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 Gray Reports Record Operating Results for the Quarter Ended September 30, 2018
   Tuesday, November 06, 2018 6:45:00 AM ET

ATLANTA, Nov. 06, 2018 (GLOBE NEWSWIRE) -- Gray Television, Inc. (“Gray,” “we,” “us” or “our”) (NYSE: GTN) today announces record results of operations for the three-months ended September 30, 2018, including record revenue, net income and Broadcast Cash Flow (a non-GAAP financial measure, defined below). Our diluted net income per share for the third quarter of 2018 was $0.70.

Financial Highlights, Selected Operating Data and Other Recent Developments:

  • Record Third Quarter Revenue, Net Income and Broadcast Cash Flow - Our revenue, net income and Broadcast Cash Flow for the third quarter of 2018 were all record results. Our revenue was $279.3 million, increasing $60.3 million, or 28%, from the third quarter of 2017, and was our best all-time quarterly revenue. Our net income was $61.9 million, increasing $46.6 million, or 304%, from the third quarter of 2017, and was our all-time best third quarter net income. Our Broadcast Cash Flow was $134.6 million, increasing $54.7 million, or 69%, from the third quarter of 2017, and was also our all-time best quarterly result.

  • Political Revenue – Our political advertising revenue was $48.0 million for the third quarter of 2018, consistent with our recently updated guidance. For comparison, after giving effect to stations acquired and divested since January 1, 2014, we earned $41.1 million of political advertising revenue in the third quarter of 2014, which was the most recent non-presidential election year. Our political advertising revenue for the third quarter of 2018 was 17% greater than that of the third quarter of 2014, on this adjusted basis.

  • Retransmission Revenue, Expense and Net - Our gross retransmission revenue for the third quarter of 2018 was $91.6 million, and our retransmission expense was $41.4 million. Therefore, our retransmission revenue, net of retransmission expense, was $50.2 million for the third quarter of 2018. We currently anticipate that for calendar year 2018, gross retransmission revenue will be approximately $354.0 million to $356.0 million and retransmission revenue net of retransmission expense, will be approximately $188.0 million to $190.0 million.

  • Total Leverage Ratio, Net of all Cash - As of September 30, 2018, our total leverage ratio, as defined in our senior credit facility, was 3.51 times on a trailing eight-quarter basis after netting our total cash balance of $550.9 million.

  • Pending Merger with Raycom Media - On June 23, 2018, we entered into a merger agreement with, among others, Raycom Media, Inc. Giving effect to the merger including divestitures of stations due to market overlaps, upon completion we will own and/or operate television stations and leading locally focused digital platforms in 92 markets broadcasting approximately 400 separate programming streams, including over 150 affiliates of the ABC/NBC/CBS/FOX networks. The combined entity will own number-one or number-two ranked stations in 85 of the 92 markets. These stations were ranked number-one in all day Nielsen ratings in 62 of the combined markets and number-one or number-two in 92% of the combined markets. In addition to high quality television stations, as part of the merger, we plan to acquire businesses that provide sports marketing, production and digital signage services, which should result in our becoming a more diversified media company. The consummation of the transaction is subject to the satisfaction or waiver of certain customary closing conditions, including approval from the Federal Communications Commission and the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. We anticipate that the transaction will be completed later in the fourth quarter of 2018.

  • Financing for Pending Merger with Raycom – In connection with our acquisition of Raycom Media, we expect to enter into an amendment and restatement of our senior credit facility, pursuant to which we would borrow $1.4 billion of additional secured term loan financing. In addition, we expect, through a new special purpose wholly-owned subsidiary of Gray (“Escrow Issuer”), to assume $750.0 million in aggregate principal amount of 7% senior unsecured notes due 2027, upon consummation of the Raycom Merger. We expect to use the net proceeds of the term loan, notes and other sources, to finance the acquisition and pay related fees and expenses.
Selected Operating Data (unaudited)                    
                     
  Three Months Ended September 30, 
          % Change      % Change 
          2018 to      2018 to 
  2018  2017  2017  2016  2016 
    
  (dollars in thousands) 
Revenue (less agency commissions):                    
Total $279,310  $218,977  28%  $204,490  37% 
Political $48,018  $4,005  1099%  $22,272  116% 
                     
Operating expenses (1)(3):                    
Broadcast $145,091  $139,542  4%  $120,683  20% 
Corporate and administrative $11,041  $8,330  33%  $7,217  53% 
                     
Net income (loss) $61,886  $15,316  304%  $(213) 29154% 
                     
Non-GAAP Cash Flow (2):                    
Broadcast Cash Flow (3) $134,560  $79,824  69%  $84,206  60% 
Broadcast Cash Flow Less Cash Corporate Expenses (3) $124,821  $72,670  72%  $77,956  60% 
Free Cash Flow $72,861  $38,145  91%  $29,495  147% 



  Nine Months Ended September 30, 
          % Change      % Change 
          2018 to      2018 to 
  2018  2017  2017  2016  2016 
    
  (dollars in thousands) 
Revenue (less agency commissions):                    
Total $755,912  $649,119  16%  $574,846  31% 
Political $71,863  $9,034  695%  $41,576  73% 
                     
Operating expenses (1)(3):                    
Broadcast $436,664  $406,781  7%  $346,518  26% 
Corporate and administrative $30,134  $24,472  23%  $31,407  (4)% 
                     
Net income $122,536  $96,382  27%  $26,439  363% 
                     
Non-GAAP Cash Flow (2):                    
Broadcast Cash Flow (3) $320,515  $243,304  32%  $229,437  40% 
Broadcast Cash Flow Less Cash Corporate Expenses (3) $293,866  $222,060  32%  $200,937  46% 
Free Cash Flow $164,718  $130,622  26%  $79,640  107% 

(1) Excludes depreciation, amortization and (gain) loss on disposal of assets.
(2) See definition of non-GAAP terms and a reconciliation of the non-GAAP amounts to net income included elsewhere herein.
(3) Amounts in 2017 and 2016 have been reclassified to give effect to the implementation of Accounting Standards Update 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Postretirement Benefit Cost (“ASU 2017-07”).

Results of Operations for the Third Quarter of 2018

Revenue (less agency commissions).

The table below presents our revenue (less agency commissions) by type for the third quarter of 2018 and 2017 (dollars in thousands):

  Three Months Ended September 30, 
  2018  2017  Amount  Percent 
      Percent      Percent  Increase  Increase 
  Amount   of Total  Amount   of Total   (Decrease)  (Decrease) 
Revenue (less agency commissions):                        
Local (including internet/digital/mobile) $106,929  38.3%  $110,033  50.2%  $(3,104) (3)% 
National  29,199  10.5%   31,027  14.2%   (1,828) (6)% 
Political  48,018  17.2%   4,005  1.8%   44,013  1099% 
Retransmission consent  91,603  32.8%   70,150  32.0%   21,453  31% 
Other  3,561  1.2%   3,762  1.8%   (201) (5)% 
Total $279,310  100.0%  $218,977  100.0%  $60,333     
                         

Total revenue increased $60.3 million, or 28%, to $279.3 million for the third quarter of 2018 compared to the third quarter of 2017. Total revenue increased primarily as a result of increased political advertising revenue due to 2018 being the “on-year” of the two-year election cycle and increased retransmission consent revenue, due primarily to increased retransmission consent rates.

Broadcast Operating Expenses.

Broadcast operating expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $5.5 million, or 4%, to $145.1 million for the third quarter of 2018 compared to the third quarter of 2017. The increase reflects, in part, the following:

  • Non-compensation expense increased $7.1 million, or 10%, in the 2018 period primarily as the result of increased retransmission expense of $6.7 million, or 19%, to $41.4 million offset by decreases in agency commissions of $0.6 million and other professional services of $0.6 million in the third quarter of 2018.

  • Compensation expense decreased $1.6 million in the 2018 period, primarily due to reductions in staffing. Non-cash stock-based compensation expenses were $0.3 million and $0.4 million in the third quarters of 2018 and 2017, respectively.

Corporate and Administrative Operating Expenses.

Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $2.7 million, or 33%, to $11.0 million in the third quarter of 2018 as compared to the third quarter of 2017. The increase reflects, in part, the following:

  • Non-compensation expense increased $2.2 million in the 2018 period, primarily due to increased professional fees related to acquisition activities. Professional fees related to acquisition activities were $2.4 million in the third quarter of 2018.

  • Compensation expense increased $0.5 million in the 2018 period, primarily due to increases in incentive compensation costs. Non-cash stock-based amortization expenses were $1.3 million and $1.2 million in the third quarters of 2018 and 2017, respectively.

Taxes.

We made aggregate federal and state tax payments, net of refunds, of $14.8 million in the third quarter of 2018 compared to $0.3 million in the third quarter of 2017.

Results of Operations for the Nine-Months Ended September 30, 2018

Revenue (less agency commissions).

The table below presents our revenue (less agency commissions) by type for the nine-month periods ended September 30, 2018 and 2017 (dollars in thousands):

  Nine Months Ended September 30, 
  2018  2017  Amount  Percent 
      Percent      Percent  Increase  Increase 
  Amount   of Total  Amount   of Total   (Decrease)  (Decrease) 
Revenue (less agency commissions):                        
Local (including internet/digital/mobile) $325,319  43.0%  $330,547  50.9%  $(5,228) (2)% 
National  83,584  11.1%   86,822  13.4%   (3,238) (4)% 
Political  71,863  9.5%   9,034  1.4%   62,829  695% 
Retransmission consent  262,461  34.7%   207,094  31.9%   55,367  27% 
Other  12,685  1.7%   15,622  2.4%   (2,937) (19)% 
Total $755,912  100.0%  $649,119  100.0%  $106,793     
                         

Total revenue increased $106.8 million, or 16%, to $755.9 million for the nine-months ended September 30, 2018 compared to the nine-months ended September 30, 2017. Total revenue increased primarily as a result of increased political advertising revenue due to 2018 being the “on-year” of the two-year election cycle and increased retransmission consent revenue, due primarily to increased retransmission consent rates. Local and national advertising revenue decreased slightly, in spite of the $2.3 million of revenue we earned from the broadcast of the 2018 Super Bowl on our NBC-affiliated stations, compared to $0.6 million that we earned from the broadcast of the 2017 Super Bowl on our FOX-affiliated stations. In addition, revenue from the broadcast of the 2018 Winter Olympic Games on our NBC-affiliated stations was approximately $5.5 million.

Broadcast Operating Expenses.

Broadcast operating expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $29.9 million, or 7%, to $436.7 million for the nine-months ended September 30, 2018 compared to the nine-months ended September 30, 2017. The increase reflects, in part, the following:

  • Non-compensation expenses increased by $26.7 million, or 13%, in the 2018 period, primarily as the result of increased retransmission expense of $21.5 million, or 21%, to $122.3 million in 2018 and net increases in several other expense categories including programming and other professional fees. Our programming costs related to the 2018 Winter Olympic Games were $1.5 million.

  • Compensation expenses increased $3.2 million, or 2%, in the 2018 period. Including the effect of a $0.5 million adjustment related to forfeitures, our non-cash stock-based compensation expenses were $1.5 million and $1.1 million in the 2018 and 2017 periods, respectively.

Corporate and Administrative Operating Expenses.

Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased $5.7 million, or 23%, to $30.1 million in the nine-months ended September 30, 2018 compared to the nine-months ended September 30, 2017. The increase reflects, in part, the following:

  • Non-compensation expenses increased $4.5 million, primarily due to an increase of $4.1 million of professional fees related to acquisition activities. Professional fees related to acquisition activities were $6.2 million in the 2018 period.

  • Compensation expense increased $1.2 million, primarily due to increased incentive compensation costs. Non-cash stock-based amortization expenses were $3.5 million and $3.2 million in the 2018 and 2017 periods, respectively.

Gain or Loss on Disposal of Assets.

We reported gains on disposals of assets of $5.2 million in the nine-months ended September 30, 2018, compared to $75.1 million in the nine-months ended September 30, 2017. On June 1, 2017, we tendered two of our broadcast licenses and made other modifications to our broadcast spectrum related to our participation in the FCC’s broadcast spectrum auction. Our proceeds from this auction were $90.8 million and the cost of the assets disposed was $13.1 million.

Loss from Early Extinguishment of Debt.

In the nine-months ended September 30, 2017, we recorded a loss from early extinguishment of debt of approximately $2.9 million related to the amendment and restatement of our senior credit facility.

Taxes.

We made aggregate federal and state income tax payments, net of refunds, of approximately $26.8 million in the nine-months ended September 30, 2018, compared to $1.2 million in the nine-months ended September 30, 2017. During the remainder of 2018, we anticipate making income tax payments (net of refunds) of approximately $13.0 million.

Detailed table of operating results

Gray Television, Inc. 
Selected Operating Data (Unaudited) 
(in thousands except for net income per share data) 


  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
                 
  2018  2017  2018  2017 
                 
Revenue (less agency commissions) $279,310  $218,977  $755,912  $649,119 
Operating expenses before depreciation, amortization and (gain) or loss on disposal of assets, net:                
Broadcast (1)  145,091   139,542   436,664   406,781 
Corporate and administrative (1)  11,041   8,330   30,134   24,472 
Depreciation  13,350   13,085   40,587   38,555 
Amortization of intangible assets  4,998   6,460   15,587   18,684 
(Gain) loss on disposal of assets, net  (3,572)  1,660   (5,187)  (75,139)
Operating expenses  170,908   169,077   517,785   413,353 
Operating income  108,402   49,900   238,127   235,766 
Other income (expense):                
Miscellaneous income, net (1)  930   152   2,192   407 
Interest expense  (25,104)  (24,207)  (74,185)  (71,189)
Loss from early extinguishment of debt  -   -   -   (2,851)
Income before income tax  84,228   25,845   166,134   162,133 
Income tax expense  22,342   10,529   43,598   65,751 
Net income $61,886  $15,316  $122,536  $96,382 
                 
Basic per share information:                
Net income $0.71  $0.21  $1.39  $1.34 
Weighted-average shares outstanding  87,765   71,636   88,191   71,777 
                 
Diluted per share information:                
Net income $0.70  $0.21  $1.38  $1.33 
Weighted-average shares outstanding  88,565   72,454   88,810   72,491 
                 
Political advertising revenue (less agency commissions) $48,018  $4,005  $71,863  $9,034 

(1) Amounts in 2017 have been reclassified to give effect to the implementation of ASU 2017-07

Other Financial Data

  September 30,
2018
  December 31,
2017
 
    
  (in thousands) 
         
Cash $550,932  $462,399 
Long-term debt including current portion $1,800,234  $1,837,428 
Borrowing availability under our senior credit facility $100,000  $100,000 


  Nine Months Ended September 30, 
  2018  2017 
    
  (in thousands) 
         
Net cash provided by operating activities $186,174  $114,346 
Net cash used in investing activities  (33,473)  (336,334)
Net cash (used in) provided by financing activities  (64,168)  69,653 
Net increase (decrease) in cash $88,533  $(152,335)
         

Guidance for the Three-Months Ending December 31, 2018   

Based on our current forecasts for the quarter ending December 31, 2018 (the “fourth quarter of 2018”), and excluding the anticipated results and closing costs of any pending transactions, we anticipate changes from the quarter ended December 31, 2017 (the “fourth quarter of 2017”) as outlined below:

  Low End  % Change  High End  % Change     
  Guidance for  From  Guidance for  From     
  the Fourth  Fourth  the Fourth  Fourth  Fourth 
  Quarter of  Quarter of  Quarter of  Quarter of  Quarter of 
Selected operating data: 2018  2017  2018  2017  2017 
    
  (dollars in thousands) 
OPERATING REVENUE:                    
Revenue (less agency commissions) $319,000  37%  $325,000  39%  $233,609 
                     
OPERATING EXPENSES(1)                    
(before depreciation, amortization and gain on disposals of assets):                    
Broadcast $155,000  3%  $158,000  5%  $150,782 
Corporate and administrative $11,500  62%  $13,500  90%  $7,117 
                     
OTHER SELECTED DATA:                    
Political advertising revenue                    
(less agency commissions) $81,000  985%  $82,000  999%  $7,464 

(1) Amounts in 2017 have been reclassified to give effect to the implementation of ASU 2017-07.

Comments on Fourth Quarter of 2018 Guidance:

Unless specifically mentioned, our comments exclude the anticipated results and closing costs of pending transactions, in particular the Raycom Merger, during the fourth quarter of 2018.

Revenue.

Based on our current forecasts for the fourth quarter of 2018, we anticipate the following changes from the fourth quarter of 2017:

  • We believe our fourth quarter of 2018 local advertising revenue (including internet/digital/mobile) will change to be within a range of approximately $115.0 million to $116.0 million, representing a -4% to -5% change. We believe our fourth quarter of 2018 national advertising revenue will change to be within a range of approximately $28.0 million to $29.0 million, representing a -9% to -12% change. These declines in local and national advertising revenue are consistent with inventory displacement as a result of increased demand from political advertising customers.

  • We believe our fourth quarter of 2018 political advertising revenue will be within a range of approximately $81.0 million to $82.0 million. After giving effect to stations acquired and divested since January 1, 2014, we earned $79.6 million of political advertising revenue in the fourth quarter of 2014 which was the most recent non-presidential election year. We currently anticipate calendar year 2018 political advertising revenue will be within a range of approximately $152.9 million to $153.9 million, compared to $144.8 million for calendar year 2014, on that same basis.

  • We believe that our gross retransmission revenue for calendar year 2018 will be within a range of approximately $354.0 million to $356.0 million and retransmission revenue net of retransmission expense will be within a range of approximately $188.0 million to $190.0 million. We believe our fourth quarter of 2018 retransmission consent revenue will be within a range of approximately $92.0 million to $94.0 million.

Broadcast Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets, net).

For the fourth quarter of 2018, we anticipate that our broadcast operating expenses will increase primarily due to retransmission expense, which we expect to increase by a range of approximately $7.5 million to $8.0 million to within a range of approximately $43.0 million to $44.0 million.

Corporate and Administrative Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets, net).

For the fourth quarter of 2018, we anticipate our corporate and administrative operating expense will increase to within a range of approximately $12.5 million to $13.5 million, primarily attributable to increases in professional services fees.

The Company

Currently, we own and/or operate television stations in 57 television markets broadcasting over 200 separate programming streams, including over 100 affiliates of the CBS/NBC/ABC/FOX networks. Based on the consolidated results of the four Nielsen “sweeps” periods in 2017 our stations achieved the number-one or number-two ranking in both overall audience and news audience in all 57 of our 57 markets. We have entered into an agreement to combine with Raycom Media, Inc. in a transformational transaction. Following the consummation of the acquisition, the combined company will own leading television stations and digital platforms serving 92 markets. The combined company will also include video program production, marketing, and digital businesses including Raycom Sports, Tupelo-Raycom, and RTM Studios, the producer of PowerNation programs and content. For further information, please visit www.gray.tv .

Cautionary Statements for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act

This press release contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and the federal securities laws. These “forward-looking statements” are not statements of historical facts, and may include, among other things, statements regarding our current expectations and beliefs of operating results for the fourth quarter of 2018 or other periods, future income tax payments, pending transactions and other future events. Actual results are subject to a number of risks and uncertainties and may differ materially from the current expectations and beliefs discussed in this press release. All information set forth in this release is as of the date hereof. We do not intend, and undertake no duty, to update this information to reflect future events or circumstances. Information about certain potential factors that could affect our business and financial results and cause actual results to differ materially from those expressed or implied in any forward-looking statements are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2017 and may be contained in reports subsequently filed with the U.S. Securities and Exchange Commission (the “SEC”) and available at the SEC's website at www.sec.gov .

Conference Call Information

We will host a conference call to discuss our third quarter operating results on November 6, 2018. The call will begin at 11:00 AM Eastern Time. The live dial-in number is 1 (855) 493-3489 and the confirmation code is 5589529. The call will be webcast live and available for replay at www.gray.tv . The taped replay of the conference call will be available at 1 (855) 859-2056, Confirmation Code: 5589529 until December 6, 2018.

Gray Contacts

Web site: www.gray.tv  

Hilton H. Howell, Jr., Chairman, President and Chief Executive Officer, 404-266-5512

Jim Ryan, Executive Vice President and Chief Financial Officer, 404-504-9828

Kevin P. Latek, Executive Vice President, Chief Legal and Development Officer, 404-266-8333

Effects of Acquisitions and Divestitures on Our Results of Operations and Non-GAAP Terms

From January 1, 2016 (the beginning of the earliest period presented) through September 30, 2018, we completed eight acquisition transactions and one divestiture transaction. As more fully described in our 2017 Form 10-K filed with the Securities and Exchange Commission and in our other prior disclosures, these transactions added a net total of 21 television stations to our operations. We refer to these transactions, collectively, as the “Acquisitions.”

From time to time, Gray supplements its financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) by disclosing the non-GAAP financial measures Broadcast Cash Flow, Broadcast Cash Flow Less Cash Corporate Expenses, Free Cash Flow, Operating Cash Flow as defined in the Senior Credit Agreement and Total Leverage Ratio and Net of All Cash. These non-GAAP amounts are used by us to approximate amounts used to calculate key financial performance covenants contained in our debt agreements and are used with our GAAP data to evaluate our results and liquidity.

We define Broadcast Cash Flow as net income plus loss from early extinguishment of debt, corporate and administrative expenses, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense and non-cash 401(k) expense, less any gain on disposal of assets, any miscellaneous income, any income tax benefits and payments for program broadcast rights.

We define Broadcast Cash Flow Less Cash Corporate Expenses as net income plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, and non-cash 401(k) expense, less any gain on disposal of assets, any miscellaneous income, any income tax benefits and any payments for program broadcast rights.

We define Free Cash Flow as net income plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, amortization of deferred financing costs, any income tax expense and non-cash 401(k) expense, less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast rights, contributions to pension plans, amortization of original issue premium on our debt, purchases of property and equipment (net of reimbursements) and the payment of income taxes (net of any refunds received).

We define Operating Cash Flow as defined in our Senior Credit Agreement as net income plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, interest expense, any income tax expense, non-cash 401(k) expense and trade expense less any gain on disposal of assets, any income tax benefits, payments for program broadcast rights, trade income, and contributions to pension plans. Operating Cash Flow as defined in our Senior Credit Agreement gives effect to the revenue and broadcast expenses of the Acquisitions as if they had been acquired or divested, respectively, on October 1, 2016. It also gives effect to certain operating synergies expected from the Acquisitions and related financings and adds back professional fees incurred in completing the Acquisitions. Certain of the financial information related to the Acquisitions has been derived from, and adjusted based on, unaudited, un-reviewed financial information prepared by other entities, which Gray cannot independently verify. We cannot assure you that such financial information would not be materially different if such information were audited or reviewed and no assurances can be provided as to the accuracy of such information, or that our actual results would not differ materially from this financial information if the Acquisitions had been completed at the stated date. In addition, the presentation of Operating Cash Flow as Defined in the Senior Credit Agreement and the adjustments to such information, including expected synergies resulting from such transactions, may not comply with GAAP or the requirements for pro forma financial information under Regulation S-X under the Securities Act.

Our Total Leverage Ratio, Net of All Cash is determined by dividing our Adjusted Total Indebtedness, Net of All Cash by our Operating Cash Flow as defined in our Senior Credit Agreement, divided by two. Our Adjusted Total Indebtedness, Net of All Cash represents the total outstanding principal of our long-term debt, plus certain other obligations as defined in our Senior Credit Agreement, less all cash. Our Operating Cash Flow as defined in our Senior Credit Agreement, divided by two, represents our average annual Operating Cash Flow as defined in our Senior Credit Agreement for the preceding eight quarters.

These non-GAAP terms are not defined in GAAP and our definitions may differ from, and therefore not be comparable to, similarly titled measures used by other companies, thereby limiting their usefulness. Such terms are used by management in addition to, and in conjunction with, results presented in accordance with GAAP and should be considered as supplements to, and not as substitutes for, net income and cash flows reported in accordance with GAAP.

Reconciliation, in thousands – Quarter:

  Three Months Ended 
  September 30, 
  2018  2017  2016 
Net income (loss) $61,886  $15,316  $(213)
Adjustments to reconcile from net income (loss) to            
Free Cash Flow:            
Depreciation  13,350   13,085   11,494 
Amortization of intangible assets  4,998   6,460   4,235 
Non-cash stock based compensation  1,645   1,531   1,271 
(Gain) loss on disposal of assets, net  (3,572)  1,660   354 
Miscellaneous (income) loss, net (1)  (930)  (152)  10 
Interest expense  25,104   24,207   27,926 
Loss from early extinguishment of debt  -   -   31,987 
Income tax expense  22,342   10,529   797 
Amortization of program broadcast rights  5,309   5,209   4,817 
Common stock contributed to 401(k) plan excluding corporate 401(k) contributions  -   1   7 
Payments for program broadcast rights  (5,311)  (5,176)  (4,729)
Corporate and administrative expenses before depreciation, amortization of intangible assets and non-cash stock based compensation  9,739   7,154   6,250 
Broadcast Cash Flow (1)  134,560    79,824    84,206  
Corporate and administrative expenses before depreciation, amortization of intangible assets and non-cash stock based compensation  (9,739)  (7,154)  (6,250)
Broadcast Cash Flow Less Cash Corporate Expenses (1)  124,821    72,670    77,956  
Contributions to pension plans  (2,500)  -   (1,405)
Interest expense  (25,104)  (24,207)  (27,926)
Amortization of deferred financing costs  1,157   1,157   1,397 
Amortization of original issue premium on senior notes  (153)  (153)  (194)
Purchase of property and equipment  (14,979)  (11,011)  (19,763)
Reimbursements of property and equipment purchases  4,392   -   - 
Income taxes paid, net of refunds  (14,773)  (311)  (570)
Free Cash Flow $72,861   $38,145   $29,495  
             

(1) Amounts in 2017 and 2016 have been reclassified to give effect to the implementation of ASU 2017-07


Reconciliation, in thousands – Year to Date:

  Nine Months Ended 
  September 30, 
  2018  2017  2016 
Net income $122,536  $96,382  $26,439 
Adjustments to reconcile from net income to            
Free Cash Flow:            
Depreciation  40,587   38,555   34,237 
Amortization of intangible assets  15,587   18,684   12,365 
Non-cash stock based compensation  5,016   4,303   3,827 
(Gain) loss on disposal of assets, net  (5,187)  (75,139)  (66)
Miscellaneous income, net (1)  (2,192)  (407)  (619)
Interest expense  74,185   71,189   73,470 
Loss from early extinguishment of debt  -   2,851   31,987 
Income tax expense  43,598   65,751   19,109 
Amortization of program broadcast rights  15,913   15,444   14,026 
Common stock contributed to 401(k) plan excluding corporate 401(k) contributions  -   16   21 
Payments for program broadcast rights  (16,177)  (15,569)  (13,859)
Corporate and administrative expenses before depreciation, amortization of intangible assets and non-cash stock based compensation  26,649   21,244   28,500 
Broadcast Cash Flow (1)  320,515    243,304    229,437  
Corporate and administrative expenses before depreciation, amortization of intangible assets and non-cash stock based compensation  (26,649)  (21,244)  (28,500)
Broadcast Cash Flow Less Cash Corporate Expenses (1)  293,866    222,060    200,937  
Contributions to pension plans  (2,500)  (624)  (3,038)
Interest expense  (74,185)  (71,189)  (73,470)
Amortization of deferred financing costs  3,472   3,466   3,664 
Amortization of original issue premium on senior notes  (458)  (458)  (626)
Purchase of property and equipment  (34,894)  (21,426)  (33,238)
Reimbursements of property and equipment purchases  6,238   -   - 
Income taxes paid, net of refunds  (26,821)  (1,207)  (14,589)
Free Cash Flow $164,718   $130,622   $79,640  
             

(1) Amounts in 2017 and 2016 have been reclassified to give effect to the implementation of ASU 2017-07


Reconciliation of Total Leverage Ratio, Net of All Cash, in thousands except for ratio

  Eight Quarters
Ended
 
  September 30,
2018
 
     
Net income $420,321 
Adjustments to reconcile from net income to operating cash flow as defined in our Senior Credit Agreement:    
Depreciation  104,246 
Amortization of intangible assets  44,890 
Non-cash stock-based compensation  14,593 
(Gain) loss on disposals of assets, net  (78,992)
Interest expense  193,210 
Loss from early extinguishment of debt  2,851 
Income tax expense  (767)
Amortization of program broadcast rights  41,921 
Common stock contributed to 401(k) plan  24 
Payments for program broadcast rights  (42,159)
Pension expense  (1,232)
Contributions to pension plans  (5,634)
Adjustments for stations acquired or divested, financings and expected synergies during the eight quarter period  22,293 
Professional fees related to acquisitions and divestitures  8,065 
Operating Cash Flow as defined in our Senior Credit Agreement $723,630  
Operating Cash Flow as defined in our Senior Credit Agreement, divided by two $361,815  
     


  September 30,
2018
 
Adjusted Total Indebtedness:    
Total outstanding principal, including current portion $1,820,026 
Capital leases and other debt  669 
Cash  (550,932)
Adjusted Total Indebtedness, Net of All Cash $1,269,763  
     
Total Leverage Ratio, Net of All Cash  3.51 
     

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Source: Gray Television, Inc.


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