UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant
to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report: (Date of earliest event reported): January 21, 2015
Nexstar Broadcasting Group, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware |
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000-50478 |
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23-3083125 |
(State or other jurisdiction
of incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
545 E. John Carpenter Freeway, Suite 700
Irving, Texas 75062
(Address of Principal Executive Offices, including Zip Code)
(972) 373-8800
(Registrants Telephone Number, Including Area Code)
N/A
(Former Name or
Former Address, if Changed Since Last Report)
Check the appropriate box below
if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01 Regulation FD Disclosure.
Proposed Notes Offering
On
January 21, 2015, Nexstar Broadcasting Group, Inc. (the Company) issued a press release announcing that its wholly owned indirect subsidiary, Nexstar Broadcasting, Inc. (Nexstar Broadcasting), intends to offer, subject
to market and other customary conditions, up to $250 million in aggregate principal amount of senior notes due 2022 (the notes) in a private offering. The notes will be senior unsecured obligations of Nexstar Broadcasting and will be
guaranteed by the Company, Mission Broadcasting, Inc. (Mission) and certain of Nexstar Broadcastings and Missions future restricted subsidiaries on a senior unsecured basis.
Nexstar Broadcasting intends to use the net proceeds from the notes offering to fund the proposed acquisitions of three television stations in
three markets from Landmark Television, LLC and Landmark Media Enterprises, LLC, Meredith Corporation and SagamoreHill of Phoenix, LLC, and Pappas Telecasting of Iowa, LLC and KCWI License, LLC (collectively, the Pending Acquisitions),
to pay related fees and expenses and for general corporate purposes. If any of the Pending Acquisitions are not consummated, the proceeds of the notes offering intended to fund such Pending Acquisitions will be used to pay fees and expenses and for
general corporate purposes. The notes offering is not conditioned on the consummation of the Pending Acquisitions or any other transactions.
The notes and related guarantees are being offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of
1933, as amended (the Securities Act) or, outside the United States, to persons other than U.S. persons in compliance with Regulation S under the Securities Act. This Current Report on Form 8-K does not constitute an offer to
sell or the solicitation of an offer to buy the notes and related guarantees. Any offers of the notes and related guarantees will be made only by means of a private offering memorandum. The notes and related guarantees have not been registered under
the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements.
The press release relating to the notes offering is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Financial Information
In
connection with the notes offering, the Company provided potential investors with unaudited pro forma combined financial information as of and for the nine months ended September 30, 2014, for the nine months ended September 30, 2013, for
the year ended December 31, 2013 and for the twelve months ended September 30, 2014. The unaudited pro forma combined financial information is derived from the historical financial statements of the Company, Grant Company, Inc.
(Grant) and Communications Corporation of America (CCA), adjusted to give effect to the Companys completed acquisitions of Grant and CCA (including related transactions thereto) (the Completed Acquisitions),
the consolidation as variable interest entities (VIEs) of Marshall Broadcasting Group, Inc. (Marshall) and White Knight Broadcasting (White Knight) and the borrowings under the senior secured credit facilities of
Nexstar Broadcasting, Mission and Marshall used to fund the net cash requirements of such (collectively, the Transactions). The pro forma adjustments are preliminary and have been made solely for informational purposes. As a result, the
pro forma combined information is not intended to represent and does not purport to be indicative of what the combined company financial condition or results of operations would have been had the Transactions occurred at an earlier date. In
addition, the pro forma combined financial information does not purport to project the future financial condition and results of operations of the combined company. The actual results of the combined company may differ significantly from those
reflected in the pro forma combined financial information. The (i) unaudited pro forma combined financial information as of and for the nine months ended September 30, 2014, for the nine months ended September 30, 2013, for the year
ended December 31, 2013 and for the twelve months ended September 30, 2014; (ii) Grants audited consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and unaudited condensed consolidated
financial statements as of September 30, 2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013 and (iii) CCAs audited consolidated financial statements as of and for the years ended
December 31, 2013 and 2012 and unaudited condensed consolidated financial statements as of September 30, 2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013 are attached hereto as Exhibit 99.2,
99.3 and 99.4, respectively, and are incorporated herein by reference.
The information furnished pursuant to this Item 7.01,
including Exhibits 99.1, 99.2, 99.3 and 99.4, shall not be deemed to be filed for purposes of Section 18 of, or otherwise regarded as filed under, the Securities Exchange Act of 1934, as amended (the Exchange Act), nor
shall it be deemed incorporated by reference into any filing under the Securities Act or in the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of the federal securities laws and is
intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of the forward-looking terminology such as
assumptions, target, guidance, outlook, plans, projection, may, will, would, expect, intend, estimate,
anticipate, believe, potential, continue, (or the negative of other derivatives of each of these terms) or similar terminology. The forward-looking statements include, without limitation,
statements regarding the Pending Acquisitions, Nexstar Broadcastings issuance of the notes, the Completed Acquisitions, the consolidation as VIEs of Marshall and White Knight and the borrowings under the senior secured credit facilities of
Nexstar Broadcasting, Mission and Marshall used to fund the net cash requirements of such. These statements are based on managements estimates and assumptions with respect to future events, which include uncertainty as to our ability to
consummate the offering of the notes, failure to realize the anticipated benefits of the Pending Acquisitions and the Completed Acquisitions, including as a result of a delay in completing the Pending Acquisitions or a delay or difficulty in
integrating such assets acquired from the Pending Acquisitions and the Completed Acquisitions, the expected amount and timing of cost savings and operating synergies, current capital and debt market conditions, the Companys ability to obtain
new debt financing on acceptable terms, the anticipated terms of the notes, and the anticipated use of proceeds from the proposed offering, which estimates are believed to be reasonable, though are inherently uncertain and difficult to predict.
Actual results could differ materially from those projected as a result of certain factors. A discussion of factors that could cause actual results to vary is included in the Companys Annual Report on Form 10-K, as amended, and other periodic
reports filed with the Securities and Exchange Commission.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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Exhibit No. |
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Description |
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99.1 |
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Press Release of Nexstar Broadcasting Group, Inc. dated January 21, 2015 relating to the notes offering. |
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99.2 |
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Unaudited pro forma combined financial information as of and for the nine months ended September 30, 2014, for the nine months ended September 30, 2013, for the year ended December 31, 2013 and for the twelve months ended
September 30, 2014. |
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99.3 |
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Grant Company, Inc.s audited consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and unaudited condensed consolidated financial statements as of September 30, 2014 and
December 31, 2013 and for the nine months ended September 30, 2014 and 2013. |
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99.4 |
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Communications Corporation of Americas audited consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and unaudited condensed consolidated financial statements as of September 30,
2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013. |
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 hereunto duly authorized.
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NEXSTAR BROADCASTING GROUP, INC. |
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By: |
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/s/ Thomas E. Carter |
Date: January 21, 2015 |
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Name: |
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Thomas E. Carter |
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Title: |
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Chief Financial Officer |
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(Principal Financial Officer) |
EXHIBIT INDEX
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Exhibit No. |
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Description |
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99.1 |
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Press Release of Nexstar Broadcasting Group, Inc. dated January 21, 2015 relating to the notes offering. |
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99.2 |
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Unaudited pro forma combined financial information as of and for the nine months ended September 30, 2014, for the nine months ended September 30, 2013, for the year ended December 31, 2013 and for the twelve months ended
September 30, 2014. |
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99.3 |
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Grant Company, Inc.s audited consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and unaudited condensed consolidated financial statements as of September 30, 2014 and
December 31, 2013 and for the nine months ended September 30, 2014 and 2013. |
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99.4 |
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Communications Corporation of Americas audited consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and unaudited condensed consolidated financial statements as of September 30,
2014 and December 31, 2013 and for the nine months ended September 30, 2014 and 2013. |
Exhibit 99.1
NEXSTAR BROADCASTING ANNOUNCES $250 MILLION
OFFERING OF SENIOR NOTES
Irving, TX
January 21, 2015 Nexstar Broadcasting Group, Inc. (NASDAQ: NXST) (the Company) announced today that its wholly-owned subsidiary, Nexstar Broadcasting, Inc. (Nexstar Broadcasting), intends to offer, subject
to market and other customary conditions, $250.0 million in aggregate principal amount of new senior notes due 2022 (the Notes) in a private offering. The Notes will be senior unsecured obligations of Nexstar Broadcasting and will be
guaranteed by the Company and Mission Broadcasting Inc. (Mission) and certain of Nexstar Broadcastings and Missions future restricted subsidiaries on a senior unsecured basis.
Nexstar Broadcasting intends to use the net proceeds from this offering to fund the proposed acquisitions of three television stations in three markets from
Landmark Television, LLC and Landmark Media Enterprises, LLC, Meredith Corporation and SagamoreHill of Phoenix, LLC, and Pappas Telecasting of Iowa, LLC and KCWI License, LLC (collectively, the Pending Acquisitions), to pay related fees
and expenses and for general corporate purposes. If any of the Pending Acquisitions are not consummated, the proceeds of this offering intended to fund such Pending Acquisitions will be used to pay fees and expenses and for general corporate
purposes. This offering is not conditioned on the consummation of the Pending Acquisitions or any other transactions.
The Notes and related guarantees
will be offered in the United States only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and outside the United States, only to non-U.S. investors pursuant to
Regulation S under the Securities Act. The Notes and the related guarantees have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy
the Notes or any other securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which, or to any person to whom, such an offer, solicitation or sale is unlawful. Any offers of the Notes will be made only by means of
a private offering memorandum.
About Nexstar Broadcasting Group, Inc.
Nexstar Broadcasting Group is a leading diversified media company that leverages localism to bring new services and value to consumers and advertisers
through its traditional media, digital and mobile media platforms. Nexstar owns, operates, programs or provides sales and other services to 105 television stations and 34 related digital multicast signals reaching 56 markets or approximately 15.6%
of all U.S. television households. Nexstars portfolio includes affiliates of NBC, CBS, ABC, FOX, MyNetworkTV, The CW, Telemundo, Bounce TV, Me-TV, and LATV. Nexstars 56 community portal websites offer additional hyper-local content and
verticals for consumers and advertisers, allowing audiences to choose where, when and how they access content while creating new revenue opportunities.
Pro-forma for the completion of all announced transactions, including the Pending Acquisitions, Nexstar will own, operate, program or provide sales and other
services to 110 television stations and related digital multicast signals reaching 58 markets or approximately 18% of all U.S. television households.
Forward-Looking Statements
This news release includes
forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements include information preceded by, followed by, or that includes the words
guidance, believes, expects, anticipates, could, or similar expressions. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this news release, concerning, among other things, changes in net revenue, cash flow and operating expenses, involve risks and uncertainties, and
are subject to change based on various important factors, including the impact of changes in national and regional economies, our ability to service and refinance our outstanding debt, successful integration of acquired television stations
(including achievement of synergies and cost reductions), pricing fluctuations in local and national advertising, future regulatory actions and conditions in the television stations operating areas, competition from others in the broadcast
television markets served by the Company, volatility in programming costs, the effects of governmental regulation of broadcasting, industry consolidation, technological developments and major world news events. Unless required by law, we undertake
no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this news release
might not occur. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. For more details on factors that could affect these expectations, please see our filings with the Securities
and Exchange Commission.
Contact:
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Thomas E. Carter |
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Joseph Jaffoni |
Chief Financial Officer |
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JCIR |
Nexstar Broadcasting Group, Inc. |
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212/835-8500 or nxst@jcir.com |
972/373-8800 |
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# # #
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
On December 1, 2014,
Nexstar Broadcasting completed the Grant Acquisition for a purchase price of $87.5 million, adjusted for working capital balances acquired. Simultaneously, Nexstar Broadcasting sold certain assets of KLJB, a station acquired from Grant, to Marshall
for $15.3 million.
On January 2, 2015, effective January 1, 2015, Nexstar Broadcasting completed the CCA Acquisition for
a purchase price of $270.0 million, adjusted for working capital balances acquired. Simultaneously, Nexstar Broadcasting sold the assets of KPEJ and KMSS, both acquired from CCA, to Marshall for $43.3 million. Additionally, Nexstar Broadcasting sold
the assets of WEVV, acquired from CCA, to BCB for $26.9 million, subject to working capital adjustments.
On October 31,
2014, Nexstar Broadcasting borrowed $147.2 million of Term Loan A under the Nexstar Term Facilities. On November 28, 2014, Nexstar Broadcasting prepaid $60.0 million of its outstanding Term Loan A, and on December 1, 2014, we entered into
the Senior Secured Credit Facilities Amendments and Marshall drew $60.0 million of Term Loan A under the Marshall Term Facility. In December 2014, Mission borrowed $5.5 million on the Mission Revolving Facility in order to pay Nexstar Broadcasting
for amounts due under service arrangements. On January 2, 2015, Nexstar Broadcasting drew $95.0 million of revolving loans under the Nexstar Revolving Facility, of which $20.0 million were repaid on January 7, 2015. The Grant Acquisition
and CCA Acquisition, net of the sale to BCB, were funded with these borrowings, along with Nexstar Broadcasting cash on hand.
The Grant Acquisition, the CCA Acquisition, the sales of stations to Marshall and BCB in connection therewith, the consolidation as VIEs
of Marshall and White Knight and the borrowings used to fund the net cash requirements of such are collectively referred to as the Pro Forma Transactions.
The impact of the Pending Acquisitions and the issuance of the Notes in this offering are not reflected in the unaudited pro forma combined statements of operations and other financial data.
The following unaudited pro forma combined financial data should be read in conjunction with Capitalization, Summary
Historical and Unaudited Pro Forma Consolidated Financial and Other Data and the notes thereto, Managements Discussion and Analysis of Financial Condition and Results of Operations and the historical financial statements of
each of Nexstar, Grant and CCA and the related notes thereto incorporated by reference or included elsewhere in this offering memorandum. The unaudited pro forma combined statements of operations give effect to the Pro Forma Transactions as if they
had occurred on January 1, 2013. The unaudited pro forma combined balance sheet data gives effect to the Pro Forma Transactions as if they had occurred on September 30, 2014. The unaudited pro forma combined financial data for the twelve-month
period ended September 30, 2014 have been derived by (i) adding the historical statement of operations data for the year ended December 31, 2013 for each of Nexstar, Grant and CCA, and the historical unaudited statement of operations data
for the nine months ended September 30, 2014 for each of Nexstar, Grant and CCA (including reclassifications to conform to Nexstars presentation), (ii) subtracting the historical unaudited statement of operations data for the nine
months ended September 30, 2013 for each of Nexstar, Grant and CCA (including reclassifications to conform to Nexstars presentation) and (iii) applying pro forma adjustments to the combined statement of operations data to give effect
to the Pro Forma Transactions as if they had occurred on January 1, 2013. The unaudited pro forma combined financial data do not purport to represent what our results of operations, balance sheet data or financial information would have been if
the Pro Forma Transactions had occurred as of the dates indicated, or what such results will be for any future periods. The unaudited pro forma combined financial data are based on certain assumptions, which are described in the accompanying notes
and which management believes are reasonable.
NEXSTAR BROADCASTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2014
(in thousands)
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Historical |
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Pro Forma Adjustments |
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Nexstar |
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Grant |
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CCA |
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Grant Acquisition |
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CCA Acquisition |
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Sale to BCB |
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Pro Forma Combined |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
68,676 |
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$ |
3,836 |
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$ |
4,884 |
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$ |
(1,396 |
) |
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(a) |
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$ |
(95,567 |
) |
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(a) |
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$ |
28,033 |
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(a) |
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$ |
8,466 |
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Accounts receivable, net |
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109,017 |
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6,688 |
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21,366 |
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(2,283 |
) |
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(b) |
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134,788 |
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Deferred tax assets |
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38,585 |
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|
|
2,187 |
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(979 |
) |
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(c) |
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1,660 |
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(c) |
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41,453 |
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Prepaid expenses and other current assets |
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13,847 |
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3,247 |
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6,032 |
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1,096 |
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(d) |
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(4,267 |
) |
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(d) |
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(55 |
) |
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(b) |
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19,900 |
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Total current assets |
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230,125 |
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15,958 |
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32,282 |
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(1,279 |
) |
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(98,174 |
) |
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25,695 |
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204,607 |
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Property and equipment, net |
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215,594 |
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5,202 |
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15,871 |
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12,762 |
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(e) |
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11,076 |
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(e) |
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(2,030 |
) |
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(b) |
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258,475 |
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Goodwill |
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214,453 |
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|
139 |
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38,942 |
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40,590 |
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(e) |
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99,257 |
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(e) |
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(9,085 |
) |
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(b) |
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384,296 |
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FCC licenses |
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296,509 |
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4,397 |
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|
885 |
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21,135 |
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(e) |
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65,070 |
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(e) |
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(6,720 |
) |
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(b) |
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381,276 |
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Other intangible assets, net |
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170,567 |
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30,714 |
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(e) |
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114,074 |
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(e) |
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(9,015 |
) |
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(b) |
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306,340 |
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Deferred tax assets |
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12,501 |
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4,822 |
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(12,501 |
) |
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(c) |
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(4,822 |
) |
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(c) |
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0 |
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Other noncurrent assets, net |
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80,342 |
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5,724 |
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2,174 |
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(8,033 |
) |
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(d)(f)(k) |
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(26,431 |
) |
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(d)(f)(k) |
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(7 |
) |
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(b) |
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53,769 |
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Total assets |
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$ |
1,220,091 |
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$ |
31,420 |
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$ |
94,976 |
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$ |
83,388 |
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$ |
160,050 |
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$ |
(1,162 |
) |
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$ |
1,588,763 |
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
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Current liabilities: |
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Current portion of debt |
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$ |
7,460 |
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$ |
1,462 |
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$ |
150,080 |
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$ |
2,696 |
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(g) |
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$ |
(146,961 |
) |
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(g) |
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$ |
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$ |
14,737 |
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Accounts payable and accrued expenses |
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38,741 |
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5,525 |
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8,571 |
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(1,136 |
) |
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(b) |
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51,701 |
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Interest payable |
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13,939 |
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1,809 |
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(1,809 |
) |
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(h) |
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13,939 |
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Income tax payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,891 |
|
|
(i) |
|
|
19,695 |
|
|
(i) |
|
|
|
|
|
|
|
|
25,586 |
|
Deferred tax liabilities |
|
|
|
|
|
|
2,778 |
|
|
|
|
|
|
|
6,933 |
|
|
(c) |
|
|
51,948 |
|
|
(c) |
|
|
|
|
|
|
|
|
61,659 |
|
Other current liabilities |
|
|
22,205 |
|
|
|
3,304 |
|
|
|
5,353 |
|
|
|
821 |
|
|
(d) |
|
|
(3,900 |
) |
|
(d) |
|
|
(26 |
) |
|
(b) |
|
|
27,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
82,345 |
|
|
|
13,069 |
|
|
|
165,813 |
|
|
|
16,341 |
|
|
|
|
|
(81,027 |
) |
|
|
|
|
(1,162 |
) |
|
|
|
|
195,379 |
|
Debt |
|
|
1,079,980 |
|
|
|
10,301 |
|
|
|
|
|
|
|
69,439 |
|
|
(g) |
|
|
154,820 |
|
|
(g) |
|
|
|
|
|
|
|
|
1,314,540 |
|
Other noncurrent liabilities |
|
|
35,567 |
|
|
|
8,952 |
|
|
|
2,325 |
|
|
|
(2,740 |
) |
|
(d)(h) |
|
|
(889 |
) |
|
(d) |
|
|
|
|
|
|
|
|
43,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,197,892 |
|
|
|
32,322 |
|
|
|
168,138 |
|
|
|
83,040 |
|
|
|
|
|
72,904 |
|
|
|
|
|
(1,162 |
) |
|
|
|
|
1,553,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309 |
|
Owners Equity |
|
|
|
|
|
|
(902 |
) |
|
|
(82,539 |
) |
|
|
902 |
|
|
(h) |
|
|
82,539 |
|
|
(h) |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
394,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,543 |
|
Accumulated deficit |
|
|
(376,653 |
) |
|
|
|
|
|
|
|
|
|
|
(554 |
) |
|
(j) |
|
|
(916 |
) |
|
(j) |
|
|
|
|
|
|
|
|
(378,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nexstar stockholders equity (deficit) |
|
|
18,199 |
|
|
|
(902 |
) |
|
|
(82,539 |
) |
|
|
348 |
|
|
|
|
|
81,623 |
|
|
|
|
|
|
|
|
|
|
|
16,729 |
|
Noncontrolling interests in consolidated variable interest entities |
|
|
4,000 |
|
|
|
|
|
|
|
9,377 |
|
|
|
|
|
|
|
|
|
5,523 |
|
|
(l) |
|
|
|
|
|
|
|
|
18,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
22,199 |
|
|
|
(902 |
) |
|
|
(73,162 |
) |
|
|
348 |
|
|
|
|
|
87,146 |
|
|
|
|
|
|
|
|
|
|
|
35,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
1,220,091 |
|
|
$ |
31,420 |
|
|
$ |
94,976 |
|
|
$ |
83,388 |
|
|
|
|
$ |
160,050 |
|
|
|
|
$ |
(1,162 |
) |
|
|
|
$ |
1,588,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma combined financial data.
2
NEXSTAR BROADCASTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma Adjustments |
|
|
Pro Forma Combined |
|
|
|
Nexstar |
|
|
Grant |
|
|
CCA |
|
|
Grant and CCA Acquisitions |
|
|
Sale to BCB |
|
|
Net revenue |
|
$ |
438,507 |
|
|
$ |
31,431 |
|
|
$ |
82,372 |
|
|
$ |
|
|
|
$ |
(8,891 |
)(m) |
|
$ |
543,419 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses, excluding depreciation and amortization |
|
|
135,501 |
|
|
|
14,088 |
|
|
|
25,150 |
|
|
|
(3,474 |
)(s) |
|
|
(2,007 |
)(m) |
|
|
169,258 |
|
Selling, general, and administrative expenses, excluding depreciation and amortization |
|
|
128,488 |
|
|
|
8,383 |
|
|
|
21,378 |
|
|
|
(548 |
)(r) |
|
|
(1,914 |
)(m) |
|
|
155,787 |
|
Amortization of broadcast rights |
|
|
25,683 |
|
|
|
1,730 |
|
|
|
2,327 |
|
|
|
3,474 |
(s) |
|
|
(279 |
)(m) |
|
|
32,935 |
|
Amortization of intangible assets |
|
|
18,697 |
|
|
|
|
|
|
|
|
|
|
|
8,186 |
(n) |
|
|
|
|
|
|
26,883 |
|
Depreciation |
|
|
25,800 |
|
|
|
1,027 |
|
|
|
2,938 |
|
|
|
(763 |
)(n) |
|
|
(162 |
)(m) |
|
|
28,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
334,169 |
|
|
|
25,228 |
|
|
|
51,793 |
|
|
|
6,875 |
|
|
|
(4,362 |
) |
|
|
413,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
104,338 |
|
|
|
6,203 |
|
|
|
30,579 |
|
|
|
(6,875 |
) |
|
|
(4,529 |
) |
|
|
129,716 |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(46,039 |
) |
|
|
(329 |
) |
|
|
(13,601 |
) |
|
|
9,305 |
(o) |
|
|
|
|
|
|
(50,664 |
) |
Loss on extinguishment of debt |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71 |
) |
Other expenses |
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
57,801 |
|
|
|
5,874 |
|
|
|
16,978 |
|
|
|
2,430 |
|
|
|
(4,529 |
) |
|
|
78,554 |
|
Income tax expense |
|
|
(24,100 |
) |
|
|
(2,248 |
) |
|
|
(6,565 |
) |
|
|
(840 |
)(p) |
|
|
1,799 |
(m) |
|
|
(31,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
33,701 |
|
|
|
3,626 |
|
|
|
10,413 |
|
|
|
1,590 |
|
|
|
(2,730 |
) |
|
|
46,600 |
|
Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(857 |
) |
|
|
(2,932 |
)(q) |
|
|
|
|
|
|
(3,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nexstar |
|
$ |
33,701 |
|
|
$ |
3,626 |
|
|
$ |
9,556 |
|
|
$ |
(1,342 |
) |
|
$ |
(2,730 |
) |
|
$ |
42,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the
unaudited pro forma combined financial data.
3
NEXSTAR BROADCASTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma Adjustments |
|
|
Pro Forma Combined |
|
|
|
Nexstar |
|
|
Grant |
|
|
CCA |
|
|
Grant and CCA Acquisitions |
|
|
Sale to BCB |
|
|
Net revenue |
|
$ |
364,208 |
|
|
$ |
30,479 |
|
|
$ |
73,999 |
|
|
$ |
|
|
|
$ |
(7,946 |
)(m) |
|
$ |
460,740 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses, excluding depreciation and amortization |
|
|
107,835 |
|
|
|
13,694 |
|
|
|
23,582 |
|
|
|
(3,282 |
)(s) |
|
|
(1,671 |
)(m) |
|
|
140,158 |
|
Selling, general, and administrative expenses, excluding depreciation and amortization |
|
|
110,652 |
|
|
|
8,472 |
|
|
|
23,133 |
|
|
|
(800 |
)(r) |
|
|
(2,068 |
)(m) |
|
|
139,389 |
|
Amortization of broadcast rights |
|
|
26,867 |
|
|
|
1,698 |
|
|
|
2,616 |
|
|
|
3,282 |
(s) |
|
|
(374 |
)(m) |
|
|
34,089 |
|
Amortization of intangible assets |
|
|
22,900 |
|
|
|
|
|
|
|
|
|
|
|
11,621 |
(n) |
|
|
|
|
|
|
34,521 |
|
Depreciation |
|
|
24,791 |
|
|
|
1,040 |
|
|
|
3,165 |
|
|
|
(978 |
)(n) |
|
|
(162 |
)(m) |
|
|
27,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
293,045 |
|
|
|
24,904 |
|
|
|
52,496 |
|
|
|
9,843 |
|
|
|
(4,275 |
) |
|
|
376,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
71,163 |
|
|
|
5,575 |
|
|
|
21,503 |
|
|
|
(9,843 |
) |
|
|
(3,671 |
) |
|
|
84,727 |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(50,352 |
) |
|
|
(579 |
) |
|
|
(13,757 |
) |
|
|
9,551 |
(o) |
|
|
|
|
|
|
(55,137 |
) |
Loss on extinguishment of debt |
|
|
(1,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,048 |
) |
Other (expenses) income |
|
|
(252 |
) |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
19,511 |
|
|
|
4,996 |
|
|
|
7,757 |
|
|
|
(292 |
) |
|
|
(3,671 |
) |
|
|
28,301 |
|
Income tax (expense) benefit |
|
|
(8,844 |
) |
|
|
(1,924 |
) |
|
|
21,099 |
|
|
|
213 |
(p) |
|
|
1,470 |
(m) |
|
|
12,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
10,667 |
|
|
|
3,072 |
|
|
|
28,856 |
|
|
|
(79 |
) |
|
|
(2,201 |
) |
|
|
40,315 |
|
Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
(1,671 |
)(q) |
|
|
|
|
|
|
(1,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nexstar |
|
$ |
10,667 |
|
|
$ |
3,072 |
|
|
$ |
28,812 |
|
|
$ |
(1,750 |
) |
|
$ |
(2,201 |
) |
|
$ |
38,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma combined financial data.
4
NEXSTAR BROADCASTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma Adjustments |
|
|
|
|
|
|
Nexstar |
|
|
Grant |
|
|
CCA |
|
|
Grant and CCA Acquisitions |
|
|
Sale to BCB |
|
|
Pro Forma Combined |
|
Net revenue |
|
$ |
502,330 |
|
|
$ |
42,066 |
|
|
$ |
102,204 |
|
|
$ |
|
|
|
$ |
(10,907 |
)(m) |
|
$ |
635,693 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses, excluding depreciation and amortization |
|
|
147,711 |
|
|
|
18,507 |
|
|
|
31,780 |
|
|
|
(4,448 |
)(s) |
|
|
(2,079 |
)(m) |
|
|
191,471 |
|
Selling, general, and administrative expenses, excluding depreciation and amortization |
|
|
152,213 |
|
|
|
8,683 |
|
|
|
32,144 |
|
|
|
(2,464 |
)(r) |
|
|
(2,886 |
)(m) |
|
|
187,690 |
|
Amortization of broadcast rights |
|
|
35,439 |
|
|
|
2,305 |
|
|
|
3,322 |
|
|
|
4,448 |
(s) |
|
|
(459 |
)(m) |
|
|
45,055 |
|
Amortization of intangible assets |
|
|
30,148 |
|
|
|
|
|
|
|
|
|
|
|
14,352 |
(n) |
|
|
|
|
|
|
44,500 |
|
Depreciation |
|
|
33,578 |
|
|
|
1,383 |
|
|
|
4,158 |
|
|
|
(1,241 |
)(n) |
|
|
(215 |
)(m) |
|
|
37,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
399,089 |
|
|
|
30,878 |
|
|
|
71,404 |
|
|
|
10,647 |
|
|
|
(5,639 |
) |
|
|
506,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
103,241 |
|
|
|
11,188 |
|
|
|
30,800 |
|
|
|
(10,647 |
) |
|
|
(5,268 |
) |
|
|
129,314 |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(66,243 |
) |
|
|
(844 |
) |
|
|
(18,368 |
) |
|
|
12,860 |
(o) |
|
|
|
|
|
|
(72,595 |
) |
Loss on extinguishment of debt |
|
|
(34,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,724 |
) |
Other expenses |
|
|
(1,459 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
(1,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
815 |
|
|
|
10,344 |
|
|
|
12,372 |
|
|
|
2,213 |
|
|
|
(5,268 |
) |
|
|
20,476 |
|
Income tax (expense) benefit |
|
|
(2,600 |
) |
|
|
(3,943 |
) |
|
|
19,399 |
|
|
|
(722 |
)(p) |
|
|
2,109 |
(m) |
|
|
14,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
(1,785 |
) |
|
|
6,401 |
|
|
|
31,771 |
|
|
|
1,491 |
|
|
|
(3,159 |
) |
|
|
34,719 |
|
Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(2,378 |
) |
|
|
(2,638 |
)(q) |
|
|
|
|
|
|
(5,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nexstar |
|
$ |
(1,785 |
) |
|
$ |
6,401 |
|
|
$ |
29,393 |
|
|
$ |
(1,147 |
) |
|
$ |
(3,159 |
) |
|
$ |
29,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma combined financial data.
5
NEXSTAR BROADCASTING GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2014
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma Adjustments |
|
|
|
|
|
|
Nexstar |
|
|
Grant |
|
|
CCA |
|
|
Grant and CCA Acquisitions |
|
|
Sale to BCB |
|
|
Pro Forma Combined |
|
Net revenue |
|
$ |
576,629 |
|
|
$ |
43,018 |
|
|
$ |
110,577 |
|
|
$ |
|
|
|
$ |
(11,852 |
)(m) |
|
$ |
718,372 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses, excluding depreciation and amortization |
|
|
175,377 |
|
|
|
18,901 |
|
|
|
33,348 |
|
|
|
(4,640 |
)(s) |
|
|
(2,415 |
)(m) |
|
|
220,571 |
|
Selling, general, and administrative expenses, excluding depreciation and amortization |
|
|
170,049 |
|
|
|
8,594 |
|
|
|
30,389 |
|
|
|
(2,212 |
)(r) |
|
|
(2,732 |
)(m) |
|
|
204,088 |
|
Amortization of broadcast rights |
|
|
34,255 |
|
|
|
2,337 |
|
|
|
3,033 |
|
|
|
4,640 |
(s) |
|
|
(364 |
)(m) |
|
|
43,901 |
|
Amortization of intangible assets |
|
|
25,945 |
|
|
|
|
|
|
|
|
|
|
|
10,917 |
(n) |
|
|
|
|
|
|
36,862 |
|
Depreciation |
|
|
34,587 |
|
|
|
1,370 |
|
|
|
3,931 |
|
|
|
(1,026 |
)(n) |
|
|
(215 |
)(m) |
|
|
38,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
440,213 |
|
|
|
31,202 |
|
|
|
70,701 |
|
|
|
7,679 |
|
|
|
(5,726 |
) |
|
|
544,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
136,416 |
|
|
|
11,816 |
|
|
|
39,876 |
|
|
|
(7,679 |
) |
|
|
(6,126 |
) |
|
|
174,303 |
|
Interest expense, net |
|
|
(61,930 |
) |
|
|
(594 |
) |
|
|
(18,212 |
) |
|
|
12,614 |
(o) |
|
|
|
|
|
|
(68,122 |
) |
Loss on extinguishment of debt |
|
|
(33,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,747 |
) |
Other expenses |
|
|
(1,634 |
) |
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
(1,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
39,105 |
|
|
|
11,222 |
|
|
|
21,593 |
|
|
|
4,935 |
|
|
|
(6,126 |
) |
|
|
70,729 |
|
Income tax (expense) benefit |
|
|
(17,856 |
) |
|
|
(4,267 |
) |
|
|
(8,265 |
) |
|
|
(1,775 |
)(p) |
|
|
2,438 |
(m) |
|
|
(29,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
21,249 |
|
|
|
6,955 |
|
|
|
13,328 |
|
|
|
3,160 |
|
|
|
(3,688 |
) |
|
|
41,004 |
|
Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(3,191 |
) |
|
|
(3,899 |
)(q) |
|
|
|
|
|
|
(7,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Nexstar |
|
$ |
21,249 |
|
|
$ |
6,955 |
|
|
$ |
10,137 |
|
|
$ |
(739 |
) |
|
$ |
(3,688 |
) |
|
$ |
33,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the
unaudited pro forma combined financial data.
6
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Note 1 Basis of Pro Forma Presentation
The unaudited pro forma combined financial data and explanatory notes give effect to the Grant Acquisition and the CCA Acquisition, the sales of stations to Marshall and BCB in connection therewith, the
consolidation as VIEs of Marshall and White Knight and the borrowings used to fund the net cash requirements. As discussed in the Companys consolidated financial statements contained in previously filed Forms 10-Q and 10-K, Mission is included
in such financial statements because Nexstar is deemed under U.S. GAAP to have a controlling financial interest in Mission as a variable interest entity for financial reporting purposes. Similarly, Marshall and White Knight will also be included in
the Companys future consolidated financial statements, as Nexstar is deemed under U.S. GAAP to have a controlling financial interest in Marshall and White Knight as VIEs. The unaudited pro forma combined balance sheet is presented as if the
Pro Forma Transactions had occurred as of September 30, 2014. The unaudited pro forma combined statement of operations is presented as if the Pro Forma Transactions had occurred on January 1, 2013.
The Grant Acquisition and the CCA Acquisition will be accounted for as business combinations. Accordingly, the total purchase prices are
allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the amounts assigned to tangible and intangible assets acquired and liabilities assumed is recognized as goodwill. The
preparation of unaudited pro forma combined financial statements requires management to make estimates and assumptions that affect the amounts reported in such financial statements and the notes thereto. Estimates were applied herein to determine
the applicable interest rate on borrowings under the Companys Senior Secured Credit Facilities, the valuation of broadcast rights, goodwill, intangible assets and property, plant, and equipment, amortization of intangible assets, depreciation
of tangible fixed assets, costs incurred related to the Pro Forma Transactions and the income tax effects of the pro forma adjustments. The purchase price allocations as of the acquisition dates and the resulting effect on income from operations
will differ from the amounts included herein.
The unaudited pro forma combined financial statements are based on the
historical financial statements of the Company, Grant and CCA, after giving effect to the Pro Forma Transactions, as well as the assumptions and adjustments described in the accompanying notes. The unaudited pro forma combined financial statements
are presented for illustrative purposes only and are not indicative of either future results of operations or results that might have been achieved if the Pro Forma Transactions were consummated as of January 1, 2013. This information should be
read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements and the historical consolidated financial statements and accompanying notes of the Company, Grant and CCA.
7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (Continued)
Note 2 Purchase Price Allocations
The following tables summarize, as of September 30, 2014, the provisional allocations of the purchase prices to the estimated fair
values of the assets acquired and liabilities assumed in the acquisitions, as if they had occurred on September 30, 2014 (in thousands):
Grant Acquisition, including consolidation of variable interest entities
|
|
|
|
|
Cash |
|
$ |
3,836 |
|
Accounts Receivable |
|
|
6,688 |
|
Broadcast rights |
|
|
9,213 |
|
Property and equipment |
|
|
17,964 |
|
FCC licenses |
|
|
25,532 |
|
Other intangible assets |
|
|
30,714 |
|
Other assets |
|
|
689 |
|
Goodwill |
|
|
40,729 |
|
Accounts payable and accrued expenses |
|
|
(5,525 |
) |
Income taxes payable |
|
|
(5,891 |
) |
Broadcast rights payable |
|
|
(10,337 |
) |
Deferred tax liabilities, net |
|
|
(21,004 |
) |
|
|
|
|
|
Net assets acquired |
|
$ |
92,608 |
|
|
|
|
|
|
CCA Acquisition, including consolidation of variable interest entities, and net of the sale to BCB
|
|
|
|
|
Cash |
|
$ |
4,848 |
|
Accounts Receivable |
|
|
19,083 |
|
Broadcast rights |
|
|
2,696 |
|
Property and equipment |
|
|
25,870 |
|
FCC licenses |
|
|
59,235 |
|
Other intangible assets |
|
|
105,059 |
|
Other assets |
|
|
1,050 |
|
Goodwill |
|
|
129,114 |
|
Accounts payable and accrued expenses |
|
|
(7,435 |
) |
Income taxes payable |
|
|
(19,695 |
) |
Broadcast rights payable |
|
|
(2,863 |
) |
Deferred tax liabilities, net |
|
|
(50,288 |
) |
Noncontrolling interest |
|
|
(14,900 |
) |
|
|
|
|
|
Net assets acquired |
|
$ |
251,774 |
|
|
|
|
|
|
The amounts allocated to definite-lived intangible assets primarily represents the estimated fair values
of network affiliation agreements, which will be amortized over 15 years.
The provisional purchase price allocations presented
above are based upon all information available to us at the present time, and is based upon managements preliminary estimates of the fair values using valuation techniques including income, cost and market approaches. The purchase price
allocation is provisional pending our final determination of the fair values of the assets and liabilities, which we expect will occur within twelve months following each acquisition. Upon the completion of the final purchase price allocation, any
reallocation of fair values to the assets acquired and liabilities assumed in the acquisitions could have a material impact on our depreciation and amortization expenses and future results of operations. A change in the recognized fair value of
definite-lived intangible assets of $1.0 million would result in an approximate change in annual amortization expense of $0.1 million.
8
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (Continued)
Goodwill of $169.8 million is attributable to future expense reductions utilizing
managements leverage in programming and other station operating costs. We anticipate that the majority of the values assigned to goodwill and FCC licenses will not be deductible for tax purposes.
Note 3 Pro Forma Adjustments
The unaudited pro forma combined statements of operations do not include any costs that may result from acquisition and integration activities, nor do they adjust for expected future incremental operating
income as a result of synergies we expect to realize.
Adjustments to Unaudited Pro Forma Combined Balance Sheet
The pro forma adjustments in the unaudited pro forma combined balance sheet related to the Pro Forma Transactions as
if they had occurred on September 30, 2014 are as follows:
(a) |
Adjustments include the following cash transactions (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Acquisition |
|
|
CCA Acquisition |
|
|
Sale to BCB |
|
Purchase price, net of previous deposit payments |
|
$ |
(79,000 |
) |
|
$ |
(243,000 |
) |
|
$ |
26,850 |
|
Adjustments to purchase price for working capital |
|
|
(5,108 |
) |
|
|
(8,890 |
) |
|
|
1,183 |
|
Funding received from senior secured credit facilities |
|
|
83,898 |
|
|
|
157,939 |
|
|
|
|
|
Estimated related legal and professional fees not paid as of September 30, 2014 |
|
|
(1,186 |
) |
|
|
(1,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments |
|
$ |
(1,396 |
) |
|
$ |
(95,567 |
) |
|
$ |
28,033 |
|
(b) |
Represents assets and liabilities of CCA that were sold to BCB. |
(c) |
Represents the estimated initial value of deferred tax items recorded related to the acquisitions. Primarily relates to adjustments to fair values for book purposes
that are not recognized for tax purposes, as well as acquired NOL values. |
(d) |
Represents the estimated difference between the fair values of broadcast rights assets and liabilities acquired and their historical book values, including an
adjustment to exclude first-run programming rights from the historical financial statements, to conform to our accounting policies. |
(e) |
Represents the estimated difference between the fair values of assets acquired and their historical book values. |
(f) |
Relates to the deposits previously paid for the Grant Acquisition of $8.5 million and for the CCA Acquisition of $27.0 million. |
(g) |
Represents the proceeds of debt drawn to finance the acquisitions, as noted under note (a) above, less amounts previously recorded in the historical financial
statements of Grant and CCA. |
(h) |
Relates to amounts recorded in the historical financial statements of Grant and CCA that are not acquired by the Company. These primarily relate to debt repaid upon the
acquisitions, prior compensation arrangements that were paid and terminated upon acquisitions and equity of the prior owners. |
(i) |
Represents the tax payable related to the sale of certain stations to BCB and Marshall, offset by the usage of acquired NOLs. |
(j) |
Represents professional and legal expenses to be expensed related to the acquisitions and the financing transactions. |
9
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA(Continued)
(k) |
Represents professional and legal expenses of $1.3 million recorded as deferred financing costs related to the financing transactions. Additionally, $0.8 million
of deferred financing costs in the historical financial statements of Grant were not acquired by the Company. |
(l) |
Represents the estimated fair value of the noncontrolling interest held by the equity owners in White Knight, upon their consolidation as a VIE, less amounts previously
recognized in the historical financial statements of CCA. |
Adjustments to Unaudited Pro Forma Combined Statements
of Operations
The pro forma adjustments in the unaudited pro forma combined statements of operations related to the
Pro Forma Transactions as if they had occurred on January 1, 2013 are as follows:
(m) |
Represents the income related to the Evansville stations that were sold to BCB, but included in the CCA historical financial statements. |
(n) |
Represents adjustments to depreciation and amortization of assets acquired due to changes in the fair values of the related assets. |
(o) |
Represents the additional interest expense from the debt drawn to finance the acquisitions, including amortization of deferred financing costs and discounts, less
amounts included in the historical financial statements of Grant and CCA. The impact of a 1/8% increase or decrease in LIBOR would result in a $28 thousand change in the annual interest expense presented. |
(p) |
Represents the tax impact at blended statutory rates of the pro forma adjustments, as discussed above. |
(q) |
Represents the adjustments to net income attributable to the owners of Marshall and White Knight from the stations for which we will be performing sales and other
services under VIE relationships. |
(r) |
Represents legal and professional fees incurred related to the Pro Forma Transactions recorded in the historical financial statements of the Company, Grant and CCA.
|
(s) |
Represents a reclass of the barter program rights amortization of Grant and CCA, which were recorded in direct operating expenses in their historical financial
statements, to be consistent with Nexstars presentation in amortization of broadcast rights. |
10
Exhibit 99.3
Grant Company, Inc. Audited Consolidated Financial Statements
|
|
|
|
|
Report of Independent Certified Public Accountants |
|
|
F-2 |
|
Consolidated Balance Sheets as of December 31, 2013 and 2012 |
|
|
F-3 |
|
Consolidated Statements of Operations for the Years Ended December 31, 2013 and 2012 |
|
|
F-4 |
|
Consolidated Statements of Stockholders Deficit for the Years Ended December 31, 2013 and 2012 |
|
|
F-5 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013 and 2012 |
|
|
F-6 |
|
Notes to Consolidated Financial Statements |
|
|
F-7 |
|
Grant Company, Inc. Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 |
|
|
F-18 |
|
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2014 and 2013 |
|
|
F-19 |
|
Condensed Consolidated Statements of Stockholders Deficit for the Nine Months Ended September 30, 2014 and
2013 |
|
|
F-20 |
|
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 |
|
|
F-21 |
|
Notes to Condensed Consolidated Financial Statements |
|
|
F-22 |
|
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Grant Company, Inc.
We have audited the accompanying consolidated financial statements of Grant Company, Inc. (a Delaware corporation) and
subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders deficit, and cash flows for the years then ended, and the related notes to
the financial statements.
Managements responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Grant Company, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then
ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Fort Lauderdale, Florida
January 16, 2015
F-2
GRANT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,852,674 |
|
|
$ |
5,988,983 |
|
Accounts receivable, net of allowance for doubtful accounts of $124,036 and $126,495 in 2013 and 2012,
respectively |
|
|
9,109,619 |
|
|
|
7,528,937 |
|
Broadcast rights, current portion |
|
|
2,386,114 |
|
|
|
2,921,910 |
|
Deferred tax asset |
|
|
2,187,045 |
|
|
|
3,982,480 |
|
Prepaid expenses and other current assets |
|
|
1,458,638 |
|
|
|
391,902 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
17,994,090 |
|
|
|
20,814,212 |
|
Broadcast rights, net of current portion |
|
|
4,069,451 |
|
|
|
1,417,746 |
|
Property and equipment, net |
|
|
6,211,030 |
|
|
|
7,283,869 |
|
Intangible assets |
|
|
4,396,706 |
|
|
|
4,396,706 |
|
Deferred loan costs, net |
|
|
987,005 |
|
|
|
25,000 |
|
Goodwill |
|
|
138,889 |
|
|
|
138,889 |
|
Other assets |
|
|
25,434 |
|
|
|
25,434 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,822,605 |
|
|
$ |
34,101,856 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
5,597,765 |
|
|
$ |
4,111,047 |
|
Broadcast contracts payable, current portion |
|
|
3,130,826 |
|
|
|
3,815,959 |
|
Deferred tax liability |
|
|
2,777,930 |
|
|
|
2,637,252 |
|
Current portion of loans payable |
|
|
1,125,001 |
|
|
|
22,550,001 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
12,631,522 |
|
|
|
33,114,259 |
|
Broadcast contracts payable, net of current portion |
|
|
4,561,598 |
|
|
|
2,996,287 |
|
Accrued incentive compensation |
|
|
3,732,428 |
|
|
|
8,920,006 |
|
Loans payable, net of current portion |
|
|
17,425,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
38,350,548 |
|
|
|
45,030,552 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders deficit: |
|
|
|
|
|
|
|
|
Common stock, 10,000 shares, $0.01 par value, issued and outstanding at December 31, 2013 and 2012 |
|
|
100 |
|
|
|
100 |
|
Additional paid-in capital |
|
|
15,207,005 |
|
|
|
15,207,005 |
|
Accumulated deficit |
|
|
(19,735,048 |
) |
|
|
(26,135,801 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(4,527,943 |
) |
|
|
(10,928,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
33,822,605 |
|
|
$ |
34,101,856 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
GRANT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Gross advertising revenue |
|
$ |
46,711,258 |
|
|
$ |
49,819,702 |
|
Agency commissions |
|
|
(4,645,139 |
) |
|
|
(5,619,849 |
) |
|
|
|
|
|
|
|
|
|
Net advertising revenue |
|
|
42,066,119 |
|
|
|
44,199,853 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Amortization of broadcast rights |
|
|
2,305,266 |
|
|
|
3,200,563 |
|
Other direct operating expenses (exclusive of depreciation and amortization) |
|
|
18,506,783 |
|
|
|
12,022,472 |
|
Sales, general and administrative |
|
|
11,949,836 |
|
|
|
13,168,463 |
|
Depreciation |
|
|
1,382,684 |
|
|
|
1,392,417 |
|
Loss on disposal of assets |
|
|
|
|
|
|
174,253 |
|
Incentive compensation expense |
|
|
(3,266,486 |
) |
|
|
4,469,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
30,878,083 |
|
|
|
34,427,917 |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
11,188,035 |
|
|
|
9,771,936 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(844,022 |
) |
|
|
(975,436 |
) |
Interest income |
|
|
21 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(844,001 |
) |
|
|
(975,412 |
) |
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
10,344,034 |
|
|
|
8,796,524 |
|
Provision for income taxes |
|
|
3,943,281 |
|
|
|
3,393,694 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,400,753 |
|
|
$ |
5,402,830 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
GRANT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
Years Ended December 31, 2013 and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock $.10 Par Value 10,000 Shares Authorized |
|
|
Additional Paid-In Capital
|
|
|
Accumulated Deficit |
|
|
Total |
|
|
|
Issued Shares |
|
|
Amount |
|
|
|
|
Balance at January 1, 2012 |
|
|
10,000 |
|
|
$ |
100 |
|
|
$ |
15,145,673 |
|
|
$ |
(31,538,631 |
) |
|
$ |
(16,392,858 |
) |
Stock compensation |
|
|
|
|
|
|
|
|
|
|
61,332 |
|
|
|
|
|
|
|
61,332 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,402,830 |
|
|
|
5,402,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
10,000 |
|
|
|
100 |
|
|
|
15,207,005 |
|
|
|
(26,135,801 |
) |
|
|
(10,928,696 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,400,753 |
|
|
|
6,400,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
10,000 |
|
|
$ |
100 |
|
|
$ |
15,207,005 |
|
|
$ |
(19,735,048 |
) |
|
$ |
(4,527,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
GRANT COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,400,753 |
|
|
$ |
5,402,830 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,687,950 |
|
|
|
4,592,980 |
|
Amortization of deferred loan costs |
|
|
77,374 |
|
|
|
83,915 |
|
Loss on disposal of assets |
|
|
|
|
|
|
174,253 |
|
Incentive compensation |
|
|
(3,266,485 |
) |
|
|
4,469,749 |
|
Deferred income taxes |
|
|
1,795,435 |
|
|
|
(1,688,702 |
) |
Payments for broadcast rights |
|
|
(3,540,999 |
) |
|
|
(3,921,335 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,580,682 |
) |
|
|
(714,521 |
) |
Prepaid expenses and other assets |
|
|
(189,321 |
) |
|
|
331,006 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
749,982 |
|
|
|
480,130 |
|
Accrued incentive compensation |
|
|
(1,921,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,212,915 |
|
|
|
9,210,305 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(309,845 |
) |
|
|
(687,734 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(309,845 |
) |
|
|
(687,734 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from loan |
|
|
1,094,469 |
|
|
|
|
|
Payments on loan |
|
|
(5,094,469 |
) |
|
|
(8,000,000 |
) |
Deferred loan costs |
|
|
(1,039,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(5,039,379 |
) |
|
|
(8,000,000 |
) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(3,136,309 |
) |
|
|
522,571 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
5,988,983 |
|
|
|
5,466,412 |
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
2,852,674 |
|
|
$ |
5,988,983 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
865,615 |
|
|
$ |
997,827 |
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Taxes |
|
$ |
2,329,135 |
|
|
$ |
4,460,558 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash information: |
|
|
|
|
|
|
|
|
Gross advertising revenue and operating expenses include charges for advertising time in barter exchange transactions for
broadcast rights or trade services. These transactions resulted in approximately $3,477,000 and $3,508,000 in non-cash revenues and $3,472,000 and $3,454,000 in non-cash expenses for the years ended December 31, 2013 and 2012,
respectively. |
|
|
|
|
|
|
|
|
Additions to broadcast asset and liability are approximately $4,421,000 and $1,639,000 for 2013 and 2012,
respectively. |
|
|
|
|
|
|
|
|
The previous credit facility of $17,950,000 was paid off with proceeds from the new credit facility during 2013. |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-6
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013 and 2012
NOTE A NATURE OF BUSINESS
Grant Company, Inc. (the Parent Holding Company or Company) was incorporated on June 16, 2006
under the laws of the State of Delaware as a S Corporation. The Parent Holding Companys owner is the estate of the former owner (the Estate). Grant Group, Inc. (the Parent Company) was incorporated on December 19,
2006 under the laws of the State of Delaware as a C Corporation. The sole stockholder of the Parent Company is the Parent Holding Company.
Grant Communications, Inc. (GC) was incorporated on January 19, 1988 under the laws of the State of Delaware for the purpose of becoming the management company for the stations. The sole
stockholder of GC is the Parent Holding Company.
Grant Broadcasting System II, LLC (GBSII) was originally
incorporated on October 16, 1992 under the laws of the State of Delaware for the purpose of acquiring and operating television stations. GBSII owns and operates stations WWCW-TV in Lynchburg, Virginia and WFXR-TV in Roanoke, Virginia. The sole
member of GBSII is the Parent Company.
Grant Media, LLC (GMI) was originally incorporated on July 17, 1995
under the laws of the State of Delaware for the purpose of acquiring and operating television stations. GMI owns and operates stations WLAX in LaCrosse, Wisconsin and WEUX in Chippewa Falls, Wisconsin. During 2005, GMI was reorganized as a limited
liability company.
On December 31, 2001, GBSII, GMI (an affiliate under common control with GBSII), and the sole
shareholder of GBSII entered an agreement whereby all shares of GMI were exchanged for 25 newly issued shares of GBSII in a non-taxable transaction. On that date, GMI became a wholly owned subsidiary of GBSII. The share exchange was accounted for at
historical cost.
During 2007, GBSII was reorganized as a limited liability company and changed its name from Grant
Broadcasting Systems II, Inc.
Huntsville Television Acquisition, LLC (HTAC) was originally incorporated on
May 26, 1989 under the laws of the State of Delaware for the purpose of acquiring and operating television stations. HTAC currently owns and operates stations WZDX-TV and the station WAMY-TV in Huntsville, Alabama. HTAC is a wholly owned
subsidiary of Huntsville Television Holdings, LLC (the Huntsville Holding Company). The Huntsville Holding Company, through another limited liability corporation, is a wholly owned subsidiary of the Parent Company.
During 2007, HTAC was reorganized as a limited liability company, and changed its name from Huntsville Television Acquisition Corp.
Quad Cities Television Acquisition, LLC (QC) was originally incorporated on February 8, 1991 under the laws
of the State of Delaware for the purpose of acquiring and operating television stations. QC owns and operates station KLJB-TV in Davenport, Iowa and, through its wholly owned subsidiary, Burlington Television Acquisition, LLC, owns and operates
station KGCW in Burlington, Iowa. QC is a wholly owned subsidiary of the Huntsville Holding Company. The Huntsville Holding Company, through another limited liability corporation, is a wholly owned subsidiary of the Parent Company.
During 2007, QC was reorganized as a limited liability company, and changed its name from Quad Cities Television Acquisition Corp.
F-7
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company, the Parent Company, GC, GBSII, HTAC and QC (collectively, referred to as the Company) and their 100 percent owned
subsidiaries. All material intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Such estimates consist primarily of the allowance for doubtful accounts, incentive compensation, accrued expenses, and the useful lives and valuation of long-lived assets, including property and equipment,
broadcast rights and other intangible assets. Actual amounts could differ from those estimates.
Cash and Cash Equivalents
The Company considers cash and cash equivalents as those highly liquid investments with a maturity of three months or
less when purchased. These deposits are secured up to FDIC limits.
Broadcast Rights and Broadcast Contracts Payable
Broadcast rights consist of rights to broadcast feature films and syndicated shows and are stated at the lower of cost
or estimated net realizable value. The total cost of and obligation for these rights is recorded as an asset and liability, respectively, when the programs become available for broadcast. The Company added approximately $4,421,000 and $1,639,000 in
broadcast rights during 2013 and 2012, respectively.
The broadcast rights are amortized on a straight line basis over their
respective contractual life of the rights. The broadcast contracts obligations are payable in monthly or quarterly installments over the term of the respective contract.
The Company periodically evaluates the net realizable value of its broadcast rights based on anticipated future usage of broadcasting and the anticipated future ratings and related advertising revenue to
be generated on a program by program basis. The Company also evaluates whether future revenues will be sufficient to recover the costs of programs and, if estimated future revenues are insufficient, the Company accrues a loss related to its
broadcasting commitments.
The Company recorded impairment charges related to the broadcast rights of approximately $16,000 and
$404,000 in 2013 and 2012, respectively. These charges were included within amortization of broadcast rights in the accompanying consolidated statements of operations.
F-8
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
The estimated costs of recorded broadcast rights to be charged to expense within one
year are included in current assets. Included within broadcast contract payable, current portion, on the accompanying balance sheets is an accrual of approximately $745,000 for 2013 payments that were billed and subsequently paid in 2014. The future
maturities of broadcast contracts payable at December 31, 2013 are as follows:
|
|
|
|
|
Year Ending December 31, |
|
Amount |
|
2014 |
|
$ |
3,130,826 |
|
2015 |
|
|
1,334,245 |
|
2016 |
|
|
1,050,920 |
|
2017 |
|
|
935,220 |
|
2018 |
|
|
687,353 |
|
Thereafter |
|
|
553,860 |
|
|
|
|
|
|
|
|
$ |
7,692,424 |
|
|
|
|
|
|
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense as incurred. Costs of major renewals and
improvements which extend useful lives are capitalized. Leasehold improvements are amortized over the shorter of the assets useful life or the remaining lease term. Depreciation is computed using the straight line method over the following
estimated useful lives of the assets:
|
|
|
|
|
|
|
Estimated Life |
|
Building and towers |
|
|
20 25 years |
|
Broadcasting equipment |
|
|
5 7 years |
|
Computer and office equipment |
|
|
3 5 years |
|
Advertising Costs
The Company expenses the cost of advertising as incurred. Advertising expense was approximately $875,000 and $1,185,000 in 2013 and 2012, respectively, and is reflected as a component of sales, general,
and administrative expenses.
Intangible Assets
Intangible assets consist of the Companys FCC broadcasting license (not subject to amortization) plus legal fees directly related to transferring the license, goodwill (not subject to amortization)
and deferred loan costs. The goodwill and indefinite-lived intangible assets impairment model is a two-step process.
First, it
requires a comparison of the book value of net assets to the fair value of the related reporting unit that have goodwill assigned to them. If the fair value is determined to be less than book value, a second step is performed to compute the amount
of the impairment. In this process, a fair value for the goodwill and intangible assets is estimated, based in part on the fair value of the reporting unit used in the first step, and is compared to its carrying value. The shortfall of the fair
value below carrying value represents the amount of impairment. These intangible assets are required to be tested for impairment annually at the same date every year and when an event occurs or circumstances change such that it is reasonably
possible that an impairment may exist. The Companys annual test date is December 31. Pursuant to the impairment tests performed, the Company determined that there were no impairments to its goodwill and licenses as of December 31,
2013 and 2012.
F-9
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
Deferred Loan Costs
Deferred loan costs consist of fees paid in connection with the origination of notes payable. These costs are capitalized and amortized to
interest expense over the term of the related loan utilizing the interest method.
Revenue Recognition
The Company recognizes revenue and the related agency commissions upon the satisfaction of the following: broadcast of contracted
advertising time, satisfaction of all contractual obligations, and reasonable assurance of collection of the resulting receivable.
Barter Transactions
The Company barters advertising revenue for certain program material or certain goods or services. All barter transactions are recorded at their estimated fair value, when and if the fair value of the
advertising surrendered in the transaction is determinable based on the Companys own history of receiving cash for transactions of similar size and scope. Barter revenue and expense are recognized when commercials are broadcast and merchandise
or services are received or used, respectively. Merchandise or services received prior to the broadcast of the associated commercials are recorded as a liability, and commercials that broadcast prior to receipt of merchandise or services are
recorded as a receivable.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist principally of cash and accounts
receivables. The Company maintains cash in bank deposit accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes the risks related to these deposits are minimal. The
Company performs an ongoing evaluation of its customers credit worthiness and competitive market conditions, and establishes its allowances for doubtful accounts for receivables based upon an assessment of exposures to credit losses at each
balance sheet date.
The Company believes its allowances for doubtful accounts are sufficient based on the credit exposures
outstanding at December 31, 2013 and 2012. However, if the financial condition of the Companys customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company
periodically reviews the accounts receivable aging for delinquent accounts and all related write offs are charged to the allowance for doubtful accounts.
Long-Lived Assets
The carrying value and estimated lives of
long-lived assets are reviewed if facts and circumstances suggest that the carrying value may be impaired or the useful lives may require revision. If this review indicates that the carrying value will not be recoverable, as determined based on the
undiscounted cash flows over the remaining amortization period, the Companys carrying value of the long-lived asset will be reduced by the amount by which the carrying value exceeds the fair value. The Company determined that there was no
impairment in its long-lived assets as of December 31, 2013 and 2012.
Income Taxes
Because the Company is a S Corporation and its operating subsidiaries are LLCs, its income is taxed to its shareholders. However, one of
the Companys non-operational subsidiaries is taxed as C Corporations. The Company utilizes the liability method of accounting for deferred income taxes. This method requires
F-10
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax
assets are also established for the future tax benefits of loss and credit carryovers. The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Shared-Based Compensation
All share based awards are valued at fair value as of the grant date. Compensation expense is recognized on a straight
line-basis over the requisite vesting period.
Uncertain Tax Positions
The Company applies the provisions of FASB ASC 740-10, Accounting for Uncertain Tax Positions (ASC 740-10). Under these
provisions, companies must determine and assess all material positions existing as of the reporting date, including all significant uncertain positions, for all tax years that are open to assessment or challenge under tax statutes. Additionally,
those positions that have only timing consequences are analyzed and separated based on ASC 740-10s recognition and measurement model.
ASC 740-10 provides guidance related to uncertain tax positions for pass-through entities and tax-exempt not-for profit entities. ASC 740-10 also modifies disclosure requirements related to uncertain tax
positions for nonpublic entities and provides that all entities are subject to ASC 740-10 even if the only tax position in question is the entitys status as a pass-through.
As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit
that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open
and determined that there are no uncertain tax positions as of December 31, 2013 and 2012. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for the years before 2010.
The Companys policy is to record interest and penalties, if any, as a component of sales, general and administrative
expenses.
F-11
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
NOTE C PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Land |
|
$ |
488,811 |
|
|
$ |
488,812 |
|
Building and towers |
|
|
4,008,019 |
|
|
|
3,925,360 |
|
Broadcasting equipment |
|
|
14,996,091 |
|
|
|
14,841,251 |
|
Computer and office equipment |
|
|
1,759,107 |
|
|
|
1,659,686 |
|
Leasehold improvements |
|
|
25,355 |
|
|
|
25,355 |
|
Construction in process |
|
|
7,018 |
|
|
|
34,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21,284,400 |
|
|
|
20,974,556 |
|
Accumulated depreciation and amortization |
|
|
(15,073,370 |
) |
|
|
(13,690,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,211,030 |
|
|
$ |
7,283,869 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was approximately $1,383,000 and $1,392,000 for the years ended
December 31, 2013 and 2012, respectively.
NOTE D INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
FCC broadcasting license |
|
$ |
4,396,706 |
|
|
$ |
4,396,706 |
|
|
|
|
|
|
|
|
|
|
NOTE E DEBT
Credit Facility
As of December 31, 2012, the Parent
Company had a Credit Agreement, which was comprised of a term loan of $32,787,500 and a revolving credit facility with a maximum amount available of $7,500,000. Payments were made quarterly commencing on March 31, 2008 and extending through the
maturity date of December 31, 2013 at which time all unpaid principal of approximately $22,550,001 was due. As a condition of the term loan, the Parent Company had to meet certain financial covenants, based upon the consolidated financial
position and results of operations of GBSII, HTAC, and QC. The Credit Agreement was secured by all assets of the Company.
Borrowings under this agreement provided the option for interest to be paid at the Prime rate of 3.25% plus 1.25% (as of December 31,
2012) or at the LIBOR rate of 0.42% plus 2.75% (as of December 31, 2012). The Company elected the LIBOR rate during 2012. As of December 31, 2012, a total of $7,500,000 was outstanding under the revolving credit facility. As of
December 31, 2012, a total of approximately $15,050,001 was outstanding under the term loan.
On August 22, 2013, the
Parent Holding Company and Parent Company entered into a new Credit Agreement with a new lender, which was comprised of a term loan of $18,000,000 and a revolving credit facility with a maximum amount available of $2,500,000. Proceeds of the Credit
Agreement were used to pay off the previous facility amount outstanding of $17,950,000 plus interest. Payments on the Credit Agreement are made quarterly commencing on September 30, 2013 and extending through the maturity date of
August 22, 2018 at which time all unpaid principal is due. As a condition of the term loan, the
F-12
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
Parent Company must meet certain financial covenants, based upon the consolidated financial position and results of operations of GBSII, HTAC, and QC. The Credit Agreement is secured by all
assets of the Company.
Borrowings under this agreement provides the option for interest to be paid at the Prime rate plus the
applicable margin of 2.5% or at the LIBOR rate plus the applicable margin of 1.5% (2.74% as of December 31, 2013 for the revolver and 2.89% as of December 31, 2013 for the term loan). The applicable margin is based on the Companys
leverage ratio. The Company elected the 3-month LIBOR rate during 2013 for the revolving credit facility and the 6-month LIBOR during 2013 for the term loan. As of December 31, 2013, a total of $1,000,000 was outstanding under the revolving
credit facility. As of December 31, 2013, a total of approximately $17,550,001 was outstanding under the term loan.
|
|
|
|
|
Year Ending December 31, |
|
Amount |
|
2014 |
|
$ |
1,125,001 |
|
2015 |
|
|
1,575,000 |
|
2016 |
|
|
1,800,000 |
|
2017 |
|
|
1,800,000 |
|
2018 |
|
|
12,250,000 |
|
|
|
|
|
|
|
|
$ |
18,550,001 |
|
|
|
|
|
|
NOTE F INCENTIVE COMPENSATION PLAN
Under the terms of a Phantom Stock Agreement, the Company has granted performance units to certain key employees representing 8.7%, 8.0%,
and 6.8% of the fair market value of HTAC, QC, and GBSII respectively. All performance units are fully vested. The terms of the agreement call for the redemption of the performance units solely in the event of the sale of the Company. Because the
Estate and Parent Holding Company entered into a stock purchase agreement on November 6, 2013 to sell the Parent Holding Company, the Board of Directors elected to settle the incentive units granted. Holders of the phantom stock were given the
option to receive a payment on December 31, 2013 or on the date of closing. Four individuals elected to be paid out early on December 31, 2013. The remaining five individuals will be paid out at the closing date. As of December 31,
2013, approximately $1,902,000 of phantom stock payments were made.
The Company records incentive compensation as the annual
change in the estimated redemption value of the outstanding performance units, based on the minimum value obtained from a formula specified in the agreement. The incentive compensation expense (income) recorded in relation to the Phantom Stock
Agreement for the years ended December 31, 2013 and 2012 was approximately ($3,266,000) and $4,408,000, respectively, and is recorded in incentive compensation expense in the accompanying statements of operations. Also included in incentive
compensation expense in the accompanying statements of operations for 2012 is stock compensation expense (see Note I).
F-13
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
NOTE G COMMITMENTS AND CONTINGENCIES
Leases
The
Company has noncancelable operating lease agreements for its broadcasting facilities and equipment. Certain leases contain minimum escalation clauses as well as options to extend the leases for additional years. Rental payments are charged to rent
expense on a straight-line basis over the term of the lease. The Companys future lease commitments under these leases at December 31, 2013 are as follows:
|
|
|
|
|
Year Ending December 31, |
|
Amount |
|
2014 |
|
$ |
728,105 |
|
2015 |
|
|
657,382 |
|
2016 |
|
|
590,026 |
|
2017 |
|
|
538,248 |
|
2018 |
|
|
554,175 |
|
Thereafter |
|
|
7,938,198 |
|
|
|
|
|
|
|
|
$ |
11,006,134 |
|
|
|
|
|
|
Rent expense recorded in the consolidated financial statements for the years ended December 31, 2013
and 2012 was approximately $840,000 and $819,000, respectively.
Commitments
The Company has noncancelable agreements related to news production for studio time and employees. The Companys future commitments
under these agreements at December 31, 2013 are as follows:
|
|
|
|
|
Year Ending December 31, |
|
Amount |
|
2014 |
|
$ |
32,592 |
|
2015 |
|
|
16,614 |
|
|
|
|
|
|
|
|
$ |
49,206 |
|
|
|
|
|
|
Broadcast Rights
The Company has signed contracts for broadcast rights for future programs which are not currently available for broadcast. As a result, the asset and associated liability are not recorded in the
accompanying consolidated financial statements.
The Companys future broadcast rights commitments at December 31,
2013 are as follows:
|
|
|
|
|
Year Ending December 31, |
|
Amount |
|
2014 |
|
$ |
2,902,228 |
|
2015 |
|
|
2,244,119 |
|
2016 |
|
|
1,906,447 |
|
2017 |
|
|
1,537,311 |
|
2018 |
|
|
1,220,353 |
|
Thereafter |
|
|
3,342,625 |
|
|
|
|
|
|
|
|
$ |
13,153,083 |
|
|
|
|
|
|
F-14
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary course of its business. In the opinion of management, based on the
advice of counsel, the ultimate resolution of these matters will not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.
NOTE H RETIREMENT PLAN
The Company participates in a
defined contribution plan administered by Grant Communications, Inc. The plan covers all employees who have attained the age of 21 and have completed six months of service with participating employers. The Company may contribute for each participant
a matching contribution equal to a percentage of the participants elective contributions. The Company provides a matching contribution equal to 100% of each participants contribution up to 1% of the participants compensation
excluding bonuses. For the years ended December 31, 2013 and 2012, the Company contributed approximately $38,000 to the plan.
NOTE
I STOCK COMPENSATION
During April 2007, the CEO and sole shareholder Milton Grant passed away.
Accordingly, the shares of the Parent Holding Company are held by the Estate with a personal representative to the Estate overseeing the operations of the Company. Prior to his passing, he included in his will instructions to representatives of his
estate to grant, upon his death, shares of non-voting stock of the Parent Holding Company and membership interest of certain subsidiaries to various officers, managers, employees and consultants. Such shares granted for each individual ranged from
1-2% of the total stock and vest from periods ranging from immediately to five years. These shares have yet to be distributed.
The Company recorded stock compensation expense related to these awards of $0 and $61,000 for the years ended December 31, 2013 and
2012, respectively, which is recorded in incentive compensation expense in the accompanying statements of operations. The awards had a fair value of $8,156,000 as of the date of issuance which was calculated using the Companys fair value as of
2007. Stock compensation expense is being recorded over the vesting period of each stock grant based on the fair value of the shares on the date of grant. The awards were fully vested as of December 31, 2012. The grant date of these shares is
April 28, 2007, the date Milton Grant passed away.
NOTE J INCOME TAXES
The provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Federal: |
|
|
|
|
|
|
|
|
Current |
|
$ |
1,683,006 |
|
|
$ |
4,447,283 |
|
Deferred |
|
|
1,702,868 |
|
|
|
(1,603,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
3,385,874 |
|
|
|
2,843,324 |
|
State and other: |
|
|
|
|
|
|
|
|
Current |
|
|
324,162 |
|
|
|
635,113 |
|
Deferred |
|
|
233,245 |
|
|
|
(84,743 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
557,407 |
|
|
|
550,370 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,943,281 |
|
|
$ |
3,393,694 |
|
|
|
|
|
|
|
|
|
|
F-15
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
The reconciliation between the actual effective tax rate on continuing operations of
38.12% and 38.58% respectively and the statutory U.S. federal income tax rate of 34% for the years ended December 31, 2013 and 2012 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Income tax expense at statutory rate |
|
$ |
3,503,737 |
|
|
$ |
2,995,948 |
|
Effect of state taxes, net of federal tax benefit |
|
|
447,192 |
|
|
|
334,433 |
|
Permanent items |
|
|
12,902 |
|
|
|
9,814 |
|
State rate change |
|
|
(9,155 |
) |
|
|
|
|
Others |
|
|
(11,395 |
) |
|
|
53,499 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,943,281 |
|
|
$ |
3,393,694 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes result from temporary differences between the amount of assets and liabilities
recognized for financial reporting and tax purposes. The components of the net deferred income tax asset as of December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Deferred federal and state tax (liabilities) / assets: |
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
Gain(loss) on dispositions |
|
$ |
(43,889 |
) |
|
$ |
(44,214 |
) |
Deferred compensation |
|
|
|
|
|
|
1,965,533 |
|
Other |
|
|
(11,929 |
) |
|
|
|
|
Repair and maintenance |
|
|
(35,254 |
) |
|
|
(16,481 |
) |
Prepaid assets |
|
|
(77,718 |
) |
|
|
(71,486 |
) |
Accrued state taxes |
|
|
13,205 |
|
|
|
|
|
Allowance for bad debt |
|
|
46,795 |
|
|
|
48,078 |
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
(108,790 |
) |
|
|
1,881,430 |
|
Non-current: |
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
1,569,968 |
|
|
|
1,581,623 |
|
Depreciation |
|
|
(1,092,179 |
) |
|
|
(1,263,449 |
) |
Amortization |
|
|
(1,516,961 |
) |
|
|
(1,241,622 |
) |
Deferred rent |
|
|
320,730 |
|
|
|
284,399 |
|
Transaction costs |
|
|
170,892 |
|
|
|
|
|
State net operating loss |
|
|
65,455 |
|
|
|
102,847 |
|
|
|
|
|
|
|
|
|
|
Total non-current |
|
|
(482,095 |
) |
|
|
(536,202 |
) |
|
|
|
|
|
|
|
|
|
Net deferred income taxes |
|
$ |
(590,885 |
) |
|
$ |
1,345,228 |
|
|
|
|
|
|
|
|
|
|
Total deferred federal and state tax liabilities |
|
$ |
(2,777,930 |
) |
|
$ |
(2,637,252 |
) |
Total deferred federal and state tax assets |
|
|
2,187,045 |
|
|
|
3,982,480 |
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes |
|
$ |
(590,885 |
) |
|
$ |
1,345,228 |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013 and 2012, the Company has no unrecognized tax benefits.
F-16
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2013 and 2012
NOTE K DEFERRED LOAN COSTS
Deferred loan costs consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Deferred loan costs |
|
$ |
1,064,379 |
|
|
$ |
858,261 |
|
Accumulated amortization |
|
|
(77,374 |
) |
|
|
(833,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
987,005 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
|
The Company recorded amortization of deferred loan costs as interest expense of approximately $77,000 and
$84,000 for the years ended December 31, 2013 and 2012, respectively.
NOTE L SALE OF THE COMPANY
On November 6, 2013, the Estate and the Parent Holding Company entered into a stock purchase agreement with Nexstar Broadcasting,
Inc. (Nexstar) to sell the Parent Holding Company for $87.5 million plus working capital. Nexstar placed $8.5 million in escrow upon signing the agreement. Nexstar was required to apply for approval from the FCC for the sale to close.
The closing will occur on the 5th business day following the date that the FCC consent has been granted and has become a Final Order and all other closing conditions have been met. When the FCC consent is granted, unless someone contests the grant,
it will become final after the close of business on the 40th day following the release of public notice of the grant. On November 3, 2014 the FCC granted consent, and the sale closed on December 1, 2014.
NOTE M SUBSEQUENT EVENTS
The Company evaluated its December 31, 2013 financial statements for subsequent events through January 16, 2015, the date the financial statements were available to be issued. The Company is not
aware of any subsequent events which would require recognition or disclosure in the financial statements other than the sale of the Company as described in Note L which was completed on December 1, 2014. In November 2014, the Company also
distributed approximately $2.6 million to the Estate.
F-17
GRANT COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
|
|
(Unaudited) |
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,836,153 |
|
|
$ |
2,852,674 |
|
Accounts receivable, net of allowance for doubtful accounts of $162,445 at September 30, 2014 and $124,036 at
December 31, 2013 |
|
|
6,688,504 |
|
|
|
9,109,619 |
|
Broadcast rights, current portion |
|
|
2,582,742 |
|
|
|
2,386,114 |
|
Deferred tax asset |
|
|
2,187,045 |
|
|
|
2,187,045 |
|
Prepaid expenses and other current assets |
|
|
663,871 |
|
|
|
1,458,638 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
15,958,315 |
|
|
|
17,994,090 |
|
|
|
|
Broadcast rights, net of current portion |
|
|
4,866,766 |
|
|
|
4,069,451 |
|
Property and equipment, net |
|
|
5,202,141 |
|
|
|
6,211,030 |
|
Intangible assets |
|
|
4,396,706 |
|
|
|
4,396,706 |
|
Deferred loan costs, net |
|
|
831,806 |
|
|
|
987,005 |
|
Goodwill |
|
|
138,889 |
|
|
|
138,889 |
|
Other assets |
|
|
25,434 |
|
|
|
25,434 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,420,057 |
|
|
$ |
33,822,605 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
5,524,766 |
|
|
$ |
5,597,765 |
|
Broadcast contracts payable, current portion |
|
|
3,304,153 |
|
|
|
3,130,826 |
|
Deferred tax liability |
|
|
2,777,930 |
|
|
|
2,777,930 |
|
Current portion of loans payable |
|
|
1,461,768 |
|
|
|
1,125,001 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
13,068,617 |
|
|
|
12,631,522 |
|
|
|
|
Broadcast contracts payable, net of current portion |
|
|
5,220,616 |
|
|
|
4,561,598 |
|
Accrued incentive compensation |
|
|
3,732,428 |
|
|
|
3,732,428 |
|
Loans payable, net of current portion |
|
|
10,300,733 |
|
|
|
17,425,000 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
32,322,394 |
|
|
|
38,350,548 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit: |
|
|
|
|
|
|
|
|
Common stock, 10,000 shares, $0.01 par value, issued and outstanding at September 30, 2014 and December 31,
2013 |
|
|
100 |
|
|
|
100 |
|
Additional paid-in capital |
|
|
15,207,005 |
|
|
|
15,207,005 |
|
Accumulated deficit |
|
|
(16,109,442 |
) |
|
|
(19,735,048 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(902,337 |
) |
|
|
(4,527,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
31,420,057 |
|
|
$ |
33,822,605 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
F-18
GRANT COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
Gross advertising revenue |
|
$ |
34,568,470 |
|
|
$ |
33,843,534 |
|
Agency commissions |
|
|
(3,137,016 |
) |
|
|
(3,364,371 |
) |
|
|
|
|
|
|
|
|
|
Net advertising revenue |
|
|
31,431,454 |
|
|
|
30,479,163 |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Amortization of broadcast rights |
|
|
1,730,396 |
|
|
|
1,697,827 |
|
Other direct operating expenses (exclusive of depreciation and amortization) |
|
|
14,087,791 |
|
|
|
13,694,335 |
|
Sales, general and administrative |
|
|
8,382,959 |
|
|
|
8,471,605 |
|
Depreciation |
|
|
1,027,347 |
|
|
|
1,040,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
25,228,493 |
|
|
|
24,903,824 |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
6,202,961 |
|
|
|
5,575,339 |
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(329,636 |
) |
|
|
(579,149 |
) |
Interest income |
|
|
4 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(329,632 |
) |
|
|
(579,134 |
) |
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
5,873,329 |
|
|
|
4,996,205 |
|
Provision for income taxes |
|
|
2,247,723 |
|
|
|
1,924,038 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,625,606 |
|
|
$ |
3,072,167 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
F-19
GRANT COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
Nine Months Ended September 30, 2014 and 2013
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock $.10 Par
Value 10,000 Shares Authorized |
|
|
Additional Paid-In Capital
|
|
|
|
|
|
|
|
|
|
Issued Shares |
|
|
Amount |
|
|
|
Accumulated Deficit |
|
|
Total |
|
Balance at January 1, 2013 |
|
|
10,000 |
|
|
$ |
100 |
|
|
$ |
15,207,005 |
|
|
$ |
(26,135,801 |
) |
|
$ |
(10,928,696 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,072,167 |
|
|
|
3,072,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2013 |
|
|
10,000 |
|
|
$ |
100 |
|
|
$ |
15,207,005 |
|
|
$ |
(23,063,634 |
) |
|
$ |
(7,856,529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
|
10,000 |
|
|
$ |
100 |
|
|
$ |
15,207,005 |
|
|
$ |
(19,735,048 |
) |
|
$ |
(4,527,943 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,625,606 |
|
|
|
3,625,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014 |
|
|
10,000 |
|
|
$ |
100 |
|
|
$ |
15,207,005 |
|
|
$ |
(16,109,442 |
) |
|
$ |
(902,337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
F-20
GRANT COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,625,606 |
|
|
$ |
3,072,167 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,757,743 |
|
|
|
2,737,884 |
|
Amortization of deferred loan costs |
|
|
155,199 |
|
|
|
44,534 |
|
Payments for broadcast rights |
|
|
(1,891,992 |
) |
|
|
(2,721,796 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease (increase) in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
2,421,115 |
|
|
|
(18,272 |
) |
Prepaid expenses and other assets |
|
|
553,927 |
|
|
|
21,008 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
167,841 |
|
|
|
202,418 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
7,789,439 |
|
|
|
3,337,943 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(18,460 |
) |
|
|
(251,479 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(18,460 |
) |
|
|
(251,479 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Deferred loan costs |
|
|
|
|
|
|
(1,039,379 |
) |
Payments on loan |
|
|
(6,787,500 |
) |
|
|
(4,775,000 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(6,787,500 |
) |
|
|
(5,814,379 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
983,479 |
|
|
|
(2,727,915 |
) |
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
2,852,674 |
|
|
|
5,988,983 |
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
3,836,153 |
|
|
$ |
3,261,068 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
342,684 |
|
|
$ |
643,904 |
|
|
|
|
|
|
|
|
|
|
Taxes |
|
$ |
1,693,796 |
|
|
$ |
2,159,719 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash information: |
|
|
|
|
|
|
|
|
|
|
|
Gross advertising revenue and operating expenses include charges for advertising time in barter exchange transactions for
broadcast rights or trade services. These transactions resulted in approximately $2,231,000 and $2,307,000 in non-cash revenues and $2,520,000 and $2,617,000 in non-cash expenses for the periods ended September 30, 2014 and 2013,
respectively. |
|
|
|
|
|
|
|
|
|
|
|
Additions to broadcast asset and liability are approximately $2,724,000 and $4,431,000 for as of September 30, 2014 and
2013, respectively. |
|
|
|
|
|
|
|
|
|
|
|
The previous credit facility of $17,950,000 was paid off with proceeds from the new credit facility during 2013. |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
F-21
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A NATURE OF BUSINESS
Grant Company, Inc. (the Parent
Holding Company or Company) was incorporated on June 16, 2006 under the laws of the State of Delaware as a S Corporation. The Parent Holding Companys owner is the estate of the former owner (the Estate).
Grant Group, Inc. (the Parent Company) was incorporated on December 19, 2006 under the laws of the State of Delaware as a C Corporation. The sole stockholder of the Parent Company is the Parent Holding Company.
Grant Communications, Inc. (GC) was incorporated on January 19, 1988 under the laws of the State of Delaware for the
purpose of becoming the management company for the stations. The sole stockholder of GC is the Parent Holding Company.
Grant
Broadcasting System II, LLC (GBSII) was originally incorporated on October 16, 1992 under the laws of the State of Delaware for the purpose of acquiring and operating television stations. GBSII owns and operates stations WWCW-TV in
Lynchburg, Virginia and WFXR-TV in Roanoke, Virginia. The sole member of GBSII is the Parent Company.
Grant Media, LLC
(GMI) was originally incorporated on July 17, 1995 under the laws of the State of Delaware for the purpose of acquiring and operating television stations. GMI owns and operates stations WLAX in LaCrosse, Wisconsin and WEUX in
Chippewa Falls, Wisconsin. During 2005, GMI was reorganized as a limited liability company.
On December 31, 2001, GBSII,
GMI (an affiliate under common control with GBSII), and the sole shareholder of GBSII entered an agreement whereby all shares of GMI were exchanged for 25 newly issued shares of GBSII in a non-taxable transaction. On that date, GMI became a wholly
owned subsidiary of GBSII. The share exchange was accounted for at historical cost.
During 2007, GBSII was reorganized as a
limited liability company and changed its name from Grant Broadcasting Systems II, Inc.
Huntsville Television Acquisition, LLC
(HTAC) was originally incorporated on May 26, 1989 under the laws of the State of Delaware for the purpose of acquiring and operating television stations. HTAC currently owns and operates stations WZDX-TV and the station WAMY-TV in
Huntsville, Alabama. HTAC is a wholly owned subsidiary of Huntsville Television Holdings, LLC (the Huntsville Holding Company). The Huntsville Holding Company, through another limited liability corporation, is a wholly owned subsidiary
of the Parent Company.
During 2007, HTAC was reorganized as a limited liability company, and changed its name from Huntsville
Television Acquisition Corp.
Quad Cities Television Acquisition, LLC (QC) was originally incorporated on
February 8, 1991 under the laws of the State of Delaware for the purpose of acquiring and operating television stations. QC owns and operates station KLJB-TV in Davenport, Iowa and, through its wholly owned subsidiary, Burlington Television
Acquisition, LLC, owns and operates station KGCW in Burlington, Iowa. QC is a wholly owned subsidiary of the Huntsville Holding Company. The Huntsville Holding Company, through another limited liability corporation, is a wholly owned subsidiary of
the Parent Company.
During 2007, QC was reorganized as a limited liability company, and changed its name from Quad Cities
Television Acquisition Corp.
F-22
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company, the Parent Company, GC, GBSII, HTAC and QC (collectively, referred to as the Company) and their 100 percent owned
subsidiaries. All material intercompany transactions and balances have been eliminated.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (GAAP) and pursuant to the rules for interim financial statements. Certain information and footnote disclosures normally included in the financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such rules. The financial information contained herein is unaudited; however, management believes all adjustments necessary to present fairly the Companys financial
position have been included. The results of operations for the nine month periods ended September 30, 2014 and 2013 are not necessarily indicative of the results that may be expected for the full fiscal year.
The condensed consolidated balance sheet data as of December 31, 2013, was derived from the audited financial statements but does not
included all the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements are meant to be, and should be, read in conjunction with the historical financial statements and related
footnotes of the Company as of and for the year ended December 31, 2013.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates consist primarily
of the allowance for doubtful accounts, incentive compensation, accrued expenses, and the useful lives and valuation of long-lived assets, including property and equipment, broadcast rights and other intangible assets. Actual amounts could differ
from those estimates.
Significant Accounting Policies
During the nine months ended September 30, 2014, there were no material changes in the Companys significant accounting
policies. See Note A to the financial statements for the year ended December 31, 2013 for additional information regarding the Companys significant accounting policies.
NOTE C INCENTIVE COMPENSATION PLAN
Under the terms of a
Phantom Stock Agreement, the Company has granted performance units to certain key employees representing 8.7%, 8.0%, and 6.8% of the fair market value of HTAC, QC, and GBSII, respectively. All performance units are fully vested. The terms of the
agreement call for the redemption of the performance units solely in the event of the sale of the Company. The Company records incentive compensation as the annual change in the estimated redemption value of the outstanding performance units, based
on the minimum value obtained from a formula specified in the agreement.
Per the agreement, the calculation is based upon the
most recent fiscal year. Therefore, the calculation remains based on December 31, 2013 and 2012, and there is no incentive compensation expense recorded for the nine month periods ending September 30, 2014 or 2013.
F-23
GRANT COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE D SUBSEQUENT EVENTS
On November 6, 2013, the Estate and the Parent Holding Company entered into a stock purchase agreement with Nexstar Broadcasting,
Inc. (Nexstar) to sell the Parent Holding Company for $87.5 million plus working capital. Nexstar placed $8.5 million in escrow upon signing the agreement. Nexstar was required to apply for approval from the FCC for the sale to close.
The closing will occur on the 5th business day following the date that the FCC consent has been granted and has become a Final Order and all other closing conditions have been met. When the FCC consent is granted, unless someone contests the grant,
it will become final after the close of business on the 40th day following the release of public notice of the grant. On November 3, 2014 the FCC granted consent, and the sale closed on December 1, 2014.
The Company evaluated its September 30, 2014 financial statements for subsequent events through January 16, 2015, the date the
financial statements were available to be issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements other than the sale of the Company which was completed on December 1,
2014. In November 2014, the Company also distributed approximately $2.6 million to the Estate.
F-24
Exhibit 99.4
Communications Corporation of America Audited Consolidated Financial Statements
|
|
|
|
|
Independent Auditors Report |
|
|
F-2 |
|
Consolidated Balance Sheets as of December 31, 2013 and 2012 |
|
|
F-3 |
|
Consolidated Statements of Operations for the Years Ended December 31, 2013 and 2012 |
|
|
F-4 |
|
Consolidated Statements of Stockholders Deficit for the Years Ended December 31, 2013 and 2012 |
|
|
F-5 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013 and 2012 |
|
|
F-6 |
|
Notes to Consolidated Financial Statements |
|
|
F-7 |
|
Communications Corporation of America Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 |
|
|
F-19 |
|
Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2014 and 2013 |
|
|
F-20 |
|
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 |
|
|
F-21 |
|
Notes to Condensed Consolidated Financial Statements |
|
|
F-22 |
|
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
Communications Corporation of America
Lafayette, Louisiana
We have
audited the accompanying consolidated financial statements of Communications Corporation of America and its Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012 and the related consolidated
statements of operations, stockholders deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Communications Corporation of America and its Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash
flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As described in Note 13 to the consolidated financial statements, the 2013 and 2012 financial statements have been restated to correct a misstatement. Our opinion is not modified with respect to this
matter.
/s/ BDO USA, LLP
Atlanta,
Georgia
April 30, 2014, except as to
the information under the heading Variable Interest Entities contained in Note 2 and Note 13 which are as of January 20, 2015
F-2
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share information)
|
|
|
|
|
|
|
|
|
December 31, |
|
2013 |
|
|
2012 |
|
|
|
(as restated) |
|
|
(as restated) |
|
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,907 |
|
|
$ |
12,417 |
|
Accounts receivable, less allowance for doubtful accounts of $728 and $1,057 for 2013 and 2012, respectively |
|
|
19,850 |
|
|
|
19,684 |
|
Current portion of program contract rights |
|
|
4,877 |
|
|
|
4,830 |
|
Prepaid expenses and other current assets |
|
|
2,152 |
|
|
|
2,237 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
47,786 |
|
|
|
39,168 |
|
Property and Equipment, Net (Note 4) |
|
|
18,071 |
|
|
|
20,794 |
|
Program Contract Rights, Net of Current Portion |
|
|
1,259 |
|
|
|
897 |
|
Deferred Tax Asset (Note 7) |
|
|
10,616 |
|
|
|
|
|
Goodwill (Note 5) |
|
|
38,942 |
|
|
|
38,942 |
|
Intangible Assets (Note 5) |
|
|
885 |
|
|
|
885 |
|
Other Assets |
|
|
253 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
117,812 |
|
|
$ |
100,941 |
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,081 |
|
|
$ |
1,472 |
|
Accrued expenses |
|
|
6,648 |
|
|
|
6,225 |
|
Accrued interest payable (Note 6) |
|
|
1,818 |
|
|
|
1,785 |
|
Current portion of revolving credit facility, including paid-in-kind interest (Note 6) |
|
|
|
|
|
|
5,361 |
|
Current portion of capital lease obligations (Note 9) |
|
|
|
|
|
|
203 |
|
Current portion of program contract obligations |
|
|
5,207 |
|
|
|
5,199 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
14,754 |
|
|
|
20,245 |
|
Term A Loan, including Paid-In-Kind Interest (Note 6) |
|
|
185,080 |
|
|
|
185,080 |
|
Capital Lease Obligations, Net of Current Portion (Note 9) |
|
|
|
|
|
|
93 |
|
Deferred Tax Liability (Note 7) |
|
|
|
|
|
|
9,397 |
|
Program Contract Obligations, Net of Current Portion |
|
|
1,553 |
|
|
|
1,137 |
|
Other |
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
201,387 |
|
|
|
216,062 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
Stockholders Deficit |
|
|
|
|
|
|
|
|
Common stock, par value $0.01; 20,000,000 shares authorized, 10,063,693 shares issued and 10,000,000 outstanding |
|
|
101 |
|
|
|
101 |
|
Additional paid-in capital |
|
|
2,615 |
|
|
|
2,615 |
|
Treasury stock |
|
|
(225 |
) |
|
|
|
|
Accumulated deficit |
|
|
(94,586 |
) |
|
|
(123,979 |
) |
|
|
|
|
|
|
|
|
|
Total Communications Corporation of America Stockholders Deficit |
|
|
(92,095 |
) |
|
|
(121,263 |
) |
Noncontrolling Interest |
|
|
8,520 |
|
|
|
6,142 |
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit |
|
|
(83,575 |
) |
|
|
(115,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
117,812 |
|
|
$ |
100,941 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2013 |
|
|
2012 |
|
|
|
(as restated) |
|
|
(as restated) |
|
Revenues |
|
|
|
|
|
|
|
|
Cash, net |
|
$ |
97,689 |
|
|
$ |
93,469 |
|
Trade and barter |
|
|
4,515 |
|
|
|
4,845 |
|
|
|
|
|
|
|
|
|
|
Total Revenues, Net |
|
|
102,204 |
|
|
|
98,314 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Direct operating expenses (net of depreciation and amortization) |
|
|
31,780 |
|
|
|
28,984 |
|
Selling, general, and administrative expenses (net of depreciation and amortization) |
|
|
32,144 |
|
|
|
32,266 |
|
Amortization of program contract rights |
|
|
3,322 |
|
|
|
3,250 |
|
Depreciation and amortization |
|
|
4,158 |
|
|
|
4,264 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
71,404 |
|
|
|
68,764 |
|
|
|
|
|
|
|
|
|
|
Income From Operations |
|
|
30,800 |
|
|
|
29,550 |
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(18,368 |
) |
|
|
(22,021 |
) |
Other income (expense) |
|
|
(60 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(18,428 |
) |
|
|
(22,010 |
) |
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes |
|
|
12,372 |
|
|
|
7,540 |
|
Benefit (Provision) for Income Taxes |
|
|
19,399 |
|
|
|
(1,790 |
) |
|
|
|
|
|
|
|
|
|
Net Income |
|
|
31,771 |
|
|
|
5,750 |
|
Less Net Income Attributable to Noncontrolling Interest |
|
|
2,378 |
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Communications Corporation of America Common Stockholders |
|
$ |
29,393 |
|
|
$ |
5,068 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(amounts in thousands, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, 2013 and 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Treasury Stock |
|
|
Accumulated Deficit
(as Restated) |
|
|
Total Communications Corporation
of America Stockholders Deficit (as Restated) |
|
|
Noncontrolling Interest (as
Restated) |
|
|
Total Stockholders Deficit |
|
|
|
Shares |
|
|
Par Value |
|
|
|
|
|
|
|
Balance, December 31, 2011 |
|
|
10,063,693 |
|
|
$ |
101 |
|
|
$ |
2,615 |
|
|
$ |
|
|
|
$ |
(129,047 |
) |
|
$ |
(126,331 |
) |
|
$ |
5,460 |
|
|
$ |
(120,871 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,068 |
|
|
|
5,068 |
|
|
|
682 |
|
|
|
5,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 |
|
|
10,063,693 |
|
|
|
101 |
|
|
$ |
2,615 |
|
|
|
|
|
|
|
(123,979 |
) |
|
|
(121,263 |
) |
|
|
6,142 |
|
|
|
(115,121 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,393 |
|
|
|
29,393 |
|
|
|
2,378 |
|
|
|
31,771 |
|
Purchase of treasury stock |
|
|
(63,693 |
) |
|
|
|
|
|
|
|
|
|
|
(225 |
) |
|
|
|
|
|
|
(225 |
) |
|
|
|
|
|
|
(225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
|
10,000,000 |
|
|
$ |
101 |
|
|
$ |
2,615 |
|
|
$ |
(225 |
) |
|
$ |
(94,586 |
) |
|
$ |
(92,095 |
) |
|
$ |
8,520 |
|
|
$ |
(83,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2013 |
|
|
2012 |
|
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
31,771 |
|
|
$ |
5,750 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,158 |
|
|
|
4,264 |
|
Loss on disposition of assets |
|
|
173 |
|
|
|
114 |
|
Paid-in-kind interest |
|
|
|
|
|
|
6,921 |
|
Amortization of program contract rights |
|
|
3,322 |
|
|
|
3,250 |
|
Provision for bad debts |
|
|
119 |
|
|
|
364 |
|
(Benefit) provision for deferred income taxes |
|
|
(20,013 |
) |
|
|
1,322 |
|
Changes in assets and liabilities, net of effects of disposals: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(285 |
) |
|
|
(3,677 |
) |
Prepaid expenses and other assets |
|
|
87 |
|
|
|
(92 |
) |
Program contract rights |
|
|
(3,731 |
) |
|
|
(1,701 |
) |
Accounts payable, accrued expenses and other liabilities: |
|
|
(171 |
) |
|
|
3,710 |
|
Accrued interest payable |
|
|
33 |
|
|
|
33 |
|
Program contract obligations |
|
|
424 |
|
|
|
(1,337 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
15,887 |
|
|
|
18,921 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activity |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,608 |
) |
|
|
(2,321 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Payment on Revolving Credit Facility |
|
|
(5,361 |
) |
|
|
(12,664 |
) |
Purchase of Treasury Stock |
|
|
(225 |
) |
|
|
|
|
Payments on capital lease obligations |
|
|
(203 |
) |
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(5,789 |
) |
|
|
(12,902 |
) |
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents |
|
|
8,490 |
|
|
|
3,698 |
|
Cash and Cash Equivalents, Beginning of Year |
|
|
12,417 |
|
|
|
8,719 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year |
|
$ |
20,907 |
|
|
$ |
12,417 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
17,862 |
|
|
$ |
15,139 |
|
Income taxes paid |
|
$ |
78 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share information)
1. |
Description of the Business |
Communications Corporation of America and its wholly owned subsidiaries (CCA or the Company) own and operate fourteen television stations in Louisiana, Texas, and Indiana. The
Company is owned by certain affiliates of Silver Point Finance, LLC (Silver Point) and Pyxis Capital, LLC (Pyxis) which own approximately 77% and 23% of equity, respectively. Silver Point and Pyxis are also the Companys
debt holders at 77% and 23%, respectively. The Company also provides services to, but does not own, ten television stations under Shared Service Agreements and Advertising Representation Agreements (hereafter, collectively referred to as
SSA and ARA, respectively). The Shared Service Agreements and Advertising Representation Agreements allow the Company and its personnel to conduct certain operating activities of the White Knight Broadcasting Inc.
(White Knight) television stations. Under these agreements, a CCA subsidiary provides services including the marketing and sale of advertising airtime and is entitled to a portion of the related advertising revenue. White Knight pays
service fees and sales commissions, as defined, to a CCA subsidiary.
The Companys revenue is primarily derived from the
sale of advertising airtime. In addition, the Company offers production services and receives compensation fees under re-transmission agreements with cable and satellite providers.
The Company and its subsidiary, ComCorp Broadcasting, Inc. (ComCorp), wholly own the following subsidiaries: ComCorp of Baton
Rouge, Inc. (Baton Rouge), ComCorp of Texas, Inc. (Texas), ComCorp of Louisiana, Inc. (Louisiana), ComCorp of Bryan, Inc. (Bryan), ComCorp of El-Paso, Inc.
(El Paso), ComCorp of Indiana, Inc. (Indiana), ComCorp of Tyler, Inc. (Tyler) and ComCorp of Alexandria, Inc. (Alexandria).
Baton Rouge owns WGMB, a Fox broadcasting affiliate, and WBRL, a CW affiliate. Texas owns KPEJ, KWKT, and KMSS, all Fox broadcasting affiliates, and KVEO, an NBC broadcasting affiliate. Louisiana owns
KADN, a Fox broadcasting affiliate, and KLAF, a My Network broadcasting affiliate. Bryan owns KYLE, a Fox broadcasting affiliate. KWKT and KYLE also have secondary affiliation agreements with My Network. El Paso owns KTSM, an NBC
broadcasting affiliate. Indiana owns WEVV, a CBS broadcasting affiliate, and W47EE/D-LP, a Fox broadcasting affiliate. Tyler owns KETK, an NBC broadcasting affiliate, as well as owns KWTL, a My Network broadcasting affiliate. Alexandria owns
WNTZ, a Fox broadcasting affiliate. Each affiliate has a wholly owned subsidiary which owns the broadcasting license(s) of the respective stations.
KPEJ, KWKT, KVEO, and KTSM each have a secondary Estrella affiliation.
Pursuant to various ARAs and SSAs, the Company provides services to seven television stations which are owned by White Knight.
White Knight, formed in 1995, owns and operates White Knight Broadcasting of Shreveport, Inc. (Shreveport), Knight
Broadcasting of Baton Rouge, Inc. (WK-Baton Rouge), and White Knight Broadcasting of Longview, Inc. (Longview).
Shreveport owns KSHV, a My Network broadcasting affiliate. Baton Rouge owns WVLA, an NBC broadcasting affiliate, and KZUP, an independent station. Longview owns KFXK and KFXL, both Fox broadcasting
affiliates, and KLPN and KTPN, both independent stations. Each affiliate has a wholly owned subsidiary, which owns the broadcasting license(s) of the respective stations.
In October 2009, ComCorp El Paso, Inc. entered into a Shared Services Agreement (SSA) and a Joint Sales Agreement (JSA) with TTBG El Paso OpCo, LLC, which owns television station
KDBC, the CBS broadcasting affiliate and the My Network, broadcasting affiliate in El Paso, Texas. The SSA and JSA allow the two stations to share economies of scale in operating expenses. TTBG El Paso was purchased by Sinclair, Inc. in late 2013,
with JSA/SSA remaining intact. These agreements are set to expire in October 2014.
F-7
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share information)
Television broadcasting is subject to the jurisdiction of the Federal Communications
Commission (FCC) under the Communications Act of 1934, as amended (the Communications Act). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and
empowers the FCC, among other things, to issue, revoke, and modify broadcasting licenses, determine the location of the stations, regulate the equipment used by the stations, adopt regulations to carry out the provisions of the Communications Act,
and impose penalties for violations of such regulations. The Company continues to monitor FCC developments and rule changes as they occur.
2. |
Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. Under the SSA and ARA agreements entered into by White Knight and the Company, the Companys compensation under these agreements is subordinated to White Knights priority obligations, as
defined. Under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation, the Company is considered to hold a variable interest in White Knight and to be the
primary beneficiary of White Knight. Therefore, the accounts of White Knight are consolidated with the Company. All intercompany account balances and transactions have been eliminated in consolidation.
Use of Estimates
The
preparation of the consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the period reported. The most significant estimates include the allowance for
doubtful accounts, valuation and recoverability of program rights, intangible and other long-lived assets, and the valuation of trade and barter revenues. Actual results could differ from those estimates.
Revenue Recognition
The Companys primary source of revenue is the sale of television time to advertisers. Revenue is recorded when the advertisements are aired and collectability is reasonably assured. Other sources of
revenue may include compensation from the network, studio rental, and commercial production activities. These revenues are recorded when the programs are aired and the services are performed.
Barter Transactions
The Company trades advertising time for various goods
and services. These transactions are recorded at the estimated fair value of the goods and services received. Trade expenses approximate trade revenues.
Cash and Cash Equivalents
The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Accounts
Receivable
The Company sells airtime to local, regional, and national advertisers in diverse industries. A significant
portion of the Companys accounts receivable is from local, regional, and national advertising agencies. Customer balances are periodically evaluated and collateral is generally not required. The
F-8
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share information)
Company maintains an allowance for doubtful accounts based on certain percentages of the Companys aged receivables, which are determined based on historical experience and the
Companys assessment of the general financial conditions affecting the Companys customer base. If the Companys actual collections experience changes, revisions to the Companys allowance may be required. After all attempts to
collect a receivable have failed, the receivable is written off against the allowance.
Program Contract Rights and Program Contract
Obligations
Program contract rights, primarily in the form of syndicated programs and feature film packages, represent
amounts paid or payable, either in cash or bartered airtime, to program suppliers for the limited right to broadcast the suppliers programming and are recorded when available for use. Barter program contract rights are valued on a
program-by-program basis at the estimated fair value of the related airtime. Program rights under license agreements are generally limited to a contract period or a specific number of showings. Program contract rights are stated at the lower of
unamortized cost or net realizable value. Program contract rights are amortized over the lives of the underlying contracts at the greater of straight-line or a rate based on actual usage, as determined on a cumulative basis. Rights expected to be
amortized within one year are classified as current assets. Program contract obligations are classified as current or long-term in accordance with the payment terms. The Company reviews its film contract rights for impairment by projecting the
amount of revenue the program will generate over the remaining life of the contract by applying average historical rates and sell-out percentages for a specific time period and comparing it to the programs expense. If the projected future
revenue of a program is less than its future expense and/or the expected broadcast period is shortened or cancelled due to poor ratings, the Company would be required to write-off the exposed value of the program rights ratably or potentially
immediately.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Expenditures for improvements that significantly add to productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are expensed when incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets, ranging from two to forty
years. The cost and accumulated depreciation for property and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and any resulting gains or losses are reflected in operations.
Goodwill and Indefinite-Lived Intangible Assets
Intangible assets consist of broadcast FCC licenses and goodwill resulting from acquisitions.
The Company tests goodwill and FCC licenses for impairment on an annual basis as of December 31. Additionally, goodwill and FCC
licenses are assessed for impairment between annual tests if an event occurs or circumstances change that would indicate that the asset might be impaired. These events or circumstances would include a significant change in the business climate,
legal factors, operating performance indicator, competition, sale or disposition of a significant portion of the business, or other factors.
FCC licenses are tested for impairment using a one-step process, which compares the fair value to the carrying amount of the asset on a market basis. Goodwill is tested using a two step process. The first
step of the annual impairment test for goodwill is conducted using both a market and income approach that compares fair value to the net book value of each reporting unit. The fair value of each station is determined using the discounted cash flow
valuation method that excludes network compensation payments, assuming
F-9
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share information)
a hypothetical startup whose only asset is the FCC license. If the fair value of the station does not exceed the recorded value of the stations net assets, then the Company performs a
hypothetical purchase price allocation by allocating the stations fair value to the fair value of all tangible and identifiable intangible assets with residual fair value representing the implied fair value of goodwill of that station. The
recorded value of goodwill for the reporting unit is written down to this implied value.
At December 31, 2013 and 2012,
the Company, as required by FASB ASC 350, tested its FCC licenses and goodwill for impairment. There were no impairments recorded at December 31, 2013 and 2012.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets
The
Company determines whether there has been an impairment of long-lived assets based on whether certain indicators of impairment are present. In the event that facts and circumstances indicate that any long-lived assets and definite lived intangible assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future gross, undiscounted cash flows
associated with the asset would be compared to the assets carrying amount to determine if a write-down to fair value or discounted cash flow is required. As of December 31, 2013 and 2012, the Company believed the carrying values of all long-lived assets and definite-lived intangible assets were recoverable.
Income Taxes
The Company accounts for income taxes using the asset and
liability approach in accordance with FASB ASC 740 Income Taxes. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities.
Fair Value of Financial Instruments
As of December 31, 2013 and 2012, the fair values of cash and cash equivalents, accounts receivable, prepaid expenses, accounts
payable and accrued expenses approximate carrying values due to the short-term nature of these instruments. The fair value of long-term debt is based on the debts variable rate of interest and the Companys own credit risk and risk of
nonperformance, as required by the authoritative guidance. The Company classified its debt within Level 3 of the fair value hierarchy.
Direct Operating Expenses
Direct operating expenses include costs (excluding depreciation and amortization) related to technical and engineering, programming and
production, news, and trade and barter.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include those costs (excluding depreciation and amortization) related to the provision for
bad debts, selling, promotional, and general and administrative activities.
Self-Insurance
The Company is self-insured for a portion of its health insurance. The total amounts expensed for self-insurance during 2013 and 2012 were
$3,359 and $1,966, respectively.
F-10
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share and per share information)
Advertising
The Company expenses advertising costs in the period incurred. These costs are included in selling, general, and administrative expenses in the consolidated statement of operations and were approximately
$721 and $816 for the years ended December 31, 2013 and 2012, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. Concentration of credit risk with respect to cash and cash equivalents are limited as we maintain a primary banking relationship with a nationally recognized institution. The Company evaluated the viability of
this institution as of December 31, 2013 and believes the risk is minimal. Credit risk with respect to accounts receivable is limited, as the accounts receivable are primarily related to advertising revenues generated from a large diversified
group of local and nationally recognized advertisers and advertising agencies. The Company does not require collateral or other security against accounts receivable balances, however, the Company does maintain reserves for potential bad debt losses,
which are based on historical bad debt write-offs, and such reserves and bad debts have been within managements expectations for all years presented.
Variable Interest Entities
The Company follows FASB ASC 810
Consolidation, and, accordingly, the Company consolidates a variable interest entity (VIE) when the Company is determined to be the primary beneficiary. In accordance with the accounting principles generally accepted in the United States
(GAAP), in determining whether the Company is the primary beneficiary of a VIE for financial reporting purposes, management considers whether they have the power to direct activities of the VIE that most significantly impact the economic
performance of the VIE and whether they have the obligation to absorb losses or the right to receive returns that would be significant to the VIE.
As a result of the SSA/ARA arrangements between CCA and White Knight, the CCA and White Knight financing arrangements with their lenders as well as the purchase option granted by White Knight allowing CCA
TV purchase the net assets of the White Knight stations for a formula based price, management believes that CCA is the primary beneficiary of the cash flows generated by White Knight and has consolidated the operations of White Knight for financial
reporting purposes. Included in the consolidated statements of operations for the years ended December 31, 2013 and 2012 is net revenue of $11.03 million and $10.12 million, respectively, attributable to White Knight.
F-11
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
The carrying amounts and classification of the assets and liabilities of White Knight
mentioned above have been included in the consolidated balance sheets as of December 31, 2013 and 2012 as follows ( in thousands):
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2013 |
|
|
2012 |
|
Current assets |
|
$ |
5,798 |
|
|
$ |
4,372 |
|
Property and equipment, net |
|
|
3,159 |
|
|
|
3,703 |
|
Program contract rights, net of current portion |
|
|
239 |
|
|
|
161 |
|
Goodwill and intangible assets |
|
|
9,006 |
|
|
|
9,006 |
|
Other assets |
|
|
22 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
18,224 |
|
|
$ |
17,264 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
2,456 |
|
|
$ |
2,622 |
|
Due to ComCorp |
|
|
5,260 |
|
|
|
5,113 |
|
Deferred tax liabilities |
|
|
1,080 |
|
|
|
3,042 |
|
Program contract obligations, net of current portion |
|
|
908 |
|
|
|
345 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
9,704 |
|
|
$ |
11,122 |
|
|
|
|
|
|
|
|
|
|
As a result of the SSA/JSA arrangements between CCA and TTBG El Paso OpCo, LLC, management believes that
CCA does not have a controlling financial interest in the variable interest entity and is not the primary beneficiary of the cash flows generated by TTBG El Paso OpCo, LLC. Therefore, operations of TTBG El Paso are not consolidated for financial
reporting purposes. TTBG El Paso was purchased by Sinclair, Inc. in late 2013. Agreements remained intact through the sale, and are set to expire in October 2014.
On
April 24, 2013, Nexstar Broadcasting Group, Inc. (Nexstar) entered into a stock purchase agreement to acquire the stock of the Company for a total consideration of $270.0 million, subject to adjustments for working capital. Pursuant
to the stock purchase agreement, Nexstar has agreed to purchase all the outstanding equity of CCA. A deposit of $27.0 million was paid and placed in escrow upon signing the agreement. The acquisitions are pending, subject to FCC approval and other
customary conditions. Agreement expires in October 2014.
F-12
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
4. |
Property and Equipment |
Property and equipment at December 31, 2013 and 2012 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives in Years |
|
|
2013 |
|
|
2012 |
|
Land |
|
|
|
|
|
$ |
1,002 |
|
|
$ |
1,002 |
|
Buildings |
|
|
40 |
|
|
|
5,694 |
|
|
|
5,432 |
|
Transmitters and towers |
|
|
7-10 |
|
|
|
20,675 |
|
|
|
22,071 |
|
Technical and studio equipment |
|
|
2-10 |
|
|
|
19,523 |
|
|
|
19,532 |
|
Leasehold improvements and other |
|
|
5-10 |
|
|
|
3,441 |
|
|
|
3,484 |
|
Furniture and office equipment |
|
|
2-10 |
|
|
|
5,287 |
|
|
|
5,552 |
|
Equipment under capital leases |
|
|
10 |
|
|
|
1,064 |
|
|
|
1,064 |
|
Construction-in-progress |
|
|
|
|
|
|
|
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,686 |
|
|
|
58,335 |
|
Less accumulated depreciation |
|
|
|
|
|
|
(38,615 |
) |
|
|
(37,541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,071 |
|
|
$ |
20,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2013 and 2012 was
approximately $4,158 and $4,264, respectively.
Equipment under capital leases at December 31, 2013 and 2012 had
accumulated depreciation of $1,064 and $931, respectively. Amortization expense related to leased assets is included in depreciation and amortization expense in the accompanying consolidated statements of operations.
5. |
Goodwill and Intangible Assets |
FCC licenses are issued for only a fixed time, generally ten years, and such licenses are subject to renewal by the FCC. Renewals of FCC licenses have occurred routinely and at a nominal cost. Moreover,
the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives of its FCC licenses. As a result, the FCC licenses are treated as an indefinite-lived
intangible asset under the provisions of FASB ASC 350, Intangibles Goodwill and Others and are not currently amortized. The Company will reevaluate the useful life determination for FCC licenses periodically to
determine whether events and circumstances continue to support an indefinite useful life.
The change in the carrying amount of
goodwill and FCC licenses related to operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
|
Goodwill |
|
|
FCC Licenses |
|
|
Goodwill |
|
|
FCC Licenses |
|
Gross balance |
|
$ |
47,124 |
|
|
$ |
19,832 |
|
|
$ |
47,124 |
|
|
$ |
19,832 |
|
Accumulated impairment |
|
|
(8,182 |
) |
|
|
(18,947 |
) |
|
|
(8,182 |
) |
|
|
(18,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,942 |
|
|
$ |
885 |
|
|
$ |
38,942 |
|
|
$ |
885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
The
Companys borrowings and accrued interest payable consisted of the following as of:
|
|
|
|
|
|
|
|
|
December 31, |
|
2013 |
|
|
2012 |
|
Borrowings |
|
|
|
|
|
|
|
|
Term A Loan |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
Paid-in-kind interest |
|
|
35,080 |
|
|
|
35,080 |
|
Revolving credit facility |
|
|
|
|
|
|
5,361 |
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
$ |
185,080 |
|
|
$ |
190,441 |
|
|
|
|
|
|
|
|
|
|
Accrued Interest Payable |
|
|
|
|
|
|
|
|
Term A Loan |
|
$ |
1,818 |
|
|
$ |
1,637 |
|
Revolving credit facility |
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,818 |
|
|
$ |
1,785 |
|
|
|
|
|
|
|
|
|
|
The Companys Term A Loan and revolving credit facility (originally $165,000 total credit
agreement) originally required interest-only payments at rates determined by either electing LIBOR plus 5.5% or a Base Rate (Prime Rate) plus 4.5% (9.0% at December 31, 2013 and 2012, respectively). The revolving credit facility availability is
zero at December 31, 2013. The Companys Term A Loan was originally scheduled to mature on April 3, 2014, but the maturity date was amended to May 1, 2015, prior to the maturity date. The revolving credit facility was paid
off on its original maturity date of March 15, 2013. The Companys term loan is collateralized by substantially all of the Companys assets and outstanding capital stock. The related credit agreement requires the maintenance of
certain financial-related covenants, including a minimum interest coverage ratio and maximum leverage ratio (both as defined in the credit agreement), measured quarterly.
On March 31, 2009, the Company and the requisite lenders signed Amendment No. 2 and Waiver Agreement in which the requisite
lenders agreed to waive any and all Existing Defaults under the Credit Agreement. This agreement also allowed the Company to elect to defer the payment of interest by adding the amount of the interest payment to both the Term Loan and Revolving Loan
balances. This amendment increased the rate of interest on the loans to LIBOR Plus 14% or Base Rate Plus 13%, for interest paid-in-kind and sets a LIBOR floor rate of 3.5% and a Base Floor Rate of 4.5% for cash interest. The Interest Coverage Ratio
and the Leverage Ratio were also reset to levels which the Company believed were achievable for 2009. Amendment No. 2 also extended the time in which the Company had to deliver the 2008 audited financial statements. The Company elected to stop
accruing interest paid-in-kind at December 29, 2009.
On July 2, 2009 the Company and the Administrative Agent and
Collateral Agent received a Notice of Default and Reservation of Rights letter from Pyxis contending that the Administrative Agent and Collateral Agent and the Company could not enter into Amendment No. 2 and Waiver Agreement without the
consent of Pyxis and that the Company was in default for failure to pay interest. Attorneys for the Company and for the Administrative Agent and Collateral Agent responded to the Notice received from Pyxis and disagree with the allegations made by
Pyxis. As of the issuance date of the audited financial statements, this matter remains unresolved.
However, on
September 18, 2009, the Company and the requisite lenders signed Amendment No. 3 and Waiver Agreement in which the requisite lenders agreed to waive any and all existing defaults under the Credit Agreement. Further, the amendment contains
new required financial covenants for the minimum interest coverage ratio and maximum coverage ratio.
F-14
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
On December 22, 2010, the Company and the requisite lenders signed Amendment
No. 4 which contains new required financial covenants for the minimum interest coverage ratio and maximum coverage ratio.
On April 2, 2012, the Company and the requisite lenders signed Amendment No. 5 which contains new required financial covenants
for the minimum interest coverage ratio, and leverage ratio.
During 2012, the Company entered into Amendments No. 6 and 7
which contained a forbearance agreement to extend the timeline with which the requisite lenders could exercise their rights to act in the event of default on the revolving credit facility to a later date as the revolving credit facility was not
repaid on the maturity date.
On March 28, 2013, the Company and the requisite lenders signed Amendment No. 8, which
denoted the satisfaction of the Companys revolving credit facility paid March 15, 2013, including principal, interest and paid-in-kind interest. Also, Amendment No. 8 extended the maturity date on the Companys Term A Loan
to April 1, 2014. The Company was in compliance with all covenants at December 31, 2013 and 2012.
On March 28,
2014, the Company and the requisite lenders signed Amendment No. 9, which extended the maturity date on the Companys Term A Loan until May 1, 2015.
Interest expense related to the Companys Term A Loan and revolving credit facility was approximately $18,368 and $22,021 for the years ended December 31, 2013 and 2012, respectively, of
which $0 and $6,921 related to paid-in-kind interest, respectively.
White Knight is a guarantor under the terms of the Company
Credit Agreement.
Federal and
state income tax expense or benefit as included in the consolidated financial statements is summarized as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2013 |
|
|
2012 |
|
Current |
|
|
|
|
|
|
|
|
Federal |
|
$ |
181 |
|
|
$ |
44 |
|
State |
|
|
430 |
|
|
|
424 |
|
Deferred |
|
|
|
|
|
|
|
|
Federal |
|
|
(12,694 |
) |
|
|
1,322 |
|
State |
|
|
(7,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income tax |
|
$ |
(19,399 |
) |
|
$ |
1,790 |
|
|
|
|
|
|
|
|
|
|
A reconciliation of provision for income tax at the statutory federal income tax rate and provision for
income taxes as reflected in the consolidated financial statements is as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2013 |
|
|
2012 |
|
Income before income taxes |
|
$ |
12,372 |
|
|
$ |
7,540 |
|
|
|
|
|
|
|
|
|
|
Federal income tax expense at statutory federal rate |
|
|
4,331 |
|
|
|
2,631 |
|
State income tax expense |
|
|
430 |
|
|
|
424 |
|
Non-deductible items and other |
|
|
76 |
|
|
|
(12 |
) |
Change in valuation allowance |
|
|
(24,236 |
) |
|
|
(1,253 |
) |
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes |
|
$ |
(19,399 |
) |
|
$ |
1,790 |
|
|
|
|
|
|
|
|
|
|
F-15
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
Deferred tax assets (liabilities) consist of the following:
|
|
|
|
|
|
|
|
|
December 31, |
|
2013 |
|
|
2012 |
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
NOL carryforwards |
|
$ |
20,787 |
|
|
$ |
24,236 |
|
Allowance for doubtful accounts |
|
|
269 |
|
|
|
391 |
|
FCC licenses |
|
|
537 |
|
|
|
770 |
|
Other intangibles |
|
|
3 |
|
|
|
303 |
|
Accumulated stock compensation expense |
|
|
820 |
|
|
|
820 |
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(4,136 |
) |
|
|
(4,750 |
) |
Goodwill not subject to amortization |
|
|
(7,664 |
) |
|
|
(6,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
10,616 |
|
|
|
14,839 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
|
|
|
|
(24,236 |
) |
|
|
|
|
|
|
|
|
|
Net deferred asset (liability) |
|
$ |
10,616 |
|
|
$ |
(9,397 |
) |
|
|
|
|
|
|
|
|
|
In 2012 the Company recorded a full valuation allowance against its net operating losses as it determined
that it did not meet the threshold for recognition. During 2013, however, as a result of continued profitability, the Company released all the valuation allowance as it was more likely than not that all the operating losses would be fully utilized.
The Company and White Knight file separate consolidated federal income tax returns. The Company files income tax returns in
the U.S. federal tax jurisdiction and various state jurisdictions. The Companys NOLs expire over a period ending in 2030. The tax years for 2007 through 2012 remain open for federal and state tax jurisdiction examinations. The Company is
currently not under examination by any tax jurisdictions for any tax years.
Under the provisions of FASB Interpretation
No. 48 Accounting for Uncertainty in Income Taxes (FIN 48) (included in ASC Topic 740-10), is applied to all open tax positions upon initial adoption. The Company has recorded no liability for unrecognized
tax benefits at December 31, 2013 and 2012. The Companys policy is to classify interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2013 and 2012, the Company had no accrued
interest and penalties related to unrecognized tax benefits.
8. |
Related-Party Transactions |
As discussed in Note 2, the Company includes the operations of White Knight in its consolidated financial statements.
The Company entered into a five-year lease for studio and office space in Baton Rouge, Louisiana, with a company in which the former
significant stockholder and certain other Company personnel are principals. The lease has been recorded as an operating lease. The Company also leases studio and office space in Shreveport and Lafayette, Louisiana, from companies also under the
control of the former significant stockholder. For the years ended December 31, 2013 and 2012, the Company paid rent of approximately $605 and $605, respectively, for office space in buildings owned by a company in which the former significant
stockholder and certain other Company personnel are principals.
Certain facility and administration fees totaling
approximately $1,298 and $825 were paid to Silver Point during 2013 and 2012, respectively. Consulting fees paid to Malara Enterprises LLC, the common stockholder of White Knight, amounted to approximately $150 for both 2013 and 2012.
F-16
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
9. |
Commitments and Contingencies |
Operating Leases
In
conjunction with the change in the parameters of the leases, in conjunction with the bankruptcy reorganization in 2007 each of the leases were reevaluated in accordance with FASB ASC 840 Leases, to determine if the
leases should be classified as operating leases or capital leases. Prior to this reevaluation, White Knight had one lease which was classified as a capital lease and CCA had two leases classified as capital leases. As a result of the reevaluation of
the leases, all of the tower leases for White Knight are now classified as operating leases, and two tower leases for CCA are classified as capital leases.
At December 31, 2013, future minimum lease payments for operating leases with an initial or remaining non-cancelable term in excess of one year were as follows:
|
|
|
|
|
Year |
|
Amount |
|
2014 |
|
$ |
2,797 |
|
2015 |
|
|
2,869 |
|
2016 |
|
|
3,001 |
|
2017 |
|
|
2,837 |
|
2018 |
|
|
1,146 |
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
12,650 |
|
|
|
|
|
|
The Company incurred rent expense under operating leases of approximately $2,788 and $2,804 in 2013 and
2012, respectively.
Capital Leases
All capital lease agreements expired in 2013. There were no additional capital lease obligations at December 31, 2013.
Program Contract Rights and Obligations
As of December 31, 2013, the
Company has executed contracts for program rights totaling approximately $449 for which the broadcast period has not yet commenced. Accordingly, such rights have not been recorded in the consolidated balance sheet at December 31, 2013.
Aggregate annual maturities of cash program contract obligations (excluding unavailable program contract rights) at
December 31, 2013, were approximately as follows:
|
|
|
|
|
Year |
|
Amount |
|
2014 |
|
$ |
5,207 |
|
2015 |
|
|
837 |
|
2016 |
|
|
421 |
|
2017 |
|
|
178 |
|
2018 |
|
|
117 |
|
|
|
|
|
|
|
|
$ |
6,760 |
|
|
|
|
|
|
F-17
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(amounts in thousands, except share and per share information)
Other Legal Matters
The Company, from time to time, is involved in legal matters incidental to the conduct of its business. In the opinion of management, there are no claims outstanding that would have a material adverse
effect on the Companys consolidated financial position, results of operations, or cash flows.
10. |
Employee Benefit Plan |
Employees of ComCorp and White Knight participate in defined contribution savings plans under Section 401(k) of the Internal Revenue
Code, which are sponsored by ComCorp and White Knight, respectively. These plans cover substantially all employees who meet minimum age and service requirements and allow participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Board of Directors. There were no contributions made to the plan by the Company in 2013 and 2012.
11. |
2007 Equity Incentive Plan |
The Company adopted the 2007 Equity Incentive Plan (the Plan) that allows the grant to certain key employees of options to
acquire common stock. As of December 31, 2007, 833,250 options had been granted. Option awards are generally granted with an exercise price equal to the fair value of the Companys stock at the date of grant; those option awards generally
vest based on three years of continuous service and have 10-year contractual terms. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan). The first awards under this Plan were granted in
October 2007. There have been no subsequent grants and there were no options outstanding as of December 31, 2013.
The fair market value of the stock options at the date of the grant was estimated using the Black-Scholes option pricing model. In
accordance with FASB ASC 718 Compensation Stock Compensation, for non-public entities, the Company estimates a value for its stock options by substituting the historical volatility of an appropriate industry sector index
for the expected volatility of its share price as an assumption in its valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected
to be outstanding.
There were no options exercised during the years ended December 31, 2013 and 2012.
As of December 31, 2013, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements
granted under the Plan.
On
March 28, 2014, the Company and the requisite lenders signed Amendment No. 9, which extended the maturity date on the Companys Term A Loan until May 1, 2015.
There were no other significant or material subsequent events that required recognition or additional disclosure in these consolidated
financial statements as of the evaluation date of April 30, 2014, which is the date these financial statements were issued
The
consolidated balance sheets, statements of operations, and statements of stockholders deficit have been restated to correct an error resulting from not presenting separately on the face of consolidated financial statements the amounts
attributable to CCA and the noncontrolling interest as well as additional related disclosures in Note 2.
F-18
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(amounts in thousands, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,884 |
|
|
$ |
20,907 |
|
Accounts receivable, less allowance for doubtful accounts of $676 and $728 for 2014 and 2013, respectively |
|
|
21,366 |
|
|
|
19,850 |
|
Current portion of program contract rights |
|
|
5,178 |
|
|
|
4,877 |
|
Prepaid expenses and other current assets |
|
|
854 |
|
|
|
2,152 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
32,282 |
|
|
|
47,786 |
|
Property and Equipment, Net |
|
|
15,871 |
|
|
|
18,071 |
|
Program Contract Rights, Net of Current Portion |
|
|
1,921 |
|
|
|
1,259 |
|
Deferred Tax Asset |
|
|
4,822 |
|
|
|
10,616 |
|
Goodwill (Note 4) |
|
|
38,942 |
|
|
|
38,942 |
|
Intangible Assets (Note 4) |
|
|
885 |
|
|
|
885 |
|
Other Assets |
|
|
253 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
94,976 |
|
|
$ |
117,812 |
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,165 |
|
|
$ |
1,081 |
|
Accrued expenses |
|
|
5,406 |
|
|
|
6,648 |
|
Accrued interest payable (Note 5) |
|
|
1,809 |
|
|
|
1,818 |
|
Current portion of program contract obligations |
|
|
5,353 |
|
|
|
5,207 |
|
Current portion of Term A Loan (Note 5) |
|
|
150,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
165,813 |
|
|
|
14,754 |
|
Term A Loan, including paid-in-kind interest, net of current portion (Note 5) |
|
|
|
|
|
|
185,080 |
|
Program Contract Obligations, net of current portion |
|
|
2,325 |
|
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
168,138 |
|
|
|
201,387 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
Stockholders Deficit |
|
|
|
|
|
|
|
|
Common stock, par value $0.01; 20,000,000 shares authorized, 10,063,693 shares issued and 10,000,000 outstanding |
|
|
101 |
|
|
|
101 |
|
Additional paid-in capital |
|
|
2,615 |
|
|
|
2,615 |
|
Treasury stock |
|
|
(225 |
) |
|
|
(225 |
) |
Accumulated deficit |
|
|
(85,030 |
) |
|
|
(94,586 |
) |
|
|
|
|
|
|
|
|
|
Total Communications Corporation of America Stockholders Deficit |
|
|
(82,539 |
) |
|
|
(92,095 |
) |
Noncontrolling Interest |
|
|
9,377 |
|
|
|
8,520 |
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit |
|
|
(73,162 |
) |
|
|
(83,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
94,976 |
|
|
$ |
117,812 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-19
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2014 |
|
|
2013 |
|
Revenues |
|
|
|
|
|
|
|
|
Cash, net |
|
$ |
79,126 |
|
|
$ |
70,900 |
|
Trade and barter |
|
|
3,246 |
|
|
|
3,099 |
|
|
|
|
|
|
|
|
|
|
Total Revenues, Net |
|
|
82,372 |
|
|
|
73,999 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Direct operating expenses (net of depreciation and amortization) |
|
|
25,150 |
|
|
|
23,582 |
|
Selling, general, and administrative expenses (net of depreciation and amortization) |
|
|
21,378 |
|
|
|
23,133 |
|
Amortization of program contract rights |
|
|
2,327 |
|
|
|
2,616 |
|
Depreciation and amortization |
|
|
2,938 |
|
|
|
3,165 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
51,793 |
|
|
|
52,496 |
|
|
|
|
|
|
|
|
|
|
Income From Operations |
|
|
30,579 |
|
|
|
21,503 |
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(13,601 |
) |
|
|
(13,757 |
) |
|
|
|
Other income |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(13,601 |
) |
|
|
(13,746 |
) |
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes |
|
|
16,978 |
|
|
|
7,757 |
|
Benefit (Provision) for Income Taxes |
|
|
(6,565 |
) |
|
|
21,099 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
10,413 |
|
|
|
28,856 |
|
Less Net Income Attributable to Noncontrolling Interest |
|
|
857 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Communications Corporation of America Common Stockholders |
|
$ |
9,556 |
|
|
$ |
28,812 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-20
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2014 |
|
|
2013 |
|
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,413 |
|
|
$ |
28,856 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,938 |
|
|
|
3,165 |
|
Amortization of program contract rights |
|
|
2,327 |
|
|
|
2,616 |
|
Provision for bad debts |
|
|
197 |
|
|
|
128 |
|
Provision (benefit) for deferred income taxes |
|
|
5,793 |
|
|
|
(21,567 |
) |
Changes in assets and liabilities, net of effects of disposals: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,713 |
) |
|
|
1,248 |
|
Prepaid expenses and other assets |
|
|
1,343 |
|
|
|
549 |
|
Program contract rights |
|
|
(3,290 |
) |
|
|
(4,124 |
) |
Accounts payable and accrued expenses |
|
|
798 |
|
|
|
1,380 |
|
Accrued interest payable |
|
|
(9 |
) |
|
|
33 |
|
Program contract obligations |
|
|
918 |
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
19,715 |
|
|
|
13,911 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activity |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(738 |
) |
|
|
(1,431 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Payment on Revolving Credit Facility |
|
|
|
|
|
|
(5,361 |
) |
Purchase of Treasury Stock |
|
|
|
|
|
|
(225 |
) |
Repayment of Long-term Debt |
|
|
(35,000 |
) |
|
|
|
|
Payments on capital lease obligations |
|
|
|
|
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(35,000 |
) |
|
|
(5,789 |
) |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
(16,023 |
) |
|
|
6,691 |
|
Cash and Cash Equivalents, Beginning of Period |
|
|
20,907 |
|
|
|
12,417 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
|
$ |
4,884 |
|
|
$ |
19,108 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
13,807 |
|
|
$ |
13,302 |
|
Income taxes paid |
|
$ |
212 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-21
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(amounts in thousands, except share and per share information)
1. |
Description of the Business |
Communications Corporation of America and Subsidiaries and its wholly owned subsidiaries (CCA or the Company) own and operate fourteen television stations in Louisiana, Texas, and
Indiana. The Company is owned by certain affiliates of Silver Point Finance, LLC (Silver Point) and Pyxis Capital, LLC (Pyxis) which own approximately 77% and 23% of equity, respectively. Silver Point and Pyxis are also the
Companys debt holders at 77% and 23%, respectively. The Company also provides services to, but does not own, ten television stations under Shared Service Agreements and Advertising Representation Agreements (hereafter, collectively referred to
as SSA and ARA, respectively). The SSA and ARA allow the Company and its personnel to conduct certain operating activities of the White Knight Broadcasting Inc. (White Knight) television stations. Under these
agreements, a CCA subsidiary provides services including the marketing and sale of advertising airtime and is entitled to a portion of the related advertising revenue. White Knight pays service fees and sales commissions, as defined, to a CCA
subsidiary.
The Companys revenue is primarily derived from the sale of advertising airtime. In addition, the Company
offers production services and receives compensation fees under re-transmission agreements with cable and satellite providers.
The Company and its subsidiary, ComCorp Broadcasting, Inc. (ComCorp), wholly own the following subsidiaries: ComCorp of Baton
Rouge, Inc. (Baton Rouge), ComCorp of Texas, Inc. (Texas), ComCorp of Louisiana, Inc. (Louisiana), ComCorp of Bryan, Inc. (Bryan), ComCorp of El-Paso, Inc.
(El Paso), ComCorp of Indiana, Inc. (Indiana), ComCorp of Tyler, Inc. (Tyler) and ComCorp of Alexandria, Inc. (Alexandria).
Baton Rouge owns WGMB, a Fox broadcasting affiliate, and WBRL, a CW affiliate. Texas owns KPEJ, KWKT, and KMSS, all Fox broadcasting affiliates, and KVEO, an NBC broadcasting affiliate. Louisiana owns
KADN, a Fox broadcasting affiliate, and KLAF, a My Network broadcasting affiliate. Bryan owns KYLE, a Fox broadcasting affiliate. KWKT and KYLE also have secondary affiliation agreements with My Network. El Paso owns KTSM, an NBC
broadcasting affiliate. Indiana owns WEVV, a CBS broadcasting affiliate, and W47EE/D-LP, a Fox broadcasting affiliate. Tyler owns KETK, an NBC broadcasting affiliate, as well as owns KWTL, a My Network broadcasting affiliate. Alexandria owns
WNTZ, a Fox broadcasting affiliate. Each affiliate has a wholly owned subsidiary which owns the broadcasting license(s) of the respective stations.
KPEJ, KWKT, KVEO, and KTSM each have a secondary Estrella affiliation.
Pursuant to various ARAs and SSAs, the Company provides services to seven television stations which are owned by White Knight.
White Knight, formed in 1995, owns and operates White Knight Broadcasting of Shreveport, Inc. (Shreveport), Knight
Broadcasting of Baton Rouge, Inc. (WK-Baton Rouge), and White Knight Broadcasting of Longview, Inc. (Longview).
Shreveport owns KSHV, a My Network broadcasting affiliate. WK-Baton Rouge owns WVLA, an NBC broadcasting affiliate, and KZUP, an independent station. Longview owns KFXK and KFXL, both Fox
broadcasting affiliates, and KLPN and KTPN, both independent stations. Each affiliate has a wholly owned subsidiary, which owns the broadcasting license(s) of the respective stations.
In October 2009, ComCorp El Paso, Inc. entered into a Shared Services Agreement (SSA) and a Joint Sales Agreement
(JSA) with TTBG El Paso OpCo, LLC, which owns television station KDBC, the CBS broadcasting affiliate and the My Network, broadcasting affiliate in El Paso, Texas. The SSA and JSA allow
F-22
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(amounts in thousands, except share and per share information)
the two stations to share economies of scale in operating expenses. TTBG El Paso was purchased by Sinclair, Inc. in late 2013, with JSA/SSA remaining intact. These agreements expired in October
2014.
Television broadcasting is subject to the jurisdiction of the Federal Communications Commission (FCC) under
the Communications Act of 1934, as amended (the Communications Act). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and empowers the FCC, among other things, to
issue, revoke, and modify broadcasting licenses, determine the location of the stations, regulate the equipment used by the stations, adopt regulations to carry out the provisions of the Communications Act, and impose penalties for violations of
such regulations. The Company continues to monitor FCC developments and rule changes as they occur.
2. |
Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation
The condensed consolidated financial statements
include the accounts of the Company and its subsidiaries. Under the SSA and ARA agreements entered into by White Knight and the Company, the Companys compensation under these agreements is subordinated to White Knights priority
obligations, as defined. Under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation, the Company is considered to hold a variable interest in White
Knight and to be the primary beneficiary of White Knight. Therefore, the accounts of White Knight are consolidated with the Company. All intercompany account balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements have been derived from the financial statements and accounting records of CCA. Certain
information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed and omitted pursuant to those rules and regulations, although the Company
believed that the disclosures made are adequate to make the information not misleading.
Use of Estimates
The preparation of the condensed consolidated financial statements and related disclosures in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and revenues and expenses during the period reported. The most significant estimates include the allowance for doubtful accounts, valuation and recoverability of program rights, intangible and other long-lived assets, and the valuation of trade and barter revenues. Actual results could differ from those estimates.
Revenue Recognition
The Companys primary source of revenue is the
sale of television time to advertisers. Revenue is recorded when the advertisements are aired and collectability is reasonably assured. Other sources of revenue may include compensation from the network, studio rental, and commercial production
activities. These revenues are recorded when the programs are aired and the services are performed. Additionally, the Company earns revenue through retransmissions. Retransmission revenue reflects consideration received from cable and satellite
providers in exchange for rights to carry the Companys broadcast signals. The rate of consideration is negotiated in advance, with monthly amounts determined by the number of subscribers to the cable and satellite subscribers.
F-23
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(amounts in thousands, except share and per share information)
Barter Transactions
The Company trades advertising time for various goods and services. These transactions are recorded at the estimated fair value of the goods and services received. Trade expenses approximate trade
revenues.
Accounts Receivable
The Company sells airtime to local, regional, and national advertisers in diverse industries. A significant portion of the Companys accounts receivable is from local, regional, and national
advertising agencies. Customer balances are periodically evaluated and collateral is generally not required. The Company maintains an allowance for doubtful accounts based on certain percentages of the Companys aged receivables, which are
determined based on historical experience and the Companys assessment of the general financial conditions affecting the Companys customer base. If the Companys actual collections experience changes, revisions to the Companys
allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
Program Contract Rights and Program Contract Obligations
Program contract rights, primarily in the form of syndicated programs and feature film packages, represent amounts paid or payable, either in cash or bartered airtime, to program suppliers for the limited
right to broadcast the suppliers programming and are recorded when available for use. Barter program contract rights are valued on a program-by-program basis at the estimated fair value of the related airtime. Program rights under license
agreements are generally limited to a contract period or a specific number of showings. Program contract rights are stated at the lower of unamortized cost or net realizable value. Program contract rights are amortized over the lives of the
underlying contracts at the greater of straight-line or a rate based on actual usage, as determined on a cumulative basis. Rights expected to be amortized within one year are classified as current assets. Program contract obligations are classified
as current or long-term in accordance with the payment terms. The Company reviews its film contract rights for impairment by projecting the amount of revenue the program will generate over the remaining life of the contract by applying average
historical rates and sell-out percentages for a specific time period and comparing it to the programs expense. If the projected future revenue of a program is less than its future expense and/or the expected broadcast period is shortened or
cancelled due to poor ratings, the Company would be required to write-off the exposed value of the program rights ratably or potentially immediately.
Goodwill and Indefinite-Lived Intangible Assets
Intangible assets consist of broadcast FCC licenses and goodwill resulting from acquisitions.
The Company tests goodwill and FCC licenses for impairment on an annual basis as of December 31. Additionally, goodwill and FCC licenses are assessed for impairment between annual tests if an event
occurs or circumstances change that would indicate that the asset might be impaired. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicator, competition, sale or
disposition of a significant portion of the business, or other factors.
FCC licenses are tested for impairment using a
one-step process, which compares the fair value to the carrying amount of the asset on a market basis. Goodwill is tested using a two step process. The first step of the annual impairment test for goodwill is conducted using both a market and income
approach that compares fair value to the net book value of each reporting unit. The fair value of each station is determined using the discounted cash flow valuation method that excludes network compensation payments, assuming a hypothetical startup
whose only asset is the FCC license. If the fair value of the station does not exceed
F-24
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
(amounts in thousands, except share and per share information)
the recorded value of the stations net assets, then the Company performs a hypothetical purchase price allocation by allocating the stations fair value to the fair value of all
tangible and identifiable intangible assets with residual fair value representing the implied fair value of goodwill of that station. The recorded value of goodwill for the reporting unit is written down to this implied value.
At December 31, 2013, the Company, as required by FASB ASC 350, tested its FCC licenses and goodwill for impairment. There were
no impairments recorded at December 31, 2013 and there have been no indicators of impairment through September 30, 2014.
Variable Interest Entities
The Company follows FASB ASC 810 Consolidation, and, accordingly, the Company consolidates a variable interest entity (VIE) when the Company is determined to be the primary beneficiary. In
accordance with the accounting principles generally accepted in the United States (GAAP), in determining whether the Company is the primary beneficiary of a VIE for financial reporting purposes, management considers whether they have the
power to direct activities of the VIE that most significantly impact the economic performance of the VIE and whether they have the obligation to absorb losses or the right to receive returns that would be significant to the VIE.
As a result of the SSA/ARA arrangements between CCA and White Knight, and also of the CCA and White Knight financing arrangements with
their lenders, as well as the purchase option granted by White Knight allowing CCA to purchase the net assets of the White Knight stations for a formula based price, management believes that CCA is the primary beneficiary of the cash flows generated
by White Knight and has consolidated the operations White Knight for financial reporting purposes. Included in the condensed consolidated statements of income for the nine months ended September 30, 2014 and 2013 is net revenue of $9.45 million
and $7.85 million, respectively, attributable to White Knight.
The carrying amounts and classification of the assets and
liabilities of White Knight mentioned above have been included in the unaudited condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 as follows ( in thousands):
|
|
|
|
|
|
|
|
|
Years ended |
|
September 30, 2014 |
|
|
December 31, 2013 |
|
Current assets |
|
$ |
6,366 |
|
|
$ |
5,798 |
|
Property and equipment, net |
|
|
2,613 |
|
|
|
3,159 |
|
Program contract rights, net of current portion |
|
|
437 |
|
|
|
239 |
|
Goodwill and intangible assets |
|
|
9,006 |
|
|
|
9,006 |
|
Other assets |
|
|
22 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
18,444 |
|
|
$ |
18,224 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
3,082 |
|
|
|
2,456 |
|
Due to ComCorp |
|
|
3,819 |
|
|
|
5,260 |
|
Deferred tax liabilities |
|
|
1,527 |
|
|
|
1,080 |
|
Program contract obligations, net of current portion |
|
|
639 |
|
|
|
908 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
9,067 |
|
|
$ |
9,704 |
|
|
|
|
|
|
|
|
|
|
As a result of the SSA/JSA arrangements between CCA and TTBG El Paso OpCo, LLC, management believes that
CCA does not have a controlling financial interest in the variable interest entity and is not the primary beneficiary of the cash flows generated by TTBG El Paso OpCo, LLC. Therefore, operations of
F-25
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
(amounts in thousands, except share and per share information)
TTBG El Paso are not consolidated for financial reporting purposes. TTBG El Paso was purchased by Sinclair, Inc. in late 2013. Agreements remained intact through the sale, and expired in October
2014.
On
April 24, 2013, Nexstar Broadcasting Group, Inc. (Nexstar) entered into a stock purchase agreement to acquire the stock of the Company for a total consideration of $270.0 million, subject to adjustments for working capital. Pursuant
to the stock purchase agreement, Nexstar has agreed to purchase all the outstanding equity of CCA. A deposit of $27.0 million was paid and placed in escrow upon signing the agreement. The sale was completed in January 2015 and the Term A loan was
repaid.
4. |
Goodwill and Intangible Assets |
FCC licenses are issued for only a fixed time, generally ten years, and such licenses are subject to renewal by the FCC. Renewals of FCC licenses have occurred routinely and at a nominal cost. Moreover,
the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives of its FCC licenses. As a result, the FCC licenses are treated as an indefinite-lived
intangible asset under the provisions of FASB ASC 350, Intangibles Goodwill and Others and are not currently amortized. The Company reevaluates the useful life determination for FCC licenses periodically to
determine whether events and circumstances continue to support an indefinite useful life.
The change in the carrying amount of
goodwill and FCC licenses related to operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
|
|
Goodwill |
|
|
FCC Licenses |
|
|
Goodwill |
|
|
FCC Licenses |
|
Gross balance |
|
$ |
47,124 |
|
|
$ |
19,832 |
|
|
$ |
47,124 |
|
|
$ |
19,832 |
|
Accumulated impairment |
|
|
(8,182 |
) |
|
|
(18,947 |
) |
|
|
(8,182 |
) |
|
|
(18,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,942 |
|
|
$ |
885 |
|
|
$ |
38,942 |
|
|
$ |
885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Companys borrowings and accrued interest payable consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
Borrowings |
|
|
|
|
|
|
|
|
Term A Loan |
|
$ |
115,000 |
|
|
$ |
150,000 |
|
Paid-in-kind interest |
|
|
35,080 |
|
|
|
35,080 |
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
$ |
150,080 |
|
|
$ |
185,080 |
|
|
|
|
|
|
|
|
|
|
Accrued Interest Payable |
|
|
|
|
|
|
|
|
Term A Loan |
|
$ |
1,809 |
|
|
$ |
1,818 |
|
|
|
|
|
|
|
|
|
|
The Companys Term A Loan originally required interest-only payments at rates determined by
either electing LIBOR plus 5.5% or a Base Rate (Prime Rate) plus 4.5% (9.0% at September 30, 2014 and December 31, 2013). The Companys Term A Loan matures on May 1, 2015. The Companys term loan is
collateralized by substantially all of the Companys assets and outstanding capital stock. The related credit
F-26
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
(amounts in thousands, except share and per share information)
agreement requires the maintenance of certain financial-related covenants, including a minimum interest coverage ratio and maximum leverage ratio (both as
defined in the credit agreement), measured quarterly.
On March 31, 2009, the Company and the requisite lenders signed
Amendment No. 2 and Waiver Agreement in which the requisite lenders agreed to waive any and all Existing Defaults under the Credit Agreement. This agreement also allowed the Company to elect to defer the payment of interest by adding the amount
of the interest payment to both the Term Loan and Revolving Loan balances. This amendment increased the rate of interest on the loans to LIBOR Plus 14% or Base Rate Plus 13%, for interest paid-in-kind and sets a LIBOR floor rate of 3.5% and a Base
Floor Rate of 4.5% for cash interest. The Interest Coverage Ratio and the Leverage Ratio were also reset to levels which the Company believed were achievable for 2009. Amendment No. 2 also extended the time in which the Company had to deliver
the 2008 audited financial statements. The Company elected to stop accruing interest paid-in-kind at December 29, 2009.
On July 2, 2009 the Company and the Administrative Agent and Collateral Agent received a Notice of Default and Reservation of Rights
letter from Pyxis contending that the Administrative Agent and Collateral Agent and the Company could not enter into Amendment No. 2 and Waiver Agreement without the consent of Pyxis and that the Company was in default for failure to pay
interest. Attorneys for the Company and for the Administrative Agent and Collateral Agent responded to the Notice received from Pyxis and disagree with the allegations made by Pyxis. As of the issuance date of the audited financial statements, this
matter remains unresolved.
However, on September 18, 2009, the Company and the requisite lenders signed Amendment
No. 3 and Waiver Agreement in which the requisite lenders agreed to waive any and all existing defaults under the Credit Agreement. Further, the amendment contains new required financial covenants for the minimum interest coverage ratio and
maximum coverage ratio.
On December 22, 2010, the Company and the requisite lenders signed Amendment No. 4 which
contains new required financial covenants for the minimum interest coverage ratio and maximum coverage ratio.
On April 2,
2012, the Company and the requisite lenders signed Amendment No. 5 which contains new required financial covenants for the minimum interest coverage ratio, and leverage ratio.
During 2012, the Company entered into Amendments No. 6 and 7 which contained a forbearance agreement to extend the timeline with
which the requisite lenders could exercise their rights to act in the event of default on the revolving credit facility to a later date as the revolving credit facility was not repaid on the maturity date.
On March 28, 2013, the Company and the requisite lenders signed Amendment No. 8, which denoted the satisfaction of the
Companys revolving credit facility paid March 15, 2013, including principal, interest and paid-in-kind interest. Also, Amendment No. 8 extended the maturity date on the Companys Term A Loan to April 1, 2014. The
Company was in compliance with all covenants at December 31, 2013.
On March 28, 2014, the Company and the
requisite lenders signed Amendment No. 9, which extended the maturity date on the Companys Term A Loan until May 1, 2015.
Interest expense related to the Companys Term A Loan and revolving credit facility was approximately $12,527 and $12,764 for the nine months ended September 30, 2014 and 2013,
respectively, of which $0 related to paid-in-kind interest.
White Knight is a guarantor under the terms of the Company Credit
Agreement.
F-27
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
(amounts in thousands, except share and per share information)
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income prior to the expiration of any net operating loss carry forwards. Management determined that it was more likely than not that all of the operating losses would be fully utilized.
The income tax expense for the Company differs from the amount of income tax expense applying the U.S. statutory Federal income tax rate
of 35% to net income before income taxes, primarily due to change in state income taxes and non-deductible expenses.
7. |
Related-Party Transactions |
As discussed in Note 2, the Company includes the operations of White Knight in its condensed consolidated financial statements.
The Company entered into a five-year lease for studio and office space in Baton Rouge, Louisiana, with a company in which the
former significant stockholder and certain other Company personnel are principals. The lease has been recorded as an operating lease. The Company also leases studio and office space in Shreveport and Lafayette, Louisiana, from companies also under
the control of the former significant stockholder. For the nine months ended September 30, 2014 and 2013, the Company paid rent of approximately $457 and $454, respectively, for office space in buildings owned by a company in which the
former significant stockholder and certain other Company personnel are principals.
Certain facility and administration fees
totaling approximately $563 and $1,036 were paid to Silver Point for the nine months ended September 30, 2014 and 2013, respectively. Consulting fees paid to Malara Enterprises LLC, the common stockholder of White Knight, amounted to
approximately $113 for the nine months ended September 30, 2014 and 2013.
8. |
Commitments and Contingencies |
Program
Contract Rights and Obligations
As of September 30, 2014, the Company has executed contracts for program rights
totaling approximately $702 for which the broadcast period has not yet commenced. Accordingly, such rights have not been recorded in the condensed consolidated balance sheet at September 30, 2014.
Aggregate annual maturities of cash program contract obligations (excluding unavailable program contract rights) at September 30,
2014, were approximately as follows:
|
|
|
|
|
Year |
|
Amount |
|
2015 |
|
$ |
5,352 |
|
2016 |
|
|
1,297 |
|
2017 |
|
|
503 |
|
2018 |
|
|
221 |
|
2019 |
|
|
305 |
|
|
|
|
|
|
|
|
$ |
7,678 |
|
|
|
|
|
|
F-28
COMMUNICATIONS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(Continued)
(amounts in thousands, except share and per share information)
Other Legal Matters
The Company, from time to time, is involved in legal matters incidental to the conduct of its business. In the opinion of management, there are no claims outstanding that would have a material adverse
effect on the Companys condensed consolidated financial position, results of operations, or cash flows.
There
were no other significant or material subsequent events that required recognition or additional disclosure in these condensed consolidated financial statements as of the evaluation date of January 20, 2015, which is the date these condensed
consolidated financial statements were issued other than the sale agreement that was completed in January 2015 disclosed in Note 3 to the condensed consolidated financial statements.
F-29
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