# GRAY MEDIA, INC (GTN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GRAY MEDIA, INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/43196/000143774924005295/gtn20231231_10k.htm
Accession: 0001437749-24-005295
Filing date: 2024-02-23
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/GTN/
All MD&A years: /company/GTN/mda/
Previous year: /company/GTN/mda/fy2022/ (FY 2022)
Next year: /company/GTN/mda/fy2024/ (FY 2024)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.

This section of our Annual Report on Form 10-K discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022. A detailed discussion of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2022.

Business Overview. We are a multimedia company headquartered in Atlanta, Georgia. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Our television stations serve 113 television markets that collectively reach approximately 36 percent of US television households. This portfolio includes 79 markets with the top-rated television station and 102 markets with the first and/or second highest rated television station. We also own video program companies Raycom Sports, Tupelo Media Group, PowerNation Studios, as well as the studio production facilities Assembly Atlanta and Third Rail Studios. 

Our operating revenues are derived primarily from broadcast and internet advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the years ended December 31, 2023, 2022 and 2021, we generated revenue of $3.3 billion, $3.7 billion and $2.4 billion, respectively.

Impact of Recent Acquisitions and Divestitures. During 2022 and 2021 we completed several transactions that have, collectively, had a significant impact on our financial condition, results of operations and cash flows. We refer to these transactions collectively as the “Acquisitions”. Please see Note 3 “Acquisitions and Divestitures” in our consolidated financial statements contained elsewhere herein for further discussion of the Acquisitions. The impact of the Acquisitions is described in more detail in the following discussion of our operating results. The most significant of the transactions were:

[[GREPCENT_TABLE]]
[["","\u25cf","On April 7, 2021, we acquired land in the Atlanta suburb of Doraville, Georgia for an initial investment of approximately $80 million of cash. We acquired this property, in part, for the development of studio production facilities. During 2023 we completed the first phase of this project, known as \u201cAssembly Studios\u201d which has begun operations, and we are evaluating further development opportunities for the remainder of the project. As of December 31, 2023, our total investment, net of amounts received from infrastructure related sales and reimbursements was $549 million. We refer to the total project as \u201cAssembly Atlanta\u201d;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","On August 2, 2021, we completed the acquisition of all the equity interests of Quincy Media, Inc. (\u201cQuincy\u201d). Net of divestitures to facilitate regulatory approvals, this transaction added 10 television stations in eight local markets. In connection with the acquisition we completed the divestiture to Allen Media (\u201cAllen\u201d) of television stations in seven markets previously owned by Quincy and located in our existing television markets, for an adjusted divestiture price of $401 million, which amount includes $21 million for working capital (the \u201cQuincy Divestiture\u201d). Net of divestitures the purchase price was $553 million;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","On September 13, 2021, we completed the acquisition of Third Rail Studios for $27 million;"]]
[[/GREPCENT_TABLE]]

34

[[GREPCENT_TABLE]]
[["","\u25cf","On September 23, 2021, to facilitate regulatory approvals for the acquisition of the Meredith Local Media Group (\u201cMeredith\u201d), we completed the divestiture of WJRT in the Flint-Saginaw, Michigan market, to Allen for an adjusted purchase price of $72 million in cash, including working capital (the \u201cFlint Divestiture\u201d);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","On November 9, 2021, to fund a portion of the purchase price for Meredith we issued $1.3 billion of our 2031 Notes;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","On December 1, 2021, to fund a portion of the purchase price for Meredith we amended our Senior Credit facility and borrowed $1.5 billion under the 2021 Term Loan;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","On December 1, 2021, we completed the acquisition of Meredith for $2.8 billion. This transaction added 17 television stations in 12 local markets to our operations; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","On April 1, 2022, we acquired television station WKTB-TV which is an affiliate of the Telemundo Network affiliate for the Atlanta, Georgia market, as well as certain digital media assets, for a combined purchase price of $31 million, using cash on hand (the \u201cTelemundo Atlanta Transaction\u201d)."]]
[[/GREPCENT_TABLE]]

The following table summarizes the “Transaction Related Expenses” incurred in connection with the Acquisitions during the year ended December 31, 2023, 2022 and 2021, by type and by financial statement line item (in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["Transaction Related Expenses by type:"],["Legal, consulting and other professional fees","","$","1","","","$","6","","","$","80"],["Incentive compensation and other severance costs","","","-","","","","2","","","","-"],["Termination of sales representation and other agreements","","","-","","","","-","","","","1"],["Total Transaction Related Expenses","","$","1","","","$","8","","","$","81"],["Transaction Related Expenses by financial statement line item:"],["Operating expenses before depreciation, amortization and loss (gain) on disposal of assets, net:"],["Broadcasting","","$","1","","","$","6","","","$","3"],["Corporate and administrative","","","-","","","","2","","","","71"],["Miscellaneous expense","","","-","","","","-","","","","7"],["Total Transaction Related Expenses","","$","1","","","$","8","","","$","81"]]
[[/GREPCENT_TABLE]]

Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.

We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.

35

Our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:

[[GREPCENT_TABLE]]
[["\u25cf","Spending by political candidates, political parties and special interest groups increases during the even-numbered \u201con-year\u201d of the two-year election cycle. This political spending typically is heaviest during the fourth quarter of such years;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Broadcast advertising revenue is generally highest in the second and fourth quarters each year. This seasonality results partly from increases in advertising in the spring and in the period leading up to, and including, the holiday season;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Local and national advertising revenue on our NBC-affiliated stations increases in certain years as a result of broadcasts of the Olympic Games; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Because our stations and markets are not evenly divided among the Big Four broadcast networks, our advertising revenue can fluctuate between years related to which network broadcasts the Super Bowl."]]
[[/GREPCENT_TABLE]]

We derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During the years ended December 31, 2023, 2022 and 2021 approximately 27%, 28% and 29%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to the services sector. During the years ended December 31, 2023, 2022 and 2021 approximately 20%, 17% and 17%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to automotive customers. Revenue from these industries may represent a higher percentage of total revenue in odd-numbered years due to, among other things, the increased availability of advertising time, as a result of such years being the “off year” of the two-year election cycle.

Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.

Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.

Risk Factors. The broadcast television industry relies primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant risk factors that may affect our business, see “Item 1A. Risk Factors” included elsewhere herein.

36

Revenue

Set forth below are the principal types of revenue, less agency commissions, and the percentage contribution of each to our total revenue (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["","","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Revenue:"],["Core advertising","","$","1,514","","","","46","%","","$","1,496","","","","41","%","","$","1,190","","","","50","%"],["Political","","","79","","","","2","%","","","515","","","","14","%","","","44","","","","2","%"],["Retransmission consent","","","1,532","","","","47","%","","","1,496","","","","41","%","","","1,049","","","","43","%"],["Production companies","","","86","","","","3","%","","","93","","","","3","%","","","73","","","","3","%"],["Other","","","70","","","","2","%","","","76","","","","1","%","","","57","","","","2","%"],["Total","","$","3,281","","","","100","%","","$","3,676","","","","100","%","","$","2,413","","","","100","%"]]
[[/GREPCENT_TABLE]]

Results of Operations

Year Ended December 31, 2023 (“2023”) Compared to Year Ended December 31, 2022 (“2022”)

Revenue. Total revenue decreased $395 million, or 11%, to $3.3 billion for 2023 compared to 2022. During 2023:

[[GREPCENT_TABLE]]
[["","\u25cf","Core advertising revenue increased by $18 million, despite core advertising revenue from the broadcast of the 2023 Super Bowl on our 27 FOX-affiliated stations being approximately $6 million, compared to $13 million from the broadcast of the 2022 Super Bowl and the Winter Olympics on our 56 NBC-affiliated stations;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Retransmission consent revenue increased by $36 million due to an increase in rates, offset, in part, by a decrease in subscribers;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Political advertising revenue decreased by $436 million, resulting primarily from 2023 being the \u201coff-year\u201d of the two-year election cycle; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Production company revenue decreased by $7 million in 2023 primarily due to the net effects on our sports programming business of the contract terminations related to Diamond, partially offset by revenue earned under the sports programming agreements with CW."]]
[[/GREPCENT_TABLE]]

Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization, impairment and gain on disposal of assets) increased $103 million, or 5%, to $2.3 billion for 2023, compared to 2022. During 2023:

[[GREPCENT_TABLE]]
[["","\u25cf","Payroll broadcasting expenses increased by $66 million as a result of; routine increases in compensation costs of $43 million, increases in healthcare costs of $13 million, and increases in company contributions to our defined contribution retirement plan of $10 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Non-payroll broadcasting expenses increased by $37 million primarily due to increases in retransmission expense."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Broadcast non-cash stock-based compensation expense was $5 million and $4 million in 2023 and 2022, respectively."]]
[[/GREPCENT_TABLE]]

Production Company Expenses. Production company expenses (before depreciation, amortization, impairment and gain or loss on disposal of assets) increased by approximately $32 million in 2023 to $115 million, compared to $83 million in 2022. Production company operating expenses included $17 million allowance for credit losses related to the bankruptcy of Diamond, a counterparty in contracts with us and $18 million to settle litigation related to the Assembly Atlanta project.

37

Corporate and administrative expenses. Corporate and administrative expenses (before depreciation, amortization, impairment and gain or loss on disposal of assets) increased by $8 million, or 8%, to $112 million in 2023 compared to 2022, primarily as a result of; increases in compensation expense of $4 million, increases in professional services costs of $6 million and decreases in transaction related legal and other professional services of $2 million in 2023. We recorded corporate non-cash stock-based amortization expense of $15 million and $18 million in 2023 and 2022, respectively.

Depreciation. Depreciation of property and equipment totaled $145 million and $129 million for 2023 and 2022, respectively. Depreciation increased primarily due to the addition of depreciable assets.

Amortization of intangible assets. Amortization of intangible assets totaled $194 million and $207 million for 2023 and 2022, respectively. Amortization decreased primarily due to finite-lived intangible assets becoming fully amortized.

Impairment of Goodwill and Other Intangible Assets. Several years ago, our Raycom Sports subsidiary sublicensed certain ACC football and basketball games from ESPN to Fox Sports that were assumed by Diamond upon its acquisition of Fox Sports. In March 2023, Diamond sought bankruptcy protection. On July 7, 2023, the bankruptcy court granted the request of Diamond (supported by us) for the early rejection, and therefore the termination, of the ACC sports rights agreements. On July 13, 2023, The CW announced that it had entered into an agreement with Raycom Sports for a similar package of sports rights related to the ACC games that had been included in the now-terminated agreement with Diamond. Concurrently, Raycom Sports and ESPN modified their license agreement to correspond with the terms of The CW sublicense agreement. The new agreements mitigate a portion of the losses caused by Diamond’s rejection of its ACC sports rights agreement with Raycom Sports. As a result of the bankruptcy filings and these new July 2023 agreements, our production companies segment recorded a non-cash charge of $43 million, for impairment of goodwill and other intangible assets.

Loss (Gain) on Disposals of Assets, Net. We recognized a loss on disposal of assets of $21 million in 2023 compared to a gain on disposal of assets of $2 million in 2022, primarily related to the sale of television station KNIN in the Boise, Idaho market, in which we recognized a loss of $14 million in 2023.

Miscellaneous Income (Expense), Net. Miscellaneous income, net totaled $7 million in 2023 and miscellaneous expense, net totaled $4 million 2022.

Impairment of Investments. During 2023 and 2022, we wrote down the value of certain investments to their estimated net realizable values. The total impairment charges were $29 million and $18 million in 2023 and 2022, respectively.

Interest Expense. Interest expense increased $86 million, or 24%, to $440 million for 2023 compared to 2022. This increase was primarily attributable to the increase in average interest rates on our outstanding debt, net of the impact of our pre-payment of our outstanding 2017 Term Loan balance. Excluding amounts recorded as interest expense resulting from the amortization of deferred financing costs, the average interest rate on all of our outstanding debt increased to 6.5% in 2023 compared to 5.1% in 2022. The average outstanding principal balance of all our debt was $6.3 billion and $6.7 billion during 2023 and 2022, respectively.

38

Income Tax Expense. Our effective income tax rate decreased to a net provision of 7% for 2023 from 26% for 2022. Our effective income tax rates differed from the statutory rate due to the following items:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["Statutory federal income tax rate","","","21","%","","","21","%"],["Current year permanent items","","","(13",")%","","","1","%"],["Restricted stock differences","","","(7",")%","","","0","%"],["State and local taxes, net of federal taxes","","","6","%","","","4","%"],["Effective income tax expense rate","","","7","%","","","26","%"]]
[[/GREPCENT_TABLE]]

We file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts. We estimate that these income tax payments, before deducting refunds, will be within a range of $190 million to $210 million in 2024.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash flows from operations and borrowing capacity under Revolving Credit Facility.

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of December 31, 2023, while others are considered future commitments. Our contractual obligations primarily consist of amounts required to be paid for: the acquisition of television stations; the purchase of property and equipment; service and other agreements; commitments for various syndicated television programs; and commitments under affiliation agreements with networks. In addition to our contractual obligations, we expect that our primary anticipated uses of liquidity in 2024 will be to reduce our indebtedness, fund our working capital, make interest and tax payments, fund capital expenditures, pursue certain strategic opportunities and maintain operations. For a description of the Company’s various contractual and other commitments requiring future payments, see Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein. In addition, for a description of the Company's interest payments and future maturities of long-term debt, see Note 4 “Long-term Debt” of our audited consolidated financial statements included elsewhere herein.

We believe that our cash balance, our cash flow from operations and availability under our Revolving Credit Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations for at least the next twelve months and the foreseeable future. See below for more information on our liquidity and capital resources.

39

General. The following tables present data that we believe is helpful in evaluating our liquidity and capital resources (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","2021"],["Net cash provided by operating activities","","$","648","","","$","829","","","$","300"],["Net cash used in investing activities","","","(291",")","","","(503",")","","","(3,534",")"],["Net cash (used in) provided by financing activities","","","(397",")","","","(454",")","","","2,650"],["Net decrease in cash","","$","(40",")","","$","(128",")","","$","(584",")"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2023","","","2022"],["Cash","","$","21","","","$","61"],["Long-term debt, including current portion, less deferred financing costs","","$","6,160","","","$","6,455"],["Series A Perpetual Preferred Stock","","$","650","","","$","650"],["Borrowing availability under senior credit facility","","$","494","","","$","496"]]
[[/GREPCENT_TABLE]]

Net Cash Provided By (Used In) Operating, Investing and Financing Activities – 2023 Compared to 2022

Net cash provided by operating activities decreased $181 million to $648 million in 2023 compared to net cash provided by operating activities of $829 million in 2022. The decrease in cash provided by operating activities was primarily due to a decrease in net income of $531 million offset, in part, by an increase in cash provided from changes in working capital of $328 million and an increase in non-cash charges of $22 million. The change in working capital resulted primarily from the sale of accounts receivable under our accounts receivable securitization facility.

Net cash used in investing activities decreased $212 million to $291 million for 2023 compared to $503 million for 2022. The net decrease in the amount used was primarily due to; a reduction in cash used for the purchase of property and equipment of $88 million, an increase in cash received from both the sale of a television station, and from a quasi-governmental authority related to infrastructure components of construction on the Assembly Atlanta project, of $74 million; and a reduction of cash used to acquire businesses and broadcast licenses of $52 million.

Net cash used in financing activities decreased $57 million to $397 million in 2023 compared to net cash used of $454 million in 2022. During 2023 and 2022, we used $52 million of cash to pay dividends to holders of our preferred stock and $30 million to pay dividends to holders of our common stock. During 2023 and 2022, we used a net amount of $310 million and $315 million, respectively, for pre-payments and required principal reductions of our long-term debt. We did not repurchase any shares of our common stock in 2023, but in 2022, we used $50 million to repurchase shares of our common stock on the open market.

Retirement Plans

We sponsor and contribute to defined benefit and defined contribution retirement plans:

[[GREPCENT_TABLE]]
[["","\u25cf","The Gray Television, Inc. Retirement Plan (the \u201cGray Pension Plan\u201d)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The Gray Television, Inc. Capital Accumulation Plan (the \u201cGray 401(k) Plan\u201d)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Gray Television, Inc. Retirement Plan for Certain Bargaining Class Employees (the \u201cMeredith Plan\u201d)"]]
[[/GREPCENT_TABLE]]

40

The Gray Pension Plan is a defined benefit pension plan covering certain of our legacy employees. Benefits under the Gray Pension Plan are frozen and can no longer increase, and no new participants can be added to the plan.

Our funding policy for the Gray Pension Plan is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of United States Generally Accepted Accounting Principles (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 2023, was 4.79%, which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 2022 was 4.99%. Our assumptions regarding expected return on plan assets reflects asset allocations, the investment strategy and the views of investment managers, as well as historical experience. In 2023, we used an assumed rate of return of 6.25% for our assets invested in the Gray Pension Plan. The estimated asset returns for this plan, calculated on a mean market value assuming mid-year contributions and benefit payments, were a gain of 13.7% for the year ended December 31, 2023, and a loss of 12.0% for the year ended December 31, 2022. Other significant assumptions relate to inflation, retirement and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. Retirement rates are based on actual plan experience and mortality rates are based on the Pri-2012 total mortality table and the MP-2021 projection scale published by the Society of Actuaries.

During each of the years ended December 31, 2023 and 2022, we contributed $4 million to the Gray Pension Plan, and we anticipate making a contribution of $4 million to the Gray Pension Plan in 2024. The use of significantly different assumptions, or if actual experienced results differ significantly from those assumed, could result in our funding obligations being materially different.

The Gray 401(k) Plan is a defined contribution plan intended to meet the requirements of section 401(k) of the Internal Revenue Code. Employer contributions under the Gray 401(k) Plan include matching cash contributions at a rate of 100% of the first 1% of each employee’s salary deferral, and 50% of the next 5% of each employee’s salary deferral. In addition, the Company, at its discretion, may make an additional profit-sharing contribution, based on annual Company performance, to those employees who meet certain criteria. For the years ended December 31, 2023 and 2022, our matching contributions to our Capital Accumulation Plan were approximately $26 million and $17 million, respectively. For the years ended December 31, 2023 and 2022, we accrued contributions of approximately $10 million and $9 million respectively, as discretionary profit-sharing contributions, each in the form of our common stock.

In connection with the Meredith Transaction, in 2021, we assumed a defined benefit pension plan covering certain legacy Meredith bargaining class employees. As of December 31, 2023 and 2022, the Meredith Plan had combined plan assets of $16 million and $14 million, respectively, and combined projected benefit obligations of $11 million, in each year. A net asset of $5 million and $3 million for this plan are recorded in our financial statements as of December 31, 2023 and 2022, respectively.

See Note 11 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning these retirement plans.

Capital Expenditures

We currently expect that our routine capital expenditures will range between approximately $115 million to $120 million during 2024 for broadcasting, production company and corporate purposes. We currently expect capital expenditures of approximately $21 million, net of $31 million of certain incentive payments, related to the Assembly Atlanta project. We can give no assurances of the actual proceeds to be received in the future from incentive payments, nor the timing of any such proceeds.

41

Off-Balance Sheet Arrangements

Operating Commitments. We have various commitments for syndicated television programs. We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such as Wheel of Fortune and off network reruns are programs such as The Big Bang Theory. First run programs have not been produced at the time the contract to air such programming is signed, and off network reruns have already been produced. For all syndicated television contracts, we record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off-network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.

The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.

The following are our material expected off balance sheet contractual obligations and commitments as of December 31, 2023:

[[GREPCENT_TABLE]]
[["\u25cf","Cash interest on long-term debt obligations, including interest expense on long-term debt and required future principal repayments under those obligations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Preferred Stock dividends."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","On February 23, 2023, we, certain of our subsidiaries and a wholly-owned special purpose subsidiary (the \u201cSPV\u201d), entered into a three-year $300 million revolving accounts receivable securitization facility (the \u201cSecuritization Facility\u201d) with Wells Fargo Bank, N.A., as administrative agent, for the purpose of providing additional liquidity in order to repay indebtedness under the Senior Credit Facility. The Securitization Facility permits the SPV to draw up to a total of $300 million, subject to the outstanding amount of the receivables pool and other factors. The Securitization Facility is subject to interest charges, at the one-month SOFR rate plus 100 basis points on the amount of the outstanding facility. The SPV is also required to pay an upfront fee and a commitment fee in connection with the Securitization Facility."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Programming obligations not currently accrued that represent obligations for syndicated television programming whose license period has not yet begun, or the program is not yet available."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Network affiliation agreements representing the fixed obligations under our current agreements with broadcast networks. Certain network affiliation agreements include variable fee components such as percentage of revenue or rate per subscriber. Our network affiliation agreements expire at various dates primarily through January 1, 2026."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Service and other agreements for various non-cancelable contractual agreements for maintenance services and other professional services."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","Non-cancelable contractual obligations for various materials, services and construction costs related to development of our studio production facilities."]]
[[/GREPCENT_TABLE]]

For more information about these off-balance sheet contractual obligations and commitments please refer to Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein.

42

Subsequent Events

Exchange of television stations. On February 1, 2024, we announced that we have entered into agreements with Marquee Broadcasting, Inc. (“Marquee”) to exchange television stations. Under the terms of the agreement, our television stations in the Cheyenne-Scottsbluff and Casper television markets (DMAs 194 and 198, respectively) are expected to be sold to Marquee in exchange for Marquee’s FCC permit authorizing the construction of new television station, that will be built in the Salt Lake City, Utah market (DMA 27), and will be known as KCBU. Neither party will pay additional cash or consideration to fulfill the terms of this exchange. The transactions are expected to close simultaneously in the second quarter of 2024 and are subject to the customary closing conditions and the receipt of regulatory and other approvals.

BMI Investment Proceeds. On February 8, 2024, we received $110 million in pre-tax cash proceeds from the closing of the previously announced sale of Broadcast Music, Inc. (“BMI”) to a shareholder group led by New Mountain Capital, LLC. $50 million of the net proceeds from the sale of BMI were used to pay in full the amount then outstanding under are Revolving Credit Facility. We intend to use the remaining proceeds for general corporate purposes.

Amendment of Revolving Credit Facility. On February 16, 2024, Gray entered into a second amendment (the “Second Amendment”) to its Senior Credit Facility. The Second Amendment, among other things, (i) increases the aggregate commitments under the Gray’s existing $500 million Revolving Credit Facility by $125 million, resulting in aggregate commitments under the Revolving Credit Facility of $625 million and (ii) extends the maturity date of a $552.5 million tranche of the Revolving Credit Facility to December 31, 2027 (subject to a springing maturity in certain circumstances set forth in the Second Amendment), with a remaining non-extending tranche of the Revolving Credit Facility of $72.5 million maturing on December 1, 2026 (subject to a springing maturity in certain circumstances set forth in the Second Amendment). Except as modified by the Amendment, the existing terms of the Senior Credit Facility remain in effect.

Executive Update. On February 20, 2024, we announced that our Chief Financial Officer, Jim Ryan has notified us of his voluntary decision to transition into retirement after 2025. We also announced the hiring of Jeff Gignac, who currently serves as a Managing Director and Head of Media & Telecom Investment Banking at Wells Fargo Securities. Mr. Gignac will join us, initially as Executive Vice President, Finance, on April 1, 2024, and he will step into Mr. Ryan’s role as Executive Vice President, Chief Financial Officer on July 1, 2024.  Mr. Ryan will work closely with Mr. Gignac and our entire executive team until he retires at the end of 2025.

Inflation

During 2023, we have experienced moderate inflation of our operating expenses and increases in interest rates on amounts outstanding under our Senior Credit Facility. There can be no assurance that further increases in the rate of inflation or interest rates in the future would not have an adverse effect on operating results.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those reported amounts. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require significant judgments or estimations in their application where variances may result in significant differences to future reported results. Our policies concerning intangible assets and income taxes are disclosed below.

Variability of Critical Accounting Estimates. Our critical accounting estimates include estimates and assumptions that are material to our financial statements. These estimates and assumptions are used in:

[[GREPCENT_TABLE]]
[["\u25cf","our annual impairment testing of broadcast licenses and goodwill;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","our estimates of the fair value of assets acquired and liabilities assumed in businesses combinations; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u25cf","our estimates related to income taxes."]]
[[/GREPCENT_TABLE]]

Our estimates and assumptions have been materially accurate in the past and have not changed materially. We do not expect that these assumptions are likely to change materially in the future.

Annual Impairment Testing of Broadcast Licenses and Goodwill. We evaluate broadcast licenses and goodwill for impairment on an annual basis, or more often when certain triggering events occur. Goodwill is evaluated at the reporting unit level.

Our broadcasting operating segment is comprised of a single reporting unit. Each of the distinct businesses within our production companies operating segment represent a reporting unit. Therefore, as of December 31, 2023, we evaluated our goodwill for impairment for five reporting units. One reporting unit for all of our broadcast television operations and four for each of the distinct businesses within our production companies. The Company has considered the requirements as stipulated within ASC 350. Management has identified the applicable assets and liabilities for each of the reporting units in accordance with ASC 350.

In the performance of our annual broadcast license and reporting unit impairment assessments, we have the option of performing a qualitative assessment to determine if it is more likely than not that the respective asset has been impaired. In 2023, we performed a qualitative assessment for 59 of our broadcast licenses and three of our reporting units. In 2022, we performed a qualitative assessment for 57 of our broadcast licenses and one of our reporting units.

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As part of this qualitative assessment, we evaluate the relative impact of factors that are specific to the reporting units as well as industry, regulatory and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.

If we conclude that it is more likely than not that a broadcast license or reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we perform the quantitative assessment which involves comparing the estimated fair value of the broadcast license or reporting unit to its respective carrying value.

For our annual broadcast licenses impairment test in 2023, we concluded that it was more likely than not that all of our broadcast licenses that were evaluated were not impaired based upon our qualitative assessments. We elected to perform a quantitative assessment for our remaining broadcast licenses and concluded that their fair values exceeded their carrying values. To estimate the fair value of our broadcast licenses, we utilize a discounted cash flow model assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market.

For our annual goodwill impairment test in 2023, we concluded that it was more likely than not that goodwill was not impaired based upon our qualitative assessments for one of our reporting units. We elected to perform a quantitative assessment for the remainder of our reporting units and concluded that their fair values exceeded their carrying values. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our reporting units. We also consider a market multiple approach to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value our television stations.

We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our broadcast licenses and reporting units were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.

As of December 31, 2023 and 2022, the recorded value of our broadcast licenses was $5.3 billion at each date. As of December 31, 2023 and 2022, the recorded value of our goodwill was $2.6 billion and $2.7 billion, respectively. See Note 13 “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein, for the results of our annual impairment tests for the years ended December 31, 2023, 2022 and 2021.

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During 2023, as a result of the bankruptcy of Diamond Sports Group, LLC (“Diamond”), our production companies segment recorded a non-cash charge of $43 million, for impairment of goodwill and other intangible assets.  

Valuation of Network Affiliation Agreements. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.

Certain other broadcasting companies have valued their stations on the basis that it is the network affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship, and include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or reporting units.

The methodology we used to value our stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired from 2002 through December 31, 2023, we generally ascribe no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Due to certain characteristics of a small number of the stations acquired in 2022, we ascribed approximately $14 million million of the value of those transactions to network affiliations, respectively.

Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.

If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are finite-lived intangible assets, this reallocation of value might have a significant impact on our operating results. There is diversity of practice within the industry, and some broadcast companies have considered such network affiliation intangible assets to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.

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The following table reflects the hypothetical impact of the reassignment of value from broadcast licenses to network affiliations for our historical acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period as of our most recent impairment testing date of December 31, 2023 (in millions, except per share data):

[[GREPCENT_TABLE]]
[["","","","","","","Percentage of Total"],["","","","","","","Value Reassigned to"],["","","","","","","Network"],["","","As","","","Affiliation Agreements"],["","","Reported","","","50%","","","25%"],["Balance Sheet (As of December 31, 2023):"],["Broadcast licenses","","$","5,320","","","$","2,660","","","$","3,990"],["Other intangible assets, net (including network affiliation agreements)","","","415","","","","2,017","","","","1,216"],["Statement of Operations"],["(For the year ended December 31, 2023):"],["Amortization of intangible assets","","","194","","","","344","","","","269"],["Operating income","","","383","","","","233","","","","308"],["Net loss attributable to common stockholders","","","(128",")","","","(240",")","","","(184",")"],["Per share - basic","","$","(1.39",")","","$","(2.61",")","","$","(2.00",")"],["Per share - diluted","","$","(1.39",")","","$","(2.61",")","","$","(2.00",")"]]
[[/GREPCENT_TABLE]]

For future acquisitions, if any, the valuation of the network affiliations may differ from the values of previous acquisitions due to the different characteristics of each station and the market in which it operates.

Income Taxes. As of December 31, 2023, we have an aggregate of approximately $299 million of various state operating loss carryforwards, of which we expect that approximately one-third will be utilized. We expect that approximately $201 million of these state net operating loss carryforwards will not be utilized due to section 382 limitations and those that will expire prior to utilization.

Recent Accounting Pronouncements. See Note 1 “Description of Business and Summary of Significant Accounting Policies” of our audited consolidated financial statements included elsewhere herein for more information.