GTN is still attractive from a long-term perspective.
Lower interest rates, increasing Internet and retransmission revenues, growth in a recovering industry (TVL, BLC), etc.
However, what about the cost of refinancing its debt?
The one-time expenses are huge for the fourth quarter. Check the last 10Q.
If you want, I can elaborate.
I hope it's the worst for GTN in a good while and that the company can rely on its new revenue sources to provide cash instead of high-interest debt from senior notes and preferred stock.
I want to know if any of you know.
Here is some research. Various aspects can be disproven but give it a read.
This quarter could possibly be a financial loss due to the massive refinancing costs.
Do a company search on the sec website for GTN.
Check out the most recent 10Q.
Also, check their projections for the revenues of the fourth quarter of 2012.
It's the 8-k file on November 8th.
Projected revenues on the high end, according to management, is $125m.
For the operating expenses,
broadcasting is expected to be $57.2m.
Corporate and administrative expenses are expected to be $4.3m.
Depreciation for each quarter this year is fairly consistent at around $5.7m
Amortization is negligible and gains from the sale of assets are infrequent.
This puts operating income at $57.8m. Good, right?
Interest expense is to be incurred in the 4th quarter but the breakup in how it's expensed is a bit murky. First off, newer, cheaper debt is being bought to pay off and close some of the old debt. Much of this occurred during the 4th quarter. Because of this, many different interest rates will be used to determine the interest expense.
Interest expense is also a consistent expense but because of the changes in interest rates (from high to low), expect a smaller interest expense for the year. Probably $13m.
That gives us $44.8m.
Now here are the one-time expenses related to refinancing.
Check the 10q and scroll to page 11 "Long-term debt". It covers all type of debt bought by Gray Television.
Check this page to find info on the "Senior credit facility".
Check the last paragraph.
Loan issuance costs for the new facility is $10.2m, which will be amortized over its period of use. A small but notable expense.
The early extinguishment of the old credit facility (2007) is costing the company $8.2m during the 4th quarter.
The "Senior Notes" are what really sting (page 12).
Check the fourth paragraph.
There is another early extinguishment here for the 4th quarter.
Only that it's to the tune of $38.6m.
Both senior instruments add up to $46.8m in one-time refinancing expenses, which exceeds the income after interest expense by $2m.
That's a calculated loss.
I leave the tax work to you.
The preferred shares were also repurchased.
There should be no expenses owed to the preferred shareholders in the 4th quarter. Just accrued dividend payments that were already expensed. If so, this comes after net income is calculated.
*Basically, GTN has record revenues and managed to clean their balance sheet at the risk of a not-so-impressive bottom line for the quarter ending December 31st 2012. For the long-term, this is a good move but only if revenue growth is sustained.*
For the record, this is just my due diligence at work. Work based on data acquired. Ultimately, the company's data can change depending on the circumstances of their operations. Revenues could end up even higher than projected in the 8-k document and turn my analysis on its head.
Also, I don't know how many of you all already know about these facts and have accounted for them in your vision for the company. If so, invest wisely.
Thanks for your time.
Revenues were slightly higher than they predicted. Still, it was the refinancing expenses that killed the analysts' expectations.
FY 2013 is a down year due to the reduced impact of political advertising on company revenues.
Guidance was also given for the first quarter in the company's 8-K filing. It looks like it could also be a loss but certainly a smaller loss (due to reduced interest expense, predicted higher revenues compared to Q1 2011, and ever-increasing retransmission and internet revenues).
If you are in it for the short-term, your money will not be safe here.
If you are a long-term investor, know that the company performs best during its political years (2008, 2010, 2012, etc.)
The company's better years should be ahead provided that revenue continues to grow between the adjacent years (comparing political years to non-political years is a misguided approach) and the long-term debt is gradually reduced (assuming that they aren't short on cash in the future and require another high-interest cash source).
I posted pretty much the same analysis about 2 months ago. One reason I recommended GTN and TVL as a short yesterday. GTN is currently even after refi the most heavily levered company in the broadcast sector. I remember the last time we broke $4 and we were below $2 in a month or so. No current position in this sector. JMVHO. DaninFW
Sentiment: Strong Sell