to comply with the existing deadline and the facts specific to each extension request, the Company believes the FCC will grant any further deadline extension requests that become necessary.
Capital Expenditures
The Company paid approximately $6.0had capital expenditures of $8.2 million for digital transmission equipmentthe three months ended March 31, 2004 compared to $3.7 million for the ninecorresponding period of 2003. Of the $8.2 million expended in the three months ended September 30, 2003 and currently anticipates an additional $5.0March 31, 2004, $4.6 million and $8.5 millionwas accrued as a liability as of cashDecember 31, 2003. The increase in capital expenditures reflects, in part, the timing of certain payments for equipment and servicesrelating to be paid during the remainder of 2003 and 2004, respectively.
For the full year of 2003,Company’s on going digital television conversion. At present, the Company currently anticipates that the aggregate cash payments with respect tototal capital expenditures including digital television broadcast systems, will approximate $23.5 million. Included in this amount are anticipated expenditures of approximately $2.0 million for certain real estate which includes a broadcast tower in Florida and approximately $750,000 for certain leasehold improvements, associated production equipment and furnishings relating to a new operating facility for the Gwinnett Daily Post newspaper.
Internal Revenue Service Audit
In October 2001, the Company received a noticefull year of deficiency from the Internal Revenue Service (the “IRS”) with respect2004 will range between $20 million and $25 million including approximately $8 million to its 1996 and 1998 federal income tax returns. On January 18, 2002, the Company filed a petition to contest the matter in the United States Tax Court.
On February 19, 2003 the IRS and the Company filed a stipulation with the Tax Court acknowledging that the IRS has withdrawn its claim$9 million of payments relating to the taxable gain alleged to have been recognized by the Company from the sale of certain assets in 1996. This withdrawn claim accounted for virtually all of the $12.1 million tax liability in dispute before the Tax Court.digital television conversion.
The remaining matter pending before the Tax Court is the IRS assertion that the Company’s purchase of certain assets from First American Media, Inc. in 1996 should be treated as a purchase of stock. If successful, the tax basis of such assets acquired in 1996 would be reduced by approximately $166 million and the reduction in tax basis would significantly reduce the Company’s tax deductions for depreciation and amortization with respect to the acquired assets. Nevertheless, because of the Company’s available federal net operating losses, the Company would not owe any additional cash income tax payments for the tax years ending at least through December 31, 2002 in the event of an adverse ruling from the Tax Court. The Company believes it has a meritorious position with respect to this issue and intends to defend the IRS claim vigorously. However, the Company cannot be certain when, and if, this matter will be resolved in its favor, and if it is not, the Company might incur additional cash taxes in future years.
Purchase of Common Stock Warrants from Related Party
In transactions completed on April 15 and April 16, 2003, the Company purchased warrants held by Bull Run Corporation, a related party and shareholder in the Company, for an aggregate of 1,106,250 shares of Class A Common Stock and 100,000 shares of Common Stock of Gray. The total purchase price, including expenses, was $5.3 million which was paid using cash on hand. The warrants were initially granted in association with the Sarkes Tarzian transaction and the issuance of Series A and Series B Preferred Stock. The purchase of the warrants has been recorded as an increase in the Sarkes Tarzian investment of $395,000 and a decrease in Class A Common Stock of $4.9 million. The warrants were cancelled effective April 16, 2003. The independent directors of Gray approved the transaction after receiving an opinion as to the fairness of the transaction.
Purchase of Common Stock and Class A Common Stock from Related Party
On August 19, 2003 the Company repurchased from Bull Run 1,017,647 shares of the Company’s class A common stock and 11,750 shares of the Company’s common stock. Under the terms of the stock purchase agreement between the parties, which was approved by a Special Committee of the Company’s Board of Directors, the Company paid Bull Run $16.95 per share. Gray funded the $17.6 million aggregate purchase price by utilizing cash on hand.
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In a related transaction, certain family entities of Mr. J. Mack Robinson, the Company’s Chairman and CEO, collectively purchased one million shares of the Company’s class A common stock from Bull Run for $16.95 per share. As a result of these two transactions, Bull Run no longer holds any shares of the Company’s stock.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company considers its accounting policies relating to intangible assets and income taxes to be critical policies that require judgments or estimations in their application where variances in those judgments or estimations could make a significant difference to future reported results. For a description of theseThese critical accounting policies and estimates see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies”are more fully disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and Note C Goodwill and Intangible Assets in Part I of this report.2003.
Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements.” When used in this report, the words “believes,” “expects,” “anticipates,” “estimates” and similar words and expressions are generally intended to identify forward-looking statements, but some of those statements may use other phrasing. Statements that describe the Company’s future strategic plans, goals or objectives are also forward-looking statements. In addition, we have included forward-looking statements regarding estimated future amortization expense and our testing for intangible asset impairment. Readers of this report are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of the Company or management, are not guarantees of future performance, results or events and involve risks and uncertainties, and that actual results and events may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to, (i) general economic conditions in the markets in which the Company operates, (ii) competitive pressures in the markets in which the Company operates, (iii) the effect of future legislation or regulatory changes on the Company’s operations and (iv) certain other risks relating to our business, including, our dependence on advertising revenues, our need to acquire non-network television programming, the impact of a loss of any of our FCC broadcast licenses, increased competition and capital costs relating to digital advanced television, pending litigation, our significant level of intangible assets and our ability to identify acquisitions successfully, (v) our high debt levels, and (vi) other factors described from time to time in our SEC filings. The forward-looking statements included in this report are made only as of the date hereof. The Company disclaims any obligation to update such forward-looking statements to reflect subsequent events or circumstances.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company believes that the market risk of the Company’s financial instruments as of September 30, 2003March 31, 2004 has not materially changed since December 31, 2002.2003. The market risk profile on December 31, 20022003 is disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.2003.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures.
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Based on that evaluation, the CEO and the CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no significant changes in the Company’s internal control over financial reporting identified in connection with this evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note E — Income Taxes and Note F —- Contingencies of the Notes to Condensed Consolidated Financial Statements filed as part of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
| (a) | Exhibits | |||||
| Exhibit 10.1 | ||||||
Exhibit 31.1 Rule 13 (a) – 14(a) Certificate of Chief Executive Officer | ||||||
Exhibit | ||||||
Exhibit 32.1 Section 1350 Certificate of Chief Executive Officer | ||||||
Exhibit | ||||||
| (b) | Reports on Form 8-K | |||||
| On February 20, 2004, the Company filed a report on Form 8-K under Item 11 that disclosed the following information: On February 13, 2004, Gray Television, Inc. received notice from MetLife Retirement Plans notifying it of a change in the administrator and investment provider for the Company’s Capital Accumulation Plan from Smith Barney/Leggett to MetLife. A copy of the related notice provided by the Company to its officers and directors was attached as Exhibit 99 to the Form 8-K. | ||||||
| On | ||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GRAY TELEVISION, INC. (Registrant) | |||||||
| Date: May 7, 2004 | By: | /s/ James C. Ryan | |||||
| James C. Ryan, | |||||||
Senior Vice President and Chief Financial Officer | |||||||
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