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Note 2 - Acquisitions | 12 Months Ended
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Dec. 31, 2014
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] | 2. Acquisitions 2014 Acquisitions: Hoak Acquisition On June 13, 2014, we completed the acquisition of 100% of the capital stock of certain wholly owned subsidiaries of Hoak Media, LLC (“Hoak”) for total purchase price of approximately $299.9 million (the “Hoak Acquisition”). The following stations were owned by the subsidiaries we acquired in the Hoak Acquisition:
Station |  | Network Affiliation |  | Market
KSFY-TV |  | ABC |  | Sioux Falls, SD
KABY-TV* |  | ABC |  | Sioux Falls, SD
KPRY-TV* |  | ABC |  | Sioux Falls, SD
KVLY-TV |  | NBC |  | Fargo-Valley City, ND
KNOE-TV |  | CBS |  | Monroe- El Dorado, LA
KFYR-TV |  | NBC |  | Minot-Bismarck-Dickinson, ND
KMOT-TV* |  | NBC |  | Minot-Bismarck-Dickinson, ND
KUMV-TV* |  | NBC |  | Minot-Bismarck-Dickinson, ND
KQCD-TV* |  | NBC |  | Minot-Bismarck-Dickinson, ND
KALB-TV |  | NBC/CBS |  | Alexandria, LA
KNOP-TV |  | NBC |  | North Platte, NE
KIIT-LP |  | FOX |  | North Platte, NE
* satellite station |  |  |  |
The Hoak Acquisition also included our assumption of Hoak’s interest in certain operating agreements, and the acquisition of certain non-license assets, of KHAS-TV, which served the Lincoln-Hastings, Nebraska market. On June 13, 2014, we transferred the programing of KHAS-TV to KSNB-TV, a station owned by Gray that also serves the Lincoln-Hastings, Nebraska, market. We used borrowings under the 2014 Senior Credit Facility, defined below, to fund the purchase price to complete the Hoak Acquisition. As a component of the Hoak Acquisition, Gray assumed Hoak’s rights under certain agreements with Parker Broadcasting, Inc. (“Parker”) to provide back-office services, sales support and limited programming to KXJB-TV and KAQY-TV (each, a “Parker Agreement”). The Parker Agreements terminated upon the completion of the Parker Acquisition (defined below). The Hoak Acquisition also included two subsidiaries with television stations located in the Panama City, Florida (KREX) and Grand Junction, Colorado (WMBB) markets. In anticipation of potential regulatory concerns, shortly after entering into our definitive purchase agreements with Hoak, we entered into a separate agreement with Nexstar Broadcasting Group, Inc. (“Nexstar”), pursuant to which Nexstar agreed to purchase these subsidiaries through us concurrent with the closing of the Hoak Acquisition for approximately $33.5 million. Accordingly, on June 13, 2014 when we closed the Hoak Acquisition, Nexstar directly transferred the consideration for this agreement along with working capital adjustments to Hoak and we immediately divested those subsidiaries to Nexstar. Nexstar’s consideration paid directly to Hoak is not included in our total purchase price for Hoak of $299.9 million. SJL Acquisition On September 15, 2014, we acquired from SJL Holdings, LLC and SJL Holdings II, LLC, 100% of the capital stock of the entities that own and operate WJRT-TV and WTVG-TV, respectively, which are the ABC-affiliated television stations serving the Flint-Saginaw-Bay City, Michigan, and Toledo, Ohio, television markets, respectively, for total purchase price of $131.5 million (the “SJL Acquisition”). Of the total purchase price, $28.1 million was used to pay-off the sellers' debt. We funded the SJL Acquisition with a combination of cash from operations and borrowings under our 2014 Senior Credit Facility, defined below. KEVN Acquisition On May 1, 2014, we acquired from Mission TV, LLC 100% of the capital stock of the entity that operates KEVN-TV and its satellite station, KIVV-TV (collectively, the “KEVN Stations”) The KEVN Stations are affiliated with FOX and serve the Rapid City, South Dakota market. The total purchase price to complete the KEVN Acquisition was approximately $8.8 million (the “KEVN Acquisition”). Of the total purchase price, $3.6 million was used to pay-off the sellers' debt. The purchase price to complete the KEVN Acquisition was funded with a combination of cash from operations and borrowings under our 2012 Senior Credit Facility, defined below. KNDX Acquisition On May 1, 2014, we acquired from Prime Cities Broadcasting, Inc. (“Prime Cities”) certain assets of KNDX-TV and its satellite station KXND-TV, as well as certain non-license assets of low power stations KNDX-LP and KXND-LP. These four stations served as FOX affiliates for the Minot-Bismarck, North Dakota television market. On June 13, 2014, we transferred the programing of KNDX-TV and KXND-TV to the television stations that we acquired from Hoak in the Minot-Bismarck, North Dakota television market. On June 27, 2014, we acquired the low power FCC licenses of KNDX-LP and KXND-LP from Prime Cities. We refer to the acquisition of these assets from Prime Cities as the “KNDX Acquisition.” The total purchase price was $7.5 million, which was funded with a combination of cash from operations and borrowings under our 2012 Senior Credit Facility, defined below. Parker Acquisition Also in 2014, we acquired 100% of the capital stock of two of Parker’s subsidiaries, Parker Broadcasting of Dakota, LLC and Parker Broadcasting of Louisiana, LLC (collectively, the “Parker Acquisition”). Parker Broadcasting of Dakota, LLC owned certain non-license assets of KXJB-TV, which was affiliated with the CBS network and served the Fargo, North Dakota television market. Parker Broadcasting of Louisiana LLC owned certain non-license assets of KAQY-TV, which was affiliated with the ABC network and served the Monroe, Louisiana television market. On September 25, 2014, we completed the acquisition of the outstanding capital stock of Parker Broadcasting of Louisiana LLC and transferred the programing of KAQY-TV to KNOE-TV, a station owned by Gray that also serves the Monroe, Louisiana, television market. On December 1, 2014, we completed the acquisition of Parker Broadcasting of Dakota, LLC and transferred the programming of KXJB-TV to KVLY-TV, a station owned by us that also serves the Fargo, North Dakota television market. Upon the completion of the Parker Acquisition, the Parker Agreements were terminated. The purchase price to complete the Parker Acquisition was $6.7 million, of which approximately $1.7 million was allocated to the Parker Broadcasting of Louisiana transaction, and $5.0 million was allocated to the Parker Broadcasting of Dakota transaction. The purchase price to complete the Parker Acquisition was funded with a combination of cash from operations and borrowings under our 2014 Senior Credit Facility, defined below. WQCW Acquisition On April 1, 2014, we acquired the assets of WQCW-TV, Portsmouth, Ohio from Lockwood Broadcast Group (the "WQCW Acquisition"). WQCW-TV serves as the CW affiliate for the Charleston/ Huntington, West Virginia television market, where we own and operate WSAZ-TV, the market's NBC affiliate. The purchase price of the WQCW Acquisition was approximately $5.5 million, which was funded with cash from operations. Helena Acquisition On November 1, 2014, we acquired from Beartooth Communications Company the assets of KTVH-TV and KBGF-LD, which are NBC affiliates in the Helena, Montana and Great Falls, Montana markets, respectively; and on December 1, 2014 we acquired from Rocky Mountain Broadcasting Company the assets of KMTF-TV the CW affiliate for the Helena, Montana market (collectively, the “Helena Acquisition”). Total purchase price for both acquisitions was approximately $1.9 million, which was funded with cash from operations. For our 2014 Acquisitions, the estimated fair values as of the acquired assets, assumed liabilities and the resulting goodwill are summarized as follows (in thousands):
|  | Acquisition |
|  | Hoak |  |  | SJL |  |  | KEVN |  |  | KNDX |  |  | Parker |  |  | WQCW |  |  | Helena |
Cash |  | $ | - |  |  | $ | - |  |  | $ | 615 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
Accounts receivable |  |  | 10,722 |  |  |  | 7,132 |  |  |  | 569 |  |  |  | - |  |  |  | 765 |  |  |  | - |  |  |  | 14 |
Other current assets |  |  | 509 |  |  |  | 1,946 |  |  |  | 96 |  |  |  | 39 |  |  |  | 964 |  |  |  | 45 |  |  |  | 49 |
Property and equipment |  |  | 45,382 |  |  |  | 23,508 |  |  |  | 3,888 |  |  |  | 2,576 |  |  |  | 722 |  |  |  | 991 |  |  |  | 1,230 |
Goodwill |  |  | 131,632 |  |  |  | 50,941 |  |  |  | 2,717 |  |  |  | 1,839 |  |  |  | 1,932 |  |  |  | 802 |  |  |  | 70 |
Broadcast licenses |  |  | 91,958 |  |  |  | 86,685 |  |  |  | 1,675 |  |  |  | 500 |  |  |  | - |  |  |  | 3,691 |  |  |  | 146 |
Other intangible assets |  |  | 35,386 |  |  |  | 10,091 |  |  |  | 1,786 |  |  |  | 2,584 |  |  |  | 3,163 |  |  |  | 15 |  |  |  | 431 |
Other non-current assets |  |  | - |  |  |  | 253 |  |  |  | 29 |  |  |  | 15 |  |  |  | 16 |  |  |  | - |  |  |  | - |
Current liabilities |  |  | (3,544 | ) |  |  | (4,936 | ) |  |  | (211 | ) |  |  | (36 | ) |  |  | (826 | ) |  |  | (45 | ) |  |  | (90 | )
Other long-term liabilities |  |  | - |  |  |  | (379 | ) |  |  | (38 | ) |  |  | (17 | ) |  |  | (5 | ) |  |  | - |  |  |  | - |
Deferred income tax liabilities |  |  | (12,188 | ) |  |  | (43,712 | ) |  |  | (2,341 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 299,857 |  |  | $ | 131,529 |  |  | $ | 8,785 |  |  | $ | 7,500 |  |  | $ | 6,731 |  |  | $ | 5,499 |  |  | $ | 1,850 |
These amounts are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. Accounts receivable are recorded at their fair value that represents the amount we expect to collect. Gross contractual amounts receivable are approximately $0.3 million more than their recorded fair value. 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. The amount related to other intangible assets primarily represents the estimated fair values of retransmission agreements of $34.2 million; advertising client relationships of $13.1 million; and income leases of $4.1 million. These intangible assets are being amortized over the estimated remaining useful lives of 4.4 years for retransmission agreements; 5.5 years for advertising client relationships; and 8.3 years for income leases. 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, including assembled workforce, as well as expected future synergies. We expect that goodwill of $88.6 million related to asset acquisitions and for those stock acquisitions that are treated as asset acquisitions based on the tax elections made, will be deductible for tax purposes. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation. Consistent with that determination, no fair value was separately allocated to the acquired network affiliation agreements in our 2014 acquisitions. The primary areas of the preliminary purchase price allocation included in the table above, which are not yet finalized, relate to the fair values of property and equipment, deferred income tax liabilities and residual goodwill. Management expects to continue to obtain information to assist in finalizing these preliminary valuations during the measurement period (up to one year from the acquisition date). In connection with our acquisitions in 2014 we incurred transaction costs totaling $6.2 million that are included in our corporate and administrative expenses. 2013 Acquisitions: Acquisition of Yellowstone Television, LLC Effective October 31, 2013, we entered into an agreement to acquire Yellowstone Television, LLC (“Yellowstone”). On November 1, 2013, Yellowstone acquired the following television stations:
| ● | KGNS-TV in the Laredo, Texas market. Its channels are affiliated with NBC, CW, and Telemundo;
| ● | KGWN-TV in the Cheyenne, Wyoming-Scottsbluff, Nebraska market. Its channels are affiliated with CBS and CW. KGWN-TV extends throughout the market on KSTF (TV) in Scottsbluff, Nebraska, and K19FX in Laramie, Wyoming;
| ● | KCHY-LP is the NBC affiliate for the Cheyenne-Scottsbluff market.; and
| ● | KCWY-TV in the Casper, Wyoming market. Its primary channel is affiliated with NBC.
We paid $23.0 million for 99% of the outstanding equity interests in Yellowstone and incurred fees of approximately $0.2 million in connection with this acquisition, which fees were expensed upon incurrence. The acquisition was financed with cash from operations. In connection therewith, we entered into a put and call option agreement with the owner of Yellowstone, which we exercised and completed on October 2, 2014, acquiring the remaining 1% of the equity of Yellowstone for $10.0 million. Accordingly, the letter of credit securing that obligation has since been terminated. The total consideration for this acquisition was approximately $32.7 million. The Company’s consolidated results of operations for the year ended December 31, 2013 include the results of Yellowstone since October 31, 2013. Revenue (less agency commissions) and operating income of Yellowstone included in our consolidated statements of operations were $2.4 million and $0.7 million, respectively, for the year ended December 31, 2013. Transactions with Excalibur On October 31, 2013, Gray and Excalibur consummated the acquisition of KJCT-TV, which broadcasts ABC, CW, Telemundo and local programming in the Grand Junction, Colorado, market. At that time, Excalibur acquired the license assets of KJCT-TV for approximately $3.0 million, and we acquired various non-license assets related to KJCT-TV for approximately $9.0 million. Gray financed this acquisition with cash from operations. 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. Also in connection with these arrangements, we paid $0.5 million to enter into a put and call option agreement with Excalibur, which we exercised on December 15, 2014, acquiring the assets of Excalibur for a purchase price equal to their outstanding indebtedness of $2.9 million, which was then retired, resulting in a loss on extinguishment of debt of $0.2 million and the termination of our guarantee of Excalibur’s debt. Upon the acquisition of those assets, the primary license of KJCT-TV, the related transmitter and tower were sold to a third party for $75,000, resulting in a loss on disposal of assets of $269,000 in the year ended December 31, 2014. In addition to the tangible assets acquired, we also acquired the various program streams and network affiliations formerly broadcast by Excalibur, which we have transferred to our existing operations the Grand Junction, Colorado market. The total consideration paid to acquire KJCT-TV was $12.0 million. The Company’s consolidated results of operations for the year ended December 31, 2013 include the results of Excalibur since October 31, 2013. Revenue (less agency commissions) and operating income attributable to Excalibur included in our consolidated statements of operations were $0.4 million and $0.2 million, respectively, for the year ended December 31, 2013. For our 2013 Acquisitions, the estimated fair values as of the acquired assets, assumed liabilities and the resulting goodwill are summarized as follows (in thousands):
|  | Acquisition |
|  | Yellowstone |  |  | Excalibur |
Cash |  | $ | 95 |  |  | $ | - |
Other current assets |  |  | 280 |  |  |  | 91 |
Property and equipment |  |  | 7,249 |  |  |  | 2,740 |
Goodwill |  |  | 9,421 |  |  |  | 4,466 |
Broadcast licenses |  |  | 14,305 |  |  |  | 4,161 |
Other intangible assets |  |  | 1,709 |  |  |  | 633 |
Other non-current assets |  |  | 70 |  |  |  | - |
Current liabilities |  |  | (304 | ) |  |  | (91 | )
Longterm debt, less current portion |  |  | (86 | ) |  |  | - |
Total |  | $ | 32,739 |  |  | $ | 12,000 |
These amounts were based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The amount related to other intangible assets represents primarily the estimated fair values of retransmission agreements of $1.4 million and advertising client relationships of $0.6 million. These intangible assets are being amortized over the estimated remaining useful lives of 1.8 years for retransmission agreements and 7.1 years for advertising client relationships. Acquired property and equipment is being depreciated on a straight-line basis over the respective estimated remaining useful lives. 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, including assembled workforce, as well as expected future synergies. Goodwill will be deductible for tax purposes. Preliminary Pro Forma Financial Information The following table sets forth certain unaudited pro forma results of operations of the Company for the years ended December 31, 2014 and 2013 assuming that the Hoak Acquisition and the SJL Acquisition, along with transactions necessary to finance the Hoak Acquisition and the SJL Acquisition, occurred on January 1, 2013 (in thousands, except per share data):
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |
Revenue (less agency commissions) |  | $ | 565,251 |  |  | $ | 445,443 |
Net income |  | $ | 50,771 |  |  | $ | 20,665 |
Basic net income per share |  | $ | 0.88 |  |  | $ | 0.36 |
Diluted net income per share |  | $ | 0.87 |  |  | $ | 0.36 |
This pro forma financial information is based on each of Gray’s, Hoak’s and SJL’s historical results of operations, adjusted for the effect of preliminary fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed each of the Hoak Acquisition and the SJL Acquisition on January 1, 2013 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 years ended December 31, 2014 and 2013 reflect (i) depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, (ii) additional interest expense related to the financing of each of the Hoak Acquisition and the SJL Acquisition, (iii) the loss from early extinguishment of debt as if the amendment and restatement of our senior credit facility had ocurred on January 1, 2013, rather than in 2014, and (iv) the 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. In connection with completing the Hoak Acquisition and SJL Acquisition, in 2014 we incurred a total of $5.1 million of transaction related costs, primarily related to legal, consulting and other professional services. These costs were not included in the 2014 pro forma amounts presented above, but 2013 pro forma net income was adjusted to include these costs as if they were incurred in 2013 as they were directly attributable to the Hoak Acquisition and the SJL Acquisition. Net revenues and operating income of the businesses acquired in the Hoak Acquisition and the SJL Acquisition included in our actual consolidated statements of operations for the year ended December 31, 2014 were $64.7 million and $25.8 million, respectively. Pro forma financial information for each of the KEVN Acquisition, the KNDX Acquisition, the Parker Acquisition, the WQCW Acquisition, the Helena Acquisition, the Yellowstone Acquisition and the Excalibur Acquisition are not included, as such information is not material to our financial statements.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1383-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4922-128472 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4934-128472 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4926-128472 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1392-128463 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1486-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1497-128463 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1490-128463 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4845-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1500-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1524-128463 + Details
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