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Note 2 - Acquisitions and Dispositions | 9 Months Ended
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Sep. 30, 2016
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] |
2. | Acquisitions and Dispositions
As previously disclosed, on February 16, 2016, we completed the acquisition of the television and radio broadcast assets of Schurz Communications, Inc. (“Schurz”) for an adjusted purchase price of $443.4 million plus transaction related expenses (the “Schurz Acquisition”). Also as previously disclosed, to facilitate regulatory approval for the Schurz Acquistion, on February 1, 2016, we exchanged the assets of KAKE-TV (ABC) (and its satellite stations) in the Wichita, Kansas television market, for the assets of Lockwood Broadcasting, Inc.’s television station WBXX-TV (CW) in the Knoxville, Tennessee television market and $11.2 million of cash (the “WBXX Acquisition”). In connection with the divestiture of KAKE-TV’s assets, we recorded a gain of approximately $2.0 million, excluding transaction related expenses. To further faciliate regulatory approvals for the Schurz Acquisition, on February 16, 2016, we also exchanged the assets of WSBT-TV for the assets of Sinclair Broadcast Group, Inc.’s television station WLUC-TV (NBC/FOX) in the Marquette, Michigan television market (the “WLUC Acquisition”), and we sold the Schurz radio broadcast assets (the “Schurz Radio Stations”) for $16.0 million to three third-party radio broadcasters. We did not record a gain or loss related to the WLUC Acquisition or related to the divestiture of the Schurz Radio Stations. The Schurz Acquisition, the WBXX Acquisition, the WLUC Acquisition, and the sale of the Schurz Radio Stations are referred to collectively as the “Schurz Acquisition and Related Transactions.” We used borrowings of $425.0 million (the “2016 Term Loan”) under our senior credit facility, as amended (the “Senior Credit Facility”) to fund a portion of the purchase price to complete the Schurz Acquisition and to pay a portion of the related fees and expenses, the remainder of which were paid from cash on hand. See Note 3 “Long-term Debt” for further information regarding our financing activities. The net consideration to complete the Schurz Acquisition and Related Transactions was as follows (in thousands):
|  |  |  |  |  |  |  |  |  | Schurz |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Acquisition |  |  |  |  |
|  |  |  |  |  |  |  |  |  | and the |  |  |  |  |
|  | Divestiture |  |  | Acquisition |  |  | Acquisition |  |  |  |  |
|  | of KAKE-TV |  |  | of WBXX-TV |  |  | of WLUC-TV |  |  | Total |
Base purchase price |  | $ | - |  |  | $ | 30,000 |  |  | $ | 442,500 |  |  | $ | 472,500 |
Purchase price adjustment |  |  | - |  |  |  | - |  |  |  | 948 |  |  |  | 948 |
Adjusted purchase price |  |  | - |  |  |  | 30,000 |  |  |  | 443,448 |  |  |  | 473,448 |
Cash consideration received from sale of Schurz Radio Stations |  |  | - |  |  |  | - |  |  |  | (16,000 | ) |  |  | (16,000 | )
Net adjusted purchase price allocated to assets acquired and liabilities assumed |  |  | - |  |  |  | 30,000 |  |  |  | 427,448 |  |  |  | 457,448 |
Non-cash consideration received |  |  | (30,000 | ) |  |  | - |  |  |  | - |  |  |  | (30,000 | )
Cash consideration received |  |  | (11,200 | ) |  |  | - |  |  |  | - |  |  |  | (11,200 | )
Net consideration - the Schurz Acquisition and Related Transactions |  | $ | (41,200 | ) |  | $ | 30,000 |  |  | $ | 427,448 |  |  | $ | 416,248 |
On June 27, 2016, we completed the acquisition of KYES-TV (MY, Ant.), a television station serving the Anchorage, Alaska television market, from Fireweed Communications, LLC (the “KYES-TV Acquisition”). The purchase price of $0.5 million, plus transaction related expenses, was paid with cash on hand. Collectively, we refer to the stations acquired and retained in 2016 , as well as those which we began operating under a local programming and marketing agreement (an “LMA”) in 2016, as the “2016 Acquisitions.” P reliminary Fair Value Estimates The preliminary fair value estimates of the assets acquired, liabilities assumed and resulting goodwill of our 2016 Acquisitions are summarized as follows (in thousands):
|  |  |  |  |  |  |  |  |  | Schurz |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Acquisition |  |  |  |  |
|  |  |  |  |  |  |  |  |  | and the |  |  |  |  |
|  | Acquisition |  |  | Acquisition |  |  | Acquisition |  |  |  |  |
|  | of KYES-TV |  |  | of WBXX-TV |  |  | of WLUC-TV |  |  | Total |
Accounts receivable |  | $ | - |  |  | $ | - |  |  | $ | 19,313 |  |  | $ | 19,313 |
Other current assets |  |  | - |  |  |  | 429 |  |  |  | 4,606 |  |  |  | 5,035 |
Property and equipment |  |  | 176 |  |  |  | 1,633 |  |  |  | 97,814 |  |  |  | 99,623 |
Goodwill |  |  | 28 |  |  |  | 10,288 |  |  |  | 62,268 |  |  |  | 72,584 |
Broadcast licenses |  |  | 254 |  |  |  | 18,199 |  |  |  | 231,391 |  |  |  | 249,844 |
Other intangible assets |  |  | 42 |  |  |  | - |  |  |  | 19,523 |  |  |  | 19,565 |
Other non-current assets |  |  | - |  |  |  | 408 |  |  |  | 3,028 |  |  |  | 3,436 |
Current liabilities |  |  | - |  |  |  | (460 | ) |  |  | (8,903 | ) |  |  | (9,363 | )
Other long-term liabilities |  |  | - |  |  |  | (497 | ) |  |  | (1,592 | ) |  |  | (2,089 | )
Total |  | $ | 500 |  |  | $ | 30,000 |  |  | $ | 427,448 |  |  | $ | 457,948 |
Amounts in the table above are based upon management’s preliminary 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 representing the amount we expect to collect. Gross contractual amounts receivable are approximately $0.2 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. Amounts related to other intangible assets represent primarily the estimated fair values of retransmission agreements of $14.9 million; advertising client relationships of $1.6 million; and favorable income leases of $2.6 million. These intangible assets are being amortized over their estimated useful lives of approximately 4.9 years for retransmission agreements; approximately 5.5 years for advertising client relationships; and approximately 9.5 years for favorable 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 future synergies that we expect to generate from each acquisition. We have preliminarily recorded $72.6 million of goodwill related to 2016 Acquisitions. The goodwill recognized related to these acquisitions is deductible for income tax purposes. The Company’s consolidated results of operations for the three and nine-months ended September 30, 2016 include the results of the 2016 Acquisitions from the date of each transaction. Revenues attributable thereto and included in our condensed consolidated statements of operations for the three and nine-months ended September 30, 2016 were $37.1 million and $87.9 million, respectively. Operating income attributable thereto and included in our condensed consolidated statements of operations for the three and nine-months ended September 30, 2016 were $16.2 million and $35.3 million, respectively. In connection with the 2016 Acquisitions, we incurred a total of $0.5 million and $7.7 million of transaction related costs during the three and nine-months ended September 30, 2016, respectively, primarily related to legal, consulting and other professional services. Unaudited Pro Forma Financial Information The following table sets forth certain unaudited pro forma information for the nine-months ended September 30, 2016 and 2015 assuming that the Schurz Acquisition and Related Transactions occurred on January 1, 2015 (in thousands, except per share data):
|  | Nine Months Ended |
|  | September 30, |
|  | 2016 |  |  | 2015 |
Revenue (less agency commissions) |  | $ | 588,193 |  |  | $ | 505,269 |
Net income |  | $ | 22,025 |  |  | $ | 24,182 |
Basic net income per share |  | $ | 0.31 |  |  | $ | 0.36 |
Diluted net income per share |  | $ | 0.30 |  |  | $ | 0.36 |
This pro forma financial information is based on historical results of operations of each of Gray, the television stations acquired and the television and radio broadcast assets divested in the Schurz Acquisition and Related Transactions, adjusted for the effect of 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 Schurz Acquisition and Related Transactions on January 1, 2015 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, 2016 and 2015 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, interest expense resulting from additional borrowings under our Senior Credit Facility and 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 preliminary allocation of purchase price to the fair value of the assets acquired and liabilities assumed, or any other underlying assumptions. Pro forma information for the KYES-TV Acquisition is not included, as such information is not material to our financial statements. Pending Acquisitions On May 13, 2016, we announced that we agreed to acquire television stations WDTV-TV (CBS) and WVFX-TV (FOX, CW), a legal duopoly in the Clarksburg-Weston, West Virginia television market (the “Clarksburg Acquisition”) from Withers Broadcasting Company of West Virginia and Withers Broadcasting Company of Clarksburg, LLC (collectively “Withers”) for a maximum total purchase price of $26.5 million in cash. On June 1, 2016, we made a partial payment of $16.5 million to Withers and acquired the non-license assets of these stations. Also, on that date we began to provide services to Withers under an LMA. The completion of our acquisition of the stations’ licenses and license-related assets is subject to the receipt of regulatory and other approvals. We currently expect to complete this acquisition in late 2016 or early 2017. On June 3, 2016, we announced that we agreed with Nextstar Broadcasting Group, Inc. (“Nexstar”), to acquire two television stations that Nexstar will divest upon its merger with Media General, Inc. (“Media General”): WBAY-TV (ABC), in the Green Bay, Wisconsin television market, and KWQC-TV (NBC), in the Davenport, Iowa television market, both currently owned and operated by Media General, for $270.0 million in cash. We expect to fund these acquisitions primarily with cash on hand and, if necessary, available borrowings under our Senior Credit Facility or other available financing, depending on the cost and availability thereof. We anticipate closing the acquisition in late 2016 or early 2017. On November 7, 2016, we entered into agreements with Tanana Valley Television Company and Tanana Valley Holdings, LLC, to acquire KTVF (NBC), KXD (CBS), and KFXF (FOX) in the Fairbanks, Alaska television market, for total purchase price of $8.0 million (the “Fairbanks Acquisition”). We anticipate completing the Fairbanks Acquisition using cash on hand following receipt of regulatory approvals in the first or second quarter of 2017.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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