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Note 3 - Acquisitions and Dispositions | 12 Months Ended
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Dec. 31, 2018
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] |
3 . | Acquisitions and Dispositions
On December 31, 2018, in order to facilitate regulatory approval of the Raycom Merger we sold the assets of WSWG-TV (CBS) (DMA 154 ) in the Albany, Georgia television market to Marquee Broadcasting Georgia, Inc. for $8.5 million in cash. In connection with the divestiture of WSWG-TV’s assets, we recorded a gain of approximately $4.8 million. During 2017 and 2016, we completed a number of acquisition and disposition transactions. The acquisition transactions were and are expected to, among other things, increase our revenues and cash flows from operating activities, and allow us to operate more efficiently and effectively by increasing our scale and providing us, among other things, with the ability to negotiate more favorable terms in our agreements with third parties. 2017 Acquisitions . On January 13, 2017, we acquired the assets of KTVF-TV (NBC), KXDF-TV (CBS), and KFXF-TV (FOX) in the Fairbanks, Alaska television market (DMA 202 ), from Tanana Valley Television Company and Tanana Valley Holdings, LLC for an adjusted purchase price of $8.0 million (the “Fairbanks Acquisition”), using cash on hand. On January 17, 2017, we acquired the assets of two television stations that were divested by Nexstar Broadcasting, Inc. upon its merger with Media General, Inc. (“Media General”): WBAY-TV (ABC), in the Green Bay, Wisconsin television market (DMA 69 ), and KWQC-TV (NBC), in the Davenport, Iowa, Rock Island, Illinois, and Moline, Illinois or “Quad Cities” television market (DMA 102 ), for an adjusted purchase price of $269.9 million (the “Media General Acquisition”) using cash on hand. The Media General Acquisition was completed, in part, through a transaction with a VIE known as Gray Midwest EAT, LLC (“GME”), pursuant to which GME acquired the broadcast licenses of the stations. On May 30, 2017, we exercised an option to acquire the licenses held by GME pending receipt of proceeds from the FCC’s reverse auction for broadcast spectrum (the “FCC Spectrum Auction”). Upon receipt of the auction proceeds from the FCC on August 7, 2017, we completed the acquisition of the broadcast licenses from GME. During the period that GME held those broadcast licenses we believe we were the primary beneficiary of GME because, subject to the ultimate control of the licensees, we had the power to direct the activities that significantly impact the economic performance of GME through the services we provided, and our obligation to absorb losses and right to earn returns that would be considered significant to GME. As a result, we included the assets, liabilities and results of operations of GME in our consolidated financial statements beginning on January 17, 2017 and continuing through August 7, 2017, the date that we were no longer deemed to be the primary beneficiary of GME. On May 1, 2017, we acquired the assets of WDTV-TV (CBS) and WVFX-TV (FOX/CW) in the Clarksburg-Weston, West Virginia television market (DMA 169 ) from Withers Broadcasting Company of West Virginia (the “Clarksburg Acquisition”) for a total purchase price of $26.5 million with cash on hand. On May 13, 2016, we announced that we agreed to enter into the Clarksburg Acquisition. On June 1, 2016, we made a partial payment of $16.5 million and acquired the non-license assets of these stations. Also, on that date we began operating these stations, subject to the control of the seller, under a local marketing agreement (“LMA”) that terminated upon completion of the acquisition. On May 1, 2017, we acquired the assets of WABI-TV (CBS/CW) in the Bangor, Maine television market (DMA 156 ) and WCJB-TV (ABC/CW) in the Gainesville, Florida television market (DMA 159 ) from Community Broadcasting Service and Diversified Broadcasting, Inc. (collectively, the “Diversified Acquisition”) for a total purchase price of $85.0 million with cash on hand. On April 1, 2017, we began operating these stations, subject to the control of the seller, under an LMA that terminated upon completion of the acquisition. On August 1, 2017, we acquired the assets of WCAX-TV (CBS) in the Burlington, Vermont – Plattsburgh, New York television markets (DMA 97 ) from Mt. Mansfield Television, Inc., for an adjusted purchase price of $29.0 million in cash (the “Vermont Acquisition”). On June 1, 2017, we advanced $23.2 million of the purchase price to the seller and began to operate the station under an LMA, subject to the control of the seller. At closing, we paid the remaining $5.8 million of the purchase price with cash on hand and the LMA was terminated. We refer to the eight stations that we began operating and acquired (excluding the stations acquired in the Clarksburg Acquisition, which we began operating under an LMA in 2016 ) during 2017 as the “2017 Acquisitions.” The following table summarizes fair value estimates of the assets acquired, liabilities assumed and resulting goodwill of the 2017 Acquisitions and the Clarksburg Acquisition (in thousands):
|  | Acquisition |  |  |  |  |
|  | Fairbanks |  |  | Media General |  |  | Clarksburg |  |  | Diversified |  |  | Vermont |  |  | Total |
Current assets |  | $ | 122 |  |  | $ | 666 |  |  | $ | 462 |  |  | $ | 361 |  |  | $ | 312 |  |  | $ | 1,923 |
Property and equipment |  |  | 2,650 |  |  |  | 20,181 |  |  |  | 4,133 |  |  |  | 12,329 |  |  |  | 9,513 |  |  |  | 48,806 |
Goodwill |  |  | 471 |  |  |  | 86,287 |  |  |  | 3,222 |  |  |  | 35,486 |  |  |  | 3,393 |  |  |  | 128,859 |
Broadcast licenses |  |  | 2,228 |  |  |  | 149,846 |  |  |  | 17,003 |  |  |  | 26,219 |  |  |  | 7,592 |  |  |  | 202,888 |
Other intangible assets |  |  | 2,702 |  |  |  | 13,398 |  |  |  | 2,234 |  |  |  | 11,051 |  |  |  | 5,191 |  |  |  | 34,576 |
Other non-current assets |  |  | 71 |  |  |  | 282 |  |  |  | 51 |  |  |  | 27 |  |  |  | 3,310 |  |  |  | 3,741 |
Current liabilities |  |  | (140 | ) |  |  | (695 | ) |  |  | (554 | ) |  |  | (423 | ) |  |  | (311 | ) |  |  | (2,123 | )
Other long-term liabilities |  |  | (84 | ) |  |  | - |  |  |  | (51 | ) |  |  | (50 | ) |  |  | - |  |  |  | (185 | )
Total |  | $ | 8,020 |  |  | $ | 269,965 |  |  | $ | 26,500 |  |  | $ | 85,000 |  |  | $ | 29,000 |  |  | $ | 418,485 |
These amounts are based upon management’s determination 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. 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 $27.9 million; advertising client relationships of $5.3 million; and favorable income leases of $3.0 million. These intangible assets are being amortized over their estimated useful lives of approximately 5.1 years for retransmission agreements; approximately 10.7 years for advertising client relationships; and approximately 11.9 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 recorded $128.9 million of goodwill related to stations acquired in 2017. The goodwill recognized related to these acquisitions is deductible for income tax purposes. The Company’s consolidated results of operations for year ended December 31, 2017 include the results of the 2017 Acquisitions from the date of each transaction. Revenues attributable thereto and included in our consolidated statement of operations for the year ended December 31, 2017 were $79.8 million. Operating income attributable thereto and included in our consolidated statement of operations for year ended December 31, 2017 was $33.7 million. In connection with acquiring the 2017 Acquisitions, we incurred $1.1 million of transaction related costs during the year ended December 31, 2017, primarily related to legal, consulting and other professional services. 2016 Acquisitions and Dispositions . 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 $443.1 million plus transaction related expenses (the “Schurz Acquisition”). 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 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 because the fair value of the assets given were determined to be equal to the assets received. 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 then-existing senior credit facility, as amended (the “2014 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 4 “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):
|  |  |  |  |  |  |  |  |  | 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 |  |  | - |  |  |  | - |  |  |  | 574 |  |  |  | 574 |
Adjusted purchase price |  |  | - |  |  |  | 30,000 |  |  |  | 443,074 |  |  |  | 473,074 |
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 |  |  |  | 427,074 |  |  |  | 457,074 |
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 |  |  | $ | 427,074 |  |  | $ | 415,874 |
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. We refer to the stations acquired and retained in 2016, as well as the Clarksburg Acquisition, whose stations we began operating under an LMA in June 2016, as the “2016 Acquisitions.” The fair values of the assets acquired, liabilities assumed and resulting goodwill of the television station acquisitions we completed in 2016 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 |  | $ | - |  |  | $ | - |  |  | $ | 19,226 |  |  | $ | 19,226 |
Other current assets |  |  | - |  |  |  | 429 |  |  |  | 4,606 |  |  |  | 5,035 |
Property and equipment |  |  | 176 |  |  |  | 1,633 |  |  |  | 97,814 |  |  |  | 99,623 |
Goodwill |  |  | 28 |  |  |  | 10,288 |  |  |  | 61,981 |  |  |  | 72,297 |
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 |  |  | $ | 427,074 |  |  | $ | 457,574 |
These amounts are based upon management’s determination of the fair values using valuation techniques including income, cost and market approaches. In determining the 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. 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 recorded $72.3 million of goodwill related to stations acquired in 2016. The goodwill recognized related to these acquisitions is deductible for income tax purposes. The Company’s consolidated results of operations for year ended December 31, 2016 include the results of the 2016 Acquisitions from the date of each transaction. Revenues attributable thereto and included in our consolidated statement of operations for the year ended December 31, 2016 were $130.4 million. Operating income attributable thereto and included in our consolidated statement of operations for year ended December 31, 2016 was $55.8 million. In connection with acquiring the 2016 Acquisitions, we incurred $7.4 million of transaction related costs during the year ended December 31, 2016, primarily related to legal, consulting and other professional services. Unaudited Pro Forma Financial Information. Pro Forma Data – Acquisitions Completed in 2017. The following table sets forth certain unaudited pro forma information for the years ended December 31, 2017 and 2016 assuming that the acquisitions completed in 2017 occurred on January 1, 2016 (in thousands, except per share data):
|  | Years Ended |
|  | December 31, |
|  | 2017 |  |  | 2016 |
Revenue (less agency commissions) |  | $ | 895,081 |  |  | $ | 926,799 |
Net income |  | $ | 260,909 |  |  | $ | 88,679 |
Basic net income per share |  | $ | 3.57 |  |  | $ | 1.23 |
Diluted net income per share |  | $ | 3.53 |  |  | $ | 1.22 |
This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the acquisitions completed in 2017, 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 acquired each of the stations acquired in 2017 on January 1, 2016 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, 2017 and 2016 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, 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 fair value estimates or underlying assumptions. Pro Forma Data – Acquisitions Completed in 2016. The following table sets forth certain unaudited pro forma information for the years ended December 31, 2016 assuming that the acquisitions completed in 2016 occurred on January 1, 2016 (in thousands, except per share data):
|  | Years Ended |
|  | December 31, |
|  | 2016 |
Revenue (less agency commissions) |  | $ | 825,787 |
Net income |  | $ | 57,795 |
Basic net income per share |  | $ | 0.80 |
Diluted net income per share |  | $ | 0.79 |
This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the stations acquired in 2016, 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 acquired each of the stations acquired in 2016 on January 1, 2016 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 year ended December 31, 2016 reflects depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, 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 underlying assumptions.

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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 Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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