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Note 3 - Acquisitions and Divestitures | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] |
3. | A cquisitions and Di vestiture s
During 2020, 2019 and 2018, we completed a number of acquisition and divestiture 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. 2020 Acquisitions. Alaska Transactions. On July 31, 2020, we completed the acquisition of television station operations in the Anchorage and Juneau, Alaska television market (DMA 148 and 207, respectively), for $19 million, using cash on hand (the “Alaska Transactions”). Columbus Transactions. On September 1, 2020, we acquired certain non-license assets of WLTZ-TV (NBC), in the Columbus, Georgia market (DMA 129) and entered into shared services and other related agreements with SagamoreHill of Columbus GA, LLC (“SagamoreHill”) to provide news and back-office services to WLTZ-TV (the “Columbus Transactions”). We paid was $22 million to SagamoreHill, using cash on hand (the “Columbus Transactions”). Sioux Falls Transactions. On November 2, 2020, Gray entered into a new network affiliation agreement with the FOX Broadcasting Network for one of its television stations in the Sioux Falls, South Dakota television market (DMA 115) that utilize certain non-license assets that Gray acquired at the same time from Independent Communications, Inc., for $22 million using cash on hand, for the former FOX affiliate for the market. Lubbock Transactions. On December 31, 2020, we acquired television Station KLCW-TV (CW) and certain low power television stations in the Lubbock, Texas market (DMA 142), as well as certain non-license assets of KJTV-TV (FOX) and two additional low power stations and certain real estate, for a combined purchase price of $23 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”). Due to the proximity of the closing date of the Lubbock Transactions to the balance sheet date of December 31, 2020, we are unable to present a preliminary purchase price allocation for the acquired business. The payment of the purchase price is included in our other non-current assets at December 31, 2020, and is included in the acquisitions of television businesses and licenses, net of cash acquired line in our statement of cash flows. The fair value estimates of assets acquired, liabilities assumed and resulting goodwill will be 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 liabilities assumed, the fair value estimates will be based on, among other factors, expected future revenue and cash flows, expected future growth rates and estimated discount rates. The following table summarizes the preliminary values of the assets acquired and resulting goodwill of the Alaska Transactions, Columbus Transactions and the Sioux Falls Transactions (in millions):
|  | 2020 Acquisitions |
|  | Alaska |  |  | Columbus |  |  | Sioux Falls |  |  | Total |
Accounts receivable and other current assets |  | $ | 1 |  |  | $ | - |  |  | $ | - |  |  | $ | 1 |
Property and equipment |  |  | 5 |  |  |  | 2 |  |  |  | - |  |  |  | 7 |
Goodwill |  |  | 2 |  |  |  | 1 |  |  |  | 11 |  |  |  | 14 |
Broadcast licenses |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 2 |
Other intangible assets |  |  | 9 |  |  |  | 19 |  |  |  | 11 |  |  |  | 39 |
Total |  | $ | 19 |  |  | $ | 22 |  |  | $ | 22 |  |  | $ | 63 |
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. 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 approximately 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 this acquisition is deductible for income tax purposes. The Company’s consolidated results of operations for year ended December 31, 2020 include the results of the 2020 Acquisitions beginning on each transaction’s date of acquisition, but these amounts were not material. In addition, we acquired broadcast licenses totaling approximately $5 million that did not qualify as acquisitions of businesses. “Transaction Related Expenses” incurred in connection with the 2020 Acquisitions, during the year ended December 31, 2020, were approximately $1 million. 2019 Acquisitions and Divestitures. Raycom Merger. On January 2, 2019, we completed an acquisition of all the equity interests of Raycom Media, Inc. (“Raycom”). In connection with the acquisition of Raycom and on the same date, Gray assumed and completed Raycom’s pending acquisitions of WUPV-DT in the Richmond, Virginia market and KYOU-TV in the Ottumwa, Iowa market. To facilitate regulatory approval of the acquisition of Raycom and to satisfy the conditions placed on the acquisition by the DOJ and the FCC, we completed the divestiture of nine television stations in overlapping markets. We refer to the acquisition of Raycom, WUPV-DT and KYOU-TV and the divestiture of the stations in the nine overlapping markets collectively as the “Raycom Merger.” The Raycom Merger completed our transformation from a small, regional broadcaster to a leading media company with nationwide scale based on high-quality stations with exceptional talent in attractive markets. The following table lists the stations acquired and retained, net of divestitures:
Current |  |  |  | Station |  |
DMA |  |  |  | Call |  | Network
Rank |  | DMA |  | Letters |  | Affiliation
15 |  | Tampa-St. Petersburg (Sarasota), FL |  | WWSB |  | ABC
19 |  | Cleveland/Akron (Canton) |  | WOIO |  | CBS
19 |  | Cleveland/Akron (Canton) |  | WUAB |  | CW
23 |  | Charlotte, NC |  | WBTV |  | CBS
41 |  | West Palm Beach/Ft. Pierce, FL |  | WFLX |  | FOX
34 |  | Cincinnati, OH |  | WXIX |  | FOX
50 |  | Birmingham (Anniston and Tuscaloosa), AL |  | WBRC |  | FOX
49 |  | Louisville, KY |  | WAVE |  | NBC
51 |  | New Orleans, LA |  | WVUE |  | FOX
52 |  | Memphis, TN |  | WMC |  | NBC
54 |  | Richmond/Petersburg, VA |  | WWBT |  | NBC
54 |  | Richmond/Petersburg, VA |  | WUPV |  | CW
75 |  | Tucson/Nogales, AZ |  | KOLD |  | CBS
66 |  | Honolulu, HI |  | KHNL |  | NBC
66 |  | Honolulu, HI |  | KGMB |  | CBS
66 |  | Honolulu, HI |  | KHBC |  | NBC/CBS
66 |  | Honolulu, HI |  | KOGG |  | NBC/CBS
79 |  | Columbia, SC |  | WIS |  | NBC
81 |  | Huntsville/Decatur/Florence, AL |  | WAFF |  | NBC
91 |  | Paducah, KY/Cape Girardeau, MO/ |  |  |  |
|  | Harrisburg, IL |  | KFVS |  | CBS
96 |  | Shreveport, LA |  | KSLA |  | CBS
87 |  | Savannah, GA |  | WTOC |  | CBS
88 |  | Charleston, SC |  | WCSC |  | CBS
93 |  | Baton Rouge, LA |  | WAFB |  | CBS
93 |  | Baton Rouge, LA |  | WBXH |  | MY
97 |  | Jackson, MS |  | WLBT |  | NBC
89 |  | Myrtle Beach/Florence, SC |  | WMBF |  | NBC
106 |  | Boise, ID |  | KNIN |  | FOX
107 |  | Evansville, IN |  | WFIE |  | NBC
112 |  | Tyler/Longview, TX |  | KLTV |  | ABC
112 |  | Tyler/Longview, TX |  | KTRE |  | ABC
119 |  | Montgomery, AL |  | WSFA |  | NBC
124 |  | Wilmington, NC |  | WECT |  | NBC
129 |  | Columbus, GA/Opelika, AL |  | WTVM |  | ABC
137 |  | Amarillo, TX |  | KFDA |  | CBS
137 |  | Amarillo, TX |  | KEYU |  | TEL
142 |  | Lubbock, TX |  | KCBD |  | NBC
150 |  | Odessa/Midland, TX |  | KWAB |  | CW
150 |  | Odessa/Midland, TX |  | KTLE |  | TEL
154 |  | Wichita Falls, TX/Lawton, OK |  | KSWO |  | ABC
154 |  | Wichita Falls, TX/Lawton, OK |  | KKTM |  | TEL
161 |  | Albany, GA |  | WALB |  | NBC/ABC
153 |  | Biloxi/Gulfport, MS |  | WLOX |  | ABC/CBS
168 |  | Hattiesburg/Laurel, MS |  | WDAM |  | NBC/ABC
183 |  | Jonesboro, AR |  | KAIT |  | ABC/NBC
201 |  | Ottumwa, IA/Kirksville, MO |  | KYOU |  | FOX/NBC
On January 2, 2019, the following stations were acquired from Raycom and their assets were immediately divested in eight markets as follows (dollars in millions):
|  | Total |  |  |  |  |  |  |  |
|  | Cash |  | Station |  |  |  | Current |
|  | Consideration |  | Call |  |  |  | DMA |
Purchaser |  | Received |  | Letters |  | DMA |  | Rank |
Lockwood Broadcasting, Inc. |  | $ | 67 |  | WTNZ |  | Knoxville, TN |  |  | 60 |
|  |  |  |  | WFXG |  | Augusta, GA |  |  | 111 |
|  |  |  |  | WPGX |  | Panama City, FL |  |  | 139 |
|  |  |  |  | WDFX |  | Dothan, AL |  |  | 175 |
Scripps Media, Inc. |  |  | 55 |  | KXXV |  | Waco/Temple/Bryan, TX |  |  | 95 |
|  |  |  |  | KRHD |  | Waco/Temple/Bryan, TX |  |  | 95 |
|  |  |  |  | WTXL |  | Tallahassee, FL |  |  | 113 |
TEGNA, Inc. |  |  | 109 |  | WTOL |  | Toledo, OH |  |  | 78 |
|  |  |  |  | KWES |  | Odessa/Midland, TX |  |  | 150 |
Total |  | $ | 231 |  |  |  |  |  |  |  |
The allocated portion of net consideration paid for the assets and liabilities divested for the stations in these eight overlap markets was approximately $234 million. The net consideration paid to acquire Raycom consisted of $2.84 billion of cash, 11.5 million shares of our common stock, valued at $170 million (a non-cash financing transaction), and $650 million of a new series of preferred stock (a non-cash financing transaction), for a total of $3.66 billion. Please refer to Note 6 “Stockholders Equity” and Note 7 “Preferred Stock” for further information. The cash consideration paid to acquire the two stations that Raycom had previously agreed to acquire (KYOU-TV and WUPV-TV listed above) was $17 million. The following table summarizes the consideration paid related to the Raycom Merger and the amount representing the net assets acquired and liabilities assumed (in millions):
|  |  |  |  |  | KYOU |  |  |  |  |
|  |  |  |  |  | and |  |  | Net |
|  | Raycom |  |  | WUPV |  |  | Consideration |
Purchase Price |  | $ | 3,660 |  |  | $ | 17 |  |  | $ | 3,677 |
Less - consideration allocated to all assets acquired and net of liabilities assumed for the Raycom overlap market stations which were also divested on January 2, 2019 |  |  | (234 | ) |  |  | - |  |  |  | (234 | )
Purchase consideration for assets acquired and liabilities assumed net of divestitures |  | $ | 3,426 |  |  | $ | 17 |  |  | $ | 3,443 |
United Acquisition. On May 1, 2019, we acquired the assets of WWNY-TV (CBS) and WNYF-CD (FOX) in Watertown, New York (DMA 174) and KEYC-TV (CBS/FOX) in Mankato, Minnesota (DMA 198) from United Communications Corporation (“United Acquisition”) for an adjusted purchase price of $48 million of cash, excluding Transaction Related Expenses. We began operating those stations on March 1, 2019 under a local programming and marketing agreement, which increased the total number of our markets from 91 to 93. Sioux Falls Acquisition. On September 25, 2019, we acquired KDLT-TV (NBC), in the Sioux Falls, South Dakota market (DMA 115), for $33 million, using cash on hand (“Sioux Falls Acquisition”). Charlottesville Acquisition and Divestiture. On October 1, 2019, we acquired the assets of WVIR-TV (NBC) in the Charlottesville, Virginia market (DMA 189) from Waterman Broadcasting Corporation for $13 million using cash on hand (the “Charlottesville Acquisition”). Also, on October 1, 2019, in order to meet regulatory requirements, we divested our legacy stations in that market, WCAV-TV (CBS/FOX) and WVAW-TV (ABC). The divestitures resulted in a gain of approximately $19 million. The following table summarizes the values of the assets acquired, liabilities assumed and resulting goodwill of the Raycom Merger, the United Acquisition, The Sioux Falls Acquisition and the Charlottesville Acquisition (together, the “2019 Acquisitions”) (in millions):
|  | 2019 Acquisitions |
|  | Raycom |  |  | United |  |  | Sioux Falls |  |  | Charlottesville |  |  | Total |
Cash |  | $ | 115 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 115 |
Accounts receivable, net |  |  | 243 |  |  |  | 3 |  |  |  | 1 |  |  |  | 1 |  |  |  | 248 |
Program broadcast rights |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 12 |
Other current assets |  |  | 10 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10 |
Property and equipment |  |  | 311 |  |  |  | 10 |  |  |  | 10 |  |  |  | 7 |  |  |  | 338 |
Operating lease right of use asset |  |  | 52 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 52 |
Goodwill |  |  | 829 |  |  |  | 3 |  |  |  | 2 |  |  |  | - |  |  |  | 834 |
Broadcast licenses |  |  | 2,004 |  |  |  | 24 |  |  |  | 14 |  |  |  | 2 |  |  |  | 2,044 |
Other intangible assets |  |  | 504 |  |  |  | 8 |  |  |  | 7 |  |  |  | 3 |  |  |  | 522 |
Other non-current assets |  |  | 20 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20 |
Employee compensation and benefits |  |  | (29 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (29 | )
Program broadcast obligations |  |  | (16 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (16 | )
Other current liabilities |  |  | (60 | ) |  |  | - |  |  |  | (1 | ) |  |  | - |  |  |  | (61 | )
Federal and state income taxes payable |  |  | (3 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3 | )
Deferred income taxes |  |  | (472 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (472 | )
Operating lease liabilities |  |  | (52 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (52 | )
Other long-term liabilities |  |  | (25 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (25 | )
Total |  | $ | 3,443 |  |  | $ | 48 |  |  | $ | 33 |  |  | $ | 13 |  |  | $ | 3,537 |
These amounts are based upon management’s estimate 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 $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 $322 million, shared services agreements of $98 million, and network affiliation agreements of $50 million. These intangible assets are being amortized over their estimated useful lives of approximately 4.1 years for retransmission agreements, approximately 7.7 years for shared services agreements, and approximately 3.7 years for network affiliation agreements. 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 $829 million of goodwill related to stations acquired and retained in the Raycom Merger: $3 million of goodwill related to the stations acquired in the United Acquisition; $2 million of goodwill related to the stations acquired in the Sioux Falls Acquisition; and goodwill related to the stations acquired in the Charlottesville Acquisition was not material. A portion of the goodwill acquired in the Raycom Merger, in the amount of approximately $150 million, will be deductible by us for income tax purposes. The Company’s consolidated results of operations for year ended December 31, 2019 includes the results of the Raycom Merger beginning on January 2, 2019, the United Acquisition beginning on March 1, 2019, the Sioux Falls Acquisition beginning on September 25, 2019, and the Charlottesville Acquisition beginning on October 1, 2019. Revenues attributable to the 2019 Acquisitions and included in our consolidated statement of operations for the year ended December 31, 2019 was $1.1 billion. Operating income attributable to the 2019 Acquisitions and included in our consolidated statement of operations for the year ended December 31, 2019 was $198 million. The following table summarizes the approximate Transaction Related Expenses incurred in connection with the 2019 Acquisitions, during the year ended December 31, 2019, by type and by financial statement line item (in millions):
|  | Year Ended |
|  | December 31, |
|  | 2019 |
Transaction Related Expenses by type: |  |  |  |
Legal, consulting and other professional fees |  | $ | 24 |
Incentive compensation and other severance costs |  |  | 21 |
Termination of sales representation and other agreements |  |  | 34 |
Total Transaction Related Expenses |  | $ | 79 |
Transaction Related Expenses by financial statement line item: |  |  |  |
Operating expenses before depreciation, amortization and loss (gain) on disposal of assets, net: |  |  |  |
Broadcasting |  | $ | 45 |
Corporate and administrative |  |  | 34 |
Total Transaction Related Expenses |  | $ | 79 |
Unaudited Pro Forma Financial Information – 2019 Acquisitions. The following table sets forth certain unaudited pro forma information for the year ended December 31, 2019 assuming that the 2019 Acquisitions occurred on January 1, 2019 (in millions, except per share data):
|  | Year Ended |
|  | December 31, |
|  | 2019 |
Revenue (less agency commissions) |  | $ | 2,139 |
Net income |  | $ | 241 |
Net income attributable to common stockholders |  | $ | 189 |
Basic net income attributable to common stockholders, per share |  | $ | 2.43 |
Diluted net income attributable to common stockholders, per share |  | $ | 2.41 |
This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the television stations acquired, net of divestitures, included in the 2019 Acquisitions, 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 the 2019 Acquisitions on January 1, 2019 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, 2019 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. 2018 Divestiture. On December 31, 2018, in order to facilitate regulatory approval of the Raycom Merger, we sold the assets of WSWG-TV (DMA 161) in the Albany, Georgia television market for $9 million, excluding Transaction Related Expenses, to Marquee Broadcasting, Inc. and Marquee Broadcasting Georgia, Inc. In connection with the divestiture of the assets of WSWG-TV, we recorded a gain of approximately $5 million in the fourth quarter of 2018.

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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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