UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark one)

☒

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

For the quarterly period ended SeptemberJune 30, 20212022 or

 

☐

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

For the transition period from _________ to _________ .

 

Commission file number: 1-13796

 

Gray Television, Inc.

(Exact name of registrant as specified in its charter)

 

Georgia

 

58-0285030

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

   

4370 Peachtree Road, NE, Atlanta, Georgia

 

30319

(Address of principal executive offices)

 

(Zip code)

 

(404) 504-9828

(Registrant's telephone number, including area code)

Not Applicable

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

 

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

 

Title of each Class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock (no par value)

GTN.A

New York Stock Exchange

common stock (no par value)

GTN

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

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

 

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

 

Large accelerated filer  ☒

Accelerated filer   ☐

Non-accelerated filer   ☐

Smaller reporting company  ☐

Emerging growth company  ☐

 

 

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

 

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

 

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

 

Common Stock (No Par Value)

 

Class A Common Stock (No Par Value)

88,652,17285,521,216 shares outstanding as of OctoberJuly 29, 20212022

 

7,171,0197,573,222 shares outstanding as of OctoberJuly 29, 20212022

 

 
 

 

 

INDEX

 

GRAY TELEVISION, INC.

 

 

PART I.

FINANCIAL INFORMATION

PAGE

   

Item 1.

Financial Statements

 
   
 

Condensed consolidated balance sheets (Unaudited) - SeptemberJune 30, 20212022 and December 31, 20202021

3

   
 

Condensed consolidated statements of operations (Unaudited) - three-months and nine-monthssix-months ended SeptemberJune 30, 20212022 and 20202021

5

   
 

Condensed consolidated statements of stockholders' equity (Unaudited) – three-month periods- three-months and six-months ended March 31, June 30, 2022 and September 30, 2021 and 2020

6

   
 

Condensed consolidated statements of cash flows (Unaudited) - nine-monthssix-months ended SeptemberJune 30, 20212022 and 20202021

87

   
 

Notes to condensed consolidated financial statements (Unaudited)

98

   

Item 2.

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

2722

   

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3529

   

Item 4.

Controls and Procedures

3529

   

PART II.

OTHER INFORMATION

 
   

Item 1A.

Risk Factors

3531

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

   

Item 6.

Exhibits

   3632

   

SIGNATURES

 

3733

2
 

 


 

PART I.I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)

 

 

September 30,

 

December 31,

  

June 30,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Assets:

        

Current assets:

  

Cash

 $322  $773  $162  $189 

Accounts receivable, less allowance for credit losses of $11 and $10, respectively

 440  425 

Program broadcast rights, net

 32  24 

Income tax refund receivable

 21  21 

Accounts receivable, less allowance for credit losses of $15 and $16, respectively

 614  624 

Current portion of program broadcast rights, net

 11  35 

Income tax refunds receivable

 21  21 

Prepaid income taxes

 28  0  107  40 

Prepaid and other current assets

  29   61   36   54 

Total current assets

 872  1,304  951  963 
  

Property and equipment, net

 908  737  1,260  1,165 

Operating leases right of use asset

 56  57  70  70 

Broadcast licenses

 3,784  3,579  5,314  5,303 

Goodwill

 1,633  1,460  2,657  2,649 

Other intangible assets, net

 407  395  739  825 

Investments in broadcasting, production and technology companies

 105  72 

Investments in broadcasting and technology companies

 120  117 

Other

  14   39   12   16 

Total assets

 $7,779  $7,643  $11,123  $11,108 

 

See notes to condensed consolidated financial statements.

 

3
 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except for share data)

 

 

September 30,

 

December 31,

  

June 30,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Liabilities and stockholders’ equity:

        

Current liabilities:

  

Accounts payable

 $34  $10  $66  $59 

Employee compensation and benefits

 70  53  88  97 

Accrued interest

 50  37  53  52 

Accrued network programming fees

 35  39  39  34 

Other accrued expenses

 26  29  39  44 

Federal and state income taxes

 0  20  17  10 

Program broadcast obligations

 33  25 

Current portion of program broadcast obligations

 12  37 

Deferred revenue

 11  22  22  14 

Dividends payable

 13  13  14  13 

Operating lease liabilities

  8   7 

Current portion of operating lease liabilities

 9  9 

Current portion of long-term debt

  15   15 

Total current liabilities

 280  255  374  384 
  

Long-term debt, less deferred financing costs

 3,981  3,974 

Program broadcast obligations

 3  5 

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

 6,690  6,740 

Program broadcast obligations, less current portion

 2  5 

Deferred income taxes

 994  885  1,471  1,471 

Accrued pension costs

 39  43  21  24 

Operating lease liabilities

 51  51 

Operating lease liabilities, less current portion

 63  63 

Other

  19   27   14   14 

Total liabilities

  5,367   5,240   8,635   8,701 
  

Commitments and contingencies (Note 10)

             
  

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

  650   650 

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

  650   650 
  

Stockholders’ equity:

  

Common stock, no par value; authorized 200,000,000 shares, issued 103,898,352 shares and 103,100,856 shares, respectively outstanding 88,652,172 shares and 88,140,259 shares, respectively

 1,124  1,110 

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

 37  34 

Common stock, no par value; authorized 200,000,000 shares, issued 105,104,057 shares and 104,286,324 shares, respectively, and outstanding 85,521,216 shares and 87,539,056 shares, respectively

 1,141  1,127 

Class A common stock, no par value; authorized 25,000,000 shares, issued 9,675,139 shares and 9,424,691 shares, respectively, and outstanding 7,573,222 shares and 7,426,512 shares, respectively

 43  39 

Retained earnings

 861  862  988  869 

Accumulated other comprehensive loss, net of income tax benefit

  (39)  (39)  (27)  (27)
 1,983  1,967  2,145  2,008 

Treasury stock at cost, common stock, 15,246,180 shares and 14,960,597 shares, respectively

 (193) (188)

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

  (28)  (26)

Treasury stock at cost, common stock, 19,582,841 shares and 16,747,268 shares, respectively

 (277) (223)

Treasury stock at cost, Class A common stock, 2,101,917 shares and 1,998,179 shares, respectively

  (30)  (28)

Total stockholders’ equity

  1,762   1,753   1,838   1,757 

Total liabilities and stockholders’ equity

 $7,779  $7,643  $11,123  $11,108 

 

See notes to condensed consolidated financial statements.

 

4
 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except for per share data)

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

September 30,

  

September 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 
  

Revenue (less agency commissions):

  

Broadcasting

 $581  $593  $1,648  $1,557  $855  $537  $1,659  $1,067 

Production companies

  20   11   44   32   13   10   36   24 

Total revenue (less agency commissions)

 601  604  1,692  1,589  868  547  1,695  1,091 

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

 

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

 

Broadcasting

 384  326  1,099  985  528  354  1,058  715 

Production companies

 13  8  39  32  14  9  40  26 

Corporate and administrative

 32  15  75  47  25  25  53  43 

Depreciation

 26  27  76  69  31  25  63  50 

Amortization of intangible assets

 28  26  81  78  52  27  104  53 

Loss (gain) on disposal of assets, net

  51   (10)  46   (23)

Gain on disposal of assets, net

  0   (1)  (5)  (5)

Operating expenses

  534   392   1,416   1,188   650   439   1,313   882 

Operating income

 67  212  276  401  218  108  382  209 

Other (expense) income:

 

Miscellaneous (expense), net

 (1) (2) (7) (5)

Other expense:

 

Miscellaneous expense, net

 0  (7) (2) (6)

Interest expense

  (48)  (45)  (143)  (143)  (81)  (47)  (160)  (95)

Income before income taxes

 18  165  126  253  137  54  220  108 

Income tax expense

  35   43   65   67   38   15   59   30 

Net (loss) income

 (17) 122  61  186 

Net income

 99  39  161  78 

Preferred stock dividends

  13   13   39   39   13   13   26   26 

Net (loss) income attributable to common stockholders

 $(30) $109  $22  $147 

Net income attributable to common stockholders

 $86  $26  $135  $52 
  

Basic per share information:

  

Net (loss) income attributable to common stockholders

 $(0.32) $1.15  $0.23  $1.52 

Net income attributable to common stockholders

 $0.92  $0.27  $1.45  $0.55 

Weighted-average shares outstanding

  95   95   94   97   93   95   93   94 
  

Diluted per share information:

  

Net (loss) income attributable to common stockholders

 $(0.32) $1.14  $0.23  $1.52 

Net income attributable to common stockholders

 $0.91  $0.27  $1.44  $0.55 

Weighted-average shares outstanding

  95   96   95   97   94   95   94   95 
  .   

Dividends declared per common share

 $0.08  $0  $0.24  $0  $0.08  $0.08  $0.16  $0.16 

 

See notes to condensed consolidated financial statements.

 

5
 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

(in millions, except for number of shares)

 

                                     

Accumulated

                                          

Accumulated

    
 

Class A

             

Class A

 

Common

 

Other

      

Class A

             

Class A

 

Common

 

Other

    
 

Common Stock

  

Common Stock

  

Retained

  

Treasury Stock

  

Treasury Stock

  

Comprehensive

       

Common Stock

 

Common Stock

 

Retained

 

Treasury Stock

 

Treasury Stock

 

Comprehensive

    
 

Shares

  

Amount

  

Shares

  

Amount

  

Earnings

  

Shares

  

Amount

  

Shares

  

Amount

  

Loss

  

Total

   

Shares

  

Amount

  

Shares

  

Amount

  

Earnings

  

Shares

  

Amount

  

Shares

  

Amount

  

Loss

  

Total

 
                                              

Balance at December 31, 2019

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

Balance at December 31, 2020

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

Net income

 -  0  -  0  53  -  0  -  0  0  53   -  0  -  0  39  -  0  -  0  0  39 
                                              

Preferred stock dividends

 -  0  -  0  (13) -  0  -  0  0  (13)  -  0  -  0  (13) -  0  -  0  0  (13)
                                              

Common stock dividends

  -  0  -  0  (8) -  0  -  0  0  (8)
                       

Issuance of common stock:

                                              

401(k) Plan

 0  0  430,899  4  0  0  0  0  0  0  4   0  0  390,389  7  0  0  0  0  0  0  7 

2007 Long Term Incentive Plan - stock options exercised

 0  0  274,746  0  0  0  0  (154,935) (2) 0  (2)

2017 Equity and Incentive Compensation Plan:

                                              

Restricted stock awards

 166,814  0  248,543  0  0  0  0  (118,550) (2) 0  (2)  233,425  0  296,042  0  0  (110,412) (2) (239,597) (4) 0  (6)

Forfeiture of restricted stock awards

 0  0  (85,630) 0  0  0  0  0  0  0  0 
                       

Repurchase of common stock

 0  0  0  0  0  0  0  (500,923) (6) 0  (6)

Restricted stock unit awards

  0  0  60,050  0  0  0  0  (18,275) (1) 0  (1)
                                              

Stock-based compensation

 -  0  -  4  0  -  0  -  0  0  4   -  1  -  2  0  -  0  -  0  0  3 
                                                                     

Balance at March 31, 2020

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

Balance at March 31, 2021

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

Net income

 -  0  -  0  11  -  0  -  0  0  11   -  0  -  0  39  -  0  -  0  0  39 
                                              

Preferred stock dividends

 -  0  -  0  (13) -  0  -  0  0  (13)  -  0  -  0  (13) -  0  -  0  0  (13)
                                              

Common stock dividends

  -  0  -  0  (7) -  0  -  0  0  (7)
                       

Issuance of common stock:

                                              

401(k) Plan

  0  0  3,655  0  0  0  0  0  0  0  0 

2017 Equity and Incentive Compensation Plan:

                                              

Restricted stock awards

 0  0  78,722  0  0  0  0  (17,296) 0  0  0   0  0  47,360  0  0  0  0  (16,991) 0  0  0 

Vesting of restricted stock units

 0  0  374,500  0  0  0  0  (112,564) (2) 0  (2)
                       

Repurchase of common stock

 0  0  0  0  0  0  0  (3,335,255) (43) 0  (43)
                                              

Stock-based compensation

 -  0  -  3  0  -  0  -  0  0  3   -  1  -  3  0  -  0  -  0  0  4 
                                                                     

Balance at June 30, 2020

  8,935,773  $31   103,068,640  $1,104  $542   (1,887,767) $(26)  (13,328,021) $(162) $(31) $1,458 

Balance at June 30, 2021

   9,169,198  $36   103,898,352  $1,122  $899   (1,998,179) $(28)  (15,235,460) $(193) $(39) $1,797 
                        
                       

Balance at December 31, 2021

   9,424,691  $39   104,286,324  $1,127  $869   (1,998,179) $(28)  (16,747,268) $(223) $(27) $1,757 
                                              

Net income

 -  0  -  0  122  -  0  -  0  0  122   -  0  -  0  62  -  0  -  0  0  62 
                                              

Preferred stock dividends

 -  0  -  0  (13) -  0  -  0  0  (13)  -  0  -  0  (13) -  0  -  0  0  (13)
                       

Common stock dividends

  -  0  -  0  (8) -  0  -  0  0  (8)
                       

Issuance of common stock:

                       

401(k) Plan

  0  0  307,885  7  0  0  0  0  0  0  7 

2017 Equity and Incentive Compensation Plan:

                       

Restricted stock awards

  250,448  0  333,382  0  0  (103,738) (2) (138,959) (3) 0  (5)

Restricted stock unit awards

  0  0  108,921  0  0  0  0  (32,958) (1) 0  (1)
                       

Stock-based compensation

  -  2  -  3  0  -  0  -  0  0  5 
                                   

Balance at March 31, 2022

   9,675,139  $41   105,036,512  $1,137  $910   (2,101,917) $(30)  (16,919,185) $(227) $(27) $1,804 
                       

Net income

  -  0  -  0  99  -  0  -  0  0  99 
                       

Preferred stock dividends

  -  0  -  0  (13) -  0  -  0  0  (13)
                       

Common stock dividends

  -  0  -  0  (8) -  0  -  0  0  (8)
                                              

Issuance of common stock:

                                              

2017 Equity and Incentive Compensation Plan:

                                              

Restricted stock awards

 0  0  32,216  0  0  0  0  (10,870) 0  0  0   0  0  67,545  0  0  0  0  (17,463) 0  0  0 
                                              

Repurchase of common stock

 0  0  0  0  0  0  0  (649,000) (10) 0  (10)  0  0  0  0  0  0  0  (2,646,193) (50) 0  (50)
                                              

Stock-based compensation

 -  0  -  5  0  -  0  -  0  0  5   -  2  -  4  0  -  0  -  0  0  6 
                                                                     

Balance at September 30, 2020

  8,935,773  $31   103,100,856  $1,109  $651   (1,887,767) $(26)  (13,987,891) $(172) $(31) $1,562 

Balance at June 30, 2022

   9,675,139  $43   105,104,057  $1,141  $988   (2,101,917) $(30)  (19,582,841) $(277) $(27) $1,838 

 

See notes to condensed consolidated financial statements.

 

6
 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYCASH FLOWS (Unaudited)

(in millions, except for number of shares)millions)

 

                                      

Accumulated

     
  

Class A

              

Class A

  

Common

  

Other

     
  

Common Stock

  

Common Stock

  

Retained

  

Treasury Stock

  

Treasury Stock

  

Comprehensive

     
  

Shares

  

Amount

  

Shares

  

Amount

  

Earnings

  

Shares

  

Amount

  

Shares

  

Amount

  

Loss

  

Total

 
                                             

Balance at December 31, 2020

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

Net income

  -   0   -   0   39   -   0   -   0   0   39 
                                             

Preferred stock dividends

  -   0   -   0   (13)  -   0   -   0   0   (13)
                                             

Common stock dividends

  -   0   -   0   (8)  -   0   -   0   0   (8)
                                             

Issuance of common stock:

                                            

401(k) Plan

  0   0   390,389   7   0   0   0   0   0   0   7 

2017 Equity and Incentive Compensation Plan:

                                            

Restricted stock awards

  233,425   0   296,042   0   0   (110,412)  (2)  (239,597)  (4)  0   (6)

Restricted stock unit awards

  0   0   60,050   0   0   0   0   (18,275)  (1)  0   (1)
                                             

Stock-based compensation

  -   1   -   2   0   -   0   -   0   0   3 
                                             

Balance at March 31, 2021

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

Net income

  -   0   -   0   39   -   0   -   0   0   39 
                                             

Preferred stock dividends

  -   0   -   0   (13)  -   0   -   0   0   (13)
                                             

Common stock dividends

  -   0   -   0   (7)  -   0   -   0   0   (7)
                                             

Issuance of common stock:

                                            

401(k) Plan

  0   0   3,655   0   0   0   0   0   0   0   0 

2017 Equity and Incentive Compensation Plan:

                                            

Restricted stock awards

  0   0   47,360   0   0   0   0   (16,991)  0   0   0 
                                             

Stock-based compensation

  -   1   -   3   0   -   0   -   0   0   4 
                                             

Balance at June 30, 2021

  9,169,198  $36   103,898,352  $1,122  $899   (1,998,179) $(28)  (15,235,460) $(193) $(39) $1,797 
                                             

Net loss

  -   0   -   0   (17)  -   0   -   0   0   (17)
                                             

Preferred stock dividends

  -   0   -   0   (13)  -   0   -   0   0   (13)
                                             

Common stock dividends

  -   0   -   0   (8)  -   0   -   0   0   (8)
                                             

Issuance of common stock:

                                            

2017 Equity and Incentive Compensation Plan:

                                            

Restricted stock awards

  0   0   0   0   0   0   0   (10,720)  0   0   0 
                                             

Stock-based compensation

  -   1   -   2   0   -   0   -   0   0   3 
                                             

Balance at September 30, 2021

  9,169,198  $37   103,898,352  $1,124  $861   (1,998,179) $(28)  (15,246,180) $(193) $(39) $1,762 
  

Six Months Ended

 
  

June 30,

 
  

2022

  

2021

 

Operating activities:

        

Net income

 $161  $78 

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

        

Depreciation

  63   50 

Amortization of intangible assets

  104   53 

Amortization of deferred loan costs

  8   6 

Amortization of restricted stock awards

  11   7 

Amortization of program broadcast rights

  25   17 

Payments on program broadcast obligations

  (26)  (18)

Common stock contributed to 401(k) plan

  0   1 

Deferred income taxes

  0   21 

Gain on disposal of assets, net

  (5)  (5)

Other

  6   1 

Changes in operating assets and liabilities:

        

Accounts receivable

  10   17 

Income taxes receivable or prepaid

  (67)  (9)

Other current assets

  18   51 

Accounts payable

  7   23 

Employee compensation, benefits and pension cost

  (8)  13 

Accrued network fees and other expenses

  7   (34)

Accrued interest

  1   0 

Income taxes payable

  7   (20)

Deferred revenue

  8   (14)

Net cash provided by operating activities

  330   238 
         

Investing activities:

        

Acquisitions of television businesses and licenses, net of cash acquired

  (40)  (41)

Purchases of property and equipment

  (159)  (121)

Proceeds from asset sales

  2   3 

Proceeds from Repack reimbursement (Note 1)

  5   7 

Investment in broadcast, production and technology companies

  (9)  (25)

Net cash used in investing activities

  (201)  (177)
         

Financing activities:

        

Repayments of borrowings on long-term debt

  (58)  0 

Repurchase of common stock

  (50)  0 

Payment of common stock dividends

  (16)  (15)

Payment of preferred stock dividends

  (26)  (26)

Deferred and other loan costs

  0   (1)

Payment of taxes related to net share settlement of equity awards

  (6)  (7)

Net cash used in financing activities

  (156)  (49)

Net (decrease) increase in cash

  (27)  12 

Cash at beginning of period

  189   773 

Cash at end of period

 $162  $785 

 

See notes to condensed consolidated financial statements.

 

7
 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions) 

  

Nine Months Ended

 
  

September 30,

 
  

2021

  

2020

 

Operating activities:

        

Net income

 $61  $186 

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

        

Depreciation

  76   69 

Amortization of intangible assets

  81   78 

Amortization of deferred loan costs

  9   9 

Amortization of restricted stock awards

  11   12 

Amortization of program broadcast rights

  26   28 

Payments on program broadcast obligations

  (27)  (29)

Common stock contributed to 401(k)

  1   5 

Deferred income taxes

  (18)  41 

Loss (gain) on disposals of assets, net

  46   (23)

Other

  (7)  6 

Changes in operating assets and liabilities:

        

Accounts receivable

  6   28 

Prepaid income taxes

  (28)  (13)

Other current assets

  33   2 

Accounts payable

  23   68 

Employee compensation, benefits and pension cost

  19   (9)

Accrued network fees and other expenses

  (13)  (1)

Accrued interest

  13   7 

Income taxes payable

  (17)  (11)

Deferred revenue

  (12)  35 

Net cash provided by operating activities

  283   488 
         

Investing activities:

        

Acquisitions of businesses and licenses, net of cash acquired

  (956)  (47)

Proceeds from sale of television stations

  470   0 

Purchases of property and equipment

  (154)  (70)

Proceeds from Repack reimbursement (Note 1)

  10   19 

Proceeds from asset sales

  3   8 

Investments in broadcast, production and technology companies

  (37)  (38)

Other

  0   (1)

Net cash used in investing activities

  (664)  (129)
         

Financing activities:

        

Borrowings of long-term debt

  250   0 

Repayments of long-term debt

  (250)  0 

Repurchase of common stock

  0   (59)

Common stock dividends

  (23)  0 

Preferred stock dividends

  (39)  (39)

Deferred and other loan costs

  (1)  0 

Taxes related to net share settlement of equity awards

  (7)  (6)

Net cash used in financing activities

  (70)  (104)

Net (decrease) increase in cash

  (451)  255 

Cash at beginning of period

  773   212 

Cash at end of period

 $322  $467 

See notes to condensed consolidated financial statements.

8

GRAY TELEVISION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

1.Basis of Presentation

Basis of Presentation

 

The accompanying condensed consolidated balance sheet of Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides, “Gray,” the “Company,” “we,” “us,” and “our”) as of December 31, 2020,2021, which was derived from the Company’s audited financial statements as of December 31, 2020,2021, and our accompanying unaudited condensed consolidated financial statements as of SeptemberJune 30, 20212022 and for the periods ended SeptemberJune 30, 20212022 and 2020,2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. We manage our business on the basis of two operating segments: broadcasting and production companies. Unless otherwise indicated, all station rank, in-market share and television household data herein are derived from reports prepared by Comscore, Inc. (“Comscore”). While we believe this data to be accurate and reliable, we have not independently verified such data nor have we ascertained the underlying assumptions relied upon therein and cannot guarantee the accuracy or completeness of such data. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20202021 (the “20202021 Form 10-K”). Our financial condition as of, and operating results for the three and ninesix-months ended SeptemberJune 30, 2021,2022, are not necessarily indicative of the financial condition or results that may be expected for any future interim period or for the year ending December 31, 2021.2022.

 

Overview. We are a television broadcastingmultimedia company headquartered in Atlanta, Georgia, that isGeorgia.  We are the nation’s largest owner of top-rated local television (“television” or “TV”) stations and digital assets in the United States.  Upon the completion of our anticipated acquisition of the Local Media Group of Meredith Corporation (the “Meredith Transaction” as defined herein), we will become the nation’s second largest television broadcaster, withOur television stations servingserve 113 television markets that collectively reach approximately 36 percent of US television households.  TheThis portfolio will include 79includes 80 markets with the top-rated television station and 101100 markets with the first and/or second highest rated television station according to Comscore’s audience measurement data.station.  We also own video program production, marketing, and digital businesses includingcompanies Raycom Sports, Tupelo Honey,Media Group (formerly Tupelo Honey), PowerNation Studios, as well as the studio production facilities Assembly Atlanta and RTM Studios, the producer of PowerNation programs and content, and is the majority owner of Swirl Films, which we refer to collectively as our “production companies.”Third Rail Studios. 

 

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

 

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

 

9

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

 

8

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

 

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding for the three and ninesix-month periods ended SeptemberJune 30, 20212022 and 2020,2021, respectively (in millions):

 

 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

  

September 30,

  

Three Months Ended

 

Six Months Ended

 
 

2021

  

2020

  

2021

  

2020

  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 
  

Weighted-average shares outstanding-basic

 95  95  94  97  93  95  93  94 

Common stock equivalents for stock options and restricted stock

  0   1   1   0 

Common stock equivalents for stock options and restricted shares

  1   0   1   1 

Weighted-average shares outstanding-diluted

  95   96   95   97   94   95   94   95 

 

Accumulated Other Comprehensive Loss. Our accumulated other comprehensive loss balances as of SeptemberJune 30, 20212022 and December 31, 2020,2021, consist of adjustments to our pension liability and the related income tax effect. Our comprehensive income for the ninesix-month periods ended SeptemberJune 30, 20212022 and 20202021 consisted solely of our net income. As of SeptemberJune 30, 20212022 and December 31, 20202021 the balances were as follows (in millions):

 

 

September 30,

 

December 31,

  

June 30,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 
      

Items included in accumulated other comprehensive loss:

 

Accumulated balances of items included in accumulated other comprehensive loss:

     

Increase in pension liability

 $(52) $(52) $(36) $(36)

Income tax benefit

  (13)  (13)  (9)  (9)

Accumulated other comprehensive loss

 $(39) $(39) $(27) $(27)

 

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

          

Estimated

 
  

June 30,

  

December 31,

  

Useful Lives

 
  

2022

  

2021

  

(in years)

 

Property and equipment:

             

Land

 $280  $277      

Buildings and improvements

  455   453  7to40 

Equipment

  972   961  3to20 

Construction in progress

  198   63      
   1,905   1,754      

Accumulated depreciation

  (645)  (589)     

Total property and equipment, net

 $1,260  $1,165      

9

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

In April 2017, the Federal Communications Commission (“FCC”) began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). The majority of our costs associated with Repack qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net.

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

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Gain on disposal of assets, net:

                

Proceeds from sale of assets

 $(2) $(3) $(2) $(3)

Proceeds from FCC - Repack

  0   (3)  (5)  (7)

Net book value of assets disposed

  2   4   2   5 

Other

  0   1   0   0 

Total

 $0  $(1) $(5) $(5)
                 

Purchase of property and equipment:

                

Recurring purchases - operations

  0   0  $67  $39 

Assembly Atlanta development

  0   0   92   80 

Repack

  0   0   0   2 

Total

  0   0  $159  $121 

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

 

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

 

10

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

 

  

Nine Months Ended

 
  

September 30, 2021

 

Beginning balance

 $10 

Provision for credit losses

  2 

Amounts written off

  (1)

Amounts recovered from previous write-offs

  0 

Ending balance

 $11 

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

          

Estimated

 
  

September 30,

  

December 31,

  

Useful Lives

 
  

2021

  

2020

  

(in years)

 

Property and equipment, net:

              

Land

 $217  $123       

Buildings and improvements

  332   305   7to40 

Equipment

  927   834   3to20 
   1,476   1,262       

Accumulated depreciation

  (568)  (525)      

Total property and equipment, net

 $908  $737       

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

In April 2017, the Federal Communications Commission (the “FCC”) began a process of reallocating the broadcast spectrum (the “Repack”). Specifically, the FCC is requiring certain television stations to change channels and/or modify their transmission facilities. The U.S. Congress passed legislation which provides the FCC with funds to reimburse certain costs incurred by stations operating under a full power license and a portion of the costs incurred by stations operating under a low power license that are reassigned to new channels. A significant number of our current full power and low power stations are affected by the Repack. The Repack process began in the summer of 2017 and we expect that it will conclude for nearly all of our stations before the end of 2021. The majority of our costs associated with the Repack qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our loss (gain) on disposal of assets, net.

  

Six Months Ended June 30,

 
  

2022

  

2021

 

Beginning balance

 $16  $10 

Provision for credit losses

  (1)  1 

Amounts written off

  0   (1)

Ending balance

 $15  $10 

 

1110
 

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

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

(Loss) gain on disposal of assets, net:

                

Proceeds from sale of assets

 $0  $7  $3  $8 

Proceeds from FCC - Repack

  4   5   10   19 

Net book value of assets disposed

  (2)  (2)  (6)  (4)

Non-cash loss on divestitures

  (53)  0   (53)  0 

Total

 $(51) $10  $(46) $23 
                 

Purchase of property and equipment:

                

Recurring purchases - operations

         $57  $51 

Doraville land purchase

          91   0 

Repack

          6   19 

Total

         $154  $70 

Recent Accounting Pronouncements. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). In January 2021, the FASB issued an amendment to ASU 2020-04, ASU 2021-01, Reference Rate Reform (Topic 848), in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU apply to all entities that elect to apply the optional guidance in Topic 848. An entity may elect to apply the amendments in this ASU on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final standard, up to the date that financial statements are available to be issued. We are currently evaluating the applicability of this guidance.

 

In addition to the accounting standardsstandard described above, once implemented, certain amounts in the condensed consolidated statementsour disclosures of cash flowsrevenues have also been reclassified to conform to the current presentation. Beginning in 2022, we present our “Core” advertising revenue. In prior periods, we had presented separate line items of local advertising revenue and national advertising revenue and these amounts are now combined into Core advertising revenue.

 

 

2.Revenue

Revenue

 

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

 

We record a deposit liability for cash deposits received from our customers that are to be applied as payment once the performance obligation arises and is satisfied. These deposits are recorded as deposit liabilities on our condensed consolidated balance sheets. When we invoice our customers for completed performance obligations, we are unconditionally entitled to receive payment of the invoiced amounts. Therefore, we record invoiced amounts in accounts receivable on our condensed consolidated balance sheets. We generally require amounts payable under advertising contracts with our political advertising customers to be paid for in advance. We record the receipt of this cash as a deposit liability. Once the advertisement has been broadcast, the revenue is earned, and we record the revenue and reduce the balance in this deposit liability account. We recorded $21$13 million of revenue in the ninesix months-months ended SeptemberJune 30, 20212022 that was included in the deposit liability balance as of December 31, 2020.2021. The deposit liability balance is included in deferred revenue on our condensed consolidated balance sheets. The deposit liability balance was $8$19 million and $21$13 million as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.

 

1211
 
 

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

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

September 30,

  

September 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Market and service type:

  

Advertising:

 

Local

 $232  $188  $657  $549 

National

 60  49  174  136 

Broadcast Advertising:

 

Core advertising

 $366  $279  $731  $539 

Political

  9   128   24   185   90   6   116   15 

Total advertising

 301  365  855  870  456  285  847  554 

Retransmission consent

 266  217  755  650  382  242  775  489 

Production companies

 20  11  44  32  13  10  36  24 

Other

  14   11   38   37   17   10   37   24 

Total revenue

 $601  $604  $1,692  $1,589  $868  $547  $1,695  $1,091 
  

Sales channel:

  

Direct

 $402  $316  $1,117  $948  $536  $358  $1,087  $715 

Advertising agency intermediary

  199   288   575   641   332   189   608   376 

Total revenue

 $601  $604  $1,692  $1,589  $868  $547  $1,695  $1,091 

 

 

3.Acquisition

Acquisitions and Divestitures

Quincy Transaction. On August 2, 2021, we completed the acquisition of all the equity interests of Quincy Media, Inc. (“Quincy”) for an adjusted purchase price of $930 million, which amount includes an additional $5 million for working capital. Quincy owned and operated television stations in 16 markets. Also on August 2, 2021, and concurrently with the acquisition of Quincy, we completed the divestiture to Allen Media (“Allen”) of television stations in seven markets previously owned by Quincy and located in our existing television markets, for an adjusted divestiture price of $398 million, which amount includes $18 million for working capital (the “Quincy Divestiture”). The Quincy Divestiture resulted in a non-cash loss of $48 million. We refer to the acquisition of Quincy and the Quincy Divestiture collectively as the “Quincy Transaction.”

 

The following table lists the stations acquired and retained, net of divestitures:

Current

DMA

Rank

Designated Market Area ("DMA")

Station Call

Letters

Network

Affiliations

104

Fort Wayne, IN

WPTA/WISE

ABC/NBC/CW

118

Peoria, IL

WEEK

NBC/ABC/CW

136

Duluth, MN, Superior, WI

KBJR/KDLH

NBC/CBS/CW

147

Sioux City, IA

KTIV

NBC/CW

156

Rochester, MN - Mason City, IA

KTTC

NBC/CW

158

Binghamton, NY

WBNG

CBS/CW

162

Bluefield-Beckley, WV

WVVA

NBC/CW

172

Quincy, IL

WGEM

NBC/FOX/CW

13

The following stations were acquired and divested in the Quincy Transaction:

Current

DMA

Rank

DMA

Station Call

Letters

Network

Affiliations

75

Tucson, AZ

KVOA

NBC

80

Madison, WI

WKOW

ABC

91

Paducah, KY - Harrisburg, IL

WSIL

ABC

92

Cedar Rapids, IA

KWWL

NBC

123

La Crosse-Eau Claire, WI

WXOW

ABC

132

Rockford, IL

WREX

NBC

134

Wausau-Stevens Point, WI

WAOW

ABC

The following table summarizes the allocation of consideration paid in the Quincy Transaction (in millions):

Adjusted purchase price

 $930 

Less - consideration allocated to assets acquired and liabilities assumed for the Quincy overlap markets that were divested on August 2, 2021

  383 

Purchase consideration for assets acquired and liabilities assumed, net of divestitures

 $547 

Third Rail Acquisition. On September 13, 2021, we acquired the studio, production and office facilities as well as the related production and administrative assets and liabilities of Third Rail Studios (“Third Rail”) from Third Rail Studios, LLC and Studio Sixty, LLC for an adjusted purchase price of $27 million of cash. We refer to this transaction as the “Third Rail Acquisition”. This transaction represents an initial step in the broader development of our planned studio production facilities.

Purchase Price Allocations. The following table summarizes the values of the assets acquired, liabilities assumed and resulting goodwill of the Quincy Transaction and the Third Rail Acquisition (together, the “2021 Acquisitions”), in millions:

  

Quincy

  

Third Rail

  

Total

 

Cash

 $4  $0  $4 

Accounts receivable, net

  23   0   23 

Other current assets

  5   0   5 

Property and equipment

  73   24   97 

Operating lease right of use asset

  1   0   1 

Goodwill

  184   4   188 

Broadcast licenses

  245   0   245 

Other intangible assets

  86   0   86 

Other current liabilities

  (7)  (1)  (8)

Deferred income taxes

  (66)  0   (66)

Operating lease liabilities

  (1)  0   (1)

Total

 $547  $27  $574 

Due to the proximity of the acquisition date to the date of the filing of this quarterly report, these amounts are based upon management’s preliminary estimate of the fair values using valuation techniques including income, cost and market approaches. In determining the preliminary fair value of the acquired assets and assumed liabilities, the fair values were estimated based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.

14

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

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

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

Flint Divestiture. To facilitate regulatory approvals for the pending Meredith Transaction, on September 23, 2021, we divested our existing television station WJRT (ABC) in the Flint-Saginaw, Michigan market (DMA 64), to Allen for an adjusted purchase price of $72 million in cash, including working capital (the “Flint Divestiture”). The Flint Divestiture resulted in a non-cash loss of $5 million.

The Company’s consolidated results of operations for the nine-months ended September 30, 2021 includes the results of the Quincy Transaction beginning on August 2, 2020 and the Third Rail Acquisition beginning on September 13, 2021. Revenues attributable to the 2021 Acquisitions and included in our condensed consolidated statements of operations for the three and nine-months ended September 30, 2021 was $25 million, in each period.

The following table summarizes the approximate “Transaction Related Expenses” incurred in connection with the 2021 Acquisitions and the Flint Divestiture, during the three and nine-months ended September 30, 2021, by type and by financial statement line item (in millions):

  

September 30, 2021

 
  

Three Months

  

Nine Months

 
  

Ended

  

Ended

 

Transaction Related Expenses by type:

        

Legal, consulting and other professional fees

 $11  $19 

Incentive compensation and other severance costs

  0   0 

Termination of financing agreement

  0   7 

Total Transaction Related Expenses

 $11  $26 
         

Transaction Related Expenses by financial statement line item:

        

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

        

Broadcasting

 $0  $0 

Corporate and administrative

  11   19 

Miscellaneous (income) expense, net

  0   7 

Total Transaction Related Expenses

 $11  $26 

15

Unaudited Pro Forma Financial Information –2021 Acquisitions. The following table sets forth certain unaudited pro forma information for the nine-months ended September 30, 2021 and 2020, assuming that the 2021 Acquisitions and the Flint Divestiture occurred on January 1,2020 (in millions, except per share data):

  

Nine Months Ended

 
  

September 30,

 
  

2021

  

2020

 
         

Revenue (less agency commissions)

 $1,751  $1,678 
         

Net income

 $126  $153 
         

Net income attributable to common stockholders

 $87  $114 
         

Basic net income attributable to common stockholders, per share

 $0.93  $1.18 
         

Diluted net income attributable to common stockholders, per share

 $0.92  $1.18 

This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the businesses acquired, net of divestitures, included in the 2021 Acquisitions and the Flint Divestiture, adjusted for the effects of fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed the 2021 Acquisitions and the Flint Divestiture, on January 1,2020, or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the nine-months ended September 30, 2021 and 2020 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, Transaction Related Expenses and related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.

Lubbock Transactions. On December 31, 2020,2022, we acquired television station KLCW-TV (CW) and certain low power television stationsWKTB-TV the Telemundo Network Group, LLC affiliate in the Lubbock, TexasAtlanta, Georgia market (DMA 14210), as well as certain non-licensedigital media assets, of KJTV-TV (FOX) and two additional low power stations and certain real estate, for a combined purchase price of $24$31 million, using cash on hand. On that date, we also entered into a shared services agreement with SagamoreHill to provide news and back-office services to KJTV-TV and its associated low power stations using cash on hand (the “Lubbock Transactions”“Telemundo Atlanta Transaction”).

 

The following table summarizes the preliminary values of the assets acquired and resulting goodwill of the Lubbock TransactionsTelemundo Atlanta Transaction (in millions):

 

Property and equipment

 $6 

Operating lease right of use asset

 1 

Accounts receivable, net

 $1 

Property and equipment and other assets

 1 

Goodwill

 6  10 

Broadcast licenses

 5  1 

Network affiliation

 14 

Other intangible assets

 7   4 

Other liabilities

  (1)

Total

 $24  $31 

 

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

 

16

Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years3 to 40 years.

 

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

 

12

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

 

Pending Acquisition

Acquisition of Meredith. On May 3, 2021, we entered into the Meredith Transaction, in which we agreed to acquire all outstanding shares of Meredith Corporation (“Meredith”), subject to and immediately after the spinoff of Meredith’s National Media Group to the current Meredith shareholders. The agreement was amended on June 2, 2021 and October 6, 2021, to revise the purchase consideration to $16.99 per share in cash, or $2.8 billion in total enterprise value and to modify certain terms of the agreement. The parties expect to close the transaction in the fourth quarter of 2021. At the closing, Gray will acquire Meredith’s remaining operating division, known as the Local Media Group, which owns 17 television stations in 12 local markets, adding 11 new markets to our operations.

The transaction is subject to approval of Meredith’s shareholders and customary closing conditions and regulatory approvals, including certain consents necessary to effectuate the spinoff of Meredith’s National Media Group immediately prior to the closing of our acquisition of Meredith.

Refer to Note 4. “Long-Term Debt” for a description of the debt financing arrangements related to this transaction.

17

4.Long-term Debt

Long-term Debt

 

As of SeptemberJune 30, 20212022 and December 31, 2020,2021, long-term debt consisted of obligations under our senior credit facility (the “2019 Senior Credit Facility”)Facility (as defined below), our 5.875% senior notes due 2026 (the “2026 Notes”), our 7.0% senior notes due 2027 (the “2027 Notes”) and, our 4.75% senior notes due 2030 (the “2030 Notes”) and our 5.375% notes due 2031 (the “2031 Notes”), as follows (in millions):

 

 

September 30,

 

December 31,

  

June 30,

 

December 31,

 
 

2021

  

2020

  

2022

  

2021

 

Long-term debt:

 

Long-term debt :

 

2019 Senior Credit Facility:

  

2017 Term Loan

 $595  $595  $545  $595 

2019 Term Loan

 1,190  1,190  1,190  1,190 

2021 Term Loan

 1,493  1,500 

2026 Notes

 700  700  700  700 

2027 Notes

 750  750  750  750 

2030 Notes

  800   800  800  800 

2031 Notes

  1,300   1,300 

Total outstanding principal, including current portion

 4,035  4,035  6,778  6,835 

Unamortized deferred loan costs - 2019 Senior Credit Facility

 (30) (34)

Unamortized deferred loan costs - 2017 Term Loan

 (6) (7)

Unamortized deferred loan costs - 2019 Term Loan

 (23) (27)

Unamortized deferred loan costs - 2021 Term Loan

 (5) (5)

Unamortized deferred loan costs - 2026 Notes

 (5) (6) (4) (5)

Unamortized deferred loan costs - 2027 Notes

 (9) (10) (8) (8)

Unamortized deferred loan costs - 2030 Notes

 (13) (14) (12) (13)

Unamortized deferred loan costs - 2031 Notes

 (17) (18)

Unamortized premium - 2026 Notes

  3   3  2  3 

Less current portion

  (15)  (15)

Long-term debt, less deferred financing costs

  3,981   3,974  $6,690  $6,740 
  

Borrowing availability under Revolving Credit Facility

 $299  $200  $496  $497 

 

BorrowingsAs of June 30, 2022, the interest rates on the balances outstanding under the 2017 Term Loan, the 2019 Term Loan and the 2021 Term Loan were 3.6%, 3.6% and 4.1% respectively. We expect that interest rates applicable to the 2019 Senior Credit Facility will be modified upon the implementation of a LIBOR replacement rate that will apply to our current and future borrowings under the 2019 Senior Credit Facility. The 2017 Term Loan, bear interest, at our option, at either the LIBOR or the Base Rate, in each case, plus an applicable margin. As of September 30, 2021, the interest rate on the balance outstanding under the 2019 Term Loan and the 2017 Term Loan were 2.6% and 2.3%, respectively. The 2019 Term Loan and the 20172021 Term Loan mature on February 7, 2024, January 2, 2026 and February 7, 2024,December 1, 2028, respectively.

 

13

As of SeptemberJune 30, 2021,2022, the aggregate minimum principal maturities of our long term debt for the remainder of 20212022 and the succeeding 5 years were as follows (in millions):

 

 

Minimum Principal Maturities

  

Minimum Principal Maturities

 

Year

 

2019 Senior

Credit Facility

  

2026 Notes

  

2027 Notes

  

2030 Notes

  

Total

  

2019 Senior

Credit Facility

  

2026 Notes

  

2027 Notes

  

2030 Notes

  

2031 Notes

  

Total

 

Remainder of 2021

 $0  $0  $0  $0  $0 

2022

 0  0  0  0  0 

Remainder of 2022

 $8  $0  $0  $0  $0  $8 

2023

 0  0  0  0  0  15  0  0  0  0  15 

2024

 595  0  0  0  595  560  0  0  0  0  560 

2025

 0  0  0  0  0  15  0  0  0  0  15 

2026

 1,190  700  0  0  1,890  1,205  700  0  0  0  1,905 

2027

 15  0  750  0  0  765 

Thereafter

  0   0   750   800   1,550   1,410   0   0   800   1,300   3,510 

Total

 $1,785  $700  $750  $800  $4,035  $3,228  $700  $750  $800  $1,300  $6,778 

 

As of SeptemberJune 30, 2021,2022, there were no significant restrictions on the ability of ourGray Television, Inc.'s subsidiaries to distribute cash to usGray or to the guarantor subsidiaries. The 2019 Senior Credit Facility contains affirmative and restrictive covenants with which we must comply. The 2026 Notes, the 2027 Notes, and the 2030 Notes and the 2031 Notes also include covenants with which we must comply. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, we were in compliance with all required covenants under all our debt obligations.

 

For all of our interest bearing obligations, we made interest payments of approximately $121$153 million and $127$89 million during the ninesix-months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. During the six months ended June 30, 2022, we capitalized $2 million of interest payments related to our Assembly Atlanta project. We did not capitalize any interest payments during the ninesix-months ended SeptemberJune 30, 2021 and 2020.2021.

 

18

Meredith Transaction Financing. In connection with,the six-months ended June 30, 2022, we paid the required principal reductions of $8 million of our 2021 Term Loan and contingent upon the completionvoluntarily pre-paid $50 million of the Meredith Transaction, we have agreed to complete certain financing transactions. Related to our Senior Credit Facility, we (1) agreed to incur a $1.5 billion incremental term loan under our senior credit facility, subject to market conditions at the time of financing and (2) agreed to amend and restate our existing revolving credit facility to increase our borrowing capacity under the facility from up to $300 million to up to $500 million, which will consist of (i) a $425 million five year revolving credit facility and (ii) a $75 million revolving credit facility with commitments expiring January 2, 2026. In addition, Gray Escrow II, Inc. (“Escrow Issuer”), a special purpose wholly-owned subsidiary, has agreed to issue $1.3 billion in aggregateoutstanding principal amount of 5.375% senior unsecured notes due 2031 (the “2031 Notes”) at par, which we intend to assume upon completion of the Meredith Transaction. The proceeds of the transactions mentioned above, after deducting transaction fees and estimated expenses, will be used to pay a portion of the consideration for the Meredith Transaction. The amendmentbalance of our Senior Credit Facility is likely to result in a gain or loss on early extinguishment of debt that is not2017 yet determinable.Term Loan.

 

 

5.Fair Value Measurement

Fair Value Measurement

 

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

 

 

●

Level 1: Quoted prices for identical instruments in active markets

 

●

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

 

●

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

 

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

 

The carrying amounts of accounts receivable, prepaid and other current assets, accounts payable, employee compensation and benefits, accrued interest, other accrued expenses, and deferred revenue approximate fair value at both SeptemberJune 30, 20212022 and December 31, 2020.2021.

 

As ofAt SeptemberJune 30, 20212022 and December 31, 2020,2021, the carrying amount of our long-term debt was $4.0$6.7 billion and $6.8 billion, respectively, and the fair value was $4.1 billion.$6.1 billion and $6.9 billion, respectively. The fair value of our long-term debt is based on observable estimates provided by third party financial professionals as of each date, and as such is classified within Level 2 of the fair value hierarchy.

 

14

6.

6.Stockholders’ Equity

 

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

 

Our common stock and classClass A common stock are entitled to receive cash dividends if declared, on an equal per-share basis. On February 24, 2021, theThe Board of Directors initiateddeclared a quarterly cash dividend of $0.08 per share on our common stock and classClass A common stock.stock to shareholders of record on each of March 15 and June 15, 2022 and 2021, payable on March 31 and June 30, 2022 and 2021. The total dividends declared and paid during the ninesix-months ended SeptemberJune 30, 2022 and 2021was approximately $23$15 million. During

On May 5, 2022, our shareholders approved, and our Board of Directors adopted, our 2022 Equity and Incentive Compensation Plan (the “2022 EICP”). The 2022 EICP replaced our 2017 Equity and Incentive Compensation Plan. Under the nine2022-months ending September 30, 2020, we did not declare or pay any dividends on EICP, 5.5 million shares of our common stock or classand 2.2 million shares of our Class A common stock.

stock were added to our shares authorized for issuance. Under our various employee benefit plans, we may, at our discretion, issue authorized and unissued shares, or previously issued shares held in treasury, of our classClass A common stock or common stock. As of SeptemberJune 30, 2021,2022, we had reserved 3,209,4527.5 million shares and 1,103,0152.8 million shares of our common stock and classClass A common stock, respectively, for future issuance under various employee benefit plans. As of December 31, 2020,2021, we had reserved 4,006,9482.8 million shares and 1,336,4400.8 million shares of our common stock and classClass A common stock, respectively, for future issuance under various employee benefit plans.

 

During the ninesix-months ended SeptemberJune 30, 2021,2022, we have notrepurchased any2.6 million shares of our common stock or class A common stock under our share repurchase programs.programs for $50 million. As of SeptemberJune 30, 2021,2022, approximately $204$124 million was available to repurchase shares of our common stock and/or classClass A common stock under these programs.

 

19

7.Retirement Plans

Retirement Plans

 

The components of our net periodic pension benefit are included in miscellaneous (expense) income net in our condensed consolidated statements of operations. During the ninesix-months ended SeptemberJune 30, 2021,2022, the amount recorded as a benefit was not material.material, and we did not make a contribution to our defined benefit pension plans. During the remainder of nine2022,-months ended September 30, 2021, we contributedexpect to contribute $4 million to this plan.these plans.

 

During the ninesix-month period ended SeptemberJune 30, 2021,2022, we contributed $11$9 million in matching cash contributions, and shares of our common stock valued at approximately $7 million for our 20202021 discretionary profit-sharing contributions, to the 401(k) plan. The discretionary profit-sharing contribution was recorded as an expense in 20202021 and accrued as of December 31, 2020.2021. Based upon our staffing and employee participation as of SeptemberJune 30, 2021,2022, during the remainder of 2021,2022, we expect to contribute approximately $2$7 million of matching cash contributions to this plan. This estimate will increase upon the completion of the Meredith Transaction.

15

 

 

8.      Stock-based Compensation

Stock-based Compensation

 

We recognize compensation expense for stock-based payment awards made to our employees, consultants and directors. Our current stock-based compensation plans include our 2017 Equity and Incentive Compensation Plan (the “2017 EICP”). The following table provides our stock-based compensation expense and related income tax benefit for the three and ninesix-month periods ended SeptemberJune 30, 20212022 and 20202021 (in millions):

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

September 30,

  

September 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Stock-based compensation expense, gross

 $3  $5  $10  $12  $6  $4  $11  $7 

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

  (1)  (1)  (3)  (3)

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

  (2)  (1)  (3)  (1)

Stock-based compensation expense, net

 $2  $4  $7  $9  $4  $3  $8  $6 

 

All shares of class A common stock and Class A common stock underlying outstanding restricted stock units and performance awards are counted as issued at target levels under the 20172022 EICP for purposes of determining the number of shares available for future issuance.

 

DuringA summary of restricted common stock and Class A common stock activity for the ninesix-months-month periods ended SeptemberJune 30, 2022 and 2021,we granted under the 2017 EICP:respectively, is as follows:

 

●

47,360 shares of restricted common stock with a grant date fair value of $21.96 to our non-employee directors that will vest on April 30, 2022;

  

Six Months Ended

 
  

June 30, 2022

  

June 30, 2021

 
      

Weighted-

      

Weighted-

 
      

average

      

average

 
      

Grant Date

      

Grant Date

 
  

Number of

  

Fair Value

  

Number of

  

Fair Value

 
  

Shares

  

Per Share

  

Shares

  

Per Share

 

Restricted stock - common:

                

Outstanding - beginning of period (1)

  1,035,728  $19.69   917,533  $16.84 

Granted (1)

  400,927  $21.68   343,402  $18.73 

Vested

  (341,918) $19.03   (580,963) $15.48 

Outstanding - end of period (1)

  1,094,737  $20.62   679,972  $18.96 
                 

Restricted stock - Class A common:

                

Outstanding - beginning of period (1)

  720,421  $18.22   480,042  $16.10 

Granted (1)

  250,448  $20.52   233,425  $17.67 

Vested

  (229,758) $16.99   (248,539) $15.00 

Outstanding - end of period (1)

  741,111  $19.38   464,928  $17.47 
                 

Restricted stock units - common stock:

                

Outstanding - beginning of period

  125,247  $19.02   90,184  $18.92 

Granted

  259,079  $23.87   95,115  $19.05 

Vested

  (108,921) $19.03   (60,052) $18.92 

Forfeited

  (1,260) $19.05   0  $0.00 

Outstanding - end of period

  274,145  $23.60   125,247  $19.02 

 

●

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

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

●

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

●

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

●

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

 

20
16
 

●

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

●

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

During the nine-months ended September 30, 2020, we granted under the 2017 EICP:

●

78,722 shares of restricted common stock with a grant date fair value of $11.56 to our non-employee directors that vested on April 30, 2021;

●

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

●

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

●

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

●

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

●

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

●

Restricted stock units representing 3,000 shares of our common stock to an employee, that vested on June 1, 2020; and

●

32,216 shares of restricted common stock with a grant date fair value per share of $15.52 to an employee that vested on September 1, 2021.

21

A summary of restricted class A common stock, common stock and restricted stock units activity for the nine-month periods ended September 30, 2021 and 2020 is as follows:

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

 
      

Weighted-

      

Weighted-

 
      

average

      

average

 
      

Grant Date

      

Grant Date

 
  

Number of

  

Fair Value

  

Number of

  

Fair Value

 
  

Shares

  

Per Share

  

Shares

  

Per Share

 

Restricted stock - class A common:

                

Outstanding - beginning of period

  480,042  $16.10   449,284  $13.55 

Granted(1)

  233,425  $17.67   166,814  $19.87 

Vested

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

Outstanding - end of period

  464,928  $17.47   480,042  $16.10 
                 

Restricted stock - common:

                

Outstanding - beginning of period

  917,533  $16.84   977,547  $15.45 

Granted(1)

  343,402  $18.73   359,481  $18.92 

Vested

  (613,179) $15.48   (333,865) $15.35 

Forfeited

  0  $0   (85,630) $15.53 

Outstanding - end of period

  647,756  $19.13   917,533  $16.84 
                 

Restricted stock units - common stock:

                

Outstanding - beginning of period

  90,184  $18.92   398,000  $18.21 

Granted

  95,115  $19.05   93,184  $18.77 

Vested

  (60,052) $18.92   (374,500) $18.18 

Forfeited

  0  $0   (26,500) $18.21 

Outstanding - end of period

  125,247  $19.02   90,184  $18.92 

(1)

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

 

 

9.      Leases

Leases

 

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

 

We have operating leases that primarily relate to certain of our facilities, data centers and vehicles. As of SeptemberJune 30, 2021,2022, our operating leases substantially have remaining terms of one year to 99 years, some of which include options to extend and/or terminate the leases. We do not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year.

 

Cash flow movements related to our lease activities are included in other assets and accounts payable and other liabilities as presented in net cash provided by operating activities in our condensed consolidated statement of cash flows for the ninesix-months ended SeptemberJune 30, 2021.2022.

 

22

As of SeptemberJune 30, 2021,2022, the weighted-average remaining term of our operating leases was approximately 10.2510 years. The weighted-average discount rate used to calculate the values associated with our operating leases was 6.74%6.67%. The table below describes the nature of lease expense and classification of operating lease expense recognized in the three and ninesix-months ended SeptemberJune 30, 20212022 and 2020,2021, respectively (in millions):

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

September 30,

  

September 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Lease expense

  

Operating lease expense

 $3  $3  $9  $9  $4  $3  $8  $6 

Short-term lease expense

  1   0   2   1   0   0   1   1 

Total lease expense

 $4  $3  $11  $10  $4  $3  $9  $7 

 

The maturities of operating lease liabilities as of SeptemberJune 30, 2021,2022, for the remainder of 20212022 and the succeedingfive years were as follows (in millions):

 

Year ending December 31,

 

Operating Leases

  

Operating Leases

 

Remainder of 2021

 $3 

2022

 11 

Remainder of 2022

 $7 

2023

 9  13 

2024

 9  12 

2025

 8  11 

2026

 9 

Thereafter

  43   48 

Total lease payments

 83  100 

Less: Imputed interest

  (24)  (28)

Present value of lease liabilities

 $59  $72 

17

 

 

10.     Commitments and Contingencies

Commitments and Contingencies

 

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

 

Pending Acquisitions.Assembly Atlanta Please refer. On June 1, 2022, we announced that we have entered into a long-term agreement with NBCUniversal Media, LLC (“NBCU”) for NBCU to Notelease and operate new state-of-the-art studio facilities at our Assembly Atlanta development that is currently under construction.

Assembly Atlanta is expected to be a 3.135-acre mixed-use real estate complex centered around the studio industry at the former site of the General Motors Assembly Plant, located in the City of Doraville, Georgia. The Assembly Atlanta development includes the 43 “Acquisitionsacre Assembly Studios complex.

Under the terms of the lease, NBCU will manage all studio and Divestitures”production facilities on-site within the Assembly Studios complex, including Gray’s own studio facilities and NoteGray’s Third Rail Studios. This arrangement is expected to leverage NBCU’s extensive experience and expertise in managing studio lots, ensure consistency across all the studio operations and leasing opportunities for 4.third “Long-Term Debt”,parties, and permit Gray to retain its focus on its own video production business.

In addition to the Assembly Studios complex, current plans for Assembly Atlanta include mixed use and commercial buildings around a discussiontown center concept, when completed in the next five to seven years. We anticipate selling and leasing various parcels to third parties to construct and operate related retail, residential, office, and other amenities within the Assembly Atlanta complex, outside of Assembly Studios. We expect that our commitmentscapital expenditures related to the pending Meredith Transaction.Assembly Atlanta will be within a range of $130 million to $140 million in 2022, and will be within a range of $80 million to $90 million in 2023. These capital expenditure amounts are net of currently anticipated proceeds from property sales and certain other incentive payments that we expect to receive.

23

 

 

11.    Goodwill and Intangible Assets

Goodwill and Intangible Assets

 

During the nine-months ended September 30, 2021, we completed the 2021 Acquisitions and the Flint Divestiture that included the acquisition and divestiture of goodwill, broadcast licenses and definite-lived intangible assets. See Note 3 “Acquisitions and Divestitures” for more information regarding these transactions. Also, during the nine-months ended September 30, 2021, we completed the acquisition of other television station operations, including, in some cases, broadcast licenses that were not material. A summary of changes in our goodwill and other intangible assets, on a net basis, for the ninesix-months ended SeptemberJune 30, 20212022 is as follows (in millions):

 

 

Net Balance at

 

Acquisitions

         

Net Balance at

  

Net Balance at

             

Net Balance at

 
 

December 31,

 

And

         

September 30,

  

December 31,

 

Acquisitions

         

June 30,

 
 

2020

  

Adjustments, Net

  

Impairments

  

Amortization

  

2021

  

2021

  

and Adjustments

  

Impairments

  

Amortization

  

2022

 
            

Goodwill

 $1,460  $173  $-  $-  $1,633  $2,649  $8  $-  $-  $2,657 

Broadcast licenses

 3,579  205  -  -  3,784  5,303  11  -  -  5,314 

Finite-lived intangible assets

  395   93   -   (81)  407   825   18   -   (104)  739 

Total intangible assets net of accumulated amortization

 $5,434  $471  $-  $(81) $5,824  $8,777  $37  $-  $(104) $8,710 

 

18

A summary of the changes in our goodwill, on a gross basis, for the ninesix-months ended SeptemberJune 30, 2021,2022, is as follows (in millions):

 

 

As of

         

As of

  

As of

         

As of

 
 

December 31,

 

Net

     

September 30,

  

December 31,

 

Acquisitions

     

June 30,

 
 

2020

  

Additions

  

Impairments

  

2021

  

2021

  

and Adjustments

  

Impairments

  

2022

 
          

Goodwill, gross

 $1,559  $173  $0  $1,732  $2,748  $8  $-  $2,756 

Accumulated goodwill impairment

  (99)  -   -   (99)  (99)  -   -   (99)

Goodwill, net

 $1,460  $173  $0  $1,633  $2,649  $8  $-  $2,657 

 

As of SeptemberJune 30, 20212022 and December 31, 2020,2021, our intangible assets and related accumulated amortization consisted of the following (in millions):

 

 

As of September 30, 2021

  

As of December 31, 2020

  

As of June 30, 2022

  

As of December 31, 2021

 
     

Accumulated

         

Accumulated

         

Accumulated

         

Accumulated

    
 

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

 

Intangible assets not currently subject to amortization:

  

Broadcast licenses

 $3,838  $(54) $3,784  $3,633  $(54) $3,579  $5,367  $(53) $5,314  $5,356  $(53) $5,303 

Goodwill

  1,633   0   1,633   1,460   0   1,460   2,657   0   2,657   2,649   0   2,649 
 $5,471  $(54) $5,417  $5,093  $(54) $5,039  $8,024  $(53) $7,971  $8,005  $(53) $7,952 
  

Intangible assets subject to amortization:

  

Network affiliation agreements

 $83  $(38) $45  $67  $(28) $39  $218  $(66) $152  $204  $(44) $160 

Other definite lived intangible assets

  717   (355)  362   644   (288)  356   1,055   (468)  587   1,051   (386)  665 
 $800  $(393) $407  $711  $(316) $395  $1,273  $(534) $739  $1,255  $(430) $825 
  

Total intangibles

 $6,271  $(447) $5,824  $5,804  $(370) $5,434  $9,297  $(587) $8,710  $9,260  $(483) $8,777 

 

Amortization expense for the ninesix-month periods-months ended SeptemberJune 30, 20212022 and 20202021 was $81$104 million and $78$53 million, respectively. Based on the current amount of intangible assets subject to amortization, as of September 30, 2021, we expect that amortization expense for the remainder of 20212022 wouldwill be approximately $29$103 million, and, for the succeeding five years, amortization expense will be approximately as follows: 2022, $112 million; 2023, $105$197 million; 2024, $40$132 million; 2025, $30$121 million; 2026, $91 million; and 2026,2027, $28$49 million. If and when acquisitions and dispositions occur in the future, actual amounts may vary materially from these estimates.

 

24

12.    Income Taxes

Income Taxes

 

For the three-month and ninesix-month periods ended SeptemberJune 30, 20212022 and 2020,2021, our income tax expense and effective income tax rates were as follows (dollars in millions):

 

 

Three Months Ended

 

Nine Months Ended

  

Three Months Ended

 

Six Months Ended

 
 

September 30,

  

September 30,

  

June 30,

  

June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 

Income tax expense

 $35  $43  $65  $67  $38  $15  $59  $30 

Effective income tax rate

 194% 26% 52% 26% 28% 28% 27% 28%

 

19

We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each quarter is based upon these full year projections, which are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits to adjust our statutory Federal income tax rate of 21% to our effective income tax rate. For the ninesix-month period-months ended SeptemberJune 30, 2022, these estimates increased or decreased our statutory Federal income tax rate to our effective income tax rate of 27% as follows: state income taxes added 5% and permanent differences between our U.S. GAAP income and taxable income resulted in an increase of 1%. For the six-months ended June 30, 2021, these estimates increased or decreased our statutory Federal income tax rate to our effective income tax rate of 52%28% as follows: state income taxes added 5%, and permanent differences between our U.S. GAAP income and taxable income added 3% and divestiture of component 2 goodwill resulted in an increase of 23%. For the nine-month period ended September 30, 2020, these estimates increased or decreased our statutory Federal income tax rate to our effective income tax rate of 26% as follows: state income taxes added 4%, permanent differences between our U.S. GAAP income and taxable income added 1%2%.

 

During the ninesix-months ended SeptemberJune 30, 2021,2022, we made $129$119 million of federal and state income tax payments, net of refunds, including $72 million related to the Quincy Divestiture.refunds. During the remainder of 2021,2022, we anticipate making income tax payments (excluding pending refunds)(net of our expected $21 million refund) of approximately $18$70 million including $17 million related to the Flint Divestiture. 

We have approximately $204 million$90 million. As of federal operating loss carryforwards, which expire during the years 2023June 30, 2022, through 2037. We expect to have federal taxable income in the carryforward periods. We therefore believe that these federal operating loss carryforwards will be fully utilized. Additionally, we have an aggregate of approximately $567$337 million of various state operating loss carryforwards, of which we expect that approximately half will be utilized.

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, and permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During 2020, we carried back certain NOLsnet operating losses resulting in a refund of $21 million.million, that is currently outstanding.

 

25
20
 

 

 

13.    Segment Information

Segment information

 

The Company operates in two2 business segments: broadcasting and production companies. The broadcasting segment operates television stations located across 94in local markets in the U.S. The production companies segment includes the production of television content. Costs identified as other are primarily corporate and administrative expenses. The following tables present certain financial information concerning the Company’s operating segments (in millions):

 

      

Production

         

As of and for the nine-months ended September 30, 2021:

 

Broadcasting

  

Companies

  

Other

  

Consolidated

 
                 

Revenue (less agency commissions)

 $1,648  $44  $0  $1,692 

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

  1,099   39   75   1,213 

Depreciation and amortization

  146   9   2   157 

Loss on disposal of assets, net

  46   0   0   46 

Operating expenses

  1,291   48   77   1,416 

Operating income (loss)

 $357  $(4) $(77) $276 
                 

Interest expense

 $0  $0  $143  $143 

Capital expenditures (excluding business combinations)

 $63  $88  $3  $154 

Goodwill

 $1,588  $45  $0  $1,633 

Total assets

 $7,229  $134  $416  $7,779 
                 

For the nine-months ended September 30, 2020:

                
                 

Revenue (less agency commissions)

 $1,557  $32  $0  $1,589 

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

  985   32   47   1,064 

Depreciation and amortization

  136   9   2   147 

(Gain) loss on disposal of assets, net

  (21)  (2)  0   (23)

Operating expenses

  1,100   39   49   1,188 

Operating income (loss)

 $457  $(7) $(49) $401 
                 

Interest expense

 $0  $0  $143  $143 

Capital expenditures (excluding business combinations)

 $69  $1  $0  $70 
                 

As of December 31, 2020:

                
                 

Goodwill

 $1,419  $41  $0  $1,460 

Total assets

 $6,631  $141  $871  $7,643 

      

Production

         

As of and for the six months ended June 30, 2022:

 

Broadcasting

  

Companies

  

Other

  

Consolidated

 
                 

Revenue (less agency commissions)

 $1,659  $36  $0  $1,695 

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

  1,058   40   53   1,151 

Depreciation and amortization

  159   6   2   167 

Gain on disposal of assets, net

  (5)  0   0   (5)

Operating expenses

  1,212   46   55   1,313 

Operating income (loss)

 $447  $(10) $(55) $382 
                 

Interest expense

 $0  $0  $160  $160 

Capital expenditures (excluding business combinations)

 $66  $93  $0  $159 

Goodwill

 $2,612  $45  $0  $2,657 

Total assets

 $10,570  $343  $210  $11,123 
                 

For the six months ended June 30, 2021:

                
                 

Revenue (less agency commissions)

 $1,067  $24  $0  $1,091 

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

  715   26   43   784 

Depreciation and amortization

  95   6   2   103 

Gain on disposal of assets, net

  (5)  0   0   (5)

Operating expenses

  805   32   45   882 

Operating income (loss)

 $262  $(8) $(45) $209 
                 

Interest expense

 $0  $0  $95  $95 

Capital expenditures (excluding business combinations)

 $28  $6  $87  $121 
                 

As of December 31, 2021:

                
                 

Goodwill

 $2,604  $45  $0  $2,649 

Total assets

 $10,592  $269  $247  $11,108 

 

26
21
 
 

Item 2.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Executive Overview

 

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) is prepared from the perspective of the Company’s management, and should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20202021 (the “2020“2021 Form 10-K”) filed with the SEC.

 

Business Overview. We are a television broadcastingmultimedia company headquartered in Atlanta, Georgia, that is the nation’s second largest television broadcaster in terms of revenues. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Upon our anticipated acquisition of theOur television stations of Meredith, we will become the nation’s second largestserve 113 television broadcaster, with television stations serving 113 markets that collectively reach approximately 36 percent of US television households. TheThis portfolio will include 79includes 80 markets with the top-rated television station and 101100 markets with the first and/or second highest rated television station according to Comscore’s audience measurement data.station. We also own video program production, marketing, and digital businesses includingcompanies Raycom Sports, Tupelo Honey,Media Group (formerly Tupelo Honey), PowerNation Studios, as well as the studio production facilities Assembly Atlanta and RTM Studios, the producer of PowerNation programs and content and is the majority owner of Swirl Films, which we refer to collectively as our “production companies.”Third Rail Studios. 

 

Our revenues are derived primarily from broadcasting and internet advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the nine-monthssix-months ended SeptemberJune 30, 20212022 and 2020,2021, we generated revenue of $1.7 billion and $1.6$1.1 billion, respectively.

 

Impact of the COVID-19 Global Pandemic and Related Government Restrictions on our Markets and Operations. The impact of the COVID-19 global pandemic and measures to prevent its spread continue to affect our businesses in a number of ways. We have experienced a disruption in creation of content that we broadcast on our television stations and of events and programs we produce at our production companies, including the cancellation of certain sports events and the shutting down of production of certain television content. The extent to which the COVID-19 global pandemic impacts our business, financial condition, results of operations and cash flows will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic; the negative impact it has on global and regional economies and economic activity, changes in advertising customers and consumer behavior, impact of governmental regulations that might be imposed in response to the pandemic; its short and longer-term impact on the levels of consumer confidence; actions governments, businesses and individuals take in response to the pandemic; and how quickly economies recover after the COVID-19 global pandemic subsides. The COVID-19 global pandemic’s impact on the capital markets could impact our cost of borrowing.

We have continued to actively monitor the global outbreak and spread of COVID-19 and continue to take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts. We are focused on navigating these challenges presented by the COVID-19 global pandemic through protecting the safety of our employees, seeking to maintain revenues and reducing expenses. There are certain limitations on our ability to mitigate the adverse financial impact of the pandemic, including the high fixed-cost nature of our businesses. The COVID-19 global pandemic, and the related economic disruptions and uncertainty also makes it more challenging for management to estimate future performance of our businesses, particularly over the near to medium term, and consequently the broader impact that it could have on our business, financial condition, results of operations and cash flows. See “The novel coronavirus disease and its related diseases (“COVID-19”) global pandemic has had and is expected to continue to have an adverse impact on our business.” in Part I, Item 1A. Risk Factors of our 20202021 Form 10-K.

 

In March 2020, mostImpact of Recent Acquisitions and Divestitures. As more fully described in our 2021 Annual Report on Form 10-K, during 2021 we completed several transactions that have, collectively, had a significant impact on our financial condition, results of operations and cash flows. We refer to these transactions collectively as the “2021 Acquisitions”. The impact of the 2021 Acquisitions is described in more detail in the following discussion of our employees began working from home, with only essential employees working on site. We have recently begunoperating results. The 2021 Acquisitions included:

●

On April 7, 2021, we acquired land in the Atlanta suburb of Doraville, Georgia for an initial investment of approximately $80 million of cash. We acquired this property, in part, for the development of studio production facilities, currently in-progress. We refer to this development as “Assembly Atlanta”;

●

On August 2, 2021, we completed the acquisition of all the equity interests of Quincy Media, Inc. Net of divestitures to facilitate regulatory approvals, this transaction added 10 television stations in eight local markets. Net of divestitures the purchase price was $553 million;

●

On September 13, 2021, we completed the acquisition of Third Rail Studios for $27 million. The transaction represented an initial step in the broader development of Assembly Atlanta;

●

On November 9, 2021, to fund a portion of the purchase price for the Meredith Local Media Group we issued $1.3 billion of our 2031 Notes;

●

On December 1, 2021, to fund a portion of the purchase consideration for the Meredith Local Media Group we amended our Senior Credit facility and borrowed $1.5 billion under the 2021 Term Loan; and

●

On December 1, 2021, we completed the acquisition of the Meredith Local Media Group for $2.8 billion net of one divestiture to facilitate regulatory approvals. This transaction added 17 television stations in 12 local markets to implement plans to reopen our offices through a hybrid format in which our employees work part of each week in our offices and part remotely. We are generally following the requirements and protocols published by the U.S. Centers for Disease Control, the World Health Organization and state and local governments and we continue to monitor the latest public health and government guidance related to COVID-19, including vaccine availability to our employees. We cannot predict when or how these policies will change in the future. Currently, we do not believe our work from home protocol has adversely impacted our internal controls, financial reporting systems or our operations.

 

2722
 

 

Quincy Transaction. On August 2, 2021, we completedThe following table summarizes the acquisition of all the equity interests of Quincy for an adjusted purchase price of $930 million, which amount includes an additional $5 million for working capital. Quincy owned and operated television stations“Transaction Related Expenses” incurred in 16 markets. Also on August 2, 2021, and concurrentlyconnection with the acquisition of Quincy, we completed2021 Acquisitions during the divestiture to Allen of television stations in seven markets previously ownedthree and six-months ended June 30, 2022 and 2021, by Quincytype and located in our existing television markets, for an adjusted divestiture price of $398 million, which amount includes $18 million for working capital. The Quincy Divestiture resulted in a non-cash loss of $48 million. by financial statement line item (in millions):

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2022

  

2021

  

2022

  

2021

 

Transaction Related Expenses by type:

                

Legal, consulting and other professional fees

 $1  $14  $3  $15 

Incentive compensation and other severance costs

  1   -   2   - 

Total transaction related expenses

 $2  $14  $5  $15 
                 

Transaction Related Expenses by financial statement line item:

                

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

                

Broadcasting

 $2  $-  $4  $- 

Corporate and administrative

  -   7   1   8 

Miscellaneous expense, net

  -   7   -   7 

Total transaction related expenses

 $2  $14  $5  $15 

Acquisition of Meredith. On May 3, 2021, we entered into a merger agreement, as amended on June 2, 2021, and October 6, 2021, in which we agreed to acquire all outstanding shares of Meredith, subject to and immediately after the spinoff of Meredith’s National Media Group

Due to the current Meredith shareholders. The agreement was amendedsignificant effect that the 2021 Acquisitions have had on our results of operations, and in order to reviseprovide more meaningful period over period comparisons, we present herein certain financial information excluding the purchase consideration to $16.99 per share in cash, or $2.8 billion in total enterprise value and modify certain termsimpact of the agreement. The parties expect to close the transaction in the fourth quarter of 2021. At the closing, Gray will acquire Meredith’s remaining operating division, known as the Local Media Group, which owns 17 television stations in 12 local markets, adding 11 new markets to our operations. To facilitate regulatory approvals2021 Acquisitions. This financial information does not include any adjustments for the Meredith transaction, on September 23, 2021, we divested our existing television station WJRT (ABC) in the Flint-Saginaw, Michigan market, to Allen for an adjusted purchase price, including working capital of $72 million in cash.

In connection with, and contingent upon the completion of the Meredith Transaction, we have agreed to complete certain financing transactions. Related to our Senior Credit Facility, we (1) agreed to incur a $1.5 billion incremental term loan under our senior credit facility, subject to market conditions at the time of financing and (2) agreed to amend and restate our existing revolving credit facility to increase our borrowing capacity under the facility from up to $300 million to up to $500 million, which will consist of (i) a $425 million five year revolving credit facility and (ii) a $75 million revolving credit facility with commitments expiring January 2, 2026. In addition, Gray Escrow II, Inc., a special purpose wholly-owned subsidiary, has agreed to issue $1.3 billion in aggregate principal amount of 5.375% senior unsecured notes due 2031 at par, which we intend to assume upon completion of the Meredith Transaction. The proceeds of the transcations mentioned above, after deducting transaction fees and estimated expenses, will be used to pay a portion of the consideration for the Meredith Transaction.

The transaction is subject to Meredith shareholder approval customary closing conditions and regulatory approvals, including certain consents necessary to effectuate the spinoff of Meredith’s National Media Group immediately priorother events attributable to the closing of our acquisition of Meredith.

Acquisition of Studio Production Facilities. On April 7, 2021 we acquired land in the Atlanta suburb of Doraville, Georgia for approximately $80 million of cash. We intend to use this property, in part, for future studio production facilities. On September 13, 2021, we completed the Third Rail Acquisition for an adjusted purchase price of $27 million in cash. The transaction represents an initial step in the broader development of our planned studio production facilities.Acquisitions unless otherwise described.

Please see Note 3. “Acquisitions and Divestitures” in our unaudited condensed consolidated financial statements contained elsewhere herein for further discussion of these transactions.

28

 

Revenues, Operations, Cyclicality and Seasonality. BroadcastBroadcasting advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. BroadcastBroadcasting advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcastbroadcasting advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. BroadcastBroadcasting advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.

 

We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.

 

Our broadcastbroadcasting and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:

 

 

●

Spending by political candidates, political parties and special interest groups increases during the even-numbered “on-year” of the two-year election cycle. This political spending typically is heaviest during the fourth quarter of such years;

 

●

Broadcast advertising revenue is generally highest in the second and fourth quarters each year. This seasonality results partly from increases in advertising in the spring and in the period leading up to, and including, the holiday season;

 

●

Local and nationalCore advertising revenue on our NBC-affiliated stations increases in certain years as a result of broadcasts of the Olympic Games; and

 

●

Because our stations and markets are not evenly divided among the Big Four broadcast networks, our local and nationalcore advertising revenue can fluctuate between years related to which network broadcasts the Super Bowl.

 

23

Automotive advertisers have traditionally accounted for

We derived a significantmaterial portion of our revenue.non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During each of the nine-monthssix-months ended SeptemberJune 30, 2022 and 2021 and 2020, we derived approximately 18% and 21%, respectively,28% of our total broadcastingbroadcast advertising revenue (excluding political advertising revenue) was obtained from customers inadvertising sales to the automotive industry. Strong demand forservices sector. During the six-months ended June 30, 2022 and 2021 approximately 15% and 19%, respectively, of our advertising inventory from political advertisers can require significant use of available inventory, which in turn can lower ourbroadcast advertising revenue (excluding political advertising revenue) was obtained from our non-political advertising sales to automotive customers. Revenue from these industries may represent a higher percentage of total revenue categories in odd-numbered years due to, among other things, the even numbered “on-year”increased availability of advertising time, as a result of such years being the two-year election cycle. These temporary declines are expected to reverse in the following “off-year”“off year” of the two-year election cycle.

 

While our total revenues have increased in recent years as a result of our acquisitions, our revenue remains under pressure from the impact on the advertising market as a result of the COVID-19 global pandemic and from the internet as a competitor for advertising spending. We have been taking steps to mitigate the impacts of COVID-19 and we continue to enhance and market our internet websites in an effort to generate additional revenue. Our aggregate internet revenue is derived from both advertising and sponsorship opportunities directly on our websites.

 

Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.

 

Assembly Atlanta. On June 1, 2022, we entered into a long-term agreement with NBCU, for NBCU to lease and operate new state-of-the-art studio facilities (Assembly Studios) at our Assembly Atlanta development that is currently under construction.

Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.

29

 

Revenue

 

Set forth below are the principal types of revenue, less agency commissions, earned by us for the periods indicated and the percentage contribution of each type of revenue to our total revenue (dollars in millions):

 

 

Three Months Ended September 30,

  

Nine Months Ended September 30,

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
 

2021

  

2020

  

2021

  

2020

  

2022

  

2021

  

2022

  

2021

 
     

Percent

     

Percent

     

Percent

     

Percent

      

Percent

     

Percent

     

Percent

     

Percent

 
 

Amount

  

of Total

  

Amount

  

of Total

  

Amount

  

of Total

  

Amount

  

of Total

  

Amount

  

of Total

  

Amount

  

of Total

  

Amount

  

of Total

  

Amount

  

of Total

 

Revenue:

                                

Local (including internet/digital/mobile)

 $232  39% $188  31% $657  39% $549  34%

National

 60  10% 49  8% 174  10% 136  9%

Core advertising

 $366  42% $279  51% $731  43% $539  49%

Political

 9  2% 128  21% 24  1% 185  12% 90  10% 6  1% 116  7% 15  1%

Retransmission consent

 266  44% 217  36% 755  45% 650  41% 382  44% 242  44% 775  46% 489  45%

Production companies

 20  3% 11  2% 44  3% 32  2% 13  1% 10  2% 36  2% 24  2%

Other

  14   2%  11   2%  38   2%  37   2%  17   3%  10   2%  37   2%  24   3%

Total

 $601   100% $604   100% $1,692   100% $1,589   100% $868   100% $547   100% $1,695   100% $1,091   100%

24

 

Results of Operations

 

Three-Months Ended SeptemberJune 30, 2022 (“the 2022 three-month period”) Compared to Three-Months Ended June 30, 2021 (“the 2021 three-month period”) Compared to Three-Months Ended September 30, 2020 (“the 2020 three-month period”)

 

Revenue. Total revenue decreased $3increased $321 million, or 59%, to $601$868 million in the 2021 three-month period from the 20202022 three-month period. Total revenue decreasedincreased primarily due to a decrease of $119 million in political advertising revenue as a result ofour 2021 beingAcquisitions that contributed $253 million. During the “off-year”2022 three-month period, excluding the impact of the two-year election cycle, largely offset by increases in retransmission consent revenue, local advertising revenue and national advertising revenue. In addition, our broadcasting revenue benefited from our completion of the Quincy Transaction. Combined, local and national revenue increased by $55 million in the 2021 three-month period due to increasing post COVID-19 pandemic consumer demand; the broadcast of the Olympic Games, that contributed approximately $14 million; retransmission consent revenue increased $49 million due to increases in rates; production company revenue increased by $9 million, reflecting increasing post COVID-19 pandemic demand for production services.Acquisitions:

●

Political advertising revenue increased by $50 million, resulting primarily from 2022 being the “on-year” of the two-year election cycle;

●

Retransmission consent revenue increased by $18 million due to an increase in rates;

●

Core advertising revenue and production company revenue were essentially unchanged from the second quarter of 2021;

 

Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $58$174 million, or 18%49%, to $384$528 million in the 2022 three-month period. Total broadcasting expenses increased primarily due to our 2021 Acquisitions that contributed $153 million. During the 2022 three-month period, fromexcluding the 2020 three-month period. The increase was the result of increased retransmission expense, consistent with the increased retransmission consent revenue, and increases in all operating expenses related to the Quincy Acquisition. We recorded broadcast non-cash stock-based amortization expense of $1 million in eachimpact of the 2021 and 2020Acquisitions:

●

Payroll broadcasting expenses increased by approximately $8 million as a result of routine increases in compensation.

●

Non-payroll broadcasting expenses increased by approximately $12 million primarily because retransmission expense increased by $10 million, consistent with the increase in retransmission revenue, and $2 million of Transaction Related Expenses.

●

Broadcast non-cash stock-based compensation expense was approximately $1 million in each of the 2022 and 2021 three-month periods.

 

Production company expensesCompany Expenses. Production company operating expenses (before depreciation, amortization and gain or loss on disposalwere $14 million in the 2022 three-month period an increase of assets), related$5 million compared to the production companies, were $13 million in the 2021 three-month period compared to approximately $8 million in the 2020 three month period. The increase was primarily due to increasing postthe lessening effects of the COVID-19 global pandemic demand forwhich had affected production services.operations in prior periods.

 

Corporate and Administrative Expenses. Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) were $25 million in each of the 2022 and 2021 three-month periods. During the 2022 three-month period compensation expense increased by $17$5 million or 113%,and other non-compensation expenses increased by $2 million. These increases were offset by reductions in Transaction Related Expenses of $7 million when compared to $32 million. Non-compensation expensethe 2021 three-month period. Non-cash stock-based compensation expenses increased primarily as a result of professional fees related to acquisition activities. Professional fees related$4 million in the 2022 three-month period compared to all of our acquisition activities were approximately $11$3 million in the 2021 three-month period. Compensation expense increased $2 million primarily as a result of incentive compensation costs. We recorded corporate non-cash stock-based amortization expense of $3 million in each of the 2021 and 2020 three-month periods.

 

Depreciation. Depreciation of property and equipment totaled $26$31 million for the 2022 three-month periods and $25 million for the 2021 three-month period. Depreciation increased primarily due to the addition of depreciable assets acquired in the 2021 Acquisitions.

Amortization. Amortization of intangible assets totaled $52 million in the 2022 three-month period and $27 million in the 2021 three-month period andperiod. Amortization increased primarily due to the 2020 three-month period, respectively.

Amortization. Amortizationaddition of definite-lived intangible assets totaled $28 million and $26 millionacquired in the 2021 three-month period and the 2020 three-month period, respectively.Acquisitions.

Loss (Gain) on Disposals of Assets, Net. We reported loss on disposals of assets of $51 million in the 2021 three-month period and a gain of $10 million in the 2020 three-month period. In the 2021 three-month period, we reported a non-cash loss of $48 million on the Quincy Divestiture transaction and a non-cash loss of $5 million on the Flint Divestiture. These losses were partially offset by gains related to assets disposals from the FCC Repack process and in the normal course of business.

30

 

Interest Expense. Interest expense increased $3$34 million or 7%, to $48$81 million for the 20212022 three-month period compared to $47 million in the 20202021 three-month period. This increase inwas primarily attributable to the addition of debt related to the 2021 Acquisitions. In addition, average interest expense is due to an increase in principal, including a temporary drawrates on our Revolving Credit Facility. Theoutstanding debt increased to 4.6% in the 2022 three-month period compared to 4.4% in the 2021 three-month period. Our average interest rate, excluding amortization of deferred financing costs, on our total outstanding debt balance was 4.4% during each of the 2021 and 2020 three-month periods. Our average outstanding debt principal balance was $4.0$6.8 billion and $3.8$4.0 billion during the 20212022 and 20202021 three-month periods, respectively.

 

Income Tax Expense.tax expense. WeDuring the 2022 three-month period, we recognized income tax expense of $35 million and $43 million in$38 million. During the 2021 three-month period, we recognized income tax expense of $15 million. For the 2022 three-month period and 2020the 2021 three-month periods, respectively. Ourperiod, our effective income tax rates were 194% and 26%rate was 28% in the 2021 and 2020 three-month periods, respectively.each three month period. We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each interim periodquarter is based upon these full year projections thatwhich are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits. For the 20212022 three-month period, these estimates increased or decreased our statutory Federal income tax rate of 21% to our effective income tax rateas a result of 194% as follows: state income taxes that added 6%,5% and permanent differences between our U.S. GAAP income and taxable incomethat added 7% and divestiture of component two goodwill, related to the Quincy Divestiture, and the Flint Divestiture, resulted in an increase of 160%2%.

25

 

Nine-MonthsSix-months Ended SeptemberJune 30, 2022 (“the 2022 six-month period”) Compared to Six-months Ended June 30, 2021 (“the 2021 nine-month period”) Compared to Nine-Months Ended September 30, 2020 (“the 2020 nine-monthsix-month period”)

 

Revenue. Total revenue increased $103$604 million, or 6%55%, to $1.7 billion in the 2021 nine-month period from the 2020 nine-month2022 six-month period. Combined, local and nationalTotal revenue increased by $146 million, to $831 million in the 2021 nine-month period and production company revenue increased by $12 million. We attribute these increases primarily to the return of customer demand in the post-COVID-19 pandemic period, which had affected our customers and our sports and event programming. Retransmission consent revenue increased by $105 million as a result of increased rates in 2021. Political advertising revenue decreased by $161 million, resulting primarily from 2021 being the “off-year” of the two-year election cycle. Local and national revenue also increased due to the broadcast of the Olympic Games,our 2021 Acquisitions that contributed approximately $14 million, and$487 million. During the broadcast2022 six-month period, excluding the impact of the 2021 Super Bowl on our CBS-affiliated stations was approximately $6 million, compared to $3 million that we earned from the broadcasting of the 2020 Super Bowl on our FOX-affiliated stations.Acquisitions:

●

Political advertising revenue increased by $59 million, resulting primarily from 2022 being the “on-year” of the two-year election cycle;

●

Retransmission consent revenue increased by $39 million due to an increase in rates;

●

Core advertising revenue increased by $8 million primarily due to the lessening effects of the COVID-19 global pandemic which had affected our customers in prior periods;

●

Core advertising revenue from the broadcast of the 2022 Super Bowl on our NBC-affiliated stations was approximately $5 million, compared to $6 million that we earned from the broadcast of the 2021 Super Bowl on our CBS-affiliated stations and $8 million of revenue from the broadcast of the Olympic Games; and

●

Production company revenue increased by $1 million in the 2022 six-month period primarily due to the lessening effects of the COVID-19 global pandemic which had affected our customers in prior periods.

 

Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $114$343 million, or 48%, to $1.1 billion. Compensationbillion in the 2022 six-month period. Total broadcasting expenses increased by approximately $17 million inprimarily due to our 2021 Acquisitions that contributed $303 million. During the 2022 six-month period, excluding the impact of the 2021 nine-month period as a result of incentive compensation costs and the addition of personnel related to the Quincy Acquisition. Non-payroll broadcast operating expenses increased by approximately $97 million which included retransmission expense that increased by $73 million in the 2021 nine-month period consistent with the increased retransmission consent revenue. Professional service expenses increased by $18 million in the 2021 nine-month period related to our acquisition activities. We recorded broadcasting non-cash stock-based amortization expense of $2 million and $4 million in the 2021 and 2020 nine-monthAcquisitions:

●

Payroll broadcasting expenses increased by approximately $14 million as a result of routine increases in compensation.

●

Non-payroll broadcasting expenses increased by approximately $25 million primarily because retransmission expense increased $20 million, consistent with the increase in retransmission revenue, and $4 million of Transaction Related Expenses.

●

Broadcast non-cash stock-based compensation expense was $2 million and $1 million in the 2022 and 2021 six-month periods, respectively.

 

Production Company Expenses. Production company operating expenses (before depreciation, amortization and gain or loss on disposal of assets) increased by approximately $7were $40 million in the 2021 nine-month2022 six-month period, to $39an increase of $14 million compared to $32 million in the 2020 nine-month2021 six-month period. The increase was consistent with increased revenueis due to increasing postthe lessening effects of the COVID-19 global pandemic demand forwhich had affected production services.operations in prior periods, respectively.

 

Corporate and Administrative Expenses. Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased by $28$10 million, or 60%23%, to $75$53 million in the 2021 nine-month period compared to the 2020 nine-month2022 six-month period. These increases were primarily the result of $19 million of transaction related expenses androutine increases in incentive compensation. We recorded corporate non-cash stock-based amortizationcompensation expense of $9 million and $8increased non-compensation expenses of $1 million in the 2022 six-month period. Non-cash stock-based compensation expenses increased to $9 million in the 2022 six-month period compared to $6 million in the 2021 and 2020 nine-month periods, respectively.six-month period.

 

Depreciation. Depreciation of property and equipment totaled $76$63 million for the 2022 six-month period and $69$50 million infor the 2021 nine-month period and the 2020 nine-month period, respectively.six-month period. Depreciation increased primarily due to business acquisitions and to the addition of depreciable assets acquired in the normal course2021 Acquisitions.

Amortization. Amortization of business.intangible assets totaled $104 million in the 2022 six-month period and $53 million in the 2021 six-month period. Amortization increased primarily due to the addition of definite-lived intangible assets acquired in the 2021 Acquisitions.

 

3126
 

 

Amortization. Amortization of intangible assets totaled $81 million and $78 million in the 2021 nine-month period and the 2020 nine-month period, respectively. Amortization expense increased primarily due business acquisitions.

Loss (Gain) on Disposals of Assets, Net. We reported a loss on disposals of assets of $46 million in the 2021 nine-month period and a gain on disposals of assets of $23 million in the 2020 nine-month period. We reported a non-cash loss of $48 million on the Quincy Divestiture and a non-cash loss of $5 million on the Flint Divestiture in the 2021 nine-month period. These losses were partially offset by gains related to assets disposals from the FCC Repack process and in the normal course of business.

Interest Expense. Interest expense was $143increased $65 million to $160 million for the 2022 six-month period compared to $95 million in each of the 2021 and 2020 nine-month periods.six-month period. This increase was primarily attributable to both an increase in loan principal offset by decreasing interest rates. Thethe addition of debt related to the 2021 Acquisitions. In addition, average interest rate, excluding amortization of deferred financing costs,rates on our total outstanding debt balance wasincreased to 4.5% in the 2022 six-month period compared to 4.4% and 4.7% duringin the 2021 and 2020 nine-month periods, respectively.six-month period. Our average outstanding debt balance was $4.1$6.8 billion and $3.8$4.0 billion during the 2022 and 2021 and 2020 nine-monthsix-month periods, respectively.

 

Income Tax Expense.tax expense. WeDuring the 2022 six-month period, we recognized income tax expense of $65 million and $67 million in$59 million. During the 2021 six-month period, we recognized income tax expense of $30 million. For the 2022 six-month period and 2020 nine-month periods, respectively. Ourthe 2021 six-month period, our effective income tax rates were 52%rate was 27% and 26% in the 2021 and 2020 nine-month periods,28%, respectively. We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each interim periodquarter is based upon these full year projections thatwhich are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits. For the 2021 nine-month2022 six-month period, these estimates increased or decreased our statutory federalFederal income tax rate of 21% to our effective income tax rate of 52% as follows:a result of state income taxes that added 5%, and permanent differences between our U.S. GAAP income and taxable income added 3% and divestiture of component two goodwill in the Quincy Divestiture and the Flint Divestiture resulted in an increase of 23%1%.

 

Liquidity and Capital Resources

 

GeneralGeneral.

The following table presents data that we believe is helpful in evaluating our liquidity and capital resources (in millions):

 

 

Nine Months Ended September 30,

  

Six Months Ended June 30,

 
 

2021

  

2020

  

2022

  

2021

 

Net cash provided by operating activities

 $283  $488  $330  $238 

Net cash used in investing activities

 (664) (129) (201) (177)

Net cash used in financing activities

  (70)  (104)  (156)  (49)

Net (decrease) increase in cash

 $(451) $255  $(27) $12 

 

 

As of

  

As of

 
 

September 30, 2021

  

December 31, 2020

  

June 30, 2022

  

December 31, 2021

 

Cash

 $322  $773  $162  $189 

Long-term debt, including current portion

 $3,981  $3,974 

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

 $6,705  $6,755 

Series A Perpetual Preferred Stock

 $650  $650 

Borrowing availability under Revolving Credit Facility

 $299  $200  $496  $497 

Series A Perpetual Preferred Stock

 $650  $650 

 

Net Cash Provided By (Used In) Operating, Investing and Financing ActivitiesActivities.

Net cash provided by operating activities was $283$330 million in the 2022 six-month period compared to $238 million in the 2021 nine-monthsix-month period, compared to $488 million in the 2020 nine-month period.a net increase of $92 million. The decrease of $205 million in the 2021 nine-month periodincrease was primarily the result of a $125 million decreaseincreases in net income of $83 million and a net increase of $53 million in non-cash expenses, primarily duerelated to an increase in loss on disposaldepreciation of fixed assets and amortization of definite-lived intangible assets. These increases were offset by a decrease in political advertising revenue. Approximately $82$44 million use of cash was used byfrom changes in net working capital.operating assets and liabilities in the 2022 six-month period.

32

 

Net cash used in investing activities was $664$201 million in the 2021 nine-month2022 six-month period compared to net cash used in investing activities of $129$177 million for the 2020 nine-month2021 six-month period. The increase in the amount used was largely due to our acquisition activities, net of divestituresconstruction in progress on the 2021 nine-month period, compared to the 2020 nine-month period.Assembly Atlanta project.

 

Net cash used in financing activities was approximately $70$156 million in the 2021 nine-month2022 six-month period compared to net cash used in financing activities of $104$49 million in the 2020 nine-month2021 six-month period. The primary reasons for the decrease in cashDuring each period we used in the 2021 nine-month period, were the use$26 million of cash to pay dividends onto holders of our two classes of common stock inpreferred stock. During the 2022 and 2021 nine-month period. In the 2020 nine month period,six-month periods we did notused $16 million and $15 million, respectively, to pay dividends on eitherto holders of our two classes of common stock. In the 2020 nine-month2022 six-month period, we used approximately $59we used $58 million to pay down our outstanding indebtedness and $50 million to repurchase shares of our common stock on the open market. In the 2021 nine-month period, we did not repurchase any shares of our common stock.

27

 

LiquidityLiquidity.

Based on our debt outstanding and interest rates as of SeptemberJune 30, 2021,2022, we estimate that we will make approximately $178$325 million in debt interest payments over the twelve months immediately following SeptemberJune 30, 2021. This2022. Interest rates have recently been increasing and may increase further over the remainder of 2022. Accordingly, our future debt interest payments may exceed our current estimate but we do not believe that the potential increase will increase significantly upon the completion ofhave a material impact on our pending acquisition of Meredith.operations or liquidity.

 

Although our cash flows from operations are subject to a number of risks and uncertainties, including our pending acquisition of Meredith,the COVID-19 global pandemic and related economic effects, we anticipate that our cash on hand, future cash expected to be generated from operations, borrowings from time to time under the 2019 Senior Credit Facility (or any such other credit facility as may be in place at the appropriate time) and, potentially, external equity or debt financing, will be sufficient to fund any debt service obligations, estimated capital expenditures and acquisition-related obligations. Any potential equity or debt financing would depend upon, among other things, the costs and availability of such financing at the appropriate time. We also believe that our future cash expected to be generated from operations and borrowing availability under the 2019 Senior Credit Facility (or any such other credit facility) will be sufficient to fund our future capital expenditures and long-term debt service obligations until at least February 7, 2024, which is the maturity date of the 2017 Term Loan under the 2019 Senior Credit Facility.

 

Debt. As of SeptemberJune 30, 2021,2022, long-term debt consisted of obligations under our 2019 Senior Credit Facility, our $700 million in aggregate principal amount of senior notes due 2026 Notes, our $750 million in aggregate principal amount of senior notes due 2027 Notes, our 2030 Notes and our $800 million in aggregate principal amount of senior notes due 2030.2031 Notes. As of SeptemberJune 30, 2021,2022, the 2019 Senior Credit Facility provided total commitments of $2.1$3.7 billion, consisting of a $595 million term loan facility, a $1.2 billion term loan facilityour 2017 Term Loan, our 2019 Term Loan, our 2021 Term Loan and $299$496 million available under our revolving credit facility.Revolving Credit Facility. We were in compliance with the covenants in these debt agreements at SeptemberJune 30, 2021. As described above,2022. In the six-months ended June 30, 2022, we have incurred approximately $2.8 billionpaid the required principal reductions of new debt obligations in anticipation$8 million of completingour 2021 Term Loan and voluntarily pre-paid $50 million of the Meredith Transaction. We currently expect that the Meredith Transaction will be completed in the fourth quarteroutstanding principal balance of 2021.our 2017 Term Loan.

 

Capital Expenditures. In April 2017, the Federal Communications Commission (“FCC”) began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). Capital expenditures, including Repack, for the 2021 and 2020 nine-month periods were $154 million and $70 million, respectively. Excluding Repack, our capital expenditures were $148 million (including approximately $91 million for the Doraville land purchase) and $51 million for the 2021 and 2020 nine-month periods, respectively. Our Repack associated reimbursements for the 2021 and 2020 nine-month periods were $10 million and $19 million for the 2021 and 2020 nine-month periods, respectively. As of September 30, 2021, the amount requested from the FCC for Repack, but not yet received, was approximately $5 million. Excluding Repack, weWe expect that our capital expenditures will range between approximately $185$120 million to $190$130 million during full-year 2021. The full-year 20212022 for routine purchases of broadcasting, production company and corporate purposes. In addition, we currently anticipate capital expenditure estimates excluding Repack include an estimateexpenditures of $110 million for the Doraville land purchase project and estimates of $75between $130 million to $140 million in 2022, and approximately $80 million for routine capital expenditures. In addition, capital expenditures for Repack during full-year 2021 are expected to be approximately $3 million and we anticipate being reimbursed for the majority of these Repack costs. Reimbursement, however, may be received in periods subsequent to those in which they were expended.

33

Pending Acquisition of Meredith. On May 3, 2021, we entered into an agreement to acquire all outstanding shares of Meredith, subject to and immediately after the spinoff of Meredith’s National Media Group to the current Meredith shareholders. The agreement was amended on June 2, 2021 and October 6, 2021 to revise the purchase consideration to $16.99 per share in cash, or $2.8 billion in total enterprise value. The parties expect to close the transaction in the fourth quarter of 2021. At the closing, Gray will acquire Meredith’s remaining operating division, known as the Local Media Group, which owns 17 television stations in 12 local markets, adding 11 new markets to our operations. To facilitate regulatory approvals for the Meredith Transaction, on September 23, 2021, we divested our existing television station WJRT (ABC) in the Flint-Saginaw, Michigan market, to Allen for an adjusted purchase price of $72$90 million in cash, before taxes.

In2023 in connection with and contingent upon the completiondevelopment of the Meredith Transaction, we have agreed to complete certain financing transactions. Related to our Senior Credit Facility, we (1) agreed to incur a $1.5 billion incremental term loan under our senior credit facility, subject to market conditions at the time of financing and (2) agreed to amend and restate our existing revolving credit facility to increase our borrowing capacity under the facility from up to $300 million to up to $500 million, which will consist of (i) a $425 million five year revolving credit facility and (ii) a $75 million revolving credit facility with commitments expiring January 2, 2026. In addition, Gray Escrow II, Inc., a special purpose wholly-owned subsidiary, has agreed to issue $1.3 billion in aggregate principal amount of 5.375% senior unsecured notes due 2031 at par, which we intend to assume upon completion of the Meredith Transaction. The proceeds of the transcations mentioned above, after deducting transaction fees and estimated expenses, will be used to pay a portion of the consideration for the Meredith Transaction.

The completion of the Meredith Transaction will materially affect our operations, liquidity and capital expenditures. In addition to the effects on our balance sheet from the financing transactions described above, we expect that our results of operations and cash flows will increase.Assembly Atlanta project.

 

OtherOther.

We file a consolidated federal income tax return and such state and local tax returns as are required. During the 2021 nine-month2022 six-month period, we made $129$119 million of federal or state income tax payments, including $72 million relating to Quincy Divestiture.payments. During the remainder of 2021,2022, we anticipate making income tax payments (net of refunds) within a range of approximately $18$80 million including $17 million relating to the Flint Divestiture.$100 million. As of SeptemberJune 30, 2021, we have approximately $204 million of federal operating loss carryforwards, which expire during the years 2023 through 2037. We expect to have federal taxable income in the carryforward periods. We therefore believe that these federal operating loss carryforwards will be fully utilized. Additionally,2022, we have an aggregate of approximately $567$337 million of various state operating loss carryforwards, of which we expect that approximately half will be utilized.

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, and permits NOL carryforwardsnet operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During 2020, we carried back certain NOLsnet operating losses resulting in a refund of $21 million.million, that is currently outstanding.

 

During the 2021 nine-month2022 six-month period, we contributeddid not make a contribution to our defined benefit pension plan. During the remainder of 2022, we expect to contribute $4 million to our defined benefitthis pension plan.

 

Off-Balance Sheet Arrangements. There have been no material changes with respect to our off-balance sheet arrangements from those presented in our 20202021 Form 10-K.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with U.S. GAAP 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. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require judgments or estimations in their application where variances in those judgments or estimations could make a significant difference to future reported results. These critical accounting policies and estimates are more fully discussed in our 20202021 Form 10-K.

 

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Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Quarterly(“Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are all statements other than those of historical fact. When used in this Quarterly Report,annual report, the words “believes,” “expects,” “anticipates,” “estimates,” “will,” “may,” “should” and similar words and expressions are generally intended to identify forward-looking statements. AmongThese forward-looking statements reflect our then-current expectations and are based upon data available to us at the time the statements are made. Forward-looking statements may relate to, among other things, statements that describe our expectations regardingabout the evolving and uncertain nature of the COVID-19 global pandemic and its impact on the Company,us, the media industry, and the economy in general, our strategies, expected results of operations, general and industry-specific economic conditions, future pension plan contributions, future capital expenditures, future income tax payments, future payments of interest and principal on our ability to completelong-term debt, assumptions underlying various estimates and estimates of future obligations and commitments, and should be considered in context with the various other disclosures made by us about our pending acquisition of Meredith on the terms and within the timeframe, and on the financing terms, currently contemplated, any material regulatory or other unexpected requirements in connection therewith, or the inability to achieve expected synergies therefrom on a timely basis or at all, the expected impact of acquisitions, divestitures and capital expenditures are forward-looking statements.business. Readers of this Quarterly Report are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management, are not guarantees of future performance, results or events and involve significant risks and uncertainties, and that actual results and events may differ materially from those contained in the forward-looking statements as a result of various factors including, but not limited to, those listed under the heading “Risk Factors” in Item 1A. of our 2020Annual Report on Form 10-K and as may be described in subsequently filed quarterly reports on Form 10-Q, as well as the other factors described from time to time in our filings with the Securities and Exchange Commission. Forward-lookingSEC filings. The forward-looking statements speakincluded in this Quarterly Report are made only as of the date they are made.hereof. We undertake no obligation to update such forward-looking statements to reflect subsequent events or circumstances.

Item 3.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

We believe that the market risk of our financial instruments as of SeptemberJune 30, 20212022 has not materially changed since December 31, 2020.2021. Our market risk profile on December 31, 20202021 is disclosed in our 20202021 Form 10-K.

Item 4.Controls and Procedures

Controls and Procedures

 

As of the end of the period covered by this Quarterly Report, 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 our disclosure controls and procedures. Based on thatthis evaluation, the CEO and the CFO havemanagement has concluded that our internal control over financial reporting was effective as of June 30, 2022, for the reasons discussed below. Consistent with Managements’ Report on Internal Control over Financial Reporting disclosed in Part II, Item 9A. of our Annual Report on Form 10-K for the year ended December 31, 2021, we had identified a material weakness as a result of deficiencies identified in our controls over user access that did not adequately restrict or provision/deprovision user access related to certain financial reporting programs and did not ensure appropriate segregation of duties as it relates to review. Importantly, partly as a result of other internal controls over financial reporting, we did not identify any incidents of improper system access related to the material weakness, nor did the identified weakness result in any identified misstatements to our financial statements.  There were no changes made, and no future changes intended to be made, to previously released financial results as a result of this material weakness.

Since the issuance of our Managements’ Report on Internal Control over Financial Reporting disclosed in Part II, Item 9A. of our annual report on Form 10-K for the year end ofDecember 31, 2021, the period covered by this Quarterly Report,Company has been engaged in processes to enhance our disclosure controls and procedures to remediate the material weakness and has taken additional actions to improve user access controls and appropriately segregate duties as it relates to review.  Specifically, the Company has taken the following actions:

●

In the second quarter of 2022, semiannual user access reviews were performed for the general ledger, journal entry processing, advertising revenue, retransmission revenue, accounts payable processing and payroll systems. The reviews were conducted by staff knowledgeable of the respective systems.

●

On April 1, 2022, the Company initiated a new monitoring control to review the timeliness of reporting all employee terminations to the human resources department so that terminated employees can be promptly deleted from any system access.

●

In April 2022, the Company implemented a new daily user access control that compares the daily payroll system employee termination report to the system user access databases for the general ledger, journal entry processing, advertising revenue, retransmission revenue and accounts payable processing systems. Appropriate system administrators are notified daily to remove terminated employee user access to the respective systems.

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Management believes that the design implementation and operating effectiveness of the controls that are discussed above and have been implemented address the previously identified material weakness. In addition, management believes that our internal control over financial reporting was effective as of June 30, 2022 to ensureprovide reasonable assurance that information required to be disclosed by usthe Company in reports that we fileit files or furnishsubmits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commissionthe SEC rules and forms and to ensure that such information is(ii) accumulated and communicated to ourthe Company’s management, including the CEOits principal executive officer and CFO,principal financial officer, as appropriate to allow timely decisions regarding required disclosures. disclosure.

In addition to the control changes mentioned above, the Company made the following changes to its controls over the general ledger and journal entry processing as follows:

●

All journal entries in the journal entry system above $2 million were programed to require a second independent review

●

All account reconciliations require a second independent reviewer.

●

Effective for the second quarter of 2022 a quarterly monitoring control was established providing an independent review to assure:

o

All journal entries requiring an independent review were independently reviewed.

o

In the rare instances in which the system administrator created or posted a journal entry to correct a system issue, the entry is independently reviewed for appropriateness.

Except for the changes mentioned above, there were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

No system of controls, no matter how well designed and implemented, can provide absolute assurance that the objectives of the system of controls are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

30

PART II.OTHER INFORMATION

Item 1A.

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors that affect our business and financial results that are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. There have been no material changes to such risk factors.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On November 5, 2019, our Board of Directors authorized the repurchase of up to $150 million of our outstanding common stock and/or our Class A common stock prior to December 31, 2022 (the “2019 Repurchase Authorization”). The 2019 Repurchase Authorization superseded all prior repurchase authorizations. The 2019 Repurchase Authorization prohibits the Company from purchasing shares directly from the Company’s officers, directors, or the Gray Television, Inc. Capital Accumulation Plan (the “401k Plan”).

On June 3, 2022, under the 2019 Repurchase authorization, we entered into an issuer repurchase plan (the “2022 IRP”), under Rules 10b-18 and 10b5-1 of the Exchange Act. The 2022 IRP facilitated the orderly repurchase of our common stock through the establishment of the parameters for repurchases of our shares. During the second quarter of 2022, we repurchased shares of our common stock on the open market under the 2022 IRP.

The following table summarizes repurchases of our common stock in the three-months ended June 30, 2022, all of which were pursuant to the 2022 IRP:

Period

 

Total Number

of Shares

Purchased (1)

  

Average

Price Paid

per Share

(2)

  

Total Number of

Shares

Purchased as

Part of Publicly

Announced Plans

  

Maximum Number of

Shares (or

Approximate Dollar

Value) that May Yet

Be Purchased Under

the Plans or

Programs (3)

 
                 

April 1, 2022 through April 30, 2022:

  -  $-   -  $173,889,042 
                 

May 1, 2022 through May 31, 2022:

  -  $-   -  $173,889,042 
                 

June 1, 2022 through June 30, 2022:

  2,646,193  $18.87   2,646,193  $123,968,352 
                 

Total

  2,646,193  $18.87   2,646,193     

(1)

All Shares purchased were shares of common stock.

(2)

Amount excludes standard brokerage commissions.

(3)

The amounts presented at each respective month-end include the remaining dollar value available to purchase our common stock and/or our Class A common stock under our outstanding repurchase authorizations.


Item 6.

Item 6. Exhibits

 

The following exhibits are filed as part of this Quarterly Report:

 

Exhibit

Number

 

Description of Document

   

2.110.1

 

Amendment and Consent, dated as of October 6, 2021, to Agreement and Plan of Merger, dated as of May 3, 2021, as amended on June 2, 2021, by and among Gray Television, Inc., Gray Hawkeye Stations, Inc., 2022 Equity and Meredith Corporation (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 8, 2021)Incentive Compensation Plan

31.1

 

Rule 13(a) – 14(a) Certificate of Chief Executive Officer

31.2

 

Rule 13(a) – 14(a) Certificate of Chief Financial Officer

32.1

 

Section 1350 Certificate of Chief Executive Officer

32.2

 

Section 1350 Certificate of Chief Financial Officer

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

The cover page from Gray Television, Inc.’s Quarterly Report on Form 10-Q for the fiscal period ended SeptemberJune 30, 20212022 has been formatted in Inline XBRL.XBRL and contained in Exhibit 101.

 


 

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: August 5, 2022

Date: November 4, 2021

By:

/s/ James C. Ryan

James C. Ryan

Executive Vice President and Chief Financial Officer

 

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