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Note 1 - Description of Business and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2014
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | 1. Description of Business and Summary of Significant Accounting Policies Description of Business Gray Television, Inc. (and its consoldiated subsidiaries, except as the context othewise provides, “Gray,” the “Company,” “we,” “us” or “our”) is a television broadcast company headquartered in Atlanta, Georgia, that owns and/or operates television stations in the United States. As of February 1, 2015, we owned and operated television stations in 44 television markets broadcasting a total of 140 programming streams, including 26 affiliates of CBS Network (“CBS”), 24 affiliates of the NBC Network (“NBC”), 16 affiliates of the ABC Network (“ABC”) and ten affiliates of the FOX Network (“FOX”). Within a market, we broadcast secondary digital channels that are in addition to our primary broadcast channels. Our secondary digital channels are generally affiliated with networks different from those affiliated with our primary broadcast channels, and are operated by us to make better use of our broadcast spectrum by providing supplemental and/or alternative programming to our primary channels. Certain of our secondary channels are affiliated with more than one network simultaneously. In addition to affiliations with ABC, CBS and FOX, our secondary channels are affiliated with the following networks: the CW Network or the CW Plus Network, MyNetworkTV, the MeTV Network, This TV Network, Antenna TV, Telemundo, Heros and Icons, and MOVIES! Network. We also broadcast ten local news/weather channels in certain of our existing markets. Our combined TV station group reaches approximately 8.0% of total United States television households. Principles of Consolidation Gray’s consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries. During a portion of the year ended December 31, 2014, and as of, and for the year ended December 31, 2013, our financial statements included the accounts of a variable interest entity (“VIE”) for which we were the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. Variable Interest Entity We consolidate a VIE when we are determined to be the primary beneficiary. In accordance with accounting principles generally accepted in the United States (“GAAP”), in determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. In October 2013, we entered into a series of transactions with the News-Press Gazette Company and Excalibur Broadcasting, LLC (collectively with its subsidiaries, “Excalibur”), pursuant to which we acquired the non-license assets for $9.0 million, and Excalibur acquired the license assets for $3.0 million, of KJCT-TV and associated low power stations (collectively, “KJCT-TV”), in the Grand Junction, Colorado market. In connection therewith, we entered into a shared services agreement, pursuant to which we provided certain services, including back-office, engineering and sales support, and a lease agreement, pursuant to which we provided studio and office space, to Excalibur. In connection with the consummation of Excalibur’s acquisition of KJCT-TV’s license assets, Excalibur incurred approximately $3.0 million of debt that Gray guaranteed. Based on the terms of our agreements with, the significance of our investment in, and our guarantee of the debt of, Excalibur, we determined that Excalibur was a VIE of Gray from October 2013 until December 15, 2014, the date that we exercised the option to acquire the assets of Excalibur (the “Excalibur Option”). Included in our consolidated statements of operations for the years ended December 31, 2014 and 2013 are revenue of $2.1 million and $0.4 million, respectively, attributable to Excalibur as a VIE. Upon our acquisition of the assets of Excalibur on December 15, 2014, those assets and Excalibur’s operations were included in our consolidated financial statements consistent with our ownership. On December 15, 2014, we exercised the Excalibur Option for a purchase price equal to its outstanding indebtedness, including accrued interest, of $3.0 million, which was then retired, resulting in the termination of our guarantee of Excalibur’s debt. The carrying amounts and classification of the assets and liabilities of Excalibur described above included in our consolidated balance sheet as of December 31, 2013, were as follows (in thousands):
|  | December 31, |
|  | 2013 |
Assets: |  |  |  |
Current assets: |  |  |  |
Cash |  | $ | 473 |
Accounts receivable |  |  | 524 |
Current portion of program broadcast rights, net |  |  | 42 |
Prepaid and other current assets |  |  | 7 |
Total current assets |  |  | 1,046 |
Property and equipment, net |  |  | 883 |
Deferred loan costs, net |  |  | 174 |
Broadcast licenses |  |  | 4,161 |
Other intangible assets, net |  |  | 575 |
Total assets |  | $ | 6,839 |
Liabilities: |  |  |  |
Current liabilities: |  |  |  |
Accounts payable |  | $ | 14 |
Employee compensation and benefits |  |  | 8 |
Accrued interest |  |  | 2 |
Other accrued expenses |  |  | 13 |
Accrued expenses due to Gray |  |  | 651 |
Current portion of program broadcast obligations |  |  | 45 |
Current portion of long-term debt |  |  | 200 |
Total current liabilities |  |  | 933 |
Long-term debt, less current portion |  |  | 2,800 |
Other long-term liabilities |  |  | 3,106 |
Total liabilities |  | $ | 6,839 |
Other long-term liabilities of $3.1 million representing the fair value of the Excalibur Option and accrued expenses due to Gray of $0.7 million as of December 31, 2013 were eliminated in our consolidated financial statements. Investment in Broadcasting Company We have an investment in Sarkes Tarzian, Inc. (“Tarzian”) whose principal business is the ownership and operation of two television stations. As of June 30, 2014, the most recent period for which we have Tarzian’s financial statements, our investment represented 32.4% of the total outstanding common stock of Tarzian (both in terms of the number of shares of common stock outstanding and in terms of voting rights), but such investment represented 67.9% of the equity of Tarzian for purposes of dividends, if paid, as well as distributions in the event of any liquidation, dissolution or other sale of Tarzian. This investment is accounted for under the cost method of accounting and reflected as a non-current asset on our balance sheet. We have no commitment to fund the operations of Tarzian nor do we have any representation on Tarzian’s board of directors or any other influence over Tarzian’s management. We believe the cost method is appropriate to account for this investment given the existence of a single majority voting stockholder and our lack of management influence. Revenue Recognition Broadcast advertising revenue is generated primarily from the sale of television advertising time to local, national and political advertisers. Internet advertising revenue is generated from the sale of advertisements associated with our stations’ websites. Our aggregate internet revenue is derived from two sources. The first is advertising or sponsorship opportunities directly on our websites, referred to as “direct internet revenue.” The other source is television advertising time purchased by our clients to directly promote their involvement in our websites, referred to as “internet-related commercial time sales.”Advertising revenue is billed to the customer and recognized when the advertisement is broadcast or appears on our stations’ websites. Retransmission consent revenue consists of payments to us from cable, satellite and other multiple video program distribution systems for their retransmission of our broadcast signals. Retransmission consent revenue is recognized as earned over the life of the retransmission consent contract. Other revenue consists primarily of revenue earned from the production of programming and payments from tower space rent. Revenue from the production of programming is recognized as the programming is produced. Tower rent is recognized over the life of the rental agreements. Consulting revenue, if any, is generated from consulting services provided and typically includes a base and an incentive component. Revenue from the base component is fixed and is recognized on a straight line basis over the term of the consulting agreement. Revenue from the incentive component, if any, is variable and is typically determined by performance. Revenue from the incentive component of a consulting agreement is recognized when the amount earned becomes estimable and payment is probable. Cash received that has not yet been recognized as revenue is presented as deferred revenue. Revenue that has been earned but not yet received is recognized as revenue and presented as a receivable. Trade and Barter Transactions We account for trade transactions involving the exchange of tangible goods or services with our customers as revenue. The revenue is recorded at the time the advertisement is broadcast and the expense is recorded at the time the goods or services are used. The revenue and expense associated with these transactions are based on the fair value of the assets or services involved in the transaction. Trade revenue and expense recognized for each of the years ended December 31, 2014, 2013 and 2012 were as follows (amounts in thousands):
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Trade revenue |  | $ | 2,174 |  |  | $ | 1,390 |  |  | $ | 1,248 |
Trade expense |  |  | (2,287 | ) |  |  | (1,262 | ) |  |  | (1,267 | )
Net trade (loss) income |  | $ | (113 | ) |  | $ | 128 |  |  | $ | (19 | )
We do not account for barter revenue and related barter expense generated from network or syndicated programming as such amounts are not material. Furthermore, any such barter revenue recognized would then require the recognition of an equal amount of barter expense. The recognition of these amounts would not have a material effect upon net income. Advertising Expense We recorded advertising expense of $1.1 million, $0.9 million and $0.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. We expense all advertising expenditures as they are incurred. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our actual results could differ materially from these estimated amounts. Our most significant estimates are used for our allowance for doubtful accounts 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. Allowance for Doubtful Accounts Our allowance for doubtful accounts is equal to at least 85% of our receivable balances that are 120 days old or older. We may provide allowances for certain receivable balances that are less than 120 days old when warranted by specific facts and circumstances. We recorded expenses for this allowance of $1.3 million, $0.4 million and $0.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. We generally write-off accounts receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted. Program Broadcast Rights The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements. Property and Equipment Property and equipment are carried at cost. Depreciation is computed principally by the straight-line method. Maintenance, repairs and minor replacements are charged to operations as incurred; the purchase of new assets, major replacements and betterments are capitalized. The cost of any assets sold or retired and related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting profit or loss is reflected in income or expense for the period. The following table lists components of property and equipment by major category (dollars in thousands):
|  | December 31, |  |  | Estimated Useful Lives |
|  | 2014 |  |  | 2013 |  |  | (in years) |
Property and equipment: |  |  |  |  |  |  |  |  |  |  |  |
Land |  | $ | 32,085 |  |  | $ | 25,656 |  |  |  |  |
Buildings and improvements |  |  | 77,477 |  |  |  | 59,021 |  |  |  | 7 to 40 |
Equipment |  |  | 394,569 |  |  |  | 323,603 |  |  |  | 3 to 20 |
|  |  | 504,131 |  |  |  | 408,280 |  |  |  |  |
Accumulated depreciation |  |  | (282,320 | ) |  |  | (264,659 | ) |  |  |  |
Total property and equipment, net |  | $ | 221,811 |  |  | $ | 143,621 |  |  |  |  |
For the year ended December 31, 2014, our total property and equipment balance, before accumulated depreciation, increased approximately $78.3 million as a result of acquisitions. The remaining change in the balances between December 31, 2013 and December 31, 2014 was due to routine purchases of equipment, less retirements. Deferred Loan Costs Loan acquisition costs are amortized over the life of the applicable indebtedness using a straight-line method that approximates the effective interest method. Asset Retirement Obligations We own office equipment, broadcasting equipment, leasehold improvements and transmission towers, some of which are located on, or are housed in, leased property or facilities. At the conclusion of several of these leases we are obligated to dismantle, remove and otherwise properly dispose of and remediate the facility or property. We estimate our asset retirement obligations based upon the cash flows of the costs expected to be incurred and the net present value of those estimated amounts. The asset retirement obligation is recognized as a non-current liability and as a component of the cost of the related asset. Changes to our asset retirement obligation resulting from revisions to the timing or the amount of the original undiscounted cash flow estimates are recognized as an increase or decrease to the carrying amount of the asset retirement obligation and the related asset retirement cost capitalized as part of the related property, plant, or equipment. Changes in the asset retirement obligation resulting from accretion of the net present value of the estimated cash flows are recognized as operating expenses. We recognize depreciation expense of the capitalized cost over the estimated life of the lease. Our estimated obligations become due at varying times during the years 2015 through 2062. The liability recognized for our asset retirement obligations was approximately $600,000 and $516,000 as of December 31, 2014 and 2013, respectively. During the years ended December 31, 2014, 2013 and 2012, we recorded expenses of $6,000, $17,000 and $25,000, respectively, related to our asset retirement obligations. Concentration of Credit Risk We sell advertising air-time on our broadcasts and advertising space on our websites to national and local advertisers within the geographic areas in which we operate. Credit is extended based on an evaluation of the customer’s financial condition, and generally advance payment is not required except for political advertising. Credit losses are provided for in the financial statements and consistently have been within our expectations that are based upon our prior experience. Excluding political advertisers, for the year ended December 31, 2014, approximately 26%, 11% and 9% of our broadcast advertising revenue was obtained from advertising sales to advertising customers in the automotive, medical and restaurant industries, respectively. We experienced similar industry-based concentrations of revenue in the years ended December 31, 2013 and 2012. Although our revenues can be affected by changes within these industries, we believe this risk is in part mitigated due to the fact that no one customer accounted for in excess of 5% of our broadcast advertising revenue in any of these periods. Furthermore, we believe that our large geographic operating area partially mitigates the potential effect of regional economic changes. 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 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 stock and shares underlying stock options, 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 years ended December 31, 2014, 2013 and 2012 (in thousands):
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Weighted-average shares outstanding – basic |  |  | 57,862 |  |  |  | 57,630 |  |  |  | 57,170 |
Weighted-average shares underlying stock options and restricted shares |  |  | 502 |  |  |  | 342 |  |  |  | 92 |
Weighted-average shares outstanding - diluted |  |  | 58,364 |  |  |  | 57,972 |  |  |  | 57,262 |
Valuation of Broadcast Licenses, Goodwill and Other Intangible Assets From January 1, 1994 through December 31, 2014, we acquired a significant number of television stations. Among the assets acquired in these transactions were broadcast licenses issued by the FCC, goodwill and other intangible assets. For broadcast licenses acquired prior to January 1, 2002, we recorded their respective values using a residual method (analogous to “goodwill”) where the excess of the purchase price paid in the acquisition over the fair value of all identified tangible and intangible assets acquired was attributed to the broadcast license. This residual basis approach generally produces higher valuations of broadcast licenses when compared to applying an income method as discussed below. For broadcast licenses acquired after December 31, 2001, we recorded their respective values using an income approach. Under this approach, a broadcast license is valued based on analyzing the estimated after-tax discounted future cash flows of the acquired station, assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market. The income approach generally produces lower valuations of broadcast licenses when compared to applying the residual method. For television stations acquired after December 31, 2001, we allocate the residual value of the station to goodwill. When renewing broadcast licenses, we incur regulatory filing fees and legal fees. We expense these fees as they are incurred. Other intangible assets that we have acquired include network affiliation agreements, retransmission agreements, advertising contracts, client lists, talent contracts and leases. Each of our stations is affiliated with at least one broadcast network. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. As a result, we have allocated only minimal values to our network affiliation agreements. We have classified our other intangible assets as definite-lived intangible assets. The amortization period of our other intangible assets is equal to the shorter of their estimated useful life or contract period. When renewing other intangible asset contracts, we incur legal fees that are expensed as incurred. Annual Impairment Testing of Intangible Assets We test for impairment of our intangible assets on an annual basis on the last day of each fiscal year. However, if certain triggering events occur, we test for impairment during the relevant reporting period. For goodwill, we have elected to bypass the qualitative assessment provisions and to perform the prescribed testing steps for goodwill on an annual basis. For purposes of testing goodwill for impairment, each of our individual television stations is considered a separate reporting unit. We review each television station for possible goodwill impairment by comparing the estimated fair value of each respective reporting unit to the recorded value of that reporting unit’s net assets. If the estimated fair value exceeds the recorded net asset value, no goodwill impairment is deemed to exist. If the estimated fair value of the reporting unit does not exceed the recorded value of that reporting unit’s net assets, we then perform, on a notional basis, a purchase price allocation by allocating the reporting unit’s fair value to the fair value of all tangible and identifiable intangible assets with residual fair value representing the implied fair value of goodwill of that reporting unit. The recorded value of goodwill for the reporting unit is written down to this implied value. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived / enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us, including but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our goodwill. We also consider a market multiple approach utilizing market multiples to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value one of our television stations. For testing of our broadcast licenses and other intangible assets for potential impairment of their recorded asset values, we compare their estimated fair value to the respective asset’s recorded value. If the fair value is greater than the asset’s recorded value, no impairment expense is recorded. If the fair value does not exceed the asset’s recorded value, we record an impairment expense equal to the amount that the asset’s recorded value exceeded the asset’s fair value. We use the income method to estimate the fair value of all broadcast licenses irrespective of whether they were initially recorded using the residual or income methods. For further discussion of our goodwill, broadcast licenses and other intangible assets, see Note 11 “Goodwill and Intangible Assets.” Market Capitalization When we test our broadcast licenses and goodwill for impairment, we also consider our market capitalization. As of December 31, 2014, our market capitalization was greater than the book value of our net assets. Accumulated Other Comprehensive Loss Our accumulated other comprehensive loss balances as of December 31, 2014 and 2013 consist of adjustments to our pension liabilities net of related income tax benefits as follows (in thousands):
|  | December 31, |
|  | 2014 |  |  | 2013 |
Accumulated balances of items included in accumulated other comprehensive loss: |  |  |  |  |  |  |  |
Increase in pension liability |  | $ | (34,117 | ) |  | $ | (17,064 | )
Income tax benefit |  |  | (13,305 | ) |  |  | (6,655 | )
Accumulated other comprehensive loss |  | $ | (20,812 | ) |  | $ | (10,409 | )
Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (or “FASB”) issued Audit Standards Update (or “ASU”) No. 2014-09 - Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides new guidance on revenue recognition for revenue from contracts with customers and will replace most existing revenue recognition guidance when it becomes effective. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard is intended to improve comparability of revenue recognition practices across entities and provide more useful information through improved financial statement disclosures. The standard is effective for annual reporting periods beginning after December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact of the requirements of this standard on our financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 defines management’s responsibility to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern. This evaluation is required for each interim and annual period. The standard is intended to reduce diversity in the timing and content of footnote disclosures and require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The standard is effective for interim and annual periods ending after December 15, 2016. Early application is permitted. We do not expect the implementation of the amendments in this standard to have a material impact on our financial statements.

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