Gray Television, Inc. — Q1 2012 Form 10-Q
The filing is for the three months ended March 31, 2012; the registrant is Gray Television, Inc. (the request metadata names Gray Media, Inc.). Gray operated 36 television stations in 30 markets and reported one business segment. Amounts below are in U.S. dollars; financial-statement figures are in millions unless noted.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change / context |
|---|---|---|---|
| Revenue | $80.7 | $69.7 | Up 16% |
| Operating income | $20.8 | $11.5 | Operating margin 25.8%, versus 16.5% |
| Interest expense | $15.2 | $16.0 | Down 5% |
| Net income (loss) | $3.4 | $(3.1) | Common-stockholder income was $2.2, or $0.04 per share, versus a $4.9 loss, or $(0.09) per share |
| Operating cash flow | $27.0 | $14.9 | Increase included a $9.5 increase in accrued interest |
| Capital expenditures | $6.8 | $9.2 | Operating cash flow less capital expenditures was $20.2 |
Revenue gains reflected retransmission consent ($8.5, up 68%), political advertising ($5.0, up 259%), local advertising ($45.9, up 5%), and internet advertising ($5.7, up 34%). National advertising was flat at $13.0. Broadcast expenses rose 5% to $50.8, while depreciation fell to $5.9 from $7.0. The effective tax rate was 40.4%, compared with 31.4%.
Balance sheet and liquidity
- Cash was $15.1 at March 31, up from $5.2 at year-end; current assets were $84.7 and current liabilities $55.8.
- Recorded long-term debt, including current maturities, was $822.4, down from $832.2 at December 31. Net debt based on reported cash was approximately $807.3. Facility borrowing availability was $40.0; the company reported compliance with debt covenants.
- Senior credit facility debt carried a 3.8% rate; $365.0 of second-lien notes carried a 10.5% coupon and matured June 2015. The term loan matures December 2014 and the revolving facility March 2014. Debt is secured by substantially all company and subsidiary assets.
- Cash used in financing was $10.2, including repayment of $9.0 in revolving loans. Cash increased by $9.9 during the quarter.
Outlook, risks and unusual items
- Management estimated the next 12 months would require $4.8 of debt principal payments, approximately $55.2 of interest payments and $20.0 of capital expenditures. It expected 2012 capital expenditures of approximately $20.0 in total, including $6.8 spent in Q1, and an additional $6.0 pension contribution during the remainder of 2012.
- Management believed cash, operating cash generation and facility borrowings would cover estimated capital spending and debt service through at least December 31, 2014. This is forward-looking and subject to risks and uncertainties.
- Broadcast advertising is seasonal, generally stronger in the second and fourth quarters, and political revenue tends to rise in even-numbered election years. The company cited improving economic conditions; automotive and medical represented approximately 20% and 11% of Q1 broadcast advertising revenue, respectively.
- Series D preferred dividends have been deferred since October 2008; accrued dividends were $14.8 at quarter-end, and the annual dividend rate remains 17% while three consecutive cash payments remain unfunded. Arrears restrict cash dividends and repurchases on common and other junior-ranking equity.
- Under a University of Kentucky sports marketing agreement, Gray could be required to cover unpaid license fees if IMG fails to pay; approximately $29.8 remained over the contract term. Gray said it did not consider the risk of IMG nonperformance high. The filing also describes ordinary-course legal matters and notes their outcomes cannot be predicted.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It said there were no material changes to the risk factors previously disclosed in its 2011 Form 10-K.
Important facts for investors to verify
- Whether retransmission contract renewals sustain the Q1 revenue increase and what future contract terms imply for revenue.
- How much of the improved operating cash flow reflects recurring performance versus accrued-interest and other working-capital timing.
- Debt maturities, covenant headroom, borrowing availability and the company’s ability to meet projected interest and capital spending requirements.
- The status and potential cash implications of preferred-dividend arrears, including restrictions on common dividends.
- Actual political and category-level advertising trends, pension contributions, capital expenditures and any exposure under the IMG agreement.