##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark one)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2010 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to  .
 Commission file number: 1-13796
 Gray Television, Inc.
 
 Georgia
    
    58-0285030(State or other jurisdiction of incorporation or
 organization)
    
    (I.R.S. Employer Identification Number)4370 Peachtree Road, NE, Atlanta, Georgia
    
    30319(Address of principal executive offices)
    
    (Zip code)
 (404) 504-9828
 
 Not Applicable
 
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(do not check if a smaller reporting company)
Smaller Reporting Company o o þ
  Common Stock (No Par Value)
    
    Class A Common Stock (No Par Value)51,381,084 shares outstanding as of May 7, 2010
    
    5,753,020 shares outstanding as of May 7, 2010




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INDEX
 GRAY TELEVISION, INC.
  
 PAGEPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed consolidated balance sheets (Unaudited)   March
31, 2010 and December 31, 2009
    
    
    3Condensed consolidated statements of operations (Unaudited) 
three months ended March 31, 2010 and 2009
    
    
    5Condensed consolidated statement of stockholders equity and
comprehensive income (Unaudited)  three months
ended March 31, 2010
    
    
    6Condensed consolidated statements of cash flows (Unaudited) 
three months ended March 31, 2010 and 2009
    
    
    7Notes to condensed consolidated financial statements
(Unaudited) 
March 31, 2010
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    22Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30PART II.
    
    OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    31Item 6.
    
    Exhibits
    
    
    40SIGNATURES
    
    
    
    
    41EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009Assets:Current assets:Cash
    
    $
    13,664
    
    
    $
    16,000Trade accounts receivable, less allowance for doubtful accounts
of $847 and $1,092, respectively
    
    
    52,580
    
    
    
    57,179Current portion of program broadcast rights, net
    
    
    6,781
    
    
    
    10,220Deferred tax asset
    
    
    1,597
    
    
    
    1,597Prepaid and other current assets
    
    
    3,429
    
    
    
    1,788Total current assets
    
    
    78,051
    
    
    
    86,784Property and equipment, net
    
    
    143,196
    
    
    
    148,092Deferred loan costs, net
    
    
    5,631
    
    
    
    1,619Broadcast licenses
    
    
    818,981
    
    
    
    818,981Goodwill
    
    
    170,522
    
    
    
    170,522Other intangible assets, net
    
    
    1,194
    
    
    
    1,316Investment in broadcasting company
    
    
    13,599
    
    
    
    13,599Other
    
    
    4,641
    
    
    
    4,826Total assets
    
    $
    1,235,815
    
    
    $
    1,245,739
 See notes to condensed consolidated financial statements.
 3




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##### Table of Contents



GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009Liabilities and stockholders equity:Current liabilities:Trade accounts payable
    
    $
    5,666
    
    
    $
    6,047Employee compensation and benefits
    
    
    9,553
    
    
    
    9,675Accrued interest
    
    
    12,664
    
    
    
    13,531Other accrued expenses
    
    
    4,193
    
    
    
    4,814Interest rate hedge derivatives
    
    
    360
    
    
    
    6,344Federal and state income taxes
    
    
    4,371
    
    
    
    4,206Current portion of program broadcast obligations
    
    
    11,883
    
    
    
    15,271Acquisition related liabilities
    
    
    863
    
    
    
    863Deferred revenue
    
    
    6,255
    
    
    
    6,241Current portion of long-term debt
    
    
    8,080
    
    
    
    8,080Total current liabilities
    
    
    63,888
    
    
    
    75,072Long-term debt, less current portion
    
    
    781,709
    
    
    
    783,729Long-term accrued facility fee
    
    
    24,245
    
    
    
    18,307Program broadcast obligations, less current portion
    
    
    1,391
    
    
    
    1,531Deferred income taxes
    
    
    141,079
    
    
    
    142,204Long-term deferred revenue
    
    
    2,578
    
    
    
    2,638Long-term accrued dividends
    
    
    23,167
    
    
    
    18,917Accrued pension costs
    
    
    13,761
    
    
    
    13,969Other
    
    
    2,170
    
    
    
    2,366Total liabilities
    
    
    1,053,988
    
    
    
    1,058,733Commitments and contingencies (Note 8)Preferred stock, no par value; cumulative; redeemable;
designated 1.00 shares, issued and outstanding 1.00 shares
($100,000 aggregate liquidation value)
    
    
    93,687
    
    
    
    93,386Stockholders equity:Common stock, no par value; authorized 100,000 shares,
issued 47,534 shares and 47,530 shares, respectively
    
    
    453,987
    
    
    
    453,824Class A common stock, no par value; authorized 15,000 shares,
issued 7,332 shares
    
    
    15,321
    
    
    
    15,321Accumulated deficit
    
    
    (312,992
    )
    
    
    (303,698
    )Accumulated other comprehensive loss, net of income tax
    
    
    (5,663
    )
    
    
    (9,314
    )150,653
    
    
    
    156,133Treasury stock at cost, common stock, 4,655 shares
    
    
    (40,115
    )
    
    
    (40,115
    )Treasury stock at cost, Class A common stock, 1,579 shares
    
    
    (22,398
    )
    
    
    (22,398
    )Total stockholders equity
    
    
    88,140
    
    
    
    93,620Total liabilities and stockholders equity
    
    $
    1,235,815
    
    
    $
    1,245,739
 See notes to condensed consolidated financial statements.
 4




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##### Table of Contents



GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Revenues (less agency commissions)
    
    $
    70,482
    
    
    $
    61,354Operating expenses before depreciation, amortization
and gain on disposal of assets, net:Broadcast
    
    
    47,567
    
    
    
    45,654Corporate and administrative
    
    
    2,922
    
    
    
    4,046Depreciation
    
    
    7,975
    
    
    
    8,261Amortization of intangible assets
    
    
    122
    
    
    
    149Gain on disposal of assets, net
    
    
    (44
    )
    
    
    (1,522
    )58,542
    
    
    
    56,588Operating income
    
    
    11,940
    
    
    
    4,766Other income (expense):Miscellaneous income, net
    
    
    39
    
    
    
    12Interest expense
    
    
    (19,611
    )
    
    
    (10,113
    )Loss from early extinguishment of debt
    
    
    (349
    )
    
    
    (8,352
    )Loss before income taxes
    
    
    (7,981
    )
    
    
    (13,687
    )Income tax benefit
    
    
    (3,238
    )
    
    
    (4,767
    )Net loss
    
    
    (4,743
    )
    
    
    (8,920
    )Preferred dividends (includes accretion of issuance cost
of $301 and $301, respectively)
    
    
    4,551
    
    
    
    4,051Net loss available to common stockholders
    
    $
    (9,294
    )
    
    $
    (12,971
    )Basic and diluted per share information:Net loss available to common stockholders
    
    $
    (0.19
    )
    
    $
    (0.27
    )Weighted average shares outstanding
    
    
    48,565
    
    
    
    48,489Dividends declared per common share
    
    $
    
    
    
    $
    
 See notes to condensed consolidated financial statements.
 5




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##### Table of Contents



GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
 AccumulatedClass A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Class A
    
    
    Common
    
    
    OtherCommon Stock
    
    
    Common Stock
    
    
    Accumulated
    
    
    Treasury Stock
    
    
    Treasury Stock
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Loss
    
    
    TotalBalance at December 31,
2009
    
    
    7,331,574
    
    
    $
    15,321
    
    
    
    47,529,502
    
    
    $
    453,824
    
    
    $
    (303,698
    )
    
    
    (1,578,554
    )
    
    $
    (22,398
    )
    
    
    (4,654,750
    )
    
    $
    (40,115
    )
    
    $
    (9,314
    )
    
    $
    93,620Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on derivatives, net
of
income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,651Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,092
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,551
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,551
    )Issuance of common stock:
401(k) plan
    
    
    
    
    
    
    
    
    
    
    4,805
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155Balance at March 31, 2010
    
    
    7,331,574
    
    
    $
    15,321
    
    
    
    47,534,307
    
    
    $
    453,987
    
    
    $
    (312,992
    )
    
    
    (1,578,554
    )
    
    $
    (22,398
    )
    
    
    (4,654,750
    )
    
    $
    (40,115
    )
    
    $
    (5,663
    )
    
    $
    88,140
 See notes to condensed consolidated financial statements.
 6




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##### Table of Contents



GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Operating activitiesNet loss
    
    $
    (4,743
    )
    
    $
    (8,920
    )Adjustments to reconcile net loss to net cashprovided by (used in) operating activitiesDepreciation
    
    
    7,975
    
    
    
    8,261Amortization of intangible assets
    
    
    122
    
    
    
    149Amortization of deferred loan costs
    
    
    81
    
    
    
    119Amortization of restricted stock awards
    
    
    58
    
    
    
    61Amortization of stock option awards
    
    
    97
    
    
    
    292Write-off loan acquisition costs from early
extinguishment of debt
    
    
    349
    
    
    
    8,352Accrual of long-term facility fee
    
    
    5,938
    
    
    
    Amortization of program broadcast rights
    
    
    3,853
    
    
    
    3,770Payments on program broadcast obligations
    
    
    (3,875
    )
    
    
    (3,856
    )Common stock contributed to 401(k) plan
    
    
    7
    
    
    
    127Deferred income taxes
    
    
    (3,458
    )
    
    
    (4,718
    )Gain on disposal of assets, net
    
    
    (44
    )
    
    
    (1,522
    )Pension expense net of contributions
    
    
    (205
    )
    
    
    703Other
    
    
    (64
    )
    
    
    (107
    )Changes in operating assets and liabilities:Receivables and other current assets
    
    
    3,084
    
    
    
    5,082Accounts payable and other current liabilities
    
    
    (1,322
    )
    
    
    (3,730
    )Accrued interest
    
    
    (867
    )
    
    
    (5,359
    )Net cash provided by (used in) operating activities
    
    
    6,986
    
    
    
    (1,296
    )Investing activitiesPurchases of property and equipment
    
    
    (2,888
    )
    
    
    (5,183
    )Proceeds from asset sales
    
    
    11
    
    
    
    9Equipment transactions related to spectrum reallocation, net
    
    
    (106
    )
    
    
    (48
    )Payments on acquisition related liabilities
    
    
    (162
    )
    
    
    (177
    )Other
    
    
    (40
    )
    
    
    (70
    )Net cash used in investing activities
    
    
    (3,185
    )
    
    
    (5,469
    )Financing activitiesRepayments of borrowings on long-term debt
    
    
    (2,020
    )
    
    
    (2,021
    )Deferred loan costs
    
    
    (4,117
    )
    
    
    (7,006
    )Net cash used in financing activities
    
    
    (6,137
    )
    
    
    (9,027
    )Net decrease in cash
    
    
    (2,336
    )
    
    
    (15,792
    )Cash at beginning of period
    
    
    16,000
    
    
    
    30,649Cash at end of period
    
    $
    13,664
    
    
    $
    14,857
 See notes to condensed consolidated financial statements.
 7




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##### Table of Contents



GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Basis of Presentation
  Seasonality
  Earnings Per Share
  Three Months EndedMarch 31,2010
    
    2009Weighted-average shares outstanding-basic
    
    
    48,565
    
    
    
    48,489Stock options and restricted stock
    
    
    
    
    
    
    Weighted-average shares outstanding-diluted
    
    
    48,565
    
    
    
    48,489
 8




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##### Table of Contents



1. Basis of Presentation (Continued)
 Earnings Per Share (Continued)
  Three Months EndedMarch 31,2010
    
    2009Potentially dilutive common shares outstanding
at end of period:Employee stock options
    
    
    1,383
    
    
    
    1,939Unvested restricted stock
    
    
    66
    
    
    
    100Total
    
    
    1,449
    
    
    
    2,039
 Accumulated Other Comprehensive Loss
  March 31,
    
    
    December 31,2010
    
    
    2009Accumulated balances of items included in accumulated
other comprehensive loss:Loss on derivatives, net of income tax
    
    $
    (219
    )
    
    $
    (3,870
    )Pension liability adjustments, net of income tax
    
    
    (5,444
    )
    
    
    (5,444
    )Accumulated other comprehensive loss
    
    $
    (5,663
    )
    
    $
    (9,314
    )
 9




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##### Table of Contents



1. Basis of Presentation (Continued)
 Property and Equipment
  March 31,
    
    
    December 31,2010
    
    
    2009Property and equipment:Land
    
    $
    23,052
    
    
    $
    23,046Buildings and improvements
    
    
    51,599
    
    
    
    51,606Equipment
    
    
    293,337
    
    
    
    291,682367,988
    
    
    
    366,334Accumulated depreciation
    
    
    (224,792
    )
    
    
    (218,242
    )Total property and equipment, net
    
    $
    143,196
    
    
    $
    148,092
 Recent Accounting Pronouncements
  Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.
 10




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##### Table of Contents



2. Long-term Debt and Accrued Facility Fee
  March 31,
    
    
    December 31,2010
    
    
    2009Long-term debt:Senior credit facility  current portion
    
    $
    8,080
    
    
    $
    8,080Senior credit facility  long-term portion
    
    
    781,709
    
    
    
    783,729Total long-term debt including current portion
    
    
    789,789
    
    
    
    791,809Long-term accrued facility fee
    
    
    24,245
    
    
    
    18,307Total long-term debt and accrued facility fee
    
    $
    814,034
    
    
    $
    810,116Borrowing
availability under our senior credit facility
    
    $
    40,000
    
    
    $
    31,681Leverage ratio as defined in our senior credit
facility:Actual
    
    
    8.43
    
    
    
    8.42Maximum allowed
    
    
    9.00
    
    
    
    8.75
  Amendment of Senior Credit Facility
      11




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##### Table of Contents



2. Long-term Debt and Accrued Facility Fee (Continued)
 Amendment of Senior Credit Facility (Continued)
  As Amended and
    
    As Amended andPrior to the
    
    After Giving Effect toIssuance of
    
    the Issuance ofReplacement
    
    Replacement DebtDebt and Related
    
    and RelatedPrior to Amendment
    
    Repayment of
    
    Repayment ofDescription
    
    on March 31, 2010
    

Term Loan
    
    Term LoanAnnual interest rate on outstandingterm loan balance
    
    LIBOR plus 3.50%
    
    Same
    
    Sameor BASE plus 2.50%Annual interest rate on outstandingrevolving loan balance
    
    LIBOR plus 3.50%
    
    Same
    
    Sameor BASE plus 2.50%Annual facility fee rate
    
    3.00% with
    
    3.00% with
    
    1.25% witha potential for
    
    a potential for
    
    a potential forreduction in
    
    reduction in
    
    reduction infuture periods.
    
    future periods.
    
    future periods.Annual incentive fee rate
    
    None
    
    
    2.00
    %
    
    NoneAnnual commitment fee on undrawnrevolving loan balance
    
    
    0.50
    %
    
    Same
    
    SameRevolving loan commitment
    
    $50 million
    
    $40 million
    
    $40 millionMaximum total net leverage ratio at:March 31, 2010 throughJune 29, 2010
    
    
    7.00x
    
    
    
    9.00x
    
    
    Replaced withJune 30, 2010 through
    
    
    
    
    
    
    
    
    
    a first lienSeptember 29, 2010
    
    
    6.50x
    
    
    
    9.50x
    
    
    leverage testSeptember 30, 2010 through
    
    
    
    
    
    
    
    
    
    as described above.March 30, 2011
    
    
    6.50x
    
    
    
    9.75xMarch 31, 2011 and thereafter
    
    
    6.50x
    
    
    
    6.50xMinimum fixed charge coverage ratio
    
    None
    
    Same
    
    0.90x to 1.00xMaximum cash balance that can be
deducted from total debt to calculate
net debt in the total net leverage ratio
(or first lien leverage test, as
applicable)
    
    $10.0 million
    
    Same
    
    $15.0 million
 12




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##### Table of Contents



2. Long-term Debt and Accrued Facility Fee (Continued)
 Amendment of Senior Credit Facility (Continued)
  1 2
 3. Derivatives
 Risk Management Objective of Using Derivatives
  
    
    managing current and forecasted interest rate risk while maintaining financial
flexibility and solvency;
    
    proactively managing our cost of capital to ensure that we can effectively manage
operations and execute our business strategy, thereby maintaining a competitive
advantage and enhancing shareholder value; and
    
    complying with applicable covenant requirements and restrictions.
 Cash Flow Hedges of Interest Rate Risk
   13




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##### Table of Contents



3. Derivatives (Continued)
 Cash Flow Hedges of Interest Rate Risk (Continued)
       Fair Values of Derivative Instruments
 As of March 31, 2010
    
    As of December 31, 2009Balance Sheet
    
    Fair
    
    Balance Sheet
    
    FairLocation
    
    Value
    
    Location
    
    ValueDerivatives designated as hedging
instruments:Interest rate swap agreements
    
    Current liabilities
    
    $
    360
    
    
    Current liabilities
    
    $
    6,344
 14




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##### Table of Contents



3. Derivatives (Continued)
 Cash Flow Hedges of Interest Rate Risk (Continued)
  Cash Flow HedgingRelationships for the ThreeMonths Ended March 31,2010
    
    
    2009Interest rate swap agreements:Liability at beginning of period
    
    $
    (6,344
    )
    
    $
    (24,611
    )Effective portion of gains recognized in
other comprehensive loss
    
    
    12,093
    
    
    
    5,777Effective portion of losses recorded in accumulated other
comprehensive loss and reclassified into interest expense
    
    
    (6,109
    )
    
    
    (1,617
    )Liability at end of period
    
    $
    (360
    )
    
    $
    (20,451
    )
  Credit-risk Related Contingent Features
   4. Fair Value Measurement
  15




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##### Table of Contents



4. Fair Value Measurement (Continued)
 Recurring Fair Value Measurements
  Recurring Fair Value Measurements
 As of March 31, 2010Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities:Interest rate swap agreements
    
    $
    
    
    
    $
    360
    
    
    $
    
    
    
    $
    360
 As of December 31, 2009Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities:Interest rate swap agreements
    
    $
    
    
    
    $
    6,344
    
    
    $
    
    
    
    $
    6,344
  Non-Recurring Fair Value Measurements
  Non-Recurring Fair Value Measurements
 Impairment Loss for theAs of March 31, 2010
    
    

Three
Months Ended March 31,Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    2010
    
    
    2009Assets:Property and equipment, net
    
    $
    
    
    
    $
    
    
    
    $
    143,196
    
    
    $
    143,196
    
    
    $
    
    
    
    $
    Program broadcast rights
    
    
    
    
    
    
    
    
    
    
    7,763
    
    
    
    7,763
    
    
    
    69
    
    
    
    52Investment in broadcasting
company
    
    
    
    
    
    
    
    
    
    
    13,599
    
    
    
    13,599
    
    
    
    
    
    
    
    Broadcast licenses
    
    
    
    
    
    
    
    
    
    
    818,981
    
    
    
    818,981
    
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    170,522
    
    
    
    170,522
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    1,194
    
    
    
    1,194
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
    
    
    $
    1,155,255
    
    
    $
    1,155,255
    
    
    $
    69
    
    
    $
    52
 16




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##### Table of Contents



4. Fair Value Measurement (Continued)
 Non-Recurring Fair Value Measurements (Continued)
 As of December 31, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Property and equipment, net
    
    $
    
    
    
    $
    
    
    
    $
    148,092
    
    
    $
    148,092Program broadcast rights
    
    
    
    
    
    
    
    
    
    
    11,265
    
    
    
    11,265Investment in broadcasting
company
    
    
    
    
    
    
    
    
    
    
    13,599
    
    
    
    13,599Broadcast licenses
    
    
    
    
    
    
    
    
    
    
    818,981
    
    
    
    818,981Goodwill
    
    
    
    
    
    
    
    
    
    
    170,522
    
    
    
    170,522Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    1,316
    
    
    
    1,316Total
    
    $
    
    
    
    $
    
    
    
    $
    1,163,775
    
    
    $
    1,163,775
  Fair Value of Other Financial Instruments
    5. Preferred Stock
  17




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##### Table of Contents



5. Preferred Stock (Continued)
    6. Retirement Plans
  Three Months Ended March 31,2010
    
    
    2009Service cost
    
    $
    884
    
    
    $
    776Interest cost
    
    
    640
    
    
    
    550Expected return on plan assets
    
    
    (478
    )
    
    
    (501
    )Loss amortization
    
    
    249
    
    
    
    103Net periodic benefit cost
    
    $
    1,295
    
    
    $
    928
  7. Stock-based Compensation
  Three Months Ended March 31,2010
    
    
    2009Stock-based compensation expense, gross
    
    $
    155
    
    
    $
    353Income tax benefit at our statutory rate associated
with stock-based compensation
    
    
    (60
    )
    
    
    (124
    )Stock-based compensation expense, net
    
    $
    95
    
    
    $
    229
 18




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##### Table of Contents



7. Stock-based Compensation (Continued)
 Long-term Incentive Plan
  Three Months EndedMarch 31, 2010
    
    March 31, 2009Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageOptions
    
    Exercise Price
    
    Options
    
    Exercise PriceCommon stock:Stock
options outstanding 
beginning of period
    
    
    1,476
    
    
    $
    8.28
    
    
    
    1,949
    
    
    $
    8.31Options granted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Options exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Options expired
    
    
    (34
    )
    
    $
    12.78
    
    
    
    (2
    )
    
    $
    12.41Options forfeited
    
    
    (59
    )
    
    $
    11.38
    
    
    
    (8
    )
    
    $
    7.82Stock options outstanding 
end of period
    
    
    1,383
    
    
    $
    8.04
    
    
    
    1,939
    
    
    $
    8.31Exercisable at end of period
    
    
    1,338
    
    
    $
    8.20
    
    
    
    655
    
    
    $
    9.91Weighted-average fair value of
options granted during the period
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  Directors Restricted Stock Plan
   Weighted-Number of
    
    AverageShares
    
    Fair ValueRestricted Stock:Non-vested common restricted shares, December 31, 2009
    
    
    66
    
    
    $
    6.64Granted
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    $
    Non-vested common restricted shares, March 31, 2010
    
    
    66
    
    
    $
    6.64
 19




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##### Table of Contents



8. Commitments and Contingencies
 Legal Proceedings and Claims
  Sports Marketing Agreement
   9. Goodwill and Intangible Assets
  10. Income Taxes
  Three Months Ended March 31,2010
    
    
    2009Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    6.0
    %
    
    
    0.9
    %Reserve for uncertain tax positions
    
    
    (4.2
    )%
    
    
    1.0
    %Adjustments to valuation allowance of deferred tax assets
    
    
    2.2
    %
    
    
    (1.6
    )%Other
    
    
    1.6
    %
    
    
    (0.5
    )%Effective income tax rate
    
    
    40.6
    %
    
    
    34.8
    %Income tax benefit
    
    $
    (3,238
    )
    
    $
    (4,767
    )
 20




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##### Table of Contents



11. Subsequent Events
     21




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Executive Overview
 Introduction
  Overview
       22




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##### Table of Contents



Revenue
  Three Months Ended March 31,2010
    
    
    2009Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of TotalRevenues:Local
    
    $
    43,511
    
    
    
    61.7
    %
    
    
    39,286
    
    
    
    64.0
    %National
    
    
    13,951
    
    
    
    19.8
    %
    
    
    12,875
    
    
    
    21.0
    %Internet
    
    
    3,072
    
    
    
    4.4
    %
    
    
    2,564
    
    
    
    4.2
    %Political
    
    
    2,783
    
    
    
    3.9
    %
    
    
    1,009
    
    
    
    1.6
    %Retransmission consent
    
    
    4,639
    
    
    
    6.6
    %
    
    
    3,640
    
    
    
    5.9
    %Production and other
    
    
    1,932
    
    
    
    2.7
    %
    
    
    1,842
    
    
    
    3.0
    %Network compensation
    
    
    44
    
    
    
    0.1
    %
    
    
    138
    
    
    
    0.3
    %Consulting revenue
    
    
    550
    
    
    
    0.8
    %
    
    
    
    
    
    
    0.0
    %Total
    
    $
    70,482
    
    
    
    100.0
    %
    
    $
    61,354
    
    
    
    100.0
    %
 Results of Operations
 Three Months Ended March 31, 2010 (2010 three month period) Compared To Three Months Ended March
31, 2009 (2009 three month period)
 Revenue.
 23




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##### Table of Contents



Broadcast Expenses.
 Corporate and Administrative Expenses
 Depreciation.
 Gain on Disposal of Assets, net.
 Interest Expense.
 24




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##### Table of Contents



Loss from Early Extinguishment of Debt.
 Income Tax Benefit.
 Three Months Ended March 31,2010
    
    
    2009Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %State income taxes
    
    
    6.0
    %
    
    
    0.9
    %Reserve for uncertain tax positions
    
    
    (4.2
    )%
    
    
    1.0
    %Adjustments to valuation allowance of deferred tax assets
    
    
    2.2
    %
    
    
    (1.6
    )%Other
    
    
    1.6
    %
    
    
    (0.5
    )%Effective income tax rate
    
    
    40.6
    %
    
    
    34.8
    %Income tax benefit
    
    $
    (3,238
    )
    
    $
    (4,767
    )
 25




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##### Table of Contents



Liquidity and Capital Resources
 General
  Three Months EndedMarch 31,2010
    
    
    2009Net cash provided by (used in) operating activities
    
    $
    6,986
    
    
    $
    (1,296
    )Net cash used in investing activities
    
    
    (3,185
    )
    
    
    (5,469
    )Net cash used in financing activities
    
    
    (6,137
    )
    
    
    (9,027
    )Decrease in cash
    
    $
    (2,336
    )
    
    $
    (15,792
    )
 As ofMarch 31,
    
    December 31,2010
    
    2009Cash
    
    $
    13,664
    
    
    $
    16,000Long-term debt including current portion
    
    $
    789,789
    
    
    $
    791,809Long-term accrued facility fee
    
    $
    24,245
    
    
    $
    18,307Preferred stock, excluding unamortized original issue
discount
    
    $
    93,687
    
    
    $
    93,386Borrowing availability under our senior credit facility
    
    $
    40,000
    
    
    $
    31,681Leverage ratio as defined under our senior credit facility:Actual
    
    
    8.43
    
    
    
    8.42Maximum allowed
    
    
    9.00
    
    
    
    8.75
 Senior Credit Facility
  Amendment of Senior Credit Facility
   26




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1 2
  27




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##### Table of Contents



As Amended andPrior to Issuance
    
    As Amended andof Notes and
    
    After Issuance ofRelated
    
    Notes and RelatedPrior to Amendment
    
    Repayment of the
    
    Repayment of theDescription
    
    on March 31, 2010
    
    Term Loan
    
    Term LoanAnnual interest rate on outstandingterm loan balance
    
    LIBOR plus 3.50%
    
    Same
    
    Sameor BASE plus 2.50%Annual interest rate on outstandingrevolving loan balance
    
    LIBOR plus 3.50%
    
    Same
    
    Sameor BASE plus 2.50%Annual facility fee rate
    
    3.00% with
    
    3.00% with
    
    0.75% witha potential for
    
    a potential for
    
    a potential forreduction in
    
    reduction in
    
    reduction infuture periods.
    
    future periods.
    
    future periods.Annual incentive fee rate
    
    None
    
    
    2.00
    %
    
    NoneAnnual commitment fee on undrawnrevolving loan balance
    
    
    0.50
    %
    
    Same
    
    SameRevolving loan commitment
    
    $50 million
    
    $40 million
    
    $40 millionMaximum total net leverage ratio at:March 31, 2010 throughJune 29, 2010
    
    
    7.00x
    
    
    
    9.00x
    
    
    Replaced withJune 30, 2010 through
    
    
    
    
    
    
    
    
    
    a first lienSeptember 29, 2010
    
    
    6.50x
    
    
    
    9.50x
    
    
    leverage testSeptember 30, 2010 through
    
    
    
    
    
    
    
    
    
    as described above.March 30, 2011
    
    
    6.50x
    
    
    
    9.75xMarch 31, 2011 and thereafter
    
    
    6.50x
    
    
    
    6.50xMinimum fixed charge coverage ratio
    
    None
    
    Same
    
    0.90x to 1.00xMaximum cash balance that can be
deducted from total debt to calculate
net debt in the total net leverage ratio
(or first lien leverage test, as
applicable)
    
    $10.0 million
    
    Same
    
    $15.0 million
   28




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Series D Perpetual Preferred Stock
     Net Cash Provided By (Used In) Operating, Investing and Financing Activities
    Capital Expenditures
  29




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##### Table of Contents



Other
    Critical Accounting Policies
  Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
  30




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  The lien on the collateral securing the Notes and the related guarantees (collectively, the
Guarantees) is junior and subordinate to the lien on the collateral securing our senior credit
facility.
  The collateral securing the Notes may be diluted under certain circumstances.
  31




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##### Table of Contents



The rights of holders of the Notes to the collateral and their ability to enforce rights is
materially limited by the terms of an intercreditor agreement.
 first lien agent
  The right of the collateral agent for the Notes to foreclose upon and sell the collateral after
an event of default has occurred may also be subject to limitations under the Federal
Communications Act of 1934, as amended (the Communications Act), and the regulations of the
FCC.
  Security over all of the collateral may not have been in place on the date of issuance of the
Notes or may not have been perfected on such dates, and any unresolved issues may impact the
value of the collateral.
  32




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##### Table of Contents



Certain mortgages or title insurance securing the Notes were not in place on the date of
issuance of the Notes, and any unresolved issues in connection with the issuance of such
mortgages and title policies may impact the value of the collateral.
    With respect to our real properties mortgaged or to be mortgaged as security for the Notes, no
surveys or legal opinions were delivered. There is, therefore, be no independent assurance that
the mortgages securing the Notes are or will be enforceable under applicable state law to
encumber the correct real properties.
  It may be difficult to realize upon the value of the collateral securing the Notes.
   33




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##### Table of Contents



Bankruptcy laws may limit your ability to realize value from the collateral.
 provided
 34




---



##### Table of Contents




    
    how long payments under the Notes could be delayed following commencement of a
bankruptcy case;
    
    whether or when the collateral agent could repossess or dispose of the collateral;
    
    the value of the collateral at the time of the bankruptcy petition; or
    
    whether or to what extent holders of the Notes would be compensated for any delay in
payment or loss of value of the collateral through the requirement of adequate
protection.
   In certain instances, the trustee under the indenture governing the Notes may determine not to
foreclose on certain collateral.
  A court could void our subsidiaries Guarantees of the Notes and the liens securing such
Guarantees under fraudulent transfer laws.
 i.e.
 35




---



##### Table of Contents




    
    such subsidiary guarantor received less than reasonably equivalent value or fair
consideration for the incurrence of its Guarantee or granting of the lien; and
    
    such subsidiary guarantor:
 
    
    was (or was rendered) insolvent by the incurrence of the Guarantee;
    
    was engaged or about to engage in a business or transaction for which its
assets constituted unreasonably small capital to carry on its business;
    
    intended to incur, or believed that it would incur, obligations beyond its
ability to pay as those obligations matured; or
    
    was a defendant in an action for money damages, or had a judgment for money
damages docketed against it and, in either case, after final judgment, the
judgment was unsatisfied.
    Any future pledge of collateral might be avoidable in bankruptcy.
   36




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##### Table of Contents



In the event of a future bankruptcy of us or any of the guarantors, holders of the Notes may be
deemed to have an unsecured claim to the extent that our obligations in respect of the Notes
exceed the fair market value of the collateral securing the Notes.
  The Company has a significant amount of indebtedness and other obligations, including the Notes,
that become due over a relatively short period of time.
  In the event of a future bankruptcy, holders of Notes may not have a claim with respect to
original issue discount on the Notes constituting unmatured interest under the Bankruptcy
Code.
  The collateral is subject to casualty risks.
  37




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##### Table of Contents



The Notes are effectively subordinated to the claims of the creditors of our non-guarantor
subsidiaries.
  We may be unable to repurchase the Notes upon a change of control.
  In the event we register the Notes or any notes registered with the SEC and issued in exchange
for the Notes (the Exchange Notes) with the SEC, the capital stock securing the Notes or the
Exchange Notes will automatically be released from the collateral to the extent the pledge of
such collateral would require the filing of separate financial statements for any of our
subsidiaries with the SEC.
  We have substantial debt and have the ability to incur additional debt. The principal and
interest payment obligations of such debt may restrict our future operations and impair our
ability to meet our obligations under the Notes.
  38




---



##### Table of Contents




    
    make it more difficult for us to satisfy our financial obligations;
    
    require us to dedicate a substantial portion of any cash flow from operations to the
payment of interest and principal due under our debt, which will reduce funds available
for other business purposes, including capital expenditures and acquisitions;
    
    place us at a competitive disadvantage compared with some of our competitors that
may have less debt and better access to capital resources; and
    
    limit our ability to obtain additional financing required to fund working capital
and capital expenditures and for other general corporate purposes.
  The agreements governing our various debt obligations impose restrictions on our business and
limit our ability to undertake certain corporate actions.
  
    
    incur additional debt;
    
    declare or pay dividends, redeem stock or make other distributions to stockholders;
    
    make investments or acquisitions;
    
    create liens or use assets as security in other transactions;
    
    issue guarantees;
    
    merge or consolidate, or sell, transfer, lease or dispose of substantially all of
our assets;
    
    amend our articles of incorporation or bylaws;
    
    engage in transactions with affiliates; and
 39




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##### Table of Contents




    
    purchase, sell or transfer certain assets.
   Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual
debt service obligations to increase significantly.
  
 Item 6. Exhibits
  Exhibit 10.1
    
    Second Amendment to Credit Agreement by and among Gray
Television, Inc., certain subsidiaries thereof, the Lenders
party thereto and Wells Fargo Bank, N.A., as
successor-by-merger to Wachovia Bank, National Association,
as administrative agent, dated as of March 31, 2010
(incorporated by reference to Exhibit 99.1 to the Companys
current report on Form 8-K filed with the Securities and
Exchange Commission on April 9, 2010)Exhibit 31.1
    
    Rule 13(a)  14(a) Certificate of Chief Executive OfficerExhibit 31.2
    
    Rule 13(a)  14(a) Certificate of Chief Financial OfficerExhibit 32.1
    
    Section 1350 Certificate of Chief Executive OfficerExhibit 32.2
    
    Section 1350 Certificate of Chief Financial Officer
 40




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SIGNATURES
  GRAY TELEVISION, INC.Date: May 10, 2010
    By:
    /s/ James C. RyanJames C. Ryan,Senior Vice President and Chief Financial Officer 41