10-Q 1 gtn20220331_10q.htm FORM 10-Q gtn20220331_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark one)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934         

For the quarterly period ended March 31, 2022 or         

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________ .

 

Commission file number: 1-13796

 

 

Gray Television, Inc.

 
 

(Exact name of registrant as specified in its charter)

 

 

Georgia

 

58-0285030

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

   

4370 Peachtree Road, NE, Atlanta, Georgia

 

30319

(Address of principal executive offices)

 

(Zip code)

 

 

(404) 504-9828

 
 

(Registrant's telephone number, including area code)

 
   
 

Not Applicable

 
 

(Former name, former address and former fiscal year, if changed since last report.)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock (no par value)

GTN.A

New York Stock Exchange

common stock (no par value)

GTN

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).

 

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

 

Common Stock (No Par Value)

 

Class A Common Stock (No Par Value)

88,117,327 shares outstanding as of April 29, 2022

 

7,573,222 shares outstanding as of April 29, 2022

 

1

 

INDEX

 

GRAY TELEVISION, INC.

 

PART I.

FINANCIAL INFORMATION

PAGE

     

Item 1.

Financial Statements

 
     
 

Condensed consolidated balance sheets (Unaudited) – March 31, 2022 and December 31, 2021

3

     
 

Condensed consolidated statements of operations (Unaudited) – three-months ended March 31, 2022 and 2021

5

     
 

Condensed consolidated statement of stockholders' equity (Unaudited) –  three-months ended March 31, 2022 and 2021

6

     
 

Condensed consolidated statements of cash flows (Unaudited) – three-months ended March 31, 2022 and 2021

7

     
 

Notes to condensed consolidated financial statements (Unaudited)

8

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

     

Item 4.

Controls and Procedures

27

     

PART II.

OTHER INFORMATION

 
     

Item 1A.

Risk Factors

28

     

Item 6.

Exhibits

28

     

SIGNATURES

29

 

2

 

 

PART I.            FINANCIAL INFORMATION

 

Item 1.              Financial Statements

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Assets:

        

Current assets:

        

Cash

 $247  $189 

Accounts receivable, less allowance for credit losses of $15 and $16, respectively

  644   624 

Current portion of program broadcast rights, net

  24   35 

Income tax refunds receivable

  21   21 

Prepaid income taxes

  22   40 

Prepaid and other current assets

  60   54 

Total current assets

  1,018   963 
         

Property and equipment, net

  1,181   1,165 

Operating leases right of use asset

  72   70 

Broadcast licenses

  5,309   5,303 

Goodwill

  2,649   2,649 

Other intangible assets, net

  773   825 

Investment in broadcasting and technology companies

  117   117 

Other

  15   16 

Total assets

 $11,134  $11,108 

 

See notes to condensed consolidated financial statements.

 

3

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions except for share data)

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Liabilities and stockholders equity:

        

Current liabilities:

        

Accounts payable

 $23  $59 

Employee compensation and benefits

  82   97 

Accrued interest

  82   52 

Accrued network programming fees

  41   34 

Other accrued expenses

  39   44 

Federal and state income taxes

  14   10 

Current portion of program broadcast obligations

  25   37 

Deferred revenue

  20   14 

Dividends payable

  13   13 

Current portion of operating lease liabilities

  9   9 

Current portion of long-term debt

  15   15 

Total current liabilities

  363   384 
         

Long-term debt, less current portion and deferred financing costs

  6,740   6,740 

Program broadcast obligations, less current portion

  4   5 

Deferred income taxes

  1,471   1,471 

Accrued pension costs

  23   24 

Operating lease liabilities, less current portion

  64   63 

Other

  15   14 

Total liabilities

  8,680   8,701 
         

Commitments and contingencies (Note 9)

          
         

Series A Perpetual Preferred Stock, no par value; cumulative; redeemable; designated 1,500,000 shares, issued and outstanding 650,000 shares at each date and $650 aggregate liquidation value at each date

  650   650 
         

Stockholders’ equity:

        

Common stock, no par value; authorized 200,000,000 shares, issued 105,036,512 shares and 104,286,324 shares, respectively, and outstanding 88,117,327 shares and 87,539,056 shares, respectively

  1,137   1,127 

Class A common stock, no par value; authorized 25,000,000 shares, issued 9,675,139 shares and 9,424,691 shares, respectively, and outstanding 7,573,222 shares and 7,426,512 shares, respectively

  41   39 

Retained earnings

  910   869 

Accumulated other comprehensive loss, net of income tax benefit

  (27)  (27)
   2,061   2,008 

Treasury stock at cost, common stock, 16,919,185 shares and 16,747,268 shares, respectively

  (227)  (223)

Treasury stock at cost, Class A common stock, 2,101,917 shares and 1,998,179 shares, respectively

  (30)  (28)

Total stockholders’ equity

  1,804   1,757 

Total liabilities and stockholders’ equity

 $11,134  $11,108 

 

See notes to condensed consolidated financial statements.

 

4

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except for per share data)

 

   

Three Months Ended

 
   

March 31,

 
   

2022

   

2021

 
                 

Revenue (less agency commissions)

               

Broadcasting

  $ 804     $ 530  

Production companies

    23       14  

Total revenue (less agency commissions)

    827       544  

Operating expenses before depreciation, amortization and gain on disposal of assets, net:

               

Broadcasting

    530       361  

Production companies

    26       17  

Corporate and administrative

    28       18  

Depreciation

    32       25  

Amortization of intangible assets

    52       26  

Gain on disposal of assets, net

    (5 )     (4 )

Operating expenses

    663       443  

Operating income

    164       101  

Other income (expense):

               

Miscellaneous (expense) income, net

    (2 )     1  

Interest expense

    (79 )     (48 )

Income before income taxes

    83       54  

Income tax expense

    21       15  

Net income

    62       39  

Preferred stock dividends

    13       13  

Net income attributable to common stockholders

  $ 49     $ 26  
                 

Basic per common share information:

               

Net income

  $ 0.53     $ 0.28  

Weighted average common shares outstanding

    93       94  
                 

Diluted per common share information:

               

Net income

  $ 0.52     $ 0.27  

Weighted average common shares outstanding

    94       95  
                 

Dividends declared per common share

  $ 0.08     $ 0.08  

 

See notes to condensed consolidated financial statements.

 

5

 

 

GRAY TELEVISION, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

(in millions, except for number of shares)

 

                                                                           

Accumulated

         
   

Class A

                           

Class A

   

Common

   

Other

         
   

Common Stock

   

Common Stock

   

Retained

   

Treasury Stock

   

Treasury Stock

   

Comprehensive

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Earnings

   

Shares

   

Amount

   

Shares

   

Amount

   

Loss

   

Total

 
                                                                                         

Balance at December 31, 2020

    8,935,773     $ 34       103,100,856     $ 1,110     $ 862       (1,887,767 )   $ (26 )     (14,960,597 )   $ (188 )   $ (39 )   $ 1,753  
                                                                                         

Net income

    -       -       -       -       39       -       -       -       -       -       39  
                                                                                         

Preferred stock dividends

    -       -       -       -       (13 )     -       -       -       -       -       (13 )
                                                                                         

Common stock dividends

    -       -       -       -       (8 )     -       -       -       -       -       (8 )
                                                                                         

Issuance of common stock:

                                                                                       

401(k) Plan

    -       -       390,389       6       -       -       -       -       -       -       6  

2017 Equity and Incentive Compensation Plan:

                                                                                       

Restricted stock awards

    233,425       -       296,042       -       -       (110,412 )     (2 )     (239,597 )     (4 )     -       (6 )

Restricted stock unit awards

    -       -       60,050       -       -       -       -       (18,275 )     (1 )     -       (1 )
                                                                                         

Stock-based compensation

    -       1       -       3       -       -       -       -       -       -       4  
                                                                                         

Balance at March 31, 2021

    9,169,198     $ 35       103,847,337     $ 1,119     $ 880       (1,998,179 )   $ (28 )     (15,218,469 )   $ (193 )   $ (39 )   $ 1,774  
                                                                                         

Balance at December 31, 2021

    9,424,691     $ 39       104,286,324     $ 1,127     $ 869       (1,998,179 )   $ (28 )     (16,747,268 )   $ (223 )   $ (27 )   $ 1,757  
                                                                                         

Net income

    -       -       -       -       62       -       -       -       -       -       62  
                                                                                         

Preferred stock dividends

    -       -       -       -       (13 )     -       -       -       -       -       (13 )
                                                                                         

Common stock dividends

    -       -       -       -       (8 )     -       -       -       -       -       (8 )
                                                                                         

Issuance of common stock:

                                                                                       

401(k) Plan

    -       -       307,885       7       -       -       -       -       -       -       7  

2017 Equity and Incentive Compensation Plan:

                                                                                       

Restricted stock awards

    250,448       -       333,382       -       -       (103,738 )     (2 )     (138,959 )     (3 )     -       (5 )

Restricted stock unit awards

    -       -       108,921       -       -       -       -       (32,958 )     (1 )     -       (1 )
                                                                                         

Share-based compensation

    -       2       -       3       -       -       -       -       -       -       5  
                                                                                         

Balance at March 31, 2022

    9,675,139     $ 41       105,036,512     $ 1,137     $ 910       (2,101,917 )   $ (30 )     (16,919,185 )   $ (227 )   $ (27 )   $ 1,804  

 

See notes to condensed consolidated financial statements.

 

6

 

 

GRAY TELEVISION, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 

(in millions) 

 

  

Three Months Ended

 
  

March 31,

 
  

2022

  

2021

 

Operating activities

        

Net income

 $62  $39 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  32   25 

Amortization of intangible assets

  52   26 

Amortization of deferred loan costs

  4   3 

Amortization of restricted stock awards

  5   4 

Amortization of program broadcast rights

  13   9 

Payments on program broadcast obligations

  (13)  (9)

Common stock contributed to 401(k) plan

  -   1 

Deferred income taxes

  -   9 

Gain on disposal of assets, net

  (5)  (4)

Other

  2   (5)

Changes in operating assets and liabilities:

        

Accounts receivable

  (20)  12 

Income tax receivable or prepaid

  18   - 

Other current assets

  (6)  31 

Accounts payable

  (36)  10 

Employee compensation, benefits and pension cost

  (14)  10 

Accrued network fees and other expenses

  7   (19)

Accrued interest

  30   12 

Income taxes payable

  4   5 

Deferred revenue

  6   (12)

Net cash provided by operating activities

  141   147 
         

Investing activities

        

Acquisitions of television businesses and licenses, net of cash acquired

  (7)  (40)

Purchases of property and equipment

  (47)  (13)

Proceeds from Repack reimbursement (Note 1)

  5   4 

Investments in broadcast, production and technology companies

  (4)  (24)

Net cash used in investing activities

  (53)  (73)
         

Financing activities

        

Repayments of borrowings on long-term debt

  (4)  - 

Payment of common stock dividends

  (8)  (8)

Payment of preferred stock dividends

  (13)  (13)

Deferred and other loan costs

  -   (1)

Payment for taxes related to net share settlement of equity awards

  (5)  (6)

Net cash used in financing activities

  (30)  (28)

Net increase in cash

  58   46 

Cash at beginning of period

  189   773 

Cash at end of period

 $247  $819 

 

See notes to condensed consolidated financial statements.

 

7

 

GRAY TELEVISION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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, 2021, which was derived from the Company’s audited financial statements as of December 31, 2021, and our accompanying unaudited condensed consolidated financial statements as of March 31, 2022 and for the three-month periods ended March 31, 2022 and 2021, 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 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, 2021 (the “2021 Form 10-K”). Our financial condition as of, and operating results for the three-months ended March 31, 2022, 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, 2022.

 

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 100 markets with the first and/or second highest rated television station.  We also own video program companies Raycom Sports, Tupelo Honey, 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.

 

8

 

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, 2022 and 2021, respectively (in millions):

 

  

Three Months Ended

 
  

March 31,

 
  

2022

  

2021

 
         

Weighted-average common shares outstanding-basic

  93   94 

Common stock equivalents for stock options and restricted stock

  1   1 

Weighted-average common shares outstanding-diluted

  94   95 

 

Accumulated Other Comprehensive Loss. Our accumulated other comprehensive loss balances as of March 31, 2022 and December 31, 2021, consist of adjustments to our pension liability and the related income tax effect. Our comprehensive income for the three-months ended March 31, 2022 and 2021 consisted solely of our net income. As of March 31, 2022 and December 31, 2021 the balances were as follows (in millions):

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Accumulated balances of items included in accumulated other comprehensive loss:

        

Increase in pension liability

 $(36) $(36)

Income tax benefit

  (9)  (9)

Accumulated other comprehensive loss

 $(27) $(27)

 

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

 
  

2022

  

2021

  

(in years)

 

Property and equipment:

             

Land

 $277  $277      

Buildings and improvements

  454   453  7to40 

Equipment

  970   961  3to20 

Construction in progress

  100   63      
   1,801   1,754      

Accumulated depreciation

  (620)  (589)     

Total property and equipment, net

 $1,181  $1,165      

 

9

 

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.

 

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,

 
  

2022

  

2021

 

Gain/(loss) on disposal of fixed assets, net:

        

Proceeds from Repack

 $(5) $(4)

Net book value of assets disposed

  -   1 

Other

  -   (1)

Total

 $(5) $(4)
         

Purchase of property and equipment:

        

Recurring purchases - operations

 $17  $12 

Assembly Atlanta development

  30   1 

Total

 $47  $13 

 

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.

 

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,

 
  

2022

  

2021

 

Beginning balance

 $16  $10 

Provision for credit losses

  (1)  - 

Ending balance

 $15  $10 

 

Recent Accounting Pronouncements. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). In January 2021, the FASB issued an amendment to ASU 2020-04, ASU 2021-01, Reference Rate Reform (Topic 848), in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU apply to all entities that elect to apply the optional guidance in Topic 848. An entity may elect to apply the amendments in this ASU on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final standard, up to the date that financial statements are available to be issued. We are currently evaluating the applicability of this guidance.

 

In addition to the accounting standard described above, once implemented, certain amounts in our disclosures of revenues have been reclassified to conform to the current presentation. Beginning in 2022, we present our “Core” advertising revenue. In prior periods, we had presented separate line items of local advertising revenue and national advertising revenue and these amounts are now combined into Core advertising revenue.

 

10

 
 

2.

Revenue

 

Revenue Recognition. We recognize revenue when we have completed a specified service and effectively transferred the control of that service to a customer in return for an amount of consideration we expect to be entitled to receive. The amount of revenue recognized is determined by the amount of consideration specified in a contract with our customers. We have elected to exclude taxes assessed by a governmental authority on transactions with our customers from our revenue. Any unremitted balance is included in current liabilities on our balance sheet.

 

We record a deposit liability for cash deposits received from our customers that are to be applied as payment once the performance obligation arises and is satisfied. These deposits are recorded as deposit liabilities on our balance sheet. When we invoice our customers for completed performance obligations, we are unconditionally entitled to receive payment of the invoiced amounts. Therefore, we record invoiced amounts in accounts receivable on our balance sheet. We generally require amounts payable under advertising contracts with our political advertising customers to be paid for in advance. We record the receipt of this cash as a deposit liability. Once the advertisement has been broadcast, the revenue is earned, and we record the revenue and reduce the balance in this deposit liability account. We recorded $13 million of revenue in the three-months ended March 31, 2022 that was included in the deposit liability balance as of December 31, 2021. The deposit liability balance is included in deferred revenue on our condensed consolidated balance sheets. The deposit liability balance was $16 million and $13 million as of March 31, 2022 and December 31, 2021, respectively.

 

Disaggregation of Revenue. Revenue from our production companies segment is generated through our direct sales channel. Revenue from our broadcast and other segment is generated through both our direct and advertising agency intermediary sales channels. The following table presents our revenue from contracts with customers disaggregated by type of service and sales channel (in millions):

 

  

Three Months Ended

 
  

March 31,

 
  

2022

  

2021

 

Market and service type:

        

Broadcast advertising:

        

Core advertising

 $365  $260 

Political

  26   9 

Total advertising

  391   269 

Retransmission consent

  393   247 

Production companies

  23   14 

Other

  20   14 

Total revenue

 $827  $544 
         

Sales Channel:

        

Direct

 $551  $357 

Advertising agency intermediary

  276   187 

Total revenue

 $827  $544 

 

11

 
 

3.

Long-term Debt

 

As of March 31, 2022 and December 31, 2021, long-term debt consisted of obligations under our 2019 Senior Credit Facility (as defined below), our 5.875% senior notes due 2026 (the “2026 Notes”), our 7.0% senior notes due 2027 (the “2027 Notes”), our 4.75% senior notes due 2030 (the “2030 Notes”) and our 5.375% notes due 2031 (the “2031 Notes”), as follows (in millions):

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Long-term debt:

        

2019 Senior Credit Facility:

        

2017 Term Loan

 $595  $595 

2019 Term Loan

  1,190   1,190 

2021 Term Loan

  1,496   1,500 

2026 Notes

  700   700 

2027 Notes

  750   750 

2030 Notes

  800   800 

2031 Notes

  1,300   1,300 

Total outstanding principal, including current portion

  6,831   6,835 

Unamortized deferred loan costs - 2017 Term Loan

  (7)  (7)

Unamortized deferred loan costs - 2019 Term Loan

  (25)  (27)

Unamortized deferred loan costs - 2021 Term Loan

  (5)  (5)

Unamortized deferred loan costs - 2026 Notes

  (5)  (5)

Unamortized deferred loan costs - 2027 Notes

  (8)  (8)

Unamortized deferred loan costs - 2030 Notes

  (12)  (13)

Unamortized deferred loan costs - 2031 Notes

  (17)  (18)

Unamortized premium - 2026 Notes

  3   3 

Less current portion

  (15)  (15)

Long-term debt, less deferred financing costs

 $6,740  $6,740 
         

Borrowing availability under Revolving Credit Facility

 $496  $497 

 

As of March 31, 2022, the interest rates on the balances outstanding under the 2017 Term Loan, the 2019 Term Loan and the 2021 Term Loan were 2.7%, 2.7% and 3.2% respectively. We expect that interest rates applicable to the 2019 Senior Credit Facility will be modifed upon the implementation of a LIBOR replacement rate that will apply to our current and future borrowings under the 2019 Senior Credit Facility. The 2017 Term Loan, 2019 Term Loan and the 2021 Term Loan mature on February 7, 2024, January 2, 2026 and December 1, 2028, respectively.

 

12

 

As of March 31, 2022, the aggregate minimum principal maturities of our long term debt for the remainder of 2022 and the succeeding five years were as follows (in millions):

 

  

Minimum Principal Maturities

 

Year

 

2019 Senior
Credit
Facility

  

2026
Notes

  

2027
Notes

  

2030
Notes

  

2031
Notes

  

Total

 

Remainder of 2022

 $11  $-  $-  $-  $-  $11 

2023

  15   -   -   -   -   15 

2024

  610   -   -   -   -   610 

2025

  15   -   -   -   -   15 

2026

  1,205   700   -   -   -   1,905 

2027

  15   -   750   -   -   765 

Thereafter

  1,410   -   -   800   1,300   3,510 

Total

 $3,281  $700  $750  $800  $1,300  $6,831 

 

As of March 31, 2022, there were no significant restrictions on the ability of our subsidiaries to distribute cash to us or to the guarantor subsidiaries. The 2019 Senior Credit Facility contains affirmative and restrictive covenants with which we must comply. The 2026 Notes, the 2027 Notes, the 2030 Notes and the 2031 Notes also include covenants with which we must comply. As of March 31, 2022 and December 31, 2021, we were in compliance with all required covenants under all our debt obligations.

 

For all of our interest bearing obligations, we made interest payments of approximately $44 million and $32 million during the three-months ended March 31, 2022 and 2021, respectively. We did not capitalize any interest payments during the three-months ended March 31, 2022 or 2021.

 

 

4.

Fair Value Measurement

 

We measure certain assets and liabilities at fair value, which are classified by the FASB Codification within the fair value hierarchy as level 1, 2, or 3, on the basis of whether the measurement employs observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions and consider information about readily available market participant assumptions.

 

 

Level 1: Quoted prices for identical instruments in active markets

 

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets

 

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

 

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The use of different market assumptions or methodologies could have a material effect on the fair value measurement.

 

The carrying amounts of accounts receivable, prepaid and other current assets, accounts payable, employee compensation and benefits, accrued interest, other accrued expenses, and deferred revenue approximate fair value at both March 31, 2022 and December 31, 2021.

 

At each of March 31, 2022 and December 31, 2021 the carrying amount of our long-term debt was $6.8 billion. The fair value at March 31, 2022 and December 31, 2021 was $6.7 billion and $6.9 billion, respectively. The fair value of our long-term debt is based on observable estimates provided by third party financial professionals as of each date, and as such is classified within Level 2 of the fair value hierarchy.

 

13

 
 

5.

Stockholders Equity

 

We are authorized to issue 245 million shares in total of all classes of stock consisting of 25 million shares of Class A common stock, 200 million shares of common stock, and 20 million shares of “blank check” preferred stock for which our Board of Directors has the authority to determine the rights, powers, limitations and restrictions. The rights of our common stock and Class A common stock are identical, except that our Class A common stock has 10 votes per share and our common stock has one vote per share.

 

Our common stock and Class A common stock are entitled to receive cash dividends if declared, on an equal per-share basis. The Board of Directors declared a quarterly cash dividend of $0.08 per share on our common stock and Class A common stock to shareholders of record on each of March 15, 2022 and 2021, payable on March 31, 2022 and 2021. The total dividend paid was approximately $8 million during each of the three-month periods ending March 31, 2022 and 2021.

 

Under our various employee benefit plans, we may, at our discretion, issue authorized and unissued shares, or previously issued shares held in treasury, of our Class A common stock or common stock. As of March 31, 2022, we had reserved 2,071,292 shares and 597,074 shares of our common stock and Class A common stock, respectively, for future issuance under various employee benefit plans. As of December 31, 2021, we had reserved 2,821,480 shares and 847,522 shares of our common stock and Class A common stock, respectively, for future issuance under various employee benefit plans.

 

During the three-months ended March 31, 2022, we have not repurchased any shares of our common stock or Class A common stock under our share repurchase programs. As of March 31, 2022, approximately $174 million was available to repurchase shares of our common stock and/or Class A common stock under these programs.

 

 

6.

Retirement Plans

 

The components of our net periodic pension benefit are included in miscellaneous income in our statement of operations. During the three-months ended March 31, 2022, the amount recorded as a benefit was not material, and we did not make a contribution to our defined benefit pension plan. During the remainder of 2022, we expect to contribute $4 million to this plan.

 

During the three-months ended March 31, 2022, we contributed $5 million in matching cash contributions, and shares of our common stock valued at approximately $7 million for our 2021 discretionary profit-sharing contributions, to the 401(k) plan. The discretionary profit-sharing contribution was recorded as an expense in 2021 and accrued as of December 31, 2021. During the remainder of 2022, we expect to contribute approximately $11 million of matching cash contributions to this plan.

 

 

7.

Stock-based Compensation

 

We recognize compensation expense for stock-based payment awards made to our employees, consultants and directors. Our current stock-based compensation plan, is the 2017 Equity and Incentive Compensation Plan (the “2017 EICP”). Our stock-based compensation expense and related income tax benefit for the three-months ended March 31, 2022 and 2021, respectively (in millions).

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

Stock-based compensation expense, gross

  $ 5     $ 4  

Income tax benefit at our statutory rate associated with stock-based compensation

    (1 )     (1 )

Stock-based compensation expense, net

  $ 4     $ 3  

 

All shares of common stock and Class A common stock underlying Restricted stock, restricted stock units and performance awards are counted as issued at target levels under the 2017 EICP for purposes of determining the number of shares available for future issuance.

 

14

 

A summary of restricted common stock and Class A common stock activities for the three-months ended March 31, 2022 and 2021, respectively, is as follows:

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 
           

Weighted-

           

Weighted-

 
           

Average

           

Average

 
   

Number

   

Grant Date

   

Number

   

Grant Date

 
   

of

   

Fair Value

   

of

   

Fair Value

 
   

Shares

   

Per Share

   

Shares

   

Per Share

 

Restricted common stock:

                               

Outstanding - beginning of period

    1,035,728     $ 19.69       917,533     $ 16.84  

Granted (1)

    333,382       22.16       296,042       18.21  

Vested

    (294,558 )     18.56       (502,241 )     16.10  

Outstanding - end of period

    1,074,552     $ 20.76       711,334     $ 17.94  
                                 

Restricted Class A common stock:

                               

Outstanding - beginning of period

    720,421     $ 18.22       480,042     $ 16.10  

Granted (1)

    250,448       20.52       233,425       17.67  

Vested

    (229,758 )     16.99       (248,539 )     15.00  

Outstanding - end of period

    741,111     $ 19.38       464,928     $ 17.47  
                                 

Restricted stock units - common stock:

                               

Outstanding - beginning of period

    125,247     $ 19.02       90,184     $ 18.92  

Granted

    259,079       23.87       95,115       19.05  

Vested

    (108,921 )     19.03       (60,052 )     18.92  

Forfeited

    (1,260 )     19.05       -       -  

Outstanding - end of period

    274,145     $ 23.60       125,247     $ 19.02  

 

 

(1)

For awards subject to future performance conditions, amounts assume target performance.

 

 

8.

Leases

 

We determine if an arrangement is a lease at its inception. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments, because the implicit rate of the lease is generally not known. Right-of-use (“ROU”) assets related to our operating lease liabilities are measured at lease inception based on the initial measurement of the lease liability, plus any prepaid lease payments and less any lease incentives. Our lease terms that are used in determining our operating lease liabilities at lease inception may include options to extend or terminate the leases when it is reasonably certain that we will exercise such options. We amortize our ROU assets as operating lease expense generally on a straight-line basis over the lease term and classify both the lease amortization and imputed interest as operating expenses. We have lease agreements with lease and non-lease components, and in such cases, we generally account for the components separately with only the lease component included in the calculation of the right of use asset and lease liability.

 

We have operating leases that primarily relate to certain of our facilities, data centers and vehicles. As of March 31, 2022, our operating leases substantially have remaining terms of one year to 99 years, some of which include options to extend and/or terminate the leases. We do not recognize lease assets and lease liabilities for any lease with an original lease term of less than one year.

 

15

 

Cash flow movements related to our lease activities are included in other assets and accounts payable and other liabilities as presented in net cash provided by operating activities in our condensed consolidated statement of cash flows for the three-months ended March 31, 2022.

 

As of March 31, 2022, the weighted average remaining term of our operating leases was 10 years. The weighted average discount rate used to calculate the values associated with our operating leases was 6.67%. The table below describes the nature of lease expense and classification of operating lease expense recognized in the three-months ended March 31, 2022 and 2021 (in millions):

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Lease expense

        

Operating lease expense

 $4  $3 

Short-term lease expense

  1   1 

Total lease expense

 $5  $4 

 

The maturities of operating lease liabilities as of March 31, 2022, for the remainder of 2022 and the succeeding five years were as follows (in millions):

 

Year ending
December 31,

 

Operating Leases

 

Remainder of 2022

 $11 

2023

  12 

2024

  12 

2025

  11 

2026

  9 

Thereafter

  47 

Total lease payments

 $102 

Less: Imputed interest

  (29)

Present value of lease liabilities

 $73 

 

 

9.

Commitments and Contingencies

 

We are and expect to continue to be subject to legal actions, proceedings and claims that arise in the normal course of our business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, proceedings and claims will not materially affect our financial position, results of operations or cash flows, although legal proceedings are subject to inherent uncertainties, and unfavorable rulings or events could have a material adverse impact on our financial position, results of operations or cash flows.

 

16

 
 

10.

Goodwill and Intangible Assets

 

As of March 31, 2022 and December 31, 2021, our intangible assets and related accumulated amortization consisted of the following (in millions):

 

  

As of March 31, 2022

  

As of December 31, 2021

 
      

Accumulated

          

Accumulated

     
  

Gross

  

Amortization

  

Net

  

Gross

  

Amortization

  

Net

 

Intangible assets not currently subject to amortization:

                        

Broadcast licenses

 $5,362  $(53) $5,309  $5,356  $(53) $5,303 

Goodwill

  2,649   -   2,649   2,649   -   2,649 
  $8,011  $(53) $7,958  $8,005  $(53) $7,952 
                         

Intangible assets subject to amortization:

                        

Network affiliation agreements

 $204  $(55) $149  $204  $(44) $160 

Other finite-lived intangible assets

  1,051   (427)  624   1,051   (386)  665 
  $1,255  $(482) $773  $1,255  $(430) $825 
                         

Total intangible assets

 $9,266  $(535) $8,731  $9,260  $(483) $8,777 

 

Amortization expense for the three-months ended March 31, 2022 and 2021 was $52 million and $26 million, respectively. Based on the current amount of intangible assets subject to amortization, we expect that amortization expense for the remainder of 2022 will be approximately $153 million, and, for the succeeding five years, amortization expense will be approximately as follows: 2023, $194 million; 2024, $129 million; 2025, $118 million; 2026, $88 million; and 2027, $46 million. If and when acquisitions and dispositions occur in the future, actual amounts may vary from these estimates.

 

 

11.

Income Taxes

 

For the three-months ended March 31, 2022 and 2021, our income tax expense and effective income tax rates were as follows (dollars in millions):

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Income tax expense

 $21  $15 

Effective income tax rate

  25%  28%

 

We estimate our differences between taxable income or loss and recorded income or loss on an annual basis. Our tax provision for each quarter is based upon these full year projections, which are revised each reporting period. These projections incorporate estimates of permanent differences between U.S. GAAP income or loss and taxable income or loss, state income taxes and adjustments to our liability for unrecognized tax benefits to adjust our statutory Federal income tax rate of 21% to our effective income tax rate. For the three-months ended March 31, 2022, these estimates increased our statutory Federal income tax rate to our effective income tax rate of 25% as a result of state income taxes that added 4%. For the three-months ended March 31, 2021, these estimates increased or decreased our statutory Federal income tax rate to our effective income tax rate of 28% as follows: state income taxes added 5%; permanent differences between our U.S. GAAP income and taxable income resulted in an increase of 2%.

 

17

 

During the first quarter of 2022, we made no material federal or state income tax payments. During the remainder of 2022, we anticipate making income tax payments, net of refunds, of $170 million to $190 million. As of March 31, 2022, we have an aggregate of approximately $324 million of various state operating loss carryforwards, of which we expect that approximately half will be utilized.

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, and permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During 2020, we carried back certain net operating losses resulting in a refund of $21 million, that is currently outstanding.

 

 

12.

Segment information

 

The Company operates in two business segments: broadcasting and production companies. The broadcasting segment operates television stations in local markets in the U.S. The production companies segment includes the production of television content. Costs identified as other are primarily corporate and administrative expenses. The following tables present certain financial information concerning the Company’s operating segments (in millions):

 

      

Production

         

As of and for the three months ended March 31, 2022:

 

Broadcast

  

Companies

  

Other

  

Consolidated

 
                 

Revenue (less agency commissions)

 $804  $23  $-  $827 

Operating expenses before depreciation, amortization and gain on disposal of assets, net

  530   26   28   584 

Depreciation and amortization

  80   3   1   84 

Gain on disposal of assets, net

  (5)  -   -