Note 2 - Acquisitions and Dispositions |
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Mergers, Acquisitions and Dispositions Disclosures [Text Block] | 2 . Acquisitions and Dispositions On February 1, 2016, to facilitate regulatory approval for the Schurz Acqusition (as defined below), we exchanged the assets of KAKE-TV (ABC) (and its satellite stations) in the Wichita, Kansas television market, for the assets of Lockwood Broadcasting, Inc.’s television station WBXX-TV (CW) in the Knoxville, Tennessee television market and $11.2 million (the “WBXX Acquisition”). In connection with the divestiture of KAKE-TV’s assets, we recorded a gain of approximately $2.0 million, excluding transaction related expenses. On February 16, 2016, we acquired the television and radio broadcast assets of Schurz Communications, Inc. (“Schurz”) for an adjusted purchase price of $443.4 million plus transaction related expenses (the “Schurz Acquisition”). The acquired television broadcast assets consisted of KWCH-TV (CBS) (and three satellite stations) in the Wichita, Kansas television market; WDBJ-TV (CBS) in the Roanoke-Lynchburg, Virginia television market; KYTV-TV (NBC), KCZ (CW), and certain operating rights related to KSPR-TV (ABC) in the Springfield, Missouri television market; WAGT-TV (NBC) in the Augusta, Georgia television market; KTUU-TV (NBC) in the Anchorage, Alaska television market; two satellite stations and the ABC programming stream of KOTA-TV serving the Rapid City, South Dakota television market; and WSBT-TV (CBS) in the South Bend, Indiana television market. Schurz’s radio broadcast assets were located in the South Bend and Lafayette, Indiana radio markets and Rapid City, South Dakota radio market (the “Schurz Radio Stations”). Also on February 16, 2016, and to further faciliate regulatory approvals for the Schurz Acquisition, we exchanged the assets of WSBT-TV for the assets of Sinclair Broadcast Group, Inc.’s television station WLUC-TV (NBC/FOX) in the Marquette, Michigan televison market (the “WLUC Acquisition”), and we sold the assets of the Schurz Radio Stations for $16.0 million to three third-party radio broadcasters. The Schurz Acquisition, the WLUC Acquisition, and the sale of the assets of Schurz Radio Stations closed concurrently. Our cost basis for the assets of WSBT-TV and the Schurz Radio Stations was equal to the value received in their respective exchange and divestiture. As a result, we did not record a gain or loss related to the WLUC Acquisition or related to the divestiture of the Schurz Radio Stations. The Schurz Acquisition, the WBXX Acquisition, the WLUC Acquisition, and the sale of the assets of Schurz Radio Stations are referred to collectively as the “Schurz Acquisition and Related Transactions.” Excluding transaction and financing costs, our net consideration paid for the Schurz Acquisition and Related Transactions ( i.e. , the Schurz Acquisition adjusted purchase price less cash received from Lockwood Broadcasting, Inc. and the buyers of the Schurz Radio Stations) was $416.2 million.Also on February 16, 2016, we completed a financing transaction through which we incurred an additional $425.0 million of debt (the “2016 Term Loan”) under our senior credit facility, as amended (the “Senior Credit Facility”) to fund a portion of the purchase price of the Schurz Acquisition and to pay a portion of the related fees and expenses, the remainder of which were paid from cash on hand. See Note 3 “Long-term Debt” for further information regarding our financing activities. The purchase consideration for the Schurz Acquisition and Related Transactions is summarized as follows (in thousands):
Preliminary Fair Value Estimates: The preliminary fair value estimates of the assets acquired, liabilities assumed and resulting goodwill of the Schurz Acquisition and Related Transactions are summarized as follows (in thousands):
Amounts in the table above are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. Accounts receivable are recorded at their fair value representing the amount we expect to collect. Gross amounts receivable are approximately $0.2 million more than their recorded fair value. Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from three years to 40 years. Amounts related to other intangible assets represent the estimated fair values of retransmission agreements of $15.1 million; advertising relationships of $1.6 million; and favorable leases of $2.6 million. These intangible assets are being amortized over their estimated useful lives of approximately 4.9 years for retransmission agreements; approximately 5.5 years for advertising relationships; and approximately 9.6 years for leases. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, as well as future synergies that we expect to generate from each acquisition. We have preliminarily recorded $71.6 million of goodwill related to the Schurz Acquisition and Related Transactions. The goodwill recognized related to these acquisitions is deductible for income tax purposes. The Company’s consolidated results of operations for the three months ended March 31, 2016 include the results of the Schurz Acquisition and Related Transactions from the date of each transaction. Net revenues and operating income attributable thereto and included in our condensed consolidated statements of operations for the three months ended March 31, 2016 were $16.6 million and $5.8 million, respectively. In connection with these acquisitions, we incurred a total of $6.7 million of transaction related costs during the three months ended March 31, 2016, primarily related to legal, consulting and other professional services. Unaudited Pro Forma Financial Information The following table sets forth certain unaudited pro forma information for the three months ended March 31, 2016 and 2015 assuming that the Schurz Acquisition and Related Transactions occurred on January 1, 2015 (in thousands, except per share data):
This pro forma financial information is based on historical results of operations of each of Gray, the television stations acquired and the television stations divested in the Schurz Acquisition and Related Transactions, adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we completed each of the Schurz Acquisition and Related Transactions on January 1, 2015 or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the three months ended March 31, 2016 and 2015 reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, interest expense resulting from additional borrowings under our Senior Credit Facility and the related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the preliminary allocation of purchase price to the fair value of the assets acquired and liabilities assumed, or any other underlying assumptions. |