Solid as a rock.

WITH THE EXCEPTION OF A FEW SPORADIC, framed, network promotional posters, there are no pictures in Granite Broadcasting Corp's New York offices. The walls are completely bare in the company's conference room where Granite founder and CEO W. Don Cornwell, 47, and key staff members plan strategy. "We have been moving so fast and so hard that, frankly, we haven't had a chance to stop and say, 'how do we want this office to look,'" Cornwell says. "We are running full [speed] all the time."

Full-speed ahead may be the best way to describe the 1994 performance of Granite, which will probably own nine television stations before year-end. The company's stock, which in the past failed to impress Wall Street pundits, rose 70% last year and became the country's top performing media stock. Net revenues jumped 75% to nearly $63 million in 1994, from $37.5 million in 1993. The company's gross revenues for 1994 were $76.2 million, up from $45.2 million in 1993.

Some analysts predict that Granite's path to acquiring more stations will be hampered by Congress' action to eliminate the tax break for broadcast owners who sell to minorities. But few doubt that Granite, the 1995 BE Company of the Year and No. 18 on this year's BE INDUSTRIAL/SERVICE 100, will continue to grow in station numbers and stock value.

"These guys are pretty good at what they do," says Brian E. Cobb, TV station broker at Media Venture Partners in Washington. "They have a strong base from which to operate."

Cornwell is similarly optimistic about the company's future. "Is Granite going to continue to prosper? Yes. We've run real hard and real fast in a short period of time. I don't think we saw [the tax break] as a window of opportunity, but thank God we didn't let grass grow under our feet."

1994: THE YEAR IN REVIEW

Granite owns stations in San Jose and Fresno, Calif.; Fort Wayne, Ind.; Peoria, Ill.; Duluth, Minn.; Syracuse, N.Y., and Austin, Texas. The company recently signed an agreement to buy a station in Kalamazoo, Mich., and owns a minority interest in a Buffalo, N.Y., station.

Andrew Marcus, an analyst at Alex, Brown & Sons, told Crain's New York Business that Granite has achieved a critical triumph in the television business by buying stations below-market and turning them around.

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Cornwell credits the company's tremendous increase in revenues in 1994 to several factors, including the acquisition of the Fresno and Syracuse stations, and good financial performances from the other stations in the group. "Those stations [Fresno and Syracuse] were truly underperforming in terms of revenue and cash flow," Cornwell explains. "[In general], 1994 was a terrific year to be in the television business because of a combination of the economy being on the upswing and advertisers rediscovering the value of television."

Throw in a year in which political ads intensified the competition for commercial advertising space, and you have a formula for broadcasting success. But Granite's achievements, industry insiders say, is attributable to more than just sound ledger decisions and the whims of seasonal advertisers.

Another key to its success is the leeway Granite gives its local managers, who are allowed to make market-specific programming decisions.

"These local communities have their own style and character," says Stuart J. Beck, 48, Granite's president. "You need to have the local managers run things because they have their fingers on the [community's] pulse."

Granite has also tapped untraditional sources of advertising. Each station, according to Cornwell, regularly sponsors events such as kids fairs and mature-lifestyle festivals. "We have something going on at all of our stations all the time," Cornwell says. "It's the way we outperform our industry...We're constantly trying to find new advertisers to convert people who traditionally only advertise in newspapers."

Granite has succeeded in beefing up the news operations at their stations, which the company sees as key to attracting viewers. "When my dad and your dad came home years ago, they usually had a newspaper under their arm," Beck says. "That's not the case anymore. People are now getting their information from television. So the local news operation has become one of the most important parts of any station."

In scouting stations for possible acquisition, the company considers geographical location and the state of the news operation, along with several other factors. "If you can buy the news leader [in a market] that underperforms and is fat, it's like dying and going to heaven," Cornwell says. "And we've been successful with that."

Ironically, some Granite employees have reportedly faulted the company for not investing more in equipment and new technology, a criticism Cornwell attributes to journalists who, he says, are by nature seemingly never satisfied.

"There is no news organization on earth that ever thinks, no matter who the owner is, that they spend enough on operations. But you call up one of our operations and talk to the salespeople, and they'll tell you that Granite spends a lot of money," says Cornwell.

A DREAM ONLY A MOTHER COULD LOVE

In the late 1980s, Cornwell left the Wall Street firm of Goldman, Sachs & Co., where he had been an investment banker, to pursue his dream of owning television stations. He met Stuart Beck, an attorney, through a mutual friend, and the pair began lining up investors.

A native of Tacoma, Wash., Cornwell received a B.A. from Occidental College in Los Angeles and an M.B.A. from Harvard. He spent 17 years at the prestigious Goldman, Sachs, working deals for companies such as Hershey Foods, Bristol-Myers, Gerber Foods and Rubbermaid.

In addition to investing his own money in Granite, Cornwell convinced some of his wealthy friends, including prominent attorney Vernon Jordan and talk show queen Oprah Winfrey, to invest as well. But even with the help of such notables, and a Federal Communications Commission tax break to encourage minority ownership, Granite didn't exactly enjoy smooth sailing in its early years.

Conventional wisdom at that time was that television stations were no longer the cash cows they'd been. In fact, most large corporations were selling their broadcast properties, especially in the small and medium-size markets where Granite thrives. "Even my mother had her doubts," Beck recalls. "But we were able to present to the marketplace an economic model that made sense. Don and I convinced investors that, despite the overall trend in that business, we had a plan that would work."

Cornwell adds: "I always viewed [television] as being an asset that people have underestimated in terms of its power and financial viability. It can be a very profitable business if you run it right."

Granite bought its first stations in 1988. Four years later, Cornwell decided to take the company public on NASDAQ to raise capital for more acquisitions. But Wall Street was not very receptive to the company, and Granite's stock took a nosedive. One newspaper report at the time quipped that the stock "traded by appointment."

"Our stock was a hard sell," Cornwell recalls. "The problem, and this is a lesson to entrepreneurs, is that we couldn't raise enough capital in the initial public offering to do anything more than simply bring our debt down," Cornwell recalls. "People buy your stock for growth--not so you can pay down debt."

Cornwell said going public made sense for Granite because the company needed more capital to grow, and private investors were wary of putting money into a company where they had no say. "It gave us a broader universe of buyers. People who bought our stock could vote with their feet," he says.

Granite's stock opened at $7.18, but soon fell to $2.17 per share. It was several years before Granite could reduce debt enough and secure other private investments to make more acquisitions.

"The market has begun to recognize that we're a player again, and that's why our stock was the best performing media stock last year," Cornwell says. "Our stock is still grossly undervalued, but it's taken time to educate Wall Street as to how dramatically our company has changed. We think our stock is going to trade up."

So do many Wall Street analysts. James P. Gorman, vice president of high yield bonds at Lazard Freres & Co., says Granite stock is still undervalued, and he predicts it will continue to rise as the company becomes more geographically diverse and acquires more stations. "The strong recovery and ad revenues enabled them to reduce their debt. There's no reason why Granite shouldn't be at $8.50," Gorman says.

Granite's common stock was trading at $7 a share at press time. While the company in past years hadn't experienced the tremendous rate of growth that it did in 1994, there were steady increases in both net revenues and operations cash flow.

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The company's net revenues increased from $35.9 million in 1992 to $37.5 million in 1993, and then to $55.8 million in 1993 after the acquisition of the two stations. During that same period, Granite's operating cash flow increased from the $13.1 million reported in 1992 to $18.4 million reported in 1993.

LIFE WITHOUT THE FCC TAX BREAK

Supporters of the government-sponsored tax break that encourages minority ownership of broadcast stations usually point to Granite as an example of how such incentives can work.

In 1978, the year the FCC tax break program began, less than 1% of the country's broadcast properties were owned by minorities. Today, nearly 3% are. But if Granite is the poster child of what's right with such programs, black entrepreneur Frank Washington and majority-owned Viacom Inc. may symbolize what's tragically wrong.

Viacom planned to sell its cable television operations to Washington for $2.3 billion. By selling to Washington, Viacom would get as much as a $600 million tax break. Washington owned only 21% of the company that was acquiring Viacom's cable operations. Although Washington's Mitgo Corp. was a general partner of the group hoping to acquire Viacom's cable properties, there was actually another company that was doing the major financing for the deal: Tele-Communications Inc., the nation's largest owner of cable television systems.

The proposed Viacom deal provided Congress with an example of big business interests using minorities as fronts to get gargantuan tax breaks. And that was all the ammunition needed to repeal the tax break incentive.

The removal of the tax incentive is not likely to quell Granite's growth, but industry insiders believe it will hamper the efforts of other minority owners looking to follow in Granite's footsteps. "It doesn't close the door, but it severely hampers the prospects," says Cobb of Media Venture Partners.

Cornwell testified before Congress in support of the tax break. "It's going to be damn near impossible for the new [minority] entrant. I will be pleased to see another Granite created, but I will be very, very surprised if it happens," Cornwell says. "It's been hard for us and I had a lot of advantages--Wall Street experience, capital."

The door of broadcast ownership may be closing to anyone without deep pockets. With the elimination of the tax incentive and the promise of deregulation, larger companies will probably continue buying stations in small and medium-size markets.

TO BUY OR NOT TO BUY 

Some speculate that Granite, in light of its high debt ratio and the elimination of the tax incentive, will need capital from a private investor if its accelerated growth is to continue.

But that's assuming that Cornwell is in a hurry to acquire the limit of 14 television stations that the FCC currently allows one company to own. It's more likely that Granite will use revenues from its stations over the short term to pay down its debt, in hopes of increasing its stock value. "The real question is whether in the current environment we should be aggressive buyers," Cornwell says. "People are now paying prices that, frankly, are historic. Even if we had the tax certificate and unlimited capital, I don't know that we would be aggressive buyers in the next 18 months."

As Cornwell contemplates the small television empire Granite has built, he realizes it hasn't been without cost. For example, in 1993 Granite paid Prudential Securities $7.5 million for its 45% stake in Buffalo's WKBW-TV. Granite plans to eventually acquire the entire station; it will be the company's largest TV station.

Granite also acquired a $29 million note Prudential held from the majority partner, Queen City Broadcasting Inc., as collateral for the remaining equity in the station. If Queen City defaults on the note, as is widely expected, Granite will control a station valued at $110 million.

So what's the problem? Queen City is controlled by J. Bruce Llewellyn, who owns two of the country's largest black businesses, including the Philadelphia Coca-Cola Bottling Co., No. 3 on the 1995 BE INDUSTRIAL/SERVICE 100. Granite's attempt to wrestle away ownership of WKBW from Queen City has caused a rift between the two black businessmen. Llewellyn, in a published report, vowed, "Cornwell will never succeed."

The Buffalo deal, Cornwell says, was just good business. "It's unfortunate that I haven't been able to reach a meeting of the minds with Bruce. I have tremendous respect for him. At the end of the day, Bruce is not losing any money. The entity that lost money is the Prudential."

If the Buffalo station had lost its African-American ownership, says Cornwell, that would have been a tragedy. "I'm sorry that he [Llewellyn] will probably go to his grave thinking that I'm one of the world's worst people. That's too bad," Cornwell says. "The stakes are too high for personal ego."

He prefers to concentrate on the employment opportunities that have been created for minorities, mostly African-Americans, at the stations Granite has purchased. On their last Equal Employment Opportunity report, Granite had 585 employees--and 16.5% were minorities.

"Our managers know that diversity is important [to Granite]. We haven't gone into Peoria and thrown a Caucasian person out of work for racial reasons. If they're doing a good job, they're going to keep their job," Cornwell says. "But it will be fair to say that there will be a higher percentage of African-Americans and Latinos [at our stations]... At the end of the day, it's good for black America that there's a Granite that has nine TV stations."

RELATED ARTICLE: AT A GLANCE

GRANITE BROADCASTING CORP.'S HOLDINGS

INCLUDE:

* KNTV (ABC) IN SAN JOSE, CALIF.

* WPTA-TV (ABC) IN FORT WAYNE, IND.

* WEEK-TV (NBC) IN PEORIA, ILL.

* KBJR-TV (NBC) IN DULUTH, MINN.

* KSEE-TV (NBC) IN FRESNO, CALIF.

* WTVH-TV (CBS) IN SYRACUSE, N.Y.

* WKBW-TV (ABC) IN BUFFALO, N.Y. (GRANITE OWNS A 45% INTEREST IN THE BUFFALO STATION)

* WWMT-TV (CBS) IN KALAMAZOO, MICH.

* KBVO-TV (FOX) IN AUSTIN, TEXAS