<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
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 COMMUNICATIONS SYSTEMS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0285030
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
126 N. WASHINGTON ST., ALBANY, GEORGIA 31701
-----------------------------------------------
(Address of principal executive offices)
(Zip code)
(912) 888-9390
------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report.)
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 X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<S> <C>
CLASS A COMMON STOCK, (NO PAR VALUE) CLASS B COMMON STOCK, (NO PAR VALUE)
----------------------------------- ------------------------------------
4,490,287 SHARES AS OF NOVEMBER 11, 1996 3,500,000 SHARES AS OF NOVEMBER 11, 1996
---------------------------------------- ----------------------------------------
</TABLE>
1
<PAGE>
INDEX
GRAY COMMUNICATIONS SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Condensed consolidated balance sheets (unaudited) - December 31, 1995
and September 30, 1996
Condensed consolidated statements of operations (unaudited)-
Three months ended September 30, 1995 and 1996;
Nine months ended September 30, 1995 and 1996
Condensed consolidated statement of stockholders' equity (unaudited) -
Nine months ended September 30, 1996
Condensed consolidated statements of cash flows (unaudited) -
Nine months ended September 30, 1995 and 1996
Notes to condensed consolidated financial statements (unaudited) -
September 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
- -------- ------------------
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- -----------
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 559,991 $ 5,572,930
Trade accounts receivable less
allowance for doubtful accounts of
$450,000 and $1,207,000, respectively 9,560,274 14,281,376
Recoverable income taxes 1,347,007 2,102,021
Inventories 553,032 448,254
Current portion of program broadcast rights 1,153,058 2,831,306
Other current assets 263,600 799,074
------------ -------------
13,436,962 26,034,961
PROPERTY AND EQUIPMENT 37,618,893 53,335,690
Less allowance for depreciation (20,601,819) (17,634,774)
------------ -------------
17,017,074 35,700,916
OTHER ASSETS
Deferred acquisition costs (includes $910,000
to Bull Run Corporation at
December 31, 1995 (Note D) 3,330,481 -0-
Deferred loan costs (Note D) 1,232,261 8,134,479
Goodwill and other intangibles (Note D) 42,004,050 229,779,583
Other 1,219,650 2,146,933
------------ -------------
47,786,442 240,060,995
------------ -------------
$ 78,240,478 $ 301,796,872
------------ -------------
------------ -------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable (includes $670,000 and
$1,150,000 payable to Bull Run Corporation
at December 31, 1995 and September 30, 1996,
respectively) $ 3,752,742 $ 3,153,478
Accrued expenses 5,839,007 8,198,264
Current portion of program broadcast obligations 1,205,784 3,413,619
Current portion of long-term debt 2,861,672 -0-
------------ -------------
13,659,205 14,765,361
LONG-TERM DEBT (Notes D and F ) 51,462,645 181,517,143
NON-CURRENT LIABILITIES 4,133,030 7,772,226
STOCKHOLDERS' EQUITY (Notes B, D, and E)
Serial Preferred Stock, no par value;
authorized 20,000,000 shares;
issued -0- and 2,000
shares, respectively -0- 20,000,000
Class A Common Stock, no par value;
authorized 15,000,000 shares;
issued 5,082,756 and 5,133,552
shares, respectively 6,795,976 7,684,884
Class B Common Stock, no par value;
authorized 15,000,000 shares;
issued -0- and 3,500,000
shares, respectively -0- 66,572,996
Retained earnings 8,827,906 10,122,546
------------ -------------
15,623,882 104,380,426
Treasury stock, 663,180 shares at cost (6,638,284) (6,638,284)
------------ -------------
8,985,598 97,742,142
------------ -------------
$ 78,240,478 $ 301,796,872
------------ -------------
------------ -------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- -----------------------
1995 1996 1995 1996
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Broadcasting
(net of agency commissions) $ 8,288,572 $11,138,477 $26,549,512 $35,390,378
Publishing 5,537,591 5,560,098 15,583,705 16,821,890
----------- ----------- ----------- ------------
13,826,163 16,698,575 42,133,217 52,212,268
EXPENSES
Broadcasting 5,583,100 6,962,763 16,992,611 21,380,963
Publishing 4,981,782 4,220,553 13,571,643 13,413,304
Corporate and administrative 386,614 863,479 1,398,638 2,434,285
Depreciation and amortization 987,379 1,511,081 2,809,079 4,411,805
Non-cash compensation paid in
Class A Common Stock (Note B) 580,312 760,000 1,396,786 880,000
----------- ----------- ----------- ------------
12,519,187 14,317,876 36,168,757 42,520,357
----------- ----------- ----------- ------------
1,306,976 2,380,699 5,964,460 9,691,911
Miscellaneous income 48,727 5,608,537 117,241 5,689,898
----------- ----------- ----------- ------------
1,355,703 7,989,236 6,081,701 15,381,809
Interest expense 1,352,232 2,212,700 4,120,419 6,657,578
----------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES 3,471 5,776,536 1,961,282 8,724,231
Income tax expense (benefit) (12,000) 2,830,000 764,000 3,976,000
----------- ----------- ----------- ------------
NET INCOME BEFORE EXTRAORDINARY
CHARGE 15,471 2,946,536 1,197,282 4,748,231
Extraordinary Charge on Extinguishment of
Debt (Note F) -0- 3,158,960 -0- 3,158,960
----------- ----------- ----------- ------------
NET INCOME (LOSS) 15,471 (212,424) 1,197,282 1,589,271
Preferred Dividends -0- 26,849 -0- 26,849
----------- ----------- ----------- ------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 15,471 $ (239,273) $ 1,197,282 $ 1,562,422
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
AVERAGE OUTSTANDING COMMON SHARES
Primary 4,504,336 4,734,574 4,408,041 4,772,212
Fully Diluted 4,529,035 4,734,574 4,438,995 4,796,449
PRIMARY EARNINGS (LOSS) PER SHARE
Income before extraordinary charge
available to common stockholders $ 0.00 $ 0.62 $ 0.27 $ 0.99
Extraordinary charge 0.00 (0.67) (0.00) (0.66)
------------ ------------ ------------ ------------
Net income (loss) available to
common stockholders $ 0.00 $ (0.05) $ 0.27 $ 0.33
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Income before extraordinary charge
available to common stockholders $ 0.00 $ 0.62 $ 0.27 $ 0.99
Extraordinary charge 0.00 (0.67) 0.00 (0.66)
----------- ----------- ----------- ------------
Net income (loss) available to
common stockholders $ 0.00 $ (0.05) $ 0.27 $ 0.33
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Class A Class B
Stock Common Stock Common Stock Retained
Amount Shares Amount Shares Amount Earnings
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, $ 0 5,082,756 $ 6,795,976 0 $ 0 $ 8,827,906
1995
Net income for the nine
months ended September 30, 1,589,271
1996
Cash Dividends ($.06 per (267,782)
share)
Preferred stock dividends (26,849)
Issuance of common stock
warrants (Notes D and E) 2,600,000
Income tax benefits
relating to stock plans 62,000
Issuance of series A
preferred stock in exchange
for subordinated notes -
1,000 shares (Notes D and E) 10,000,000 (2,383,333)
Issuance of series B
preferred stock - 1,000
shares (Notes D and E) 10,000,000
Issuance of Class A
common stock:
401(k) plan 10,296 207,492
Directors stock plan 22,500 228,749
Non-qualified stock plan 18,000 174,000
Issuance of Class B common
stock, net of expenses
(Notes D and E) 3,500,000 66,572,996
------------------------------------------------------------------------------------
Balance at September 30, 1996 $20,000,000 5,133,552 $ 7,684,884 3,500,000 $66,572,996 $10,122,546
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
<CAPTION>
Treasury Stock
Shares Amount Total
------- --------- ------
<S> <C> <C> <C>
Balance at December 31, $ (663,180) (6,638,284) 8,985,598
1995
Net income for the nine
months ended September 30, 1,589,271
1996
Cash Dividends ($.06 per (267,782)
share)
Preferred stock dividends (26,849)
Issuance of common stock
warrants (Notes D and E) 2,600,000
Income tax benefits
relating to stock plans 62,000
Issuance of series A
preferred stock in exchange
for subordinated notes -
1,000 shares (Notes D and E) 7,616,667
Issuance of series B
preferred stock - 1,000
shares (Notes D and E) 10,000,000
Issuance of Class A
common stock:
401(k) plan 207,492
Directors stock plan 228,749
Non-qualified stock plan 174,000
Issuance of Class B common
stock, net of expenses
(Notes D and E) 66,572,996
-----------------------------------------
Balance at September 30, 1996 (663,180) $(6,638,284) $97,742,142
-----------------------------------------
-----------------------------------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------------
1995 1996
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,197,282 $ 1,589,271
Items which did not use (provide) cash:
Depreciation 1,926,479 2,463,335
Amortization of intangible assets 882,600 1,948,470
Amortization of program broadcast rights 1,212,199 1,924,653
Amortization of original issue discount on
subordinated note -0- 216,667
Amortization of deferred interest rate swap
settlement liability -0- 23,299
Write-off of loan acquisition costs from
early extinguishment of debt -0- 1,818,840
Gain on disposition of television station -0- (5,673,193)
Payments for program broadcast rights (1,340,742) (1,988,435)
Income tax benefit relating to stock plan -0- 62,000
Compensation paid in Class A common
stock 1,396,786 880,000
Supplemental employee benefits (232,807) (282,675)
Class A common stock contributed to 401(k) Plan 233,113 207,492
Deferred income taxes 371,000 (460,501)
Loss on disposal of assets 1,652 191,338
Changes in operating assets and liabilities:
Receivables, inventories, and
other current assets 40,441 552,015
Accounts payable and other
current liabilities (1,112,533) (1,399,350)
------------ -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 4,575,470 2,073,226
INVESTING ACTIVITIES
Acquisition of newspaper business (2,076,041) -0-
Acquisition of television businesses -0- (210,727,757)
Disposition of television business -0- 9,482,568
Purchases of property and equipment (2,534,437) (1,627,576)
Deferred acquisition costs (2,190,398) -0-
Proceeds from asset sales 3,042 116,222
Other (346,258) (78,940)
------------ -------------
NET CASH USED IN INVESTING
ACTIVITIES (7,144,092) (202,835,483)
</TABLE>
7
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------
1995 1996
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES
Dividends paid to common stockholders (259,955) (267,782)
Class A common stock transactions 76,250 402,749
Proceeds from equity offering -
Class B Common Stock, net of expenses -0- 66,572,996
Proceeds from issuance of Series B preferred stock -0- 10,000,000
Proceeds from settlement of interest rate swap -0- 215,000
Proceeds from borrowings of long-term debt 2,950,000 232,678,310
Proceeds from borrowings of short-term debt 1,200,000 -0-
Payments on long-term debt (1,606,497) (100,285,486)
Loan acquisition costs -0- (3,334,479)
Other (73,398) (206,112)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,286,400 205,775,196
------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (282,222) 5,012,939
Cash and cash equivalents at beginning of period 558,520 559,991
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 276,298 $ 5,572,930
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Gray
Communications Systems, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K/A-2 for the year ended December 31, 1995.
Certain amounts in the accompanying unaudited condensed consolidated financial
statements have been reclassified to conform to the 1996 format.
NOTE B--EMPLOYMENT AGREEMENTS
During the quarter ended March 31, 1995, the Company awarded 150,000 shares of
its Class A Common Stock to its former president and chief executive officer
under his employment agreement. Compensation expense of approximately $520,000
and $1.2 million was recognized for these awards in the three months and nine
months ended September 30, 1995, respectively.
The Company had an employment agreement with its former president, Ralph W.
Gabbard, which provided for an award of 122,034 shares of Class A Common Stock
if his employment with the Company continued until September 1999. Mr. Gabbard
died unexpectedly on September 10, 1996. The Company awarded these shares to
the estate of Mr. Gabbard. Approximately $60,000 and $760,000 of expense was
recognized in the three months ended September 30, 1995 and 1996, respectively
and $180,000 and $880,000 was recognized in the nine months ended September 30,
1995 and 1996, respectively.
NOTE C--BUSINESS DISPOSITIONS
The Company sold the assets of KTVE Inc. (the "KTVE Sale"), its
NBC-affiliated television station, in Monroe, Louisiana/El Dorado, Arkansas
to GOCOM Television of Ouachita, L.P. on August 20, 1996. The sales price
included $9.5 million in cash plus the amount of the accounts receivable on
the date of closing (approximately $870,000) to the extent collected by the
buyer, to be paid to the Company 150 days following the date of closing. The
Company recognized a pre-tax gain of approximately $5.7 million and estimated
income taxes of approximately $2.8 million.
NOTE D--BUSINESS ACQUISITIONS
The Company's acquisitions in 1995 and 1996 have been accounted for under the
purchase method of accounting. Under the purchase method of accounting, the
results of operations of the acquired businesses are included in the
accompanying unaudited condensed consolidated financial statements as of their
respective acquisition dates. The assets and liabilities of acquired businesses
are included based on an allocation of the purchase price.
1996 ACQUISITIONS
On September 30, 1996, the Company purchased from First American Media, Inc.
substantially all of the assets used in the operation of two CBS-affiliated
television stations, WCTV-TV ("WCTV") serving Tallahassee, Florida/Thomasville,
Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, as well as those assets
used in the operations of a satellite production services business and a
communications and paging business (the "First American Acquisition"). The
purchase price of
9
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE D--BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITIONS (CONTINUED)
approximately $182.8 million consisted of $175.5 million cash and the
assumption of approximately $7.3 million of liabilities. Based on the
preliminary allocation of the purchase price, the excess of the purchase
price over the fair value of net tangible assets acquired was approximately
$159.4 million. The Company's Board of Directors has agreed to pay Bull Run
Corporation ("Bull Run"), a principal stockholder of the Company, a fee of
$1.4 million for services performed in connection with this acquisition and
the applicable financing thereof. At September 30, 1996 approximately $1.2
million of this fee is included in accounts payable. The First American
Acquisition was recorded on September 30, 1996 and the results of operations
from this acquisition will be included in the Company's financial statements
beginning October 1, 1996.
The First American Acquisition was funded with a portion of the following:
net proceeds of $66.6 million from the sale of 3,500,000 shares of the
Company's Class B Common Stock; net proceeds of $155.2 million from the sale
of $160 million principal amount of the Company's 10 5/8% Senior Subordinated
Notes due 2006; $16.9 million drawn down under a senior credit facility (the
"Senior Credit Facility") with KeyBank National Association, NationsBank,
N.A. (South), CIBC, Inc., CoreStates Bank, N.A., and the Bank of New York;
and $10 million net proceeds from the sale of 1,000 shares of the Company's
Series B Preferred Stock and warrants to purchase 500,000 shares of the
Company's Class A Common Stock at $24 per share. The shares of Series B
Preferred Stock were issued to Bull Run and to J. Mack Robinson, Chairman of
the Board of Bull Run and Interim President of the Company, and certain of
his affiliates. The Robinson-Humphrey Company, Inc. provided an opinion as
to the fairness of the terms of the sale of such Series B Preferred Stock and
warrants. (See Notes E and F).
In the Federal Communications Commission's (the "FCC") approval of the First
American Media Acquisition, the FCC requires the Company to divest itself of
WALB-TV ("WALB") in Albany, Georgia and WJHG-TV ("WJHG") in Panama City,
Florida by March 31, 1997. Divestiture may not be required if the FCC
revises its rules on common ownership of television stations with overlapping
signals. The FCC is not expected to complete its reexamination of the rules
prior to March 31, 1997. In order to satisfy applicable FCC requirements,
the Company, subject to FCC approval, intends to swap such assets for assets
of one or more television stations of comparable value and with comparable
broadcast cash flow in a transaction qualifying for deferred capital gains
treatment under the "like-kind exchange" provision of Section 1031 of the
Internal Revenue Code of 1986 (the "Code"). If the Company is unable to
effect such a swap on satisfactory terms within the time period granted by
the FCC, the Company may request an extension of the divestiture deadline or
alternatively, transfer such assets to a trust with a view towards the
trustee effecting a swap or sale of such assets. Any such trust arrangement
would be subject to the approval of the FCC.
Condensed balance sheets of WALB and WJHG are as follows (in thousands):
SEPTEMBER 30, 1996
--------------------
WALB WJHG
------- --------
Current assets . . . . . . . . . . . . . . . $ 1,875 $ 926
Property and equipment . . . . . . . . . . . 1,647 995
Other assets . . . . . . . . . . . . . . . . 126 4
--------- --------
Total assets . . . . . . . . . . . . . . . . $ 3,648 $ 1,925
--------- --------
--------- --------
Current liabilities. . . . . . . . . . . . . $ 2,404 $ 794
Other liabilities. . . . . . . . . . . . . . 273 0
Stockholder's equity . . . . . . . . . . . . 971 1,131
--------- --------
Total liabilities and stockholder's equity . $ 3,648 $ 1,925
--------- --------
--------- --------
10
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE D--BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITIONS (CONTINUED)
Condensed income statement data of WALB is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1996 1995 1996
----------------------- -----------------------
<S> <C> <C> <C> <C>
Broadcasting revenues. . . . . . . . . . . . . . . . . . . . . . $ 2,260 $ 2,541 $ 6,975 $ 7,639
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,151 1,248 3,507 3,688
------- ------- ------- ------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . 1,109 1,293 3,468 3,951
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 4 -0- 13 9
------- ------- ------- ------
Income before income taxes . . . . . . . . . . . . . . . . . . . 1,113 1,293 3,481 3,960
------- ------- ------- ------
------- ------- ------- ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 690 $ 802 $ 2,158 $ 2,456
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
Condensed income statement data of WJHG is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1996 1995 1996
------------------------- -----------------------
<S> <C> <C> <C> <C>
Broadcasting revenues. . . . . . . . . . . . . . . . . . . . . . $ 892 $ 1,362 $ 2,718 $ 3,771
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847 996 2,537 2,929
------- ------- ------- ------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . 45 366 181 842
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . 14 -0- 45 16
------- ------- ------- ------
Income before income taxes . . . . . . . . . . . . . . . . . . . 59 366 226 858
------- ------- ------- ------
------- ------- ------- ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37 $ 227 $ 140 $ 532
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
On January 4, 1996, the Company purchased substantially all of the assets of
WRDW-TV, a CBS television affiliate serving the Augusta, Georgia television
market (the "Augusta Acquisition"). The purchase price of approximately
$35.9 million, excluding assumed liabilities of approximately $1.3 million,
was financed primarily through long-term borrowings. The assets acquired
consisted of office equipment and broadcasting operations located in North
Augusta, South Carolina. Based on the allocation of the purchase price, the
excess of the purchase price over the fair value of net tangible assets
acquired was approximately $32.5 million. In connection with the Augusta
Acquisition, the Company's Board of Directors approved the payment of a
$360,000 fee to Bull Run.
11
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE D--BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITION (CONTINUED)
Funds for the Augusta Acquisition were obtained from the modification of the
Company's existing bank debt on January 4, 1996 to a variable rate reducing
revolving credit facility (the "Old Credit Facility") and the sale to Bull
Run of an 8% subordinated note due January 3, 2005 in the principal amount of
$10.0 million (the "8% Note"). In connection with the sale of the 8% Note,
the Company also issued warrants to Bull Run to purchase 487,500 shares of
Class A Common Stock at $17.88 per share, 300,000 shares of which are
currently vested, with the remainder vesting in five equal annual
installments commencing in 1997. The Old Credit Facility provided for a
credit line up to $54.2 million. This transaction also required a
modification of the interest rate of the Company's $25.0 million senior
secured note with an institutional investor (the "Senior Note") from 10.08%
to 10.7%. (See Notes E and F).
Unaudited pro forma statements of operations for the three months and nine
months ended September 30, 1995 and 1996, are presented below and assume that
the Augusta Acquisition, the First American Acquisition, and the KTVE Sale
occurred on January 1, 1995. The unaudited pro forma statements of
operations exclude a gain before income taxes of approximately $5.7 million
and estimated income taxes of $2.8 million from the KTVE Sale.
These pro forma unaudited statements of operations do not purport to
represent the Company's actual results of operations had the Augusta
Acquisition, the First American Acquisition, and the KTVE Sale occurred on
January 1, 1995, and should not serve as a forecast of the Company's
operating results for any future periods. The pro forma adjustments are
based solely upon certain assumptions that management believes are reasonable
under the circumstances at this time. Subsequent adjustments are expected
upon final determination of the allocation of the purchase price. Unaudited
pro forma statements of operations for the three months and nine months ended
September 30, 1995 and 1996 are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1996 1995 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Broadcasting (less agency commissions) . . . . . . . . $ 14,971 $ 16,291 $ 46,407 $ 49,585
Publishing . . . . . . . . . . . . . . . . . . . . . . 5,538 5,560 15,584 16,822
Paging . . . . . . . . . . . . . . . . . . . . . . . . 1,300 1,296 3,723 4,040
------- ------- ------- ------
21,809 23,147 65,714 70,447
Operating expenses:
Broadcasting . . . . . . . . . . . . . . . . . . . . . 9,017 9,236 27,063 27,587
Publishing . . . . . . . . . . . . . . . . . . . . . . 4,982 4,220 13,572 13,413
Paging . . . . . . . . . . . . . . . . . . . . . . . . 819 930 2,302 2,754
Corporate and administrative . . . . . . . . . . . . . 387 863 1,399 2,434
Depreciation . . . . . . . . . . . . . . . . . . . . . 1,784 1,609 4,367 4,743
Amortization of intangible assets. . . . . . . . . . . 1,159 1,630 4,362 4,737
Non-cash compensation paid in Class A
common stock. . . . . . . . . . . . . . . . . . . . . 580 760 1,397 880
------- ------- ------- ------
18,728 19,248 54,462 56,548
Operating income . . . . . . . . . . . . . . . . . . . 3,081 3,899 11,252 13,899
</TABLE>
12
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE D--BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1996 1995 1996
--------------------------- ------------------------
<S> <C> <C> <C> <C>
Miscellaneous (income) expense, net. . . . . . . . . . . . . . . 99 20 79 (72)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 5,010 5,015 14,995 15,052
---------- ---------- --------- ---------
Pro forma loss before income taxes . . . . . . . . . . . . . . . (2,028) (1,136) (3,822) (1,081)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . (684) (380) (1,293) (344)
---------- ---------- --------- ---------
Pro forma net loss . . . . . . . . . . . . . . . . . . . . . . . $ (1,344) $ (756) $ (2,529) $ (737)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Pro forma net loss available to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,694) $ (1,106) $ (3,579) $ (1,787)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Pro forma average shares outstanding . . . . . . . . . . . . . . 7,743 7,968 7,731 7,959
---------- ---------- --------- ---------
Pro forma loss per share . . . . . . . . . . . . . . . . . . . . $ (0.22) $ (0.14) $ (0.46) $ (0.22)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
1995 ACQUISITION
On January 6, 1995, the Company purchased substantially all of the assets of the
Gwinnett Post-Tribune and assumed certain liabilities (the "Gwinnett
Acquisition"). The assets consisted of office equipment and publishing
operations located in Lawrenceville, Georgia. The purchase price of $3.7
million, including assumed liabilities of approximately $370,000, was paid by
approximately $1.2 million in cash (financed through long-term borrowings and
cash from operations), the issuance of 44,117 shares of Class A Common Stock
(having fair value of $500,000), and $1.5 million payable to the sellers
pursuant to non-compete agreements. The excess of the purchase price over the
fair value of net tangible assets acquired was approximately $3.4 million. In
connection with the Gwinnett Acquisition the Company's Board of Directors
approved the payment of a $75,000 fee to Bull Run.
13
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE E--STOCKHOLDERS' EQUITY (CONTINUED)
The Company amended its Articles of Incorporation to increase to 50,000,000
the number of shares of all classes of stock which the Company has the
authority to issue, of which, 15,000,000 shares are designated Class A Common
Stock, 15,000,000 shares are designated Class B Common Stock, and 20,000,000
shares are designated "blank check" preferred stock for which the Board of
Directors has the authority to determine the rights, powers, limitations and
restrictions. The rights of the Company's Class A Common Stock and Class B
Common Stock are identical, except that the Class A Common Stock has 10 votes
per share and the Class B Common Stock has one vote per share. The Class A
and Class B Common Stock receive cash dividends on an equal per share basis.
In September 1996, the Company issued 1,000 shares each of Series A and
Series B Preferred Stock relating to the financing arrangements for the First
American Acquisition.
A portion of the funds for the Augusta Acquisition were obtained from the 8%
Note, which included the issuance of detachable warrants to Bull Run to
purchase 487,500 shares of Class A Common Stock at $17.88 per share, 300,000
shares of which are currently vested, with the remainder vesting in five
equal annual installments commencing in 1997. Approximately $2.6 million of
the $10.0 million of proceeds from the 8% Note was allocated to the warrants
and increased Class A Common Stock. This allocation of the proceeds was
based on an estimate of the relative fair values of the 8% Note and the
warrants on the date of issuance. The Company amortized the original issue
discount on a ratable basis in accordance with the original terms of the 8%
Note through September 30, 1996. During the three months and nine months
ended September 30, 1996, the Company recognized approximately $72,000 and
$217,000, respectively in amortization costs for the $2.6 million original
issue discount.
In September 1996, the Company exchanged the 8% Note with Bull Run for 1,000
shares of liquidation preference Series A Preferred Stock yielding 8%. The
warrants issued with the 8% Note will vest in accordance with their original
schedule provided the Series A Preferred Stock remains outstanding. The
holder of the Series A Preferred Stock will receive cash dividends at an
annual rate of $800 per share. The liquidation or redemption price of the
Series A Preferred Stock is $10,000 per share.
As part of the financing for the First American Acquisition, the Company also
issued 1,000 shares of Series B Preferred Stock, with warrants to purchase an
aggregate of 500,000 shares of Class A Common Stock at an exercise price of
$24.00 per share. Of these warrants 300,000 vested upon issuance, with the
remaining warrants vesting in five equal annual installments commencing on
the first anniversary of the date of issuance. The shares of Series B
Preferred Stock were issued to Bull Run and to J. Mack Robinson, Chairman of
the Board of Bull Run and Interim President of the Company, and certain of
his affiliates. The Company has obtained a written opinion from The
Robinson-Humphrey Company, Inc. as to the fairness of the terms of the sale
of such Series B Preferred Stock and warrants. The holders of the Series B
Preferred Stock will receive dividends at an annual rate of $600 per share,
except the Company at its option may pay these dividends in cash or in
additional shares. The liquidation or redemption price of the Series B
Preferred Stock is $10,000 per share.
On September 24, 1996, the Company issued 3,500,000 shares of its Class B
Common Stock at a price of $20.50 per share in a public offering. The net
proceeds from this issuance of Class B Common Stock was used in the financing
of the First American Acquisition.
NOTE F--LONG-TERM DEBT
On September 20, 1996, the Company sold $160.0 million principal amount of the
Company's 10 5/8% Senior Subordinated Notes (the "Senior Subordinated Notes")
due 2006. The net proceeds of $155.2 million from this offering, along with the
net proceeds from (i) the KTVE Sale, (ii) the issuance of Class B Common Stock,
(iii) the issuance of Series B Preferred Stock and (iv) borrowings under the
Senior Credit Facility, were used in financing the First American Acquisition as
well as the early retirement of the Senior Note and the Old Credit Facility.
Interest on the Senior Subordinated Notes is payable semi-annually on April 1
and October 1, commencing April 1, 1997.
In the quarter ended September 30, 1996, the Company recorded an
extraordinary charge of $5.3 million ($3.2 million after taxes or $0.67 and
$0.66 per share for the quarter and nine months ended September 30, 1996,
respectively.) in connection with the early retirement of the Senior Note and
the Old Credit Facility and the write-off of related unamortized loan
acquisition costs resulting from their early extinguishment.
In September 1996, the Company entered into a $125.0 million senior credit
facility with KeyBank National Association, NationsBank, N.A. (South), CIBC,
Inc., CoreStates Bank, N.A., and the Bank of New York. At September 30,
1996, the Company had approximately $20.8 million outstanding on the Senior
Credit Facility. At September 30, 1996, the Company's interest rate for the
Senior Credit Facility was 8.5%, based on a spread over LIBOR and/or Prime, of
2.50% and 0.25%, respectively.
The Company entered into an interest rate swap agreement (the "Interest
Swap") on June 2, 1995, to effectively convert a portion of its floating rate
debt under the Old Credit Facility to a fixed rate basis. The Interest Swap
was effective for five years. Approximately $25.0 million of the Company's
outstanding long-term debt was subject to this Interest Swap. Effective May
14, 1996, the Company received $215,000 as settlement of this Interest Swap,
which will be reflected as a reduction of interest expense over the remaining
life of the original five-year interest rate swap agreement term.
Upon termination of the five-year Interest Swap, the Company entered into an
interest rate cap agreement (the "Interest Cap") on May 16, 1996, which
expired on September 6, 1996. Approximately $25.0 million of the Company's
outstanding long-term debt was subject to this Interest Cap. This Interest
Cap served to cap the base rate of the Company's Old Credit Facility at 7%.
Upon the expiration of the Interest Cap on September 6, 1996, the Company did
not enter into any other hedges.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF THE COMPANY
INTRODUCTION
The Company derives its revenues from its television broadcasting and
publishing operations. As a result of the Augusta Acquisition, which was
completed in January 1996, and the acquisition of WKYT-TV and WYMT-TV in
September 1994, the proportion of the Company's revenues derived from
television broadcasting has increased and is expected to continue to increase
as a result of the First American Acquisition, which was completed on
September 30, 1996. The First American Acquisition results of operations
will be included in the Company's financial statements beginning October 1,
1996. As a result of the higher operating margins associated with the
Company's television broadcasting operations, the profit contribution of
these operations as a percentage of revenues has exceeded, and is expected to
continue to exceed, the profit contribution of the Company's publishing
operations. Set forth below, for the periods indicated, is certain
information concerning the relative contributions of the Company's television
broadcasting and publishing operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1995 1996
---------------------------- -------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TELEVISION BROADCASTING
Revenues $ 8,288.6 60.0% $ 11,138.5 66.7%
Operating income (1) 1,940.9 87.2 3,153.9 78.5
PUBLISHING
Revenues $ 5,537.6 40.0% $ 5,560.1 33.3%
Operating income (1) 284.3 12.8 863.1 21.5
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1995 1996
---------------------------- -------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TELEVISION BROADCASTING
Revenues $ 26,549.5 63.0% $ 35,390.4 67.8%
Operating income (1) 7,357.0 85.4 10,911.2 83.6
PUBLISHING
Revenues $ 15,583.7 37.0% $ 16,821.9 32.2%
Operating income (1) 1,256.5 14.6 2,135.8 16.4
</TABLE>
(1) Excludes any allocation of corporate and administrative expenses.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
TELEVISION BROADCASTING
Set forth below are the principal types of broadcasting revenues earned by the
Company's television stations for the periods indicated and the percentage
contribution of each to total Company revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1996
----------------------------- ----------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
COMPANY COMPANY
AMOUNT REVENUES AMOUNT REVENUES
------------ ----------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Local $ 4,752.5 34.4% $ 5,906.0 35.4%
National 2,517.8 18.2 3,183.0 19.1
Network compensation 640.8 4.6 770.0 4.6
Political 160.1 1.2 907.1 5.4
Production and other 217.4 1.6 372.4 2.2
---------- ------ -------- -----
$ 8,288.6 60.0% $11,138.5 66.7%
--------- ------ --------- -----
--------- ------ --------- -----
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1995 1996
----------------------------- ----------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
COMPANY COMPANY
AMOUNT REVENUES AMOUNT REVENUES
------------ ----------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Local $15,047.1 35.7% $19,651.3 37.6%
National 8,015.2 19.0 10,150.9 19.5
Network compensation 1,888.0 4.5 2,531.0 4.9
Political 598.0 1.4 1,693.4 3.2
Production and other 1,001.2 2.4 1,363.8 2.6
--------- ------ --------- -----
$26,549.5 63.0% $35,390.4 67.8%
--------- ------ --------- -----
--------- ------ --------- -----
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
TELEVISION BROADCASTING (CONTINUED)
In the Company's broadcasting operations, broadcast advertising is sold for
placement either preceding or following a television station's network
programming and within local and syndicated programming. Broadcast advertising
is sold in time increments and is priced primarily on the basis of a program's
popularity among the specific audience an advertiser desires to reach, as
measured by Nielsen. In addition, broadcast advertising rates are affected by
the number of advertisers competing for the available time, the size and
demographic makeup of the market served by the station and the availability of
alternative advertising media in the market area. Broadcast advertising rates
are the highest during the most desirable viewing hours, with corresponding
reductions during other hours. The ratings of a local station affiliated with a
major network can be affected by ratings of network programming.
Most broadcast advertising contracts are short-term, and generally run only for
a few weeks. The Company estimates that approximately 53.8% and 55.9% of the
gross revenues of the Company's television stations for the three months and
nine months ended September 30, 1996, respectively were generated from local
advertising which is sold by a station's sales staff directly to local accounts,
and the remainder primarily represents national advertising, which is sold by a
station's national advertising representative. The stations generally pay
commissions to advertising agencies on local, regional and national advertising
and the stations also pay commissions to the national sales representative on
national advertising.
Broadcast advertising revenues are generally highest in the second and fourth
quarters of each year, due in part to increases in retail advertising in the
spring and in the period leading up to and including the holiday season. In
addition, broadcast advertising revenues are generally higher during even
numbered election years due to spending by political candidates, which spending
typically is heaviest during the fourth quarter.
The broadcasting operations' primary operating expenses are employee
compensation, related benefits and programming costs. In addition, the
broadcasting operations incur overhead expenses such as maintenance, supplies,
insurance, rent and utilities. A large portion of the operating expenses of the
broadcasting operations is fixed.
PUBLISHING
Set forth below are the principal types of publishing revenues earned by the
Company's publishing operations for the periods indicated and the percentage
contribution of each to total Company revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1996
------------------------------ ----------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
COMPANY COMPANY
AMOUNT REVENUES AMOUNT REVENUES
---------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Retail advertising $ 2,631.3 19.0% $ 2,604.1 15.6%
Classified 1,422.2 10.3 1,601.2 9.6
Circulation 927.1 6.7 1,033.7 6.2
Other 557.0 4.0 321.1 1.9
---------- ------ --------- -----
$ 5,537.6 40.0% $ 5,560.1 33.3%
---------- ------ --------- -----
---------- ------ --------- -----
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
PUBLISHING (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------
1995 1996
-------------------------- ------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
COMPANY COMPANY
AMOUNT REVENUES AMOUNT REVENUES
----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Retail advertising $ 7,720.8 18.3% $ 7,903.9 15.1%
Classified 3,915.9 9.3 4,637.7 8.9
Circulation 2,748.7 6.5 3,222.3 6.2
Other 1,198.3 2.9 1,058.0 2.0
----------- ------- ---------- -------
$ 15,583.7 37.0% $ 16,821.9 32.2%
----------- ------- ---------- -------
----------- ------- ---------- -------
</TABLE>
In the Company's publishing operations, advertising contracts are generally
annual and primarily provide for a commitment as to the volume of advertising
purchased by a customer. The publishing operations' advertising revenues are
primarily generated from retail advertising. As with the broadcasting
operations, the publishing operations' revenues are generally highest in the
second and fourth quarters of each year.
The publishing operations' primary operating expenses are employee
compensation, related benefits and newsprint costs. In addition, the
publishing operations incur overhead expenses such as maintenance, supplies,
insurance, rent and utilities. A large portion of the operating expenses of
the publishing operations is fixed, although the Company has experienced
significant variability in its newsprint costs in recent years.
MEDIA CASH FLOW
The following table sets forth certain operating data for both the broadcast and
publishing operations for the three months and nine months ended September 30,
1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- --------------------------------
1995 1996 1995 1996
-------------- -------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating income $ 1,307.0 $ 2,380.7 $ 5,964.4 $ 9,691.9
Add:
Amortization of program license
rights 444.2 645.2 1,212.2 1,924.6
Depreciation and amortization 987.4 1,511.1 2,809.1 4,411.8
Corporate overhead 386.6 863.5 1,398.6 2,434.3
Non-cash compensation and
contributions to the Company's
401-k plan, paid in Class A
Common Stock 646.2 825.8 1,622.6 1,076.6
Less:
Payments for program
license liabilities (437.9) (679.1) (1,340.7) (1,988.4)
---------- -------- --------- ---------
Media Cash Flow (1) $ 3,333.5 $ 5,547.2 $11,666.2 $17,550.8
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
MEDIA CASH FLOW (CONTINUED)
(1) Of Media Cash Flow, $2.8 million and $4.2 million was attributable to
the Company's broadcasting operations during the three months ended September
30, 1995 and 1996, respectively; and $9.6 million and $14.1 million was
attributable to the Company's broadcasting operations during the nine months
ended September 30, 1995 and 1996, respectively.
"Media Cash Flow" is defined as operating income from broadcast and
publishing operations before income taxes, extraordinary charges, and
interest expense, plus depreciation and amortization (including amortization
of program license rights), non-cash compensation and corporate overhead,
less payments for program license liabilities. The Company has included
Media Cash Flow data because such data are commonly used as a measure of
performance for broadcast companies and are also used by investors to measure
a company's ability to service debt. Media Cash Flow is not, and should not
be used as, an indicator or alternative to operating income, net income or
cash flow as reflected in the unaudited condensed consolidated financial
statements of the Company and is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
REVENUES. Total revenues for the three months ended September 30, 1996,
increased $2.9 million, or 20.8%, over the three months ended September 30,
1995, from $13.8 million to $16.7 million. This increase was attributable to
(i) the Augusta Acquisition, which occurred on January 4, 1996, and (ii)
increases in publishing and broadcasting (excluding the Augusta Acquisition)
revenues. The Augusta Acquisition accounted for $2.2 million or 76.8%, of
the revenue increase.
Broadcast net revenues increased $2.8 million or 34.4% over the same period
of the prior year, from $8.3 million to $11.1 million. Revenues generated by
the Augusta Acquisition accounted for $2.2 million or 77.4% of the broadcast
revenue increase. On a pro forma basis, broadcast net revenues for the
Augusta Acquisition for the three months ended September 30, 1996 increased
$91,000 or 4% over the same period of the prior year, due to increased
political spending offset by a decline in local advertising. Broadcast net
revenues, excluding the Augusta Acquisition, increased $643,000 or 7.8%, over
the three months ended September 30, 1995. Approximately $133,000 and
$511,000 of the $643,000 increase in total broadcast net revenues, excluding
the Augusta Acquisition, were due to higher local and political advertising
spending, respectively.
Publishing revenues for the three months ended September 30, 1996 increased
$23,000 over the same period of the prior year from $5.5 million to $5.6
million. Advertising and circulation revenues comprised $152,000 and
$107,000, respectively, of the revenue increase. These increases were
offset by a decline of $155,000 in special events revenues. The increase in
advertising revenue was primarily the result of linage increases in
classified advertising and rate increases in retail advertising. The increase
in circulation revenue can be attributed primarily to price increases over
the same period of the prior year at two of the publishing operations and the
conversion of the Gwinnett Daily Post to a five-day-a-week paper.
OPERATING EXPENSES. Operating expenses for the three months ended September
30, 1996 increased $1.8 million or 14.4% over the three months ended
September 30, 1995, from $12.5 million to $14.3 million, due to the Augusta
Acquisition, increased corporate overhead, depreciation and amortization, and
non-cash compensation paid in common stock, offset by decreased expenses at
the publishing operations.
Broadcasting expenses for the three months ended September 30, 1996,
increased $1.4 million or 24.7% over the same period of the prior year, from
$5.6 million to $7.0 million. This increase was primarily attributable to
the Augusta Acquisition. On a pro forma basis, broadcast expenses for the
Augusta Acquisition for the three months ended September 30, 1996 decreased
$74,000 or 5.1% from $1.5 million to $1.4 million from the same period of
1995. Broadcasting expenses, excluding the Augusta Acquisition, remained
relatively constant for the three months ended September 30, 1996 as compared
to the same period of 1995.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995 (CONTINUED)
Publishing expenses for the three months ended September 30, 1996, decreased
$761,000 or 15.3% from the same period of the prior year, from $5.0 million
to $4.2 million. This decrease resulted primarily from a decrease in work
force related costs, improved newsprint pricing, fewer promotions, and
restructuring of the advertising publications, offset by higher product
delivery and outside service costs associated with the conversion of the
Gwinnett Daily Post to a five-day-a-week newspaper. Average newsprint costs
decreased approximately 7% while newsprint consumption decreased
approximately 4%.
Corporate and administrative expenses for the three months ended September
30, 1996, increased $477,000 or 123.3% over the same period of the prior
year, from $387,000 to $863,000. This increase was attributable primarily to
the addition of several new officers at the corporate level.
Depreciation of property and equipment and amortization of intangible assets
was $1.5 million for the three months ended September 30, 1996, compared to
$987,000 for the same period of the prior year, an increase of $524,000 or
53.0%. This increase was primarily the result of higher depreciation and
amortization costs related to the Augusta Acquisition and $3.3 million of
capital expenditures made in 1995.
Non-cash compensation paid in Class A Common Stock resulted from the
Company's employment agreements with its former President, Ralph W. Gabbard,
who died unexpectedly in September 1996 and its former chief executive
officer, who resigned in December 1995. The $180,000 or 31.0% increase in
non-cash compensation from $580,000 to $760,000 for the three months ended
September 30, 1996, can be attributed to a restricted stock award to the
estate of the Company's former President, in which the Company incurred
expense of $760,000 for the third quarter 1996 and the 1995 restricted stock
award of 150,000 shares of Class A Common Stock to its former chief executive
officer, in which the Company incurred expense of $520,000 for the third
quarter 1995.
MISCELLANEOUS INCOME. Miscellaneous income increased $5.6 million, from
$49,000 for the three months ended September 30, 1995 to $5.6 million for the
three months ended September 30, 1996. This increase relates to the $5.7
million pre-tax gain recognized on the KTVE Sale.
INTEREST EXPENSE. Interest expense increased $860,000 or 63.6%, from $1.4
million for the three months ended September 30, 1995 to $2.2 million for the
three months ended September 30, 1996. This increase was attributable
primarily to increased levels of debt resulting from the financing of the
Augusta Acquisition.
INCOME TAX EXPENSE. Income tax expense for the three months ended September
30, 1996 increased $2.8 million over the same period of the prior year, from
$(12,000) to $2.8 million. This increase relates to the $2.8 million of
income taxes recorded on the gain on the KTVE Sale.
EXTRAORDINARY CHARGE ON EXTINGUISHMENT OF DEBT. See Note F of the unaudited
condensed consolidated financial statements.
NET INCOME (LOSS). Net loss available to common stockholders for the Company
was $239,000 for the three months ended September 30, 1996, compared with
net income of $15,000 for the same period in 1995, a decrease of $254,000.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
REVENUES. Total revenues for the nine months ended September 30, 1996,
increased $10.1 million, or 23.9%, over the nine months ended September 30,
1995, from $42.1 million to $52.2 million. This increase was attributable to
(i) the Augusta Acquisition, which occurred on January 4, 1996, and (ii)
increases in publishing and broadcasting (excluding the Augusta Acquisition)
revenues. The Augusta Acquisition accounted for $6.7 million or 66.4% of the
revenue increase.
Broadcast net revenues increased $8.8 million or 33.3% over the same period
of the prior year, from $26.6 million to $35.4 million. Revenues generated by
the Augusta Acquisition accounted for $6.7 million or 75.7% of the broadcast
revenue increase. On a pro forma basis, broadcast net revenues for the
Augusta Acquisition for the nine months ended September 30, 1996 increased
$221,000 or 3.4% over the same period of the prior year. Broadcast net
revenues, excluding the Augusta Acquisition, increased $2.1 million or 8.1%,
over the nine months ended September 30, 1995. Approximately $1.2 million,
$681,000, and $93,000 of the $2.1 million increase in total broadcast net
revenues, excluding the Augusta Acquisition, were due to higher local,
political, and national advertising spending, respectively.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995 (CONTINUED)
Publishing revenues increased $1.2 million or 7.9% over the nine months ended
September 30, 1995, from $15.6 million to $16.8 million. Advertising and
circulation revenues comprised $905,000 and $474,000, respectively, of the
revenue increase. The increase in advertising revenue was primarily the
result of linage increases in classified advertising and retail rate
increases. The increase in circulation revenue can be attributed primarily to
price increases over the same period of the prior year at two of the
Company's publishing operations and the conversion of the Gwinnett Daily Post
to a five-day-a-week paper. A reduction in other revenue streams resulted in
a $140,000 decrease in revenues.
OPERATING EXPENSES. Operating expenses for the nine months ended September
30, 1996 increased $6.4 million or 17.6% over the same nine months ended
September 30, 1995, from $36.2 million to $42.5 million, due to the Augusta
Acquisition and increased expenses at the broadcasting operations, as well as
increased corporate and administrative expenses, depreciation and
amortization, offset by a reduction in non-cash compensation paid in Class A
Common Stock.
Broadcasting expenses for the nine months ended September 30, 1996, increased
$4.4 million or 25.8% over the same period of the prior year, from $17.0
million to $21.4 million. This increase was primarily attributable to the
Augusta Acquisition. On a pro forma basis, broadcast expenses for the
Augusta Acquisition for the nine months ended September 30, 1996 decreased
$203,000 or 4.7% over the same period of 1995, from $4.3 million to $4.1
million. Broadcasting expenses, excluding the Augusta Acquisition, increased
$250,000 or 1.5%, primarily as the result of higher payroll related costs.
Publishing expenses for the nine months ended September 30, 1996, decreased
$158,000 or 1.2% over the same period of the prior year, from $13.6 million
to $13.4 million. This decrease resulted primarily from a reduction in
work-force related costs, promotional expense, and printing costs, offset by
increased costs associated with the conversion of the Gwinnett Daily Post to
a five-day-a-week paper. Average newsprint costs increased approximately 5%
while consumption of newsprint increased approximately 3%.
Corporate and administrative expenses for the nine months ended September 30,
1996, increased $1.0 million or 74.1% over the same period of the prior year,
from $1.4 million to $2.4 million. This increase was attributable primarily
to the addition of several new officers at the corporate level.
Depreciation of property and equipment and amortization of intangible assets
was $4.4 million for the nine months ended September 30, 1996, compared to
$2.8 million for the same period of the prior year, an increase of $1.6
million or 57.1%. This increase was primarily the result of higher
depreciation and amortization costs related to the Augusta Acquisition and
$3.3 million of capital expenditures made in 1995.
Non-cash compensation paid in Class A Common Stock resulted from the
Company's employment agreements with its former President, Ralph W. Gabbard,
who died unexpectedly in September 1996 and its former chief executive
officer, who resigned in December 1995. The $517,000 or 37.0% decrease in
non-cash compensation from $1.4 million to $880,000 for the nine month period
ended September 30, can be attributed to a restricted stock award to the
estate of the Company's former President, in which the Company incurred
expense of $880,000 for the nine months ended September 30, 1996 as compared
to $180,000 for the nine months ended September 30, 1995 and the 1995
restricted stock award of 150,000 shares of Class A Common Stock to its
former chief executive officer, in which the Company incurred expense of $1.2
million for the nine months ended September 30, 1995.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995 (CONTINUED)
MISCELLANEOUS INCOME. Miscellaneous income increased $5.6 million, from
$117,000 for the nine months ended September 30, 1995 to $5.7 million for the
nine months ended September 30, 1996. This increase relates to the $5.7
million pre-tax gain recognized on the KTVE Sale.
INTEREST EXPENSE. Interest expense increased $2.5 million or 61.6%, from
$4.1 million for the nine months ended September 30, 1995 to $6.7 million for
the nine months ended September 30, 1996. This increase was attributable
primarily to increased levels of debt resulting from the financing of the
Augusta Acquisition.
INCOME TAX EXPENSE. Income tax expense for the nine months ended September
30, 1996 increased $3.2 million over the same period of the prior year, from
$764,000 to $4.0 million. This increase relates primarily to the $2.8 million
of income taxes recorded on the gain on the KTVE Sale.
EXTRAORDINARY CHARGE ON EXTINGUISHMENT OF DEBT. See Note F of the unaudited
condensed consolidated financial statements.
NET INCOME. Net income available to common stockholders for the Company was
$1.6 million for the nine months ended September 30, 1996, compared with $1.2
million for the same period in 1995, an increase of $365,000 or 30.5%.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the First American Acquisition and the Company's public
offerings of Senior Subordinated Notes and Class B Common Stock in September
1996, the Company became highly leveraged. The Company anticipates that its
principal uses of cash will be working capital and debt service requirements,
cash dividends, capital expenditures and expenditures related to additional
acquisitions. The Company anticipates that its operating cash flow, together
with borrowings available under the Senior Credit Facility, will be
sufficient for such purposes.
The Company's working capital (deficiency) was $(222,000) and $11.3 million
at December 31, 1995 and September 30, 1996, respectively. The Company's
cash provided from operations was $4.6 million and $2.1 million for the nine
months ended September 30, 1995 and 1996, respectively. The increase in
working capital relates primarily to cash remaining from the financing
arrangements for the First American Acquisition which occurred on September
30, 1996.
The Company's cash used in investing activities was $7.1 million and $202.8
million for the nine months ended September 30, 1995 and 1996, respectively.
The increased usage of $195.7 million was due primarily to the Augusta
Acquisition and the First American Acquisition.
The Company was provided $2.3 million and $205.8 million in cash by financing
activities for the nine months ended September 30, 1995 and 1996,
respectively, due primarily to the funds obtained for the Gwinnett
Acquisition in 1995 and the Augusta Acquisition and First American
Acquisition in 1996. At September 30, 1996, long-term debt was $181.5
million which consisted primarily of $160.0 million of Senior Subordinated
Notes and $20.8 million under the Senior Credit Facility. The interest rate on
the Senior Subordinated Notes and the Senior Credit Facility was 10.625% and
8.5%, respectively on September 30, 1996.
In the nine months ended September 30, 1996, the Company made $1.6 million in
capital expenditures, relating primarily to broadcasting operations. The
Company anticipates making $3.0 million in capital expenditures for the year
ending December 31, 1996. The Company believes that cash flows from
operations will be sufficient to fund such expenditures, which will be
adequate for the Company's normal replacement requirements.
The Company regularly enters into program contracts for the right to
broadcast television programs produced by others and program commitments for
the right to broadcast programs in the future. Such programming commitments
are generally made to replace expiring or canceled program rights. Payments
under such contracts are made in cash or the concession of advertising spots
for the program provider to resell, or a combination of both. During the
nine months ended September 30, 1996 the Company paid $2.0 million for such
program broadcast rights.
On August 20, 1996 the Company sold the assets of KTVE Inc., its
NBC-affiliated television station in Monroe, Louisiana/El Dorado, Arkansas to
GOCOM Television of Ouachita, L.P. for approximately $9.5 million in cash
plus the amount of the accounts receivable on the date of the closing
(approximately $870,000). The Company anticipates the income taxes resulting
from the gain on the sale of KTVE will aggregate approximately $2.8 million.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In connection with the First American Acquisition, the Company will be
required to divest WALB and WJHG under current FCC regulations on or before
March 31, 1997. However, these rules may be revised by the FCC upon
conclusion of pending rule-making proceedings. In order to satisfy
applicable FCC requirements, the Company, subject to FCC approval, intends to
swap such assets for assets of one or more television stations of comparable
value and with comparable broadcast cash flow in a transaction qualifying for
deferred capital gains treatment under the "like-kind exchange" provision of
Section 1031 of the Code. If the Company is unable to effect such a swap on
satisfactory terms within the time period granted by the FCC under the
waivers, the Company may request an extension of the divestiture deadline or
alternatively, transfer such assets to a trust with a view towards the
trustee effecting a swap or sale of such assets. Any such trust arrangement
would be subject to the approval of the FCC. It is anticipated that the
Company would be required to relinquish operating control of such assets to a
trustee while retaining the economic risks and benefits of ownership. If the
Company or such trust is required to effect a sale of WALB, the Company would
incur a significant gain and related tax liability, the payment of which
could have a material adverse effect on the Company's ability to acquire
comparable assets without incurring additional indebtedness.
The Company does not believe that inflation in past years has had a
significant impact on the Company's results of operations nor is inflation
expected to have a significant effect upon the Company's business in the near
future.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company amended its Articles of Incorporation to increase to 50,000,000
the number of shares of all classes of stock which the Company has the
authority to issue, of which 15,000,000 shares are designated Class A Common
Stock, 15,000,000 shares are designated Class B Common Stock, and 20,000,000
shares are designated "blank check" preferred stock for which the Board of
Directors has the authority to determine the rights, powers, limitations and
restrictions. The Company's Class A Common Stock and Class B Common Stock
are identical, except that the Class A Common Stock has 10 votes per share
and the Class B Common Stock has one vote per share. For additional
information with respect thereto, reference is made to the Company's proxy
statement, dated August 14, 1996, particularly under the caption, "Amendment
to the Articles of Incorporation (Item Two)", which is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted upon at the 1996 Annual Meeting of
Stockholders of Gray Communications Systems, Inc. on September 3, 1996, and
votes were cast as indicated:
(1) Election of Directors:
NOMINEE FOR WITHHOLD AUTHORITY
--------- --- -------------------
Richard L. Boger 3,724,948 13,252
Ralph W. Gabbard 3,724,948 13,252
Hilton H. Howell, Jr. 3,724,348 13,852
William E. Mayher, III 3,717,370 20,830
Howell W. Newton 3,725,098 13,102
Hugh Norton 3,717,370 20,830
Robert S. Prather, Jr. 3,724,948 13,252
J. Mack Robinson 3,724,948 13,252
(2) Amendment to the Company's Articles of Incorporation to increase to
50,000,000 the number of shares of all classes of Company stock
available for issuance. The Amendment designates 15,000,000 shares as
Class A Common Stock with no par value and 10 votes per share,
15,000,000 shares as Class B Common Stock, no par value and one vote
per share, and 20,000,000 shares as "blank check" preferred stock for
which the limitations and restrictions are determined by the Board of
Directors.
For: 2,780,328 Against: 198,323 Abstain: 31,184
Broker Non-Votes: 728,365
(3) Amendment to the Company's Bylaws to provide for two classes of voting
stock of the Company.
For: 2,785,111 Against: 197,629 Abstain: 27,095
Broker Non-Votes: 728,365
24
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
(4) Amendment to the Company's 1992 Long-term Incentive Plan to
provide that the Company has reserved for issuance under the 1992
Long-term Incentive Plan an aggregate of 600,000 shares of the
Company's Common Stock, of which 200,000 shares will be the
Company's Class A Common Stock and 400,000 shares will be the
Company's Class B Common Stock.
For: 2,794,441 Against: 186,949 Abstain: 28,445
Broker Non-Votes: 728,365
(5) Approval of the issuance to Bull Run Corporation of warrants to
purchase 487,500 shares of the Company's Class A Common Stock.
For: 2,907,932 Against: 69,148 Abstain: 32,755
Broker Non-Votes: 728,365
(6) Approval of the issuance to Bull Run Corporation of warrants to
purchase 500,000 shares of the Company's Class A Common Stock.
For: 2,907,852 Against: 69,148 Abstain: 32,835
Broker Non-Votes: 728,365
(7) Ratification of the Board's approval of an amendment to the
Company's non-qualified stock option plan for non-employee
directors of the Company.
For: 2,911,773 Against: 68,667 Abstain: 29,395
Broker Non-Votes: 728,365
(8) Approval of the appointment of Ernst & Young, LLP as the
independent auditors of the Company and its subsidiaries for the
year ending December 31, 1996.
For: 3,675,844 Against: 51,856 Abstain: 10,500
Broker Non-Votes: -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement re: Computation of Earnings Per Share
27- Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on October 15, 1996, reporting the
purchase of certain assets from First American Media, Inc. used
in the operations of, WCTV-TV in Tallahassee, Florida/Thomasville,
Georgia, WKXT-TV in Knoxville, Tennessee, and a satellite
production services business and a communications and paging
business.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRAY COMMUNICATIONS SYSTEMS, INC.
(Registrant)
Date: November 13, 1996 By: /s/ William A. Fielder, III
----------------- --------------------------------
William A. Fielder, III, Vice
President & CFO
(Chief Financial Officer)
Date: November 13, 1996 By: /s/ Sabra H. Cowart
----------------- --------------------------------
Sabra H. Cowart, Controller & CAO
(Chief Accounting Officer)
26
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- --------------------------------
1995 1996 1995 1996
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 4,242,520 4,734,574 4,231,449 4,548,232
Common Stock Equivalents - based on the
treasury stock method using average
market price 261,816 0 176,592 223,980
---------- ------------ ----------- ------------
Totals 4,504,336 4,734,574 4,408,041 4,772,212
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
Net income (loss) available to common
stockholders $ 15,471 $ (239,273) $ 1,197,282 $ 1,562,422
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
PRIMARY PER SHARE AMOUNTS:
Income before extraordinary charge
available to common stockholders $ 0.00 $ 0.62 $ 0.27 $ 0.99
Extraordinary charge 0.00 (0.67) 0.00 (0.66)
------ -------- ------ -------
Net income (loss) available to
common stockholders $ 0.00 $ (0.05) $ 0.27 $ 0.33
------ -------- ------ -------
------ -------- ------ -------
FULLY DILUTED:
Weighted average shares outstanding 4,242,520 4,734,574 4,231,449 4,548,232
Common Stock Equivalents - based on the
treasury stock method using the greater of
the quarter-end market price or the
average market price 286,515 0 207,546 248,217
-------- -------- --------- ---------
Totals 4,529,035 4,734,574 4,438,995 4,796,449
----------- ------------ ----------- ------------
----------- ------------- ----------- -------------
Net income (loss) available to
common stockholders $ 15,471 $ (239,273) $ 1,197,282 $ 1,562,422
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
FULLY DILUTED PER SHARE AMOUNTS:
Income before extraordinary charge
available to common stockholders $ 0.00 $ 0.62 $ 0.27 $ 0.99
Extraordinary charge 0.00 (0.67) 0.00 (0.66)
------ -------- ------- --------
Net income (loss) available to
common stockholders $ 0.00 $ (0.05) $ 0.27 $ 0.33
------ -------- ------ -------
------ -------- ------ -------
</TABLE>
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
THE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,572,930
<SECURITIES> 0
<RECEIVABLES> 15,488,376
<ALLOWANCES> 1,207,000
<INVENTORY> 448,254
<CURRENT-ASSETS> 26,034,961
<PP&E> 53,335,690
<DEPRECIATION> 17,634,774
<TOTAL-ASSETS> 301,796,872
<CURRENT-LIABILITIES> 14,765,361
<BONDS> 181,517,143
0
20,000,000
<COMMON> 74,257,880
<OTHER-SE> 3,484,262
<TOTAL-LIABILITY-AND-EQUITY> 301,796,872
<SALES> 0
<TOTAL-REVENUES> 52,212,268
<CGS> 0
<TOTAL-COSTS> 42,520,357
<OTHER-EXPENSES> (5,689,898) <F1>
<LOSS-PROVISION> 398,370
<INTEREST-EXPENSE> 6,657,578
<INCOME-PRETAX> 8,724,231
<INCOME-TAX> 3,976,000
<INCOME-CONTINUING> 4,748,231
<DISCONTINUED> 0
<EXTRAORDINARY> 3,158,960 <F2>
<CHANGES> 0
<NET-INCOME> 1,589,271
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
<FN>
<F1> INCLUDES GAIN RECOGNIZED ON THE SALE OF KTVE, THE COMPANY'S NBC
AFFILIATED TELEVISION STATION OF APPROXIMATELY $5.7 MILLION.
<F2> EXTRAORDINARY CHARGE NET OF TAXES RECORDED IN CONNECTION WITH THE EARLY
RETIREMENT OF THE SENIOR NOTE AND THE OLD CREDIT FACILITY AND THE WRITE-OFF OF
RELATED UNAMORTIZED LOAN ACQUISITION COSTS.
</FN>
</TABLE>
