Making Granite Solid As A Rock

How does an upstart company compete against the likes of General Electric Co. or the Disney Co.? That question runs almost daily through the mind of broadcast executive Larry Wills, and he admits that it takes guts to wake up every morning knowing he’ll be battling giants. But the 38-year-old vice-president of finance and controller of Granite Broadcasting Co. remains undaunted. “Our spending limits aren’t as grand as theirs, but we can still put out a very good product,” he says, with the scrappiness of an underdog. “And that’s what we’ve been doing.”

In the nine years since Wills joined Granite, the country’s largest African-American-controlled broadcast company, it has gone public, bought six television stations—bringing its total to ten—and earned a reputation for solid local news and community service programming. Granite bought its second “top 10” station last summer with the acquisition of KOFY-TV in San Francisco, expanding the size of its advertising revenue pool to $1.5 billion and bringing its reach to 7% of the nation’s households. The company also owns one radio station.

Black Enterprise magazine named Granite company of the year in 1995, and in 1998 the company reached number six on the magazine’s Industrial/Service 100 List, ranked by gross sale. For 1998 net income reached $42.4 million—a 5% increase from 1997. “In 10 years, we’ve grown from two TV stations generating $30 million in revenue to 10 stations generating revenue north of $160 million,” Wills says. “And we’ve got a lot more to achieve.”

Wills’ role in Granite’s growth is finding operating niches. He comes up with better and cheaper ways to run stations. He has had to act quickly to keep up with Granite’s acquisitions and the constant demands of shareholders.

PUBLIC PRACTICE FOREVER

Wills expected to devote his career to public accounting when Arthur Young hired him in 1982. “A lot of people say ‘I’ll go into public accounting for two years so I can get my CPA certificate,'” Wills explains. “I never took that position.” Instead, Wills, who is a CPA, chose to enter public accounting for the broad experience it offered. He started in the auditing department focusing on the oil and gas industries, then moved to publishing and finally broadcasting. He spent a good part of his eight years in the firm’s SEC department reviewing financial statements before they were released to the public. “I thought I’d be in public practice forever,” he says. He felt the partners appreciated his work; after all, they’d promoted him to senior audit manager in the firm’s hectic New York office.

But like many other CPAs at larger firms, Wills was wooed into private industry. He can’t point to a specific incident that prompted him to walk, but a combination of factors. He was unhappy with the firm’s minority recruitment and promotion. “At the time, a lot of these firms hired from the same pools—the Notre Dames, the Villanovas. But those are not the schools where you would have found a lot of African-Americans taking up public accounting,” he points out.

“When I started with Arthur Young’s audit department, about 65 of us were hired and I was the only African-American,” he explains. “It didn’t bother me because I’d been in that situation before.” At Iona College, in New Rochelle, New York, Wills says minorities made up about 3% of the student population at the time he graduated in 1982 with a bachelor’s in business administration. As the only black in more than one class, he often felt the spotlight was on him. He recalls feeling compelled to “put out 110% of effort.” And at Arthur Young, Wills felt even more pressure to excel. “I think a lot of minorities feel the same way,” he says.

Other factors troubled Wills about his public accounting future. In 1990 when Ernst & Whinney merged with Arthur Young to form Ernst & Young, Wills lost his largest client. After eight years at the firm, four of which he had spent specializing in broadcasting, Wills thought he was just a few years away from making partner. But the merger brought in a whole new set of supervisors to win over. At the same time, an opportunity too good to pass up presented itself: A former client offered Wills a key position in a start-up company.

HIGH RISK, HIGH REWARD

Two years earlier, the client, W. Don Cornwell, had left a 17-year career at Goldman, Sachs & Co. to start Granite Broadcasting Corp. in New York to buy and operate television stations. Despite the presence of formidable competitors, Cornwell boasted a major ambition: to own more than a dozen television and radio stations.

The entrepreneur offered Wills the chance to develop his own piece of the Granite vision as vice-president of finance and controller. Wills felt he still would have to put in more than 100%, but he expected that, in working for a minority-controlled company, he’d play a leadership role in forming a company basically from scratch and directly reap the benefits.

At the time, Cornwell owned three stations in the Midwest (in Peoria, Illinois; Duluth, Minnesota; and Fort Wayne, Indiana) and another in San Jose, California. He talked about taking the company public. Cornwell remembers being impressed by Wills’ great expertise in financial reporting, especially to regulatory agencies. “We thought he would bring real expertise to the process of going public,” he says.

In addition, Wills could offer Granite industry-specific experience, since most of his recent clients were broadcasters. “Of all the clients I worked with,” Wills recalls, thinking back on the offer, “Don had the best idea of where the broadcasting industry was going.” Wills joined Granite in June 1990.

LESSONS LEARNED

The difference between public and private sector accounting became clear to Wills as Granite prepared to go public shortly after he came onboard. Coming from a background where he spent half of his time checking a company’s documents and procedures for conformity with generally accepted accounting principles, Wills now had to turn around and devise ways, in keeping with those principles, to help Granite earn profits in a cutthroat environment. “I went from one side of the accounting spectrum to the other,” he explains, waving his hand across a black granite conference table in the company’s midtown Manhattan headquarters overlooking the East River.

The fledgling broadcast company had picked a tough time to go public. The year 1991 would prove one of the worst in the industry’s history in terms of sales revenues, thanks mainly to the Gulf War. “Broadcasters were running wall-to-wall coverage of the conflict. Advertisers were skittish about promoting their products against programming showing American lives in danger,” explains Wills. Further, the economy was struggling. Corporations were laying off employees. Potential investors wanted to know how Granite would run profitable stations at a time when even media veterans were struggling. Wills helped pull together forecasts to show investors how the company would reduce expenses.

Granite had one advantage over most other start-up broadcast companies. As an African-American-controlled company, it qualified for a tax break created by the Federal Communications Commission to boost minority ownership of television stations. The FCC program allowed a seller to defer capital gains taxes if the buyer was a minority. “We had a lot going against us,” Wills remembers about that time, “but we still managed to go public because of that [FCC tax break].”

Going public thrust Granite into the spotlight, and the beam shone brightly on Wills as the key financial player on the start-up team. When the company made a move that met the analysts’ approval, Wills heard the endorsements, and when it misstepped, he felt the glare.

Going public also gave Granite more money, allowing it to speed up the pace of its acquisitions. Its focus: underperformers. From 1991 to 1995 it bought six stations, but not before Wills had carefully assessed each one’s operations. Prior to an acquisition, Wills became a financial investigator, talking to the sellers to get answers to key questions: Did station managers pay too much for programming or use too many vendors? Did they have two people doing a job one could handle? Wills borrowed successful strategies his Arthur Young broadcasting clients had implemented and learned from their mistakes. He knew, for example, that some broadcasters amortized programming very quickly, but at Granite he could boost profits by spreading out costs over time and writing off television shows over a number of years.

After a station joined the Granite stable, Wills worked with the local managements, to incorporate the company’s lean operations strategy, and showed them how to collect and produce the kind of financial information he needed to see and stockholders demanded. Accustomed to the laissez-faire attitude of many owners, some local managers weren’t prepared to accept Granite’s—and Wills’—tough way of doing business. Others feared layoffs. “My area of expertise is expense reduction, and most people think that means people are going to get fired,” says Wills, who admits he would consider reducing head counts if a previous owner had bloated management or staff levels. He insists, however, that Granite doesn’t have a history of major layoffs and that people who leave do so because they don’t agree with the company’s way of operating.

During Granite’s acquisitions binge, executives learned of a battle in Congress to kill the FCC tax certificate benefiting minority broadcasters. Cornwell lobbied to keep the tax breaks, but in 1995 Congress repealed the regulation. Luckily, Granite had already “bulked up,” and it was proving adept at running stations—earning respect in the industry. On Wall Street, the company was recording strong returns. Although the regulation’s repeal did not drastically affect the company, Wills considers it a blow to other minority broadcasters that are now the size Granite was when he joined. “The number of minorities in broadcasting is woefully low,” he explains. “A lot of them can’t get money from banks or the public debt market, and that’s where the tax certificate really helped out,” he explains.

Meanwhile, Wills’ role in the company broadened. He is now responsible for decisions on medical and life insurance for about 15 Granite headquarters employees. “Larry’s become our chief administrative officer, handling not just financial reporting but human resources and technological changes,” says Cornwell. Wills has developed his skills by attending conferences and volunteering in business groups, such as the New York chapter of the National Association of Black Accountants. He has also learned from watching role models, such as Bert Mitchell, founder of Mitchell-Titus LLP, the largest black-owned accounting firm in the United States.

A GROWTH STRATEGY

Already one of the largest minority-controlled broadcast companies, Granite continued to grow. Originally, it had concentrated on small and midsize stations. But by 1996 the Granite team began looking at larger properties, which promised higher profits but also carried greater risks.

At the same time, market competition intensified. The FCC’s Telecommunications Act of 1996 boosted the number of stations broadcasters could own, which meant that industry giants could buy up more stations without bumping into regulators. The act also allowed new competitors—such as phone and power companies—into the market. These changes led to the television industry’s $8.6 billion worth of mergers and acquisitions in 1996.

In February 1997 Granite acquired its first station in a top 10 market—WXON-TV (later WDWB-TV) in Detroit for $175 million. Wills worked on the sale of $150 million in preferred stock, which financed the deal. Meanwhile, he focused on lowering the company’s debt to strengthen its position. By replacing $60 million worth of 12.75% subordinated debentures with cheaper bank debt, Wills helped Granite lower its interest payments.

To differentiate its stations from others, Granite focused on community-based news. It also introduced programming celebrating the viewers it serves. For example, in San Jose, it runs a biannual tribute to the Hispanic community. Its show “Positively Detroit” highlights issues affecting that city.

Quality programming paid off. Granite’s push to lower the company’s debt, plus strong revenues from stations it owned put the broadcaster in a position to buy its second top 10 station in July 1998 for $173 million. “It was the year’s highlight for me and for Granite,” says Wills.

But the move met with shareholder disapproval. Despite 1998’s record results, analysts believed Granite had overextended itself. Last fall Standard & Poor’s downgraded its Granite rating to “negative” from “stable.” In response to the market’s concerns, the company announced it would sell an Austin, Texas, station to lower its debt levels.

“We’re not thrilled about the sale, but there’s a perception on Wall Street that we have too much debt. We think it’s manageable, but we have to keep shareholders happy,” explains Wills.

In the meantime, Wills is integrating the company’s San Francisco acquisition into the Granite stable and introducing its lean operations strategy. He sees 1999 as a year to pause and focus on positioning its properties for 2000—expected to be a banner year for advertising revenues, thanks to upcoming elections and the Olympics. It’s also a time for Wills to pause and reflect on what keeps him going. “The thing I enjoy most today is what brought me here originally—being on the ground floor of a phenomenal growth company. And we’ve got a lot more growing to do”, he predicts. n

WELD ROYAL is a freelance writer based in New York City. Her articles have appeared in the New York Times , Europe magazine and on Christian Science Monitor Radio.