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Note 1 - Basis of Presentation | 3 Months Ended
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Mar. 31, 2023
Notes to Financial Statements |
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block] |
1. | Basis of Presentation
The accompanying condensed consolidated balance sheet of Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides,“Gray,” the “Company,” “we,” “us,” and “our”) as of December 31, 2022, which was derived from the Company’s audited financial statements as of December 31, 2022, and our accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three-month periods ended March 31, 2023 and 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. We manage our business on the basis of two operating segments: broadcasting and production companies. Unless otherwise indicated, all station rank, in-market share and television household data herein are derived from reports prepared by The Nielsen Company, LLC (“Nielsen”) and/or Comscore, Inc. (“Comscore”). While we believe this data to be accurate and reliable, we have not independently verified such data nor have we ascertained the underlying assumptions relied upon therein, and cannot guarantee the accuracy or completeness of such data. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Our financial condition as of, and operating results for the three-months ended March 31, 2023, are not necessarily indicative of the financial condition or results that may be expected for any future interim period or for the year ending December 31, 2023. Overview. We are a multimedia company headquartered in Atlanta, Georgia. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Our television stations serve 113 television markets that collectively reach approximately 36 percent of US television households. This portfolio includes 80 markets with the top-rated television station and 102 markets with the first and/or second highest rated television station. We also own video program companies Raycom Sports, Tupelo Media Group, PowerNation Studios, as well as the studio production facilities Assembly Atlanta and Third Rail Studios. Investments in Broadcasting, Production and Technology Companies. We have investments in several television, production and technology companies. We account for all material investments in which we have significant influence over the investee under the equity method of accounting. Upon initial investment, we record equity method investments at cost. The amounts initially recognized are subsequently adjusted for our appropriate share of the net earnings or losses of the investee. We record any investee losses up to the carrying amount of the investment plus advances and loans made to the investee, and any financial guarantees made on behalf of the investee. We recognize our share in earnings and losses of the investee as miscellaneous (expense) income, net in our consolidated statements of operations. Investments are also increased by contributions made to and decreased by the distributions from the investee. The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. Investments in non-public businesses that do not have readily determinable pricing, and for which the Company does not have control or does not exert significant influence, are carried at cost less impairments, if any, plus or minus changes in observable prices for those investments. Gains or losses resulting from changes in the carrying value of these investments are included as miscellaneous (expense) income, net in our consolidated statements of operations. These investments are reported together as a non-current asset on our consolidated balance sheets. Use of Estimates. The preparation of financial statements in conformity with U.S. 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 our allowance for credit losses 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. 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 U.S. 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 shares, in the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive. The following table reconciles basic weighted-average common shares outstanding to diluted weighted-average common shares outstanding for the three-months ended March 31, 2023 and 2022, respectively (in millions):
|  | Three Months Ended |
|  | March 31, |
|  | 2023 |  |  | 2022 |
Weighted-average common shares outstanding-basic |  |  | 92 |  |  |  | 93 |
Common stock equivalents for stock options and restricted stock |  |  | - |  |  |  | 1 |
Weighted-average common shares outstanding-diluted |  |  | 92 |  |  |  | 94 |
Accumulated Other Comprehensive Loss. Our accumulated other comprehensive loss balances as of March 31, 2023 and December 31, 2022, consist of adjustments to our pension liability and changes in the fair value of our interest rate cap, each net of tax. Our comprehensive income for the three-months ended March 31, 2023 and 2022 consisted of our net income and recognition of the initial fair value adjustment related to our interest rate cap, and the related income tax benefit. As of March 31, 2023 and December 31, 2022 the balances were as follows (in millions):
|  | March 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Items included in accumulated other comprehensive loss: |  |  |  |  |  |  |  |
Adjustment to pension liability |  | $ | (16 | ) |  | $ | (16 | )
Adjustment to fair value of interest rate caps |  |  | (15 | ) |  |  | - |
Income tax benefit |  |  | (8 | ) |  |  | (4 | )
Accumulated other comprehensive loss |  | $ | (23 | ) |  | $ | (12 | )
Property and Equipment. Property and equipment are carried at cost, or in the case of acquired businesses, at fair value. Depreciation is computed principally by the straight-line method. The following table lists the components of property and equipment by major category (dollars in millions):
|  |  |  |  |  |  |  |  |  | Estimated |
|  | March 31, |  |  | December 31, |  |  | Useful Lives |
|  | 2023 |  |  | 2022 |  |  | (in years) |
Property and equipment: |  |  |  |  |  |  |  |  |  |  |  |  |
Land |  | $ | 289 |  |  | $ | 290 |  |  |  |  |  |
Buildings and improvements |  |  | 480 |  |  |  | 477 |  |  | 7 | to | 40 |
Equipment |  |  | 1,035 |  |  |  | 1,027 |  |  | 3 | to | 20 |
Construction in progress |  |  | 431 |  |  |  | 362 |  |  |  |  |  |
|  |  | 2,235 |  |  |  | 2,156 |  |  |  |  |  |
Accumulated depreciation |  |  | (714 | ) |  |  | (690 | ) |  |  |  |  |
Total property and equipment, net |  | $ | 1,521 |  |  | $ | 1,466 |  |  |  |  |  |
Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized. The cost of any assets divested, sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in income or expense for the period. We incurred costs to build public infrastructure within the Assembly Atlanta project. Pursuant to the Purchase and Sale Agreement between us and the Doraville Community Improvement District (the “CID”), we receive cash reimbursements for the transfer of specific infrastructure projects to the CID and for other construction costs previously incurred. During the first quarter of 2023, we received a total of $26 million in cash proceeds from the CID. We received $15 million for the infrastructure assets constructed and for which ownership has or will be transferred to the CID, and $11 million in proceeds for construction costs incurred but where no transfer of ownership occurred. These proceeds were recognized in our Condensed Consolidated Statement of Cash Flows as follows: $9 million was included in the line item for change in deferred revenue, as a component of our net cash provided by operating activities; $6 million was included in the line item for proceeds from asset sales and $11 million was included in the line item for reimbursement of development costs, each as a component of our net cash used by investment activities. In April 2017, the Federal Communications Commission (“FCC”) began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). The majority of our costs associated with Repack qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net. The following tables provide additional information related to gain on disposal of assets, net included in our condensed consolidated statements of operations and purchases of property and equipment included in our condensed consolidated statements of cash flows (in millions):
|  | Three Months Ended |
|  | March 31, |
|  | 2023 |  |  | 2022 |
Loss (gain) on disposal of assets, net: |  |  |  |  |  |  |  |
Proceeds from sale of fixed assets |  | $ | (8 | ) |  | $ | - |
Proceeds from Repack |  |  | - |  |  |  | (5 | )
Net book value of fixed assets disposed |  |  | 9 |  |  |  | - |
Discount - Securitization Facility |  |  | 9 |  |  |  | - |
Total |  | $ | 10 |  |  | $ | (5 | )
Purchase of property and equipment: |  |  |  |  |  |  |  |
Recurring purchases - operations |  | $ | 19 |  |  | $ | 17 |
Assembly Atlanta development |  |  | 91 |  |  |  | 30 |
Total |  | $ | 110 |  |  | $ | 47 |
Accounts Receivable and Allowance for Credit Losses. We record accounts receivable from sales and service transactions in our condensed consolidated balance sheets at amortized cost adjusted for any write-offs and net of allowance for credit losses. We are exposed to credit risk primarily through sales of broadcast and digital advertising with a variety of direct and agency-based advertising customers, retransmission consent agreements with multichannel video program distributors and program production sales and services. Our allowance for credit losses is an estimate of expected losses over the remaining contractual life of our receivables based on an ongoing analysis of collectability, historical collection experience, current economic and industry conditions and reasonable and supportable forecasts. The allowance is calculated using a historical loss rate applied to the current aging analysis. We may also apply additional allowance when warranted by specific facts and circumstances. We generally write off account receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted. As of March 31, 2023, our allowance for credit losses includes a reserve of $17 million for the full amount owed to us by Diamond Sports Group, LLC (“Diamond”), as of that date. On March 14, 2023, Diamond, a counterparty to contracts with us, commenced voluntary Chapter 11 bankruptcy proceedings. On February 23, 2023, we, certain of our subsidiaries and a wholly-owned special purpose subsidiary (the “SPV”), entered into a three-year $300 million revolving accounts receivable securitization facility (the “Securitization Facility”) with Wells Fargo Bank, N.A., as administrative agent, and certain third-party financial institutions (the “Purchasers”). The Securitization Facility permits the SPV to draw up to a total of $300 million, subject to the outstanding amount of the receivables pool and other factors. The Securitization Facility matures on February 23, 2026, and is subject to customary termination events related to transactions of this type. The sale of receivables from the SPV is accounted for in the Company’s financial statements as a "true-sale" under Accounting Standards Codification ("ASC") Topic 860. Under the Securitization Facility, the SPV sells to the Purchasers certain receivables, including all rights, title, and interest in the related receivables (“Sold Receivables”). The parties intend that the conveyance of accounts receivables to the Purchasers, for the ratable benefit of the Purchasers will constitute a purchase and sale of receivables and not a pledge for security. The SPV has guaranteed to each Purchaser the prompt payment of Sold Receivables, and to secure the prompt payment and performance of such guaranteed obligations, the SPV has granted a security interest to the Purchasers in all assets of the SPV. In our capacity as servicer under the Securitization Facility, we are responsible for administering and collecting receivables and have made customary representations, warranties, covenants and indemnities. The Company does not record a servicing asset or liability since the estimated fair value of the servicing of the receivables approximates the servicing income. We also provided a performance guarantee for the benefit of the Purchasers. The Securitization Facility is subject to interest charges, at the one-month Secured Overnight Financing Rate (“SOFR”) plus a margin (100 basis points) on the amount of the outstanding facility. The SPV was required to pay an upfront fee and a commitment fee in connection with the Securitization Facility. Servicing fee income recognized during the quarter ended March 31, 2023 was not material. The SPV is a separate legal entity with its own separate creditors who will be entitled to access the SPV’s assets before the assets become available to us. As a result, the SPV’s assets are not available to pay our creditors or any of our subsidiaries, although collections from the receivables in excess of amounts required to repay the Purchasers under the Securitization Facility and other creditors of the SPV may be remitted to us. The proceeds of the Securitization Facility are classified as operating activities in our Consolidated Statement of Cash Flows. Cash received from collections of Sold Receivables is used by the SPV to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchasers. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. The amount sold to the Purchasers was $300 million at March 31, 2023, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, the SPV maintains a certain level of unsold receivables, which was $297 million at March 31, 2023. Total receivables sold under the Securitization Facility were $597 million for the quarter ended March 31, 2023. Upon implementation of the Securitization Facility, we recognized a charge of $9 million in the 2023 three-month period that represents the initial discount on the accounts receivable balance transferred to the SPV. This discount is included in our loss on disposal of assets in our condensed consolidated statements of operations. The following table provides a roll-forward of the allowance for credit losses. The allowance is deducted from the amortized cost basis of accounts receivable in our condensed consolidated balance sheets (in millions):
|  | Three Months Ended March 31, |
|  | 2023 |  |  | 2022 |
Beginning balance |  | $ | 16 |  |  | $ | 16 |
Provision for credit losses |  |  | 15 |  |  |  | (1 | )
Ending balance |  | $ | 31 |  |  | $ | 15 |
Implementation of ASC 848, Reference Rate Reform. On March 17, 2023, we amended the 2019 Senior Credit Facility and transitioned the variable rate on Term Loan C from 1-month LIBOR to 1-month SOFR. The Company elected to apply the optional expedient in ASC 848, in connection with the amendment that enabled it to consider the amendment as a non-significant contract modification of the existing debt agreement. Additionally, for Term Loan D, the Company transitioned to the fallback language within the credit agreement and transitioned from 1-month LIBOR to 1-month SOFR as of March 31, 2023. As a result, the amendment to Term Loan C and fallback to SOFR in Term Loan D did not have a material impact to the Company’s financial statements.

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