<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
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>
<CAPTION>
Class A Common Stock, (No Par Value) Class B Common Stock, (No Par Value)
- ---------------------------------------------- --------------------------------------------
<S> <C> <C>
4,524,445 shares as of November 7, 1997 3,345,970 shares as of November 7, 1997
</TABLE>
<PAGE>
INDEX
GRAY COMMUNICATIONS SYSTEMS, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed consolidated balance sheets (unaudited) - September 30,1997
and December 31, 1996
Condensed consolidated statements of operations (unaudited)
Three months ended September 30,1997 and 1996; Nine months
ended September 30,1997 and 1996
Condensed consolidated statement of stockholders' equity
(unaudited) Nine months ended September 30,1997
Condensed consolidated statements of cash flows (unaudited)
Nine months ended September 30,1997 and 1996
Notes to condensed consolidated financial statements (unaudited) -
September 30,1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------------- ----------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,762,155 $ 1,051,044
Trade accounts receivable, less allowance
for doubtful accounts of $1,148,000 and
$1,450,000, respectively 17,222,489 17,373,839
Recoverable income taxes 4,588,979 1,747,687
Inventories 899,716 624,118
Current portion of program broadcast rights 3,603,502 2,362,742
Other current assets 1,060,396 379,793
---------------------- ----------------------
Total current assets 29,137,237 23,539,223
PROPERTY AND EQUIPMENT 63,339,138 53,993,742
Less allowance for depreciation (21,917,451) (18,209,891)
---------------------- ----------------------
41,421,687 35,783,851
OTHER ASSETS
Deferred acquisition costs (Note B) 219,652 -0-
Deferred loan costs (Note B) 8,837,930 9,141,262
Goodwill and other intangibles (Note B) 264,444,597 228,692,018
Other 2,972,872 1,507,488
---------------------- ----------------------
276,475,051 239,340,768
---------------------- ----------------------
$ 347,033,975 $ 298,663,842
====================== ======================
</TABLE>
3
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)(continued)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable (includes $1,000,000
payable to Bull Run Corporation at September
30, 1997 and December 31, 1996) $3,416,991 $6,043,062
Accrued expenses 6,446,967 8,212,555
Accrued interest 8,819,389 4,858,775
Current portion of program broadcast obligations 3,933,177 2,862,434
Deferred revenue 1,810,567 1,764,509
Current portion of long-term debt 351,747 140,000
-------------- -------------
Total current liabilities 24,778,838 23,881,335
LONG-TERM DEBT (Notes B and D) 221,131,553 173,228,049
NON-CURRENT LIABILITIES 8,134,784 6,328,942
STOCKHOLDERS' EQUITY (Notes B and D)
Serial Preferred Stock, no par value; authorized 20,000,000
shares; issued 2,060 and 2,000 shares, ($20,600,000 and
$20,000,000 aggregate liquidation value, respectively) 20,600,000 20,000,000
Class A Common Stock, no par value;
authorized 15,000,000 shares; issued 5,307,716
and 5,155,331 shares, respectively 10,296,033 7,994,235
Class B Common Stock, no par value;
authorized 15,000,000 shares; issued 3,515,364
and 3,500,000 shares, respectively 66,360,082 66,065,762
Retained earnings 7,575,284 10,543,940
-------------- -------------
104,831,399 104,603,937
Treasury stock at cost:
Class A Common Stock, 787,571 and
663,180 shares, respectively (9,124,287) (6,638,284)
Class B Common Stock, 170,929 and
172,300 shares, respectively (2,718,312) (2,740,137)
-------------- -------------
92,988,800 95,225,516
-------------- -------------
$347,033,975 $298,663,842
============== =============
</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,
--------------------------- --------------------------
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Broadcasting (net of agency commission) $ 17,969,694 $ 11,138,477 $ 51,737,548 $ 35,390,378
Publishing 6,278,540 5,560,098 17,585,142 16,821,890
Paging 1,736,158 -0- 4,921,143 -0-
------------- ------------ ------------- ------------
25,984,392 16,698,575 74,243,833 52,212,268
EXPENSES
Broadcasting 10,869,586 6,962,763 30,168,978 21,380,963
Publishing 5,311,999 4,220,553 13,840,254 13,413,304
Paging 965,497 -0- 2,802,420 -0-
Corporate and administrative 716,736 863,479 2,091,055 2,434,285
Depreciation and amortization 3,849,777 1,511,081 10,610,021 4,411,805
Non-cash compensation paid in
common stock -0- 760,000 -0- 880,000
------------- ------------ ------------- ------------
21,713,595 14,317,876 59,512,728 42,520,357
------------- ------------ ------------- ------------
4,270,797 2,380,699 14,731,105 9,691,911
Miscellaneous income (expense)-net 13,455 5,608,537 (26,378) 5,689,898
------------- ------------ ------------- ------------
4,284,252 7,989,236 14,704,727 15,381,809
Interest expense 5,728,331 2,212,700 15,785,529 6,657,578
------------- ------------ ------------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE (1,444,079) 5,776,536 (1,080,802) 8,724,231
Income tax expense (benefit) (281,500) 2,830,000 (79,000) 3,976,000
------------- ------------ ------------- ------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY CHARGE (1,162,579) 2,946,536 (1,001,802) 4,748,231
Extraordinary Charge on Extinguishment
of Debt (Note B) -0- 3,158,960 -0- 3,158,960
------------- ------------ ------------- ------------
NET INCOME (LOSS) (1,162,579) (212,424) (1,001,802) 1,589,271
Preferred dividends 350,690 26,849 1,050,690 26,849
------------- ------------ ------------- ------------
NET INCOME (LOSS) AVAILABLE
TO COMMON STOCKHOLDERS $ (1,513,269) $ (239,273) $ (2,052,492) $ 1,562,422
============= ============ ============= ============
AVERAGE OUTSTANDING COMMON SHARES
Primary 7,836,688 4,734,574 7,872,466 4,772,212
Fully diluted 7,836,688 4,734,574 7,872,466 4,796,449
PRIMARY EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary charge
available to common stockholders $ (0.19) $ 0.62 $ (0.26) $ 0.99
Extraordinary charge -0- (0.67) -0- (0.66)
------------- ------------ ------------- ------------
Net income (loss) available to common
stockholders $ (0.19) $ (0.05) $ (0.26) $ 0.33
============= ============ ============= ============
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary charge
available to common stockholders $ (0.19) $ 0.62 $ (0.26) $ 0.99
Extraordinary charge -0- (0.67) -0- (0.66)
------------- ------------ ------------- ------------
Net income (loss) available to common
stockholders $ (0.19) $ (0.05) $ (0.26) $ 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
--------------------------------------------------------- ------------------------------------
Shares Amounts Shares Amounts Shares Amounts
--------- ------------------------------ ---------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,000 $ 20,000,000 5,155,331 $ 7,994,235 3,500,000 $ 66,065,762
Net income (loss) for the
nine months ended
September 30, 1997
Common stock dividend ($.06
per share)
Preferred stock dividends
Income tax benefits relating
to stock award 775,000
Issuance of Class A Common
Stock:
Stock award 122,034 1,200,000
Directors stock plan 501 9,645
Non-qualified stock plan 29,850 317,153
Issuance of Class B Common
Stock:
401(k) plan 15,364 282,384
Series B Preferred
Stock dividend 60 600,000
Purchase of treasury stock -
Class A Common
Issuance of treasury stock:
401 (k) plan 11,936
Non-qualified stock plan
--------------------------------------------------------- ---------------------------------------
Balance at September 30, 1997 2,060 $ 20,600,000 5,307,716 $ 10,296,033 3,515,364 $ 66,360,082
========================================================= =======================================
<CAPTION>
Class A Class B
Retained Treasury Stock Treasury Stock
------------------------------ ------------------------------
Earnings Shares Amounts Shares Amounts Total
-------------- ------------------------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 10,543,940 (663,180) $ (6,638,284) (172,300) $ (2,740,137) $ 95,225,516
Net income (loss) for the
nine months ended
September 30, 1997 (1,001,802) (1,001,802)
Common stock dividend ($.06
per share) (470,608) (470,608)
Preferred stock dividends (1,050,690) (1,050,690)
Income tax benefits relating
to stock award 775,000
Issuance of Class A Common
Stock:
Stock award 1,200,000
Directors stock plan 9,645
Non-qualified stock plan 317,153
Issuance of Class B Common
Stock:
401(k) plan 282,384
Series B Preferred
Stock dividend 600,000
Purchase of treasury stock -
Class A Common (172,900) (3,455,476) (3,455,476)
Issuance of treasury stock:
401 (k) plan 1,371 21,825 33,761
Non-qualified stock plan (445,556) 48,509 969,473 523,917
-------------- ------------------------------ ------------------------------ ----------------
Balance at September 30, 1997 $ 7,575,284 (787,571) $ (9,124,287) (170,929) $ (2,718,312) $ 92,988,800
============== ============================== ============================== ================
</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,
------------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ (1,001,802) $ 1,589,271
Items which did not use (provide) cash:
Depreciation 5,776,756 2,463,335
Amortization of intangible assets 4,833,265 1,948,470
Amortization of deferred loan costs 813,340 -0-
Amortization of program broadcast rights 2,510,305 1,924,653
Amortization of original issue discount on 8%
subordinated note -0- 216,667
Amortization of deferred interest rate swap
settlement liability (191,055) -0-
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 (2,897,498) (1,988,435)
Compensation paid in Class A Common Stock -0- 880,000
Supplemental employee benefits (146,910) (282,675)
Class A common stock contributed to 401(k) Plan -0- 207,492
Class B common stock contributed to 401(k) Plan 316,145 -0-
Deferred income taxes 1,681,000 (460,501)
Loss on disposal of assets 14,766 191,338
Changes in operating assets and liabilities:
Receivables, inventories and other current assets (1,728,005) 552,015
Accounts payable and other current liabilities 619,133 (1,399,350)
--------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,599,440 1,987,927
INVESTING ACTIVITIES
Acquisition of television businesses (41,130,557) (210,727,757)
Disposition of television business -0- 9,482,568
Acquisition of satellite uplink business (4,127,530) -0-
Purchases of property and equipment (7,600,897) (1,627,576)
Deferred acquisition costs (219,652) -0-
Payments on purchase liabilities (322,693) (206,112)
Proceeds from asset sales 7,814 116,222
Other (328,233) (55,641)
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (53,721,748) (203,018,296)
</TABLE>
7
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)(continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1997 1996
------------- --------------
<S> <C> <C>
FINANCING ACTIVITIES
Dividends paid to common stockholders (470,608) (267,782)
Dividends paid to preferred stockholders (600,000) -0-
Class A Common Stock transactions 1,101,798 464,749
Purchase of Class A Common Treasury Stock (3,455,476) -0-
Sale of Class A Common Treasury Stock 523,917 -0-
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 56,950,000 232,678,310
Payments on long-term debt (9,706,204) (100,285,486)
Loan acquisition costs (510,008) (3,334,479)
------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 43,833,419 206,043,308
------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 711,111 5,012,939
Cash and cash equivalents at beginning of period 1,051,044 559,991
------------- --------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,762,155 $ 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 30,1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted by
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for the
third quarter and nine month period ended September 30, 1997 and 1996 would not
be material.
Certain amounts in the accompanying unaudited condensed consolidated
financial statements have been reclassified to conform to the 1997 format.
NOTE B--BUSINESS ACQUISITIONS
The Company's acquisitions 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.
Recent Acquisitions
On August 1, 1997, the Company purchased the assets of WITN-TV
("WITN"). The purchase price of approximately $41.4 million consisted of $41.1
million cash, $500,000 in acquisition related costs, and approximately $400,000
in liabilities which were assumed by the Company. 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 $37.2 million. The
Company funded the costs of this acquisition through its Senior Credit facility
(the "Senior Credit Facility"). WITN operates on Channel 7 and is the NBC
affiliate in the Greenville-Washington-New Bern, North Carolina market. In
connection with the purchase of the assets of WITN, the Company will pay
Bull Run Corporation ("Bull Run"), a principal stockholder of the Company,
a fee equal to 1% of the purchase price for services performed, of which
$400,000 was due and included in accounts payable at September 30, 1997.
On April 24, 1997, the Company acquired GulfLink Communications, Inc.
("GulfLink") of Baton Rouge, Louisiana. The operations include nine
transportable satellite uplink trucks. The purchase price of approximately $5.1
million included a cash payment and assumed liabilities but excluded expenses
associated with the transaction. 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 $3.5 million. The Company funded the
costs of this acquisition through its Senior Credit Facility. In connection with
the purchase of the assets of GulfLink, the Company will pay Bull Run a fee
equal to 1% of the purchase price for services performed, of which $50,000 was
due and included in accounts payable at September 30, 1997.
9
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B--BUSINESS ACQUISITIONS (continued)
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 operation of a satellite uplink and production services business and
a communications and paging business (the "First American Acquisition").
Subsequent to the First American Acquisition, the Company rebranded WKXT with
the call letters WVLT ("WVLT") as a component of its strategy to promote the
station's upgraded news product. The purchase price of approximately $183.9
million consisted of $175.5 million in cash, $1.8 million in acquisition-related
costs, and the assumption of approximately $6.6 million of liabilities. 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 $159.8 million. The
Company's Board of Directors has agreed to pay Bull Run a fee equal to $1.7
million for services performed in connection with the First American
Acquisition. At September 30,1997, $550,000 of this fee remains payable and is
included in accounts payable.
The First American Acquisition and the early retirement of the
Company's existing bank credit facility and other senior indebtedness, were
funded as follows: net proceeds of $66.1 million from the sale of 3.5 million
shares of the Company's Class B Common Stock; net proceeds of $155.2 million
from the sale of $160.0 million principal amount of the Company's 10 5/8% Senior
Subordinated Notes due 2006; $16.9 million of borrowings under the Senior Credit
Facility and $10.0 million net proceeds from the sale of 1,000 shares of the
Company's Series B Preferred Stock with 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 President and Chief Executive Officer of the Company, and
certain of his affiliates. The Company obtained an opinion from an investment
banker as to the fairness of the terms of the sale of such Series B Preferred
Stock with warrants.
In connection with the First American Acquisition, the Federal
Communications Commission (the "FCC") ordered the Company to apply for FCC
approval to divest itself of WALB-TV ("WALB") in Albany, Georgia and WJHG-TV
("WJHG") in Panama City, Florida by March 31, 1997 to comply with regulations
governing common ownership of television stations with overlapping service
areas. The FCC is currently reexamining these regulations, and if it revises
them in accordance with the interim policy it has adopted, divestiture of WJHG
would not be required. Accordingly, the Company requested and in July of 1997
received an extension of the divestiture deadline with regard to WJHG
conditioned upon the outcome of the rulemaking proceedings. It can not be
determined when the FCC will complete its rulemaking on this subject. Also in
July of 1997, the Company obtained FCC approval to transfer control of WALB to a
trust with a view towards the trustee effecting i) a swap of WALB's 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, or ii) a sale of such assets. Under the trust
arrangement, the Company relinquished operating control of the station to a
trustee while retaining the economic risks and benefits of ownership. If the
trustee 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 an
adverse effect on the Company's ability to acquire comparable assets without
incurring additional indebtedness. The FCC has allowed up to six months for the
trustee to file an application seeking the agency's approval of a swap or sale.
The approval process is expected to take between two and six months.
10
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B--BUSINESS ACQUISITIONS (continued)
1996 Acquisitions (continued)
Condensed unaudited balance sheets of WALB and WJHG are as follows (in
thousands):
<TABLE>
<CAPTION>
WALB WJHG
----------------------------------- -------------------------------------
September 30, December 31, September 30, December 31,
1997 1996 1997 1996
----------------------------------- -------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets $ 2,284 $ 2,058 $ 1,030 $ 1,079
Property and equipment 1,397 1,579 834 981
Other assets 250 100 138 55
=================================== =====================================
Total assets $ 3,931 $ 3,737 $ 2,002 $ 2,115
=================================== =====================================
Current liabilities $ 2,495 $ 1,189 $ 718 $ 497
Other liabilities 238 242 -0- -0-
Stockholder's equity 1,198 2,306 1,384 1,618
----------------------------------- -------------------------------------
Total liabilities and stockholder's
equity $ 3,931 $ 3,737 $ 2,102 $ 2,115
=================================== =====================================
</TABLE>
Condensed unaudited income statement data for the three months and nine
months ended September 30,1997 and 1996 for WALB are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------------
September 30, September 30,
1997 1996 1997 1996
--------------------------------- ------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Broadcasting revenues $ 2,512 $ 2,541 $ 7,443 $ 7,639
Expenses 1,204 1,248 3,459 3,688
--------------------------------- ------------------------------------
Operating income 1,308 1,293 3,984 3,951
Other income (expense) (3) -0- (3) 9
--------------------------------- ------------------------------------
Income before income taxes $ 1,305 $ 1,293 $ 3,981 $ 3,960
================================= ====================================
Net income $ 809 $ 802 $ 2,469 $ 2,456
================================= ====================================
</TABLE>
Condensed unaudited income statement data for the three months and nine
months ended September 30,1997 and 1996 for WJHG are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------------
September 30, September 30,
1997 1996 1997 1996
--------------------------------- ------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Broadcasting revenues $ 1,236 $ 1,362 $ 3,677 $ 3,771
Expenses 943 996 2,783 2,929
--------------------------------- ------------------------------------
Operating income 293 366 894 842
Other income -0- -0- -0- 16
--------------------------------- ------------------------------------
Income before income taxes $ 293 $ 366 $ 894 $ 858
================================= ====================================
Net income $ 181 $ 227 $ 553 $ 532
================================= ====================================
</TABLE>
11
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B--BUSINESS ACQUISITIONS (continued)
1996 Acquisitions (continued)
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.
Funds for the Augusta Acquisition were obtained from the modification
of the Company's existing bank debt on January 4, 1996 (the "Bank Loan") 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, 337,500 shares of which were
vested at September 30,1997. The remainder vests in four annual installments of
37,500 shares each. 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. 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%.
As part of the financing arrangements for the First American
Acquisition, the Old Credit Facility and the Senior Note were retired and the
Company issued to Bull Run, in exchange for the 8% Note, 1,000 shares of Series
A Preferred Stock. The warrants issued with the 8% Note will vest in accordance
with the schedule described above provided the Series A Preferred Stock remains
outstanding. The Company recorded an extraordinary charge of $5.3 million ($3.2
million after taxes or $0.56 per common share for the year ended December 31,
1996) in connection with the early retirement of the $25.0 million Senior Note
and the write-off of loan acquisition costs from the early extinguishment of
debt.
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. Unaudited pro forma
operating data for the three and nine months ended September 30, 1997 and 1996,
are presented below and assumes that the Augusta Acquisition, the First American
Acquisition, the WITN Acquisition, the GulfLink Acquisition and the KTVE Sale
occurred on January 1, 1996. This unaudited pro forma operating data does not
purport to represent the Company's actual results of operations had the Augusta
Acquisition, the First American Acquisition, the WITN Acquisition, the GulfLink
Acquisition and the KTVE Sale occurred on January 1, 1996, 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.
12
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B--BUSINESS ACQUISITIONS (continued)
1997 Unaudited Pro Forma Operating Data
Unaudited pro forma operating data for the three months and nine months
ended September 30,1997 are as follows (in thousands, except per common share
data):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
--------------------------------------------------
Pro forma Adjusted
Gray WITN Adjustments Pro forma
---------------------------------------------------
<S> <C> <C> <C>
Revenues, net $ 25,984 $ 646 $ -0- $ 26,630
===================================================
Net income (loss) $ (1,163) $ (784) $ 356 $ (1,591)
===================================================
Earnings (loss) per share available to common stockholders:
Primary $ (0.19) $ (0.25)
=========== ============
Fully diluted $ (0.19) $ (0.25)
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
--------------------------------------------------------------
Pro forma Adjusted
Gray GulfLink WITN Adjustments Pro forma
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues, net $ 74,244 $ 1,000 $ 4,551 $ -0- $ 79,795
===============================================================
Net income (loss) $ (1,002) $ 74 $ 146 $ (1,219) $ (2,001)
===============================================================
Earnings (loss) per share available
to common stockholders:
Primary $ (0.26) $ (0.39)
=========== ============
Fully diluted $ (0.26) $ (0.39)
=========== ============
</TABLE>
The pro forma results presented above include adjustments to reflect
(i) the incurrence of interest expense to fund the acquisitions of WITN and
GulfLink, (ii) depreciation and amortization of assets acquired, (iii) the
elimination of the corporate expense allocation for WITN and GulfLink and (iv)
the income tax effect of such pro forma adjustments.
13
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE B--BUSINESS ACQUISITIONS (continued)
1996 Unaudited Pro Forma Operating Data
Unaudited pro forma operating data for the three months and nine months
ended September 30,1996 are as follows (in thousands, except per common share
data):
<TABLE>
<CAPTION>
Three Months Ended September 30,1996
----------------------------------------------------------------------------------------
First
KTVE American Pro forma Adjusted
Gray Sale Acquisition GulfLink WITN Adjustments Pro forma
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net $ 16,699 $ (665) $ 7,114 $ 937 $ 2,191 $ -0- $ 26,276
=========================================================================================
Net income (loss) before
extraordinary charge $ 2,947 $ (2,918) $ (5,946) $ 120 $ 681 $ 4,473 $ (643)
=========================================================================================
Earnings (loss) per share
available to common
stockholders before
extraordiary
charge:
Primary $ 0.62 $ (0.12)
=========== =============
Fully diluted $ 0.62 $ (0.12)
=========== =============
Nine Months Ended September 30,1996
----------------------------------------------------------------------------------------
First
KTVE American Pro forma Adjusted
Gray Sale Acquisition GulfLink WITN Adjustments Pro forma
-----------------------------------------------------------------------------------------
Revenues, net $ 52,212 $ (2,968) $ 21,203 $ 2,230 $ 6,069 $ -0- $ 78,746
=========================================================================================
Net income (loss) before
extraordinary charge $ 4,748 $ (3,142) $ (1,773) $ 88 $ 1,768 $ (3,515) $ (1,826)
=========================================================================================
Earnings (loss) per share
available to common
stockholders before
extraordiary
charge:
Primary $ 0.99 $ (0.36)
=========== =============
Fully diluted $ 0.99 $ (0.36)
=========== =============
</TABLE>
The pro forma results presented above include adjustments to reflect (i) the
incurrence of interest expense to fund the 1996 Acquisitions and the acqisitions
of WITN and GulfLink, (ii) depreciation and amortization of assets acquired,
(iii) the elimination of the corporate expense allocation net of additional
accounting and administrative expenses for the First American Acquisition and
the acquisition of WITN, (iv) increased pension expense for the First American
Acquisition, and (v) the income tax effect of such pro forma adjustments.
Average outstanding shares used to calculate pro forma earnings per share data
for 1996 include the 3.5 million Class B Common shares issued in connection with
the First American Acquisition.
NOTE C--STOCKHOLDERS' EQUITY
During 1996 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
14
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE C--STOCKHOLDERS' EQUITY (continued)
$17.88 per share, 337,500 shares of which are currently vested, with the
remainder vesting in four annual installments of 37,500 shares each.
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 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 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.
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 President and Chief Executive Officer of the Company, and certain
of his affiliates. The Company obtained a written opinion from an investment
banking firm as to the fairness of the terms of the sale of such Series B
Preferred Stock and warrants.
On September 24, 1996, the Company issued 3.5 million 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 were used in the
financing of the First American Acquisition.
During the three months ended September 30,1997, the Company purchased
114,200 shares of Class A Common stock at an average cost of $20.45 per share.
During the nine months ended September 30,1997, the Company purchased 172,900
shares of Class A Common stock at an average cost of $19.99 per share. The
Company placed these shares in treasury. During the three months ended September
30, 1997, the Company issued 48,509 shares of Class A Common stock and 1,371
shares of Class B Common stock from treasury to fulfill obligations under its
employee benefit plan and long-term incentive plan.
NOTE D--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 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 Company's 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 $0.56 per
share for the year ended December 31, 1996) in connection with the early
retirement of the Senior Note and the write-off of unamortized loan acquisition
costs of the Senior Note and the Old Credit Facility resulting from the early
extinguishment of debt.
In September 1996, the Company entered into the $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. The
Senior Credit Facility included scheduled reductions in the $125.0 million
credit limit which commenced on March 31, 1997, interest rates based upon a
spread over LIBOR and/or Prime, an unused commitment fee of 0.50% applied
to available funds and a maturity date of June 30, 2003. Effective September 17,
1997, the Senior Credit Facility was modified to reinstate the original credit
limit of $125.0 million which had been reduced by the scheduled reductions. The
modification also reduced the interest rate spread over LIBOR and/or
15
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
NOTE D--LONG-TERM DEBT (continued)
Prime and reduced the fee applied to available funds from 0.50% to 0.375%. The
modification also extended the maturity date from June 30, 2003 to June 30,
2004. The modification required a one-time fee of $250,000. At September
30,1997, the Company had approximately $60.1 million outstanding on the Senior
Credit Facility and the interest rate was based on a spread over LIBOR of 1.75%
and/or Prime.
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations of Gray Communications Systems, Inc.
Introduction
The following analysis of the financial condition and results of
operations of Gray Communications Systems, Inc. (the "Company") should be read
in conjunction with the Company's unaudited Condensed Consolidated Financial
Statements and notes thereto included elsewhere herein.
The Company derives its revenues from its television broadcasting,
publishing and paging operations. On August 1, 1997 the Company purchased
substantially all of the assets of WITN-TV ("WITN"), the NBC affiliate in the
Greenville-Washington-New Bern, North Carolina market (the "WITN Acquisition").
On April 24, 1997, the Company purchased GulfLink Communications, Inc. (the
"GulfLink Acquisition"), which is in the transportable satellite uplink
business, a business in which the Company was already engaged. In
September 1996, the Company acquired substantially all of the assets
of WKXT-TV, WCTV-TV, a satellite production and services business and a
communications and paging business (the "First American Acquisition").
Subsequent to the First American Acquisition, the Company rebranded WKXT-TV
with the call letters WVLT ("WVLT") as a component of its strategy to
promote the station's upgraded news product. On January 4, 1996, the
Company purchased substantially all of the assets of WRDW-TV (the
"Augusta Acquisition"). The First American Acquisition and the
Augusta Acquisition are collectively referred to as the "1996 Broadcasting
Acquisitions." As a result of these acquisitions, the proportion of the
Company's revenues derived from television broadcasting has increased
significantly. The Company anticipates that the proportion of the Company's
revenues derived from television broadcasting will increase further as a result
of the acquisition of WITN and GulfLink Communications, Inc. 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
contributions of the Company's publishing and paging operations. Set forth
below, for the periods indicated, is certain information concerning the relative
contributions of the Company's television broadcasting, publishing and paging
operations.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------------
Amount Percent of Total Amount Percent of Total
-------------------- ---------------- -------------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Television Broadcasting
Revenues $ 17,970 69.2% $ 11,139 66.7%
Operating income (1) 4,149 83.1 3,154 78.5
Publishing
Revenues $ 6,278 24.2% $ 5,560 33.3%
Operating income (1) 460 9.2 863 21.5
Paging
Revenues $ 1,736 6.6% $ -0- -0-%
Operating income (1) 385 7.7 -0- -0-
</TABLE>
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations of Gray Communications Systems, Inc. (continued)
Introduction (continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------------------------
1997 1996
----------------------------------------- ------------------------------------------
Amount Percent of Total Amount Percent of Total
-------------------- ----------------- --------------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Television Broadcasting
Revenues $ 51,738 69.7% $ 35,390 67.8%
Operating income (1) 13,430 79.7 10,911 83.6
Publishing
Revenues $ 17,585 23.7% $ 16,822 32.2%
Operating income (1) 2,382 14.1 2,136 16.4
Paging
Revenues $ 4,921 6.6% $ -0- -0-%
Operating income (1) 1,042 6.2 -0- -0-
</TABLE>
(1) Represents income before miscellaneous income (expense), allocation of
corporate overhead, interest expense, income taxes and extraordinary
charge.
The operating revenues of the Company's television stations are derived
primarily from broadcast advertising revenues and, to a much lesser extent, from
compensation paid by the networks to the stations for broadcasting network
programming. The operating revenues of the Company's publishing operations are
derived from retail advertising, circulation and classified revenue. Paging
revenue is derived primarily from the leasing and sale of pagers.
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 Media Research ("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. Approximately 55.1% of the gross revenues of the Company's
television stations for the three months and nine months ended September
30,1997, respectively, were generated from local advertising, which is sold
primarily by a station's sales staff directly to local accounts, and the
remainder represented primarily national advertising, which is sold by a
station's national advertising sales representative. The stations generally pay
commissions to advertising agencies on local, regional and national advertising.
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 each year, due in part to increases in consumer advertising in
the spring and retail advertising in the period leading up to and including the
holiday season. In addition, broadcast advertising revenues are generally higher
during even
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations of Gray Communications Systems, Inc. (continued)
Introduction (continued)
numbered election years due to spending by political candidates, which spending
typically is heaviest during the fourth quarter.
The Company's publishing operations' advertising contracts are
generally entered into annually and provide for a commitment as to the volume of
advertising to be purchased by an advertiser during the year. The publishing
operations' advertising revenues are primarily generated from local advertising.
As with the broadcasting operations, the publishing operations' revenues are
generally highest in the second and fourth quarters of each year.
The Company's paging subscribers either own pagers, thereby paying
solely for the use of the Company's paging services, or lease pagers, thereby
paying a periodic charge for both the pagers and the paging services. Of the
Company's pagers currently in service, approximately 75% are owned and
maintained by subscribers with the remainder being leased. The terms of the
lease contracts are month-to-month, three months, nine months or twelve months
in duration. Paging revenues are generally equally distributed throughout the
year.
The broadcasting operations' primary operating expenses are employee
compensation, related benefits and programming costs. The publishing operations'
primary operating expenses are employee compensation, related benefits and
newsprint costs. The paging operations' primary operating expenses are employee
compensation and telephone and other communications costs. In addition, the
broadcasting, publishing and paging operations incur overhead expenses, such as
maintenance, supplies, insurance, rent and utilities. A large portion of the
operating expenses of the broadcasting, publishing and paging 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 the
broadcast, publishing and paging operations for the three months and nine months
ended September 30,1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ --------------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Operating income $ 4,271 $ 2,381 $ 14,731 $ 9,692
Add:
Amortization of program license
rights 891 645 2,510 1,925
Depreciation and amortization 3,850 1,511 10,610 4,412
Corporate overhead 717 864 2,091 2,434
Non-cash compensation and
contributions to the Company's
401(k) plan, paid in common stock 94 825 304 1,077
Less:
Payments for program license
liabilities (1,067) (679) (2,897) (1,989)
------------ ----------- ---------- -----------
Media Cash Flow (1) $ 8,756 $ 5,547 $ 27,349 $ 17,551
============ =========== ========== ===========
</TABLE>
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations of Gray Communications Systems, Inc. (continued)
Media Cash Flow (continued)
(1) Of Media Cash Flow for the three months ended September 30,1997 and
1996, $7.0 million and $4.2 million, respectively, was attributable to
the Company's broadcasting operations; $984,000 and $1.4 million,
respectively, was attributable to the Company's publishing operations;
and $778,000 and $-0-, respectively, was attributable to the Company's
paging operations. Of Media Cash Flow for the nine months ended
September 30,1997 and 1996, $21.4 million and $14.1 million,
respectively, was attributable to the Company's broadcasting
operations; $3.8 million and $3.5 million, respectively, was
attributable to the Company's publishing operations; and $2.1million
and $-0-, respectively was attributable to the Company's paging
operations.
"Media Cash Flow" is defined as operating income, 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 media 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 Company's unaudited Condensed
Consolidated Financial Statements, 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.
Since 1994, the Company has completed several broadcasting and
publishing acquisitions and a broadcasting disposition. The financial results of
the Company reflect significant increases between the three month and nine month
periods ended September 30,1997 and 1996 in substantially all line items. The
principal reason for these increases was the completion by the Company of the
First American Acquisition on September 30, 1996. The purchase price for the
First American Acquisition was approximately $183.9 million, of which, $175.5
million was cash, $1.8 million was in the form of acquisition-related costs, and
approximately $6.6 million resulted from assumed liabilities. The Company sold
the assets of KTVE Inc. (the "KTVE Sale"), its NBC-affiliated television
station, in Monroe, Louisiana/El Dorado, Arkansas 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 $829,000).
Cash flow provided by (used in) operating, investing and financing activities
The following table sets forth certain cash flow data for the Company
for the nine months ended September 30,1997 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1997 1996
---------------- -----------------
(in thousands)
<S> <C> <C>
Cash flows provided by (used in)
Operating activities $ 10,599 $ 1,988
Investing activities (53,721) (203,018)
Financing activities 43,833 206,043
</TABLE>
20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations of Gray Communications Systems, Inc. (continued)
Broadcasting, Publishing and Paging Revenues
Set forth below are the principal types of broadcasting, publishing and
paging revenues earned by the Company's broadcasting, publishing and paging
operations for the periods indicated and the percentage contribution of each to
the Company's total revenues:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------------
1997 1996
-------------------------------------- -------------------------------------
Percent of Percent of
Amount Total Amount Total
----------------- ----------------- ---------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Broadcasting
Net revenues:
Local $ 10,165 39.1% $ 5,906 35.4%
National 5,156 19.8 3,183 19.1
Network compensation 1,362 5.2 770 4.6
Political (109) (0.4) 907 5.4
Production and other 1,396 5.4 373 2.2
----------------- ----------------- ---------------- ----------------
$ 17,970 69.1% $ 11,139 66.7%
================= ================= ================ ================
Publishing
Net revenues:
Retail advertising $ 2,885 11.1% $ 2,604 15.6%
Classified 1,967 7.6 1,601 9.6
Circulation 1,306 5.0 1,034 6.2
Other 121 0.5 321 1.9
----------------- ----------------- ---------------- ----------------
$ 6,279 24.2% $ 5,560 33.3%
================= ================= ================ ================
Paging
Net revenues:
Paging lease and service $ 1,743 6.7% $ -0- -0-%
Other (8) ( 0.0) -0- -0-
----------------- ----------------- ---------------- ----------------
$ 1,735 6.7% $ -0- -0-%
================= ================= ================ ================
$ 25,984 100.0% $ 16,699 100.0%
================= ================= ================ ================
</TABLE>
21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations of Gray Communications Systems, Inc. (continued)
Broadcasting, Publishing and Paging Revenues (continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1997 1996
-------------------------------------- -------------------------------------
Percent of Percent of
Amount Total Amount Total
----------------- ----------------- ---------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Broadcasting
Net revenues:
Local $ 29,081 39.2% $ 19,651 37.6%
National 15,387 20.7 10,151 19.5
Network compensation 3,643 4.9 2,531 4.9
Political 44 0.1 1,693 3.2
Production and other 3,583 4.8 1,364 2.6
----------------- ----------------- ---------------- ----------------
$ 51,738 69.7% $ 35,390 67.8%
================= ================= ================ ================
Publishing
Net revenues:
Retail advertising $ 8,269 11.1% $ 7,904 15.1%
Classified 5,434 7.3 4,638 8.9
Circulation 3,523 4.7 3,222 6.2
Other 359 0.6 1,058 2.0
----------------- ----------------- ---------------- ----------------
$ 17,585 23.7% $ 16,822 32.2%
================= ================= ================ ================
Paging
Net revenues:
Paging lease and service $ 5,003 6.7% $ -0- -0-%
Other (82) ( 0.1) -0- -0-
----------------- ----------------- ---------------- ----------------
$ 4,921 6.6% $ -0- -0-%
================= ================= ================ ================
$ 74,244 100.0% $ 52,212 100.0%
================= ================= ================ ================
</TABLE>
Three Months Ended September 30,1997 compared to Three Months Ended
September 30, 1996
Revenues. Total revenues for the three months ended September 30,1997
increased $9.3 million, or 55.6%, over the same period of the prior year, from
$16.7 million to $26.0 million. This increase was attributable to the net effect
of (i) increased revenues resulting from the First American Acquisition, WITN
Acquisition and the GulfLink Acquisition, (ii) increased publishing revenues and
(iii) decreased revenues resulting from the KTVE Sale. The First American
Acquisition, the WITN Acquisition and the GulfLink Acquisition accounted for
$7.3 million, $1.3 million and $450,000, respectively, of the revenue increase.
Broadcast net revenues increased $6.9 million, or 61.3%, over the same
period of the prior year, from $11.1 million to $18.0 million. The First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition
accounted for $5.6 million, $1.3 million and $450,000, respectively, of the
broadcast net revenue increase. On a pro forma basis, assuming the First
American Acquisition had been effective on January 1, 1996, broadcast net
revenues for the First American Acquisition for the three months ended September
30,1997 decreased $230,000, or 4.0%, when compared to the same period of the
prior year from $5.8 million to $5.6 million. On a pro forma basis, assuming
that the acquisition of WITN had been effective on January 1, 1996, broadcast
net revenues for WITN for the three months ended September 30, 1997, decreased
$300,000, or 12.1%, when compared to the same period of the prior year
from $2.2 million to $1.9 million. The KTVE Sale resulted in a
decrease in broadcast net revenues of $700,000. Broadcast net revenues,
excluding the First American Acquisition, the WITN Acquisition and the GulfLink
Acquisition and the operating results of KTVE, remained constant when compared
to the prior year.
22
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Three Months Ended September 30,1997 compared to Three Months Ended
September 30,1996 (continued)
Publishing revenues increased $720,000, or 12.9%, over the same period
of the prior year, from $5.6 million to $6.3 million. The increase in revenues
was due primarily to an increase in retail, classified and circulation revenue
of $280,000, 370,000 and $270,000, respectively, offset by a decrease in other
revenue of $200,000.
Paging revenue increased $1.7 million due to the First American
Acquisition. On a pro forma basis, assuming the First American Acquisition had
been effective on January 1, 1996, paging revenue for the three months ended
September 30,1997 increased $440,000, or 33.8%, over the same period of the
prior year from $1.3 million to $1.7 million. The increase was attributable
primarily to an increase in the number of pagers in service. The Company had
approximately 62,000 pagers and 47,000 pagers in service at September 30,1997
and 1996, respectively.
Operating expenses. Operating expenses for the three months ended
September 30,1997 increased $7.4 million, or 51.7%, over the same period of the
prior year, from $14.3 million to $21.7 million, due primarily to the First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition,
partially offset by the KTVE Sale. The First American Acquisition, the WITN
Acquisition and the GulfLink Acquisition accounted for $4.3 million, $700,000
and $500,000 (exclusive of depreciation and amortization), respectively, of the
operating expense increase.
Broadcast expenses increased $3.9 million, or 56.1%, over the three
months ended September 30,1996, from $7.0 million to $10.9 million. The increase
was attributable primarily to the First American Acquisition, the WITN
Acquisition and GulfLink Acquisition partially offset by the KTVE Sale. On a pro
forma basis, assuming the First American Acquisition had been effective on
January 1, 1996, broadcast expenses for the First American Acquisition for the
three months ended September 30,1997 decreased $600,000, or 14.6%, over the
three months ended September 30,1996 from $3.9 million to $3.3 million. On
a pro forma basis, assuming that the acquisition of WITN had been effective
on January 1996, broadcast expenses for WITN for the three months ended
September 30, 1997, decreased $100,000, or 7.0%, when compared to the
same period of the prior year from $1.2 million to $1.1 million. The KTVE
Sale resulted in a decrease in broadcast expenses of $500,000. Broadcast
expenses, excluding the results of the First American Acquisition, the GulfLink
Acquisition and the KTVE Sale, decreased $200,000, or 2.6%.
Publishing expenses for the three months ended September 30,1997
increased $1.1 million, or 25.9%, from the same period of the prior year, from
$4.2 million to $5.3 million. This increase resulted primarily from an increase
in expenses associated with an expansion of the news product at one of the
Company's properties partially offset by a decrease in work force related costs
and improved newsprint pricing. Average newsprint costs decreased approximately
9.0% while newsprint consumption increased approximately 36%.
Paging expenses increased $1.0 million due to the First American
Acquisition. On a pro forma basis, assuming the First American Acquisition had
been effective on January 1, 1996, paging expenses for the three months ended
September 30,1997 remained relatively constant at approximately $950,000.
Corporate and administrative expenses for the three months ended
September 30,1997 decreased $150,000, or 16.9%, over the same period of the
prior year, from $863,000 to $717,000. This decrease was attributable primarily
to a reduction of compensation expense at the corporate level.
Depreciation of property and equipment and amortization of intangible
assets was $3.9 million for the three months ended September 30,1997, as
compared to $1.5 million for the same period of the prior year, an increase of
$2.4 million, or 154.8%. This increase was primarily the result of higher
depreciation and amortization costs related to the First American Acquisition,
the WITN Acquisition and the GulfLink Acquisition.
Interest expense. Interest expense increased $3.5 million, or 158.9%,
from $2.2 million for the three months ended September 30,1996 to $5.7 million
for the three months ended September 30,1997. This increase was attributable
primarily to increased levels of debt resulting from the financing of the First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition.
23
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Three Months Ended September 30,1997 compared to Three Months Ended
September 30,1996 (continued)
Net loss. Net loss available to common stockholders of the Company was
$1.5 million for the three months ended September 30,1997, as compared with net
loss of $240,000 for the same period of the prior year, an increase of $1.3
million.
Nine Months Ended September 30,1997 compared to Nine Months Ended
September 30,1996
Revenues. Total revenues for the nine months ended September 30,1997
increased $22.0 million, or 42.2%, over the same period of the prior year, from
$52.2 million to $74.2 million. This increase was attributable to the net effect
of (i) increased revenues resulting from the First American Acquisition, the
WITN Acquisition and the GulfLink Acquisition, (ii) increased publishing
revenues, (iii) increased broadcasting revenues (excluding the First American
Acquisition, the WITN Acquisition and the GulfLink Acquisition) and (iv)
decreased revenues resulting from the KTVE Sale. The First American Acquisition,
the WITN Acquisition and the GulfLink Acquisition accounted for $21.8 million,
$1.3 million and $800,000, respectively, of the revenue increase.
Broadcast net revenues increased $16.3 million, or 46.2%, over the same
period of the prior year, from $35.4 million to $51.7 million. The First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition
accounted for $16.9 million, $1.3 million and $800,000, respectively, of the
broadcast net revenue increase. On a pro forma basis, assuming the First
American Acquisition had been effective on January 1, 1996, broadcast net
revenues for the First American Acquisition for the nine months ended September
30,1997 and 1996 would have decreased $250,000, or 1.4%, from $17.2 million to
$16.9 million. On a pro forma basis, assuming that the acquisition of WITN
had been effective on January 1, 1996, broadcast net revenues for WITN
for the nine months ended September 30, 1997 decreased $300,000 or 3.9%,
when compared to the same period of the prior year from $6.1 million to
$5.8 million. The KTVE Sale resulted in an decrease in broadcast net revenues
of $3.0 million. Broadcast net revenues, excluding the First American
Acquisition, the WITN Acquisition the GulfLink Acquisition and the operating
results of KTVE, increased $300,000, or 1.0%, from $32.4 million to $32.7
million. The increase was due primarily to increased local and national
advertising revenue of $1.3 million and $400,000, respectively, partially offset
by decreases in political advertising spending of $1.5 million.
Publishing revenues as compared to the same period of the prior year
increased $760,000, or 4.5%, from $16.8 million to $17.6 million. The increase
was due to increased retail, classified and circulation revenue of $400,000,
800,000 and 300,000, respectively, offset by a decrease in other revenue of
$700,000.
Paging revenue increased $4.9 million due to the First American
Acquisition. On a pro forma basis, assuming the First American Acquisition had
been effective on January 1, 1996, paging revenue for the nine months ended
September 30,1997 increased $880,000, or 21.8%, over the same period of the
prior year from $4.0 million to $4.9 million. The increase was attributable
primarily to an increase in the number of pagers in service. The Company had
approximately 62,000 pagers and 47,000 pagers in service at September 30,1997
and 1996, respectively.
Operating expenses. Operating expenses for the nine months ended
September 30,1997 increased $17.0 million, or 40.0%, over the same period of the
prior year, from $42.5 million to $59.5 million, due primarily to the First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition,
partially offset by the KTVE Sale. The First American Acquisition, the WITN
Acquisition and the GulfLink Acquisition accounted for $12.6 million, $700,000
and $750,000 (exclusive of depreciation and amortization), respectively, of the
operating expense increase.
Broadcast expenses increased $8.8 million, or 41.1%, over the nine
months ended September 30,1996, from $21.4 million to $30.2 million. The
increase was attributable primarily to the First American Acquisition, the WITN
Acquisition and the GulfLink Acquisition partially offset by the KTVE Sale. On a
pro forma basis, assuming the First American Acquisition had been effective on
January 1, 1996, broadcast expenses for the First American Acquisition for the
nine months ended September 30,1997 increased $500,000, or 5.03%, over the nine
months ended September 30,1996 from $9.3 million to $9.8 million. On a pro forma
basis, assuming that the acquisition of WITN had been effective on January 1,
1996 broadcast expense for WITN for the three months ended September 30, 1997
decreased $100,000, or 2.5% from $3.5 million to $3.4 million. The KTVE Sale
resulted in a decrease in broadcast expenses of $2.2 million. Broadcast
expenses, excluding the results of the First American Acquisition, the WITN
24
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Nine Months Ended September 30,1997 compared to Nine Months Ended
September 30,1996 (continued)
Acquisition, the GulfLink Acquisition and the KTVE Sale, decreased $300,000, or
1.7%.
Publishing expenses for the nine months ended September 30,1997
increased $400,000, or 3.2%, from the same period of the prior year, from $13.4
million to $13.8 million. This increase resulted primarily from an increase in
expenses associated with an expansion of the news product at one of the
Company's properties partially offset by a decrease in work force related costs,
improved newsprint pricing, and restructuring of the advertising publications.
Average newsprint costs decreased approximately 20.0% while newsprint
consumption increased approximately 16.0%.
Paging expenses increased $2.8 million due to the First American
Acquisition. On a pro forma basis, assuming the First American Acquisition had
been effective on January 1, 1996, paging expenses for the nine months ended
September 30,1997 remained relatively constant at approximately $2.8 million.
Corporate and administrative expenses for the nine months ended
September 30,1997 decreased $300,000, or 14.1%, over the same period of the
prior year, from $2.4 million to $2.1 million. This decrease was attributable
primarily to a reduction of compensation expense at the corporate level.
Depreciation of property and equipment and amortization of intangible
assets was $10.6 million for the nine months ended September 30,1997, as
compared to $4.4 million for the same period of the prior year, an increase of
$6.2 million, or 140.5%. This increase was primarily the result of higher
depreciation and amortization costs related to the First American Acquisition,
the WITN Acquisition and the GulfLink Acquisition.
Interest expense. Interest expense increased $9.1 million, or 137.1%,
from $6.7 million for the nine months ended September 30,1996 to $15.8 million
for the nine months ended September 30,1997. This increase was attributable
primarily to increased levels of debt resulting from the financing of the First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition.
Net income (loss). Net loss available to common stockholders of the
Company was $2.1 million for the nine months ended September 30,1997, as
compared with a net income of $1.6 million for the same period of the prior
year, a decrease of $3.7 million.
Liquidity and Capital Resources
The Company's working capital (deficiency) was $4.4 million and
($342,000) at September 30,1997 and December 31, 1996, respectively. The
Company's cash provided from operations was $10.6 million and $2.0 million for
the nine months ended September 30,1997 and 1996, respectively. Management
believes that current cash balances, cash flows from operations and the
available funds under its Senior Credit Facility will be adequate to provide for
the Company's capital expenditures, debt service, cash dividends and working
capital requirements for the forseeable future. The Senior Credit Facility
contains certain restrictive provisions, which, among other things, limit
capital expenditures and additional indebtedness and require minimum levels of
cash flows. Additionally, the effective interest rate of the Senior Credit
Facility can be changed based upon the Company's maintenance of certain
operating ratios as defined in the Senior Credit Facility, not to exceed the
lender's prime rate plus 0.5% or LIBOR plus 2.25%. The Senior Credit Facility
contains restrictive provisions similar to the provisions of the Company's 10
5/8% Senior Subordinated Notes due 2006. The amount borrowed by the Company and
the amount available to the Company under the Senior Credit Facility at
September 30,1997 was $60.1 million and $64.9 million, respectively.
The Company's cash used in investing activities was $53.7 million and
$203.0 million for the nine months ended September 30,1997 and 1996,
respectively. The decreased usage of $149.3 million from 1996 to 1997 was
primarily due to the First American Acquisition and the Augusta Acquisition in
1996 partially offset by the WITN Acquisition, the GulfLink Acquisition and
increased capital expenditures in 1997.
25
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
The Company's cash provided by financing activities was $43.8 million
and $206.0 million for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in cash provided by financing activities resulted
primarily from the funding obtained for the First American Acquisition and the
Augusta Acquisition in 1996 partially offset by the borrowings for the WITN
Acquisition and the GulfLink Acquisition, purchase of treasury stock and
increased payments on long-term debt in 1997. During the nine months ended
September 30,1997, the Company purchased 172,900 shares of Class A Common stock
at an average cost of $19.99 per share. The Company placed these shares in
treasury. During the three months ended September 30, 1997, the Company issued
48,509 shares of Class A Common stock and 1,371 shares of Class B Common stock
from treasury to fulfill obligations under its employee benefit plan and
long-term incentive plan.
In September 1996, the Company entered into a $125.0 million 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. This agreement included scheduled reductions in the $125.0
million credit limit which commenced on March 31, 1997, interest rates based
upon a spread over LIBOR and/or Prime, an unused commitment fee of 0.50% applied
to available funds and a maturity date of June 30, 2003. Effective September 17,
1997, the Senior Credit Facility was modified to reinstate the original credit
limit of $125.0 million, which had been reduced by the scheduled reductions. The
modification also reduced the interest rate spread over LIBOR and/or Prime and
reduced the fee applied to available funds from 0.50% to 0.375%. The
modification also extended the maturity date from June 30, 2003 to June 30,
2004. The modification required a one-time fee of $250,000. At September
30,1997, the Company had approximately $60.1 million outstanding on the Senior
Credit Facility and the interest rate was based on a spread over LIBOR of 1.75%
and/or Prime.
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 30,1997, the Company paid $2.9 million for such program
broadcast rights.
In connection with the First American Acquisition, the Federal
Communications Commission (the "FCC") ordered the Company to apply for FCC
approval to divest itself of WALB-TV ("WALB") in Albany, Georgia and WJHG-TV
("WJHG") in Panama City, Florida by March 31, 1997 to comply with regulations
governing common ownership of television stations with overlapping service
areas. The FCC is currently reexamining these regulations, and if it revises
them in accordance with the interim policy it has adopted, divestiture of WJHG
would not be required. Accordingly, the Company requested and in July of 1997
received an extension of the divestiture deadline with regard to WJHG
conditioned upon the outcome of the rulemaking proceedings. It can not be
determined when the FCC will complete its rulemaking on this subject. Also in
July of 1997, the Company obtained FCC approval to transfer control of WALB to a
trust with a view towards the trustee effecting i) a swap of WALB's 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, or ii) a sale of such assets. Under the trust
arrangement, the Company relinquished operating control of the station to a
trustee while retaining the economic risks and benefits of ownership. If the
trustee 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 an
adverse effect on the Company's ability to acquire comparable assets without
incurring additional indebtedness. The FCC has allowed up to six months for the
trustee to file an application seeking the agency's approval of a swap or sale.
The approval process is expected to take between two and six months.
The Company and its subsidiaries file a consolidated federal income tax
return and such state or local tax returns as are required. As of September
30,1997, the Company anticipates that it will generate taxable operating losses
for the foreseeable future.
26
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
Management 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.
27
<PAGE>
PART II. OTHER INFORMATION
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 August 14, 1997, reporting
the purchase of substantially all of the assets of WITN-TV
from Raycom Media - U.S., Inc.
<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 12, 1997 By: /s/William A. Fielder, III
----------------------------------------------
William A. Fielder, III, Vice President & CFO
(Chief Financial Officer)
28
<PAGE>
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -----------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 7,836,688 4,734,574 7,872,466 4,548,232
Common Stock Equivalents - based on
the treasury stock method using the
0 0 0 223,980
------------- ------------- ------------- -----------
Totals 7,836,688 4,734,574 7,872,466 4,772,212
============== ============ ============= ===========
Net income (loss) available to common
stockholders $ (1,513,269) $ (239,273) $ (2,052,492) $1,562,422
Primary per share amounts:
Income (loss) before extraordinary charge
available to common stockholders $ (0.19) $ 0.62 $ (0.26) $ 0.99
Extraordinary charge 0.00 (0.67) 0.00 (0.66)
------------- ------------- ------------- -----------
Net income (loss) available to
common stockholders $ (0.19) $ (0.05) $ (0.26) $ 0.33
============== ============ ============= ===========
Fully diluted:
Weighted average shares outstanding 7,836,688 4,734,574 7,872,466 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 0 0 0 248,217
------------- ------------- ------------- -----------
Totals 7,836,688 4,734,574 7,872,466 4,796,449
============== ============ ============= ===========
Net income (loss) available to
common stockholders $ (1,513,269) $ (239,273) $ (2,052,492) $1,562,422
============== ============ ============= ===========
Fully diluted per share amounts:
Income (loss) before extraordinary charge
available to common stockholders $ (0.19) $ 0.62 $ (0.26) $ 0.99
Extraordinary charge 0.00 (0.67) 0.00 (0.66)
------------- ------------- ------------- -----------
Net income (loss) available to
common stockholders $ (0.19) $ (0.05) $ (0.26) $ 0.33
============== ============ ============= ===========
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997 unaudited condensed consolidated financial statements of Gray
Communications Systems Inc. and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,762,155
<SECURITIES> 0
<RECEIVABLES> 18,370,489
<ALLOWANCES> 1,148,000
<INVENTORY> 899,716
<CURRENT-ASSETS> 29,137,237
<PP&E> 63,339,138
<DEPRECIATION> 21,917,451
<TOTAL-ASSETS> 347,033,975
<CURRENT-LIABILITIES> 24,778,838
<BONDS> 221,131,553
0
20,600,000
<COMMON> 64,813,516
<OTHER-SE> 7,575,284
<TOTAL-LIABILITY-AND-EQUITY> 347,033,975
<SALES> 74,243,833
<TOTAL-REVENUES> 74,243,833
<CGS> 0
<TOTAL-COSTS> 59,512,728
<OTHER-EXPENSES> 26,378
<LOSS-PROVISION> 99,334
<INTEREST-EXPENSE> 15,785,529
<INCOME-PRETAX> (1,080,802)
<INCOME-TAX> (79,000)
<INCOME-CONTINUING> (1,001,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,001,802)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
