##### 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 September 30, 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
    
    (I.R.S. Employerincorporation or organization)
    
    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)51,386,313 shares
outstanding as of October
31, 2010
    
    5,753,020 shares outstanding as of October 31, 2010




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##### 



INDEX
 GRAY TELEVISION, INC.
 PAGEPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed consolidated balance sheets (Unaudited)   September
30, 2010 and December 31, 2009
    
    
    3Condensed consolidated statements of operations (Unaudited) 
three months and nine months ended September 30, 2010 and 2009
    
    
    5Condensed consolidated statement of stockholders equity and
comprehensive income (Unaudited)  nine months ended September 30,
2010
    
    
    6Condensed consolidated statements of cash flows (Unaudited) 
nine months ended September 30, 2010 and 2009
    
    
    7Notes to condensed consolidated financial statements (Unaudited) 
September 30, 2010
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    35PART II.
    
    OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    35Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    36SIGNATURES
    
    
    
    
    37EX-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)
 September 30,
    
    
    December 31,2010
    
    
    2009Assets:Current assets:Cash
    
    $
    20,170
    
    
    $
    16,000Trade accounts receivable, less allowance for doubtful accounts
of $950 and $1,092, respectively
    
    
    56,094
    
    
    
    57,179Current portion of program broadcast rights, net
    
    
    13,468
    
    
    
    10,220Deferred tax asset
    
    
    1,597
    
    
    
    1,597Prepaid and other current assets
    
    
    3,405
    
    
    
    1,788Total current assets
    
    
    94,734
    
    
    
    86,784Property and equipment, net
    
    
    135,664
    
    
    
    148,092Deferred loan costs, net
    
    
    13,008
    
    
    
    1,619Broadcast licenses
    
    
    818,981
    
    
    
    818,981Goodwill
    
    
    170,522
    
    
    
    170,522Other intangible assets, net
    
    
    954
    
    
    
    1,316Investment in broadcasting company
    
    
    13,599
    
    
    
    13,599Other
    
    
    4,497
    
    
    
    4,826Total assets
    
    $
    1,251,959
    
    
    $
    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)
 September 30,
    
    
    December 31,2010
    
    
    2009Liabilities and stockholders equity:Current liabilities:Trade accounts payable
    
    $
    2,566
    
    
    $
    6,047Employee compensation and benefits
    
    
    12,574
    
    
    
    9,675Accrued interest
    
    
    17,434
    
    
    
    13,531Other accrued expenses
    
    
    5,216
    
    
    
    4,814Interest rate hedge derivatives
    
    
    
    
    
    
    6,344Federal and state income taxes
    
    
    3,829
    
    
    
    4,206Current portion of program broadcast obligations
    
    
    18,530
    
    
    
    15,271Acquisition related liabilities
    
    
    863
    
    
    
    863Deferred revenue
    
    
    9,989
    
    
    
    6,241Current portion of long-term debt
    
    
    5,011
    
    
    
    8,080Total current liabilities
    
    
    76,012
    
    
    
    75,072Long-term debt, less current portion
    
    
    840,846
    
    
    
    783,729Long-term accrued facility fee
    
    
    11,139
    
    
    
    18,307Program broadcast obligations, less current portion
    
    
    1,407
    
    
    
    1,531Deferred income taxes
    
    
    144,127
    
    
    
    142,204Long-term deferred revenue
    
    
    1,987
    
    
    
    2,638Long-term accrued dividends
    
    
    12,447
    
    
    
    18,917Accrued pension costs
    
    
    13,415
    
    
    
    13,969Other
    
    
    1,705
    
    
    
    2,366Total liabilities
    
    
    1,103,085
    
    
    
    1,058,733Commitments and contingencies (Note 8)Preferred stock, no par value; cumulative; redeemable; designated
1.00 shares, issued and outstanding 0.39 and 1.00 shares,
respectively
($39,307 and $100,000 aggregate liquidation value, respectively)
    
    
    37,063
    
    
    
    93,386Stockholders equity:Common stock, no par value; authorized 100,000 shares,
issued 56,040 shares and 47,530 shares, respectively
    
    
    479,639
    
    
    
    453,824Class A common stock, no par value; authorized 15,000 shares,
issued 7,332 shares
    
    
    15,321
    
    
    
    15,321Accumulated deficit
    
    
    (315,192
    )
    
    
    (303,698
    )Accumulated other comprehensive loss, net of income tax benefit
    
    
    (5,444
    )
    
    
    (9,314
    )174,324
    
    
    
    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
    
    
    111,811
    
    
    
    93,620Total liabilities and stockholders equity
    
    $
    1,251,959
    
    
    $
    1,245,739
 See notes to condensed consolidated financial statements.
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GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues (less agency commissions)
    
    $
    85,345
    
    
    $
    66,446
    
    
    $
    231,463
    
    
    $
    192,857Operating expenses before depreciation, amortization
and gain on disposal of assets, net:Broadcast
    
    
    49,796
    
    
    
    46,173
    
    
    
    143,455
    
    
    
    136,994Corporate and administrative
    
    
    3,369
    
    
    
    3,308
    
    
    
    10,128
    
    
    
    10,946Depreciation
    
    
    7,495
    
    
    
    8,025
    
    
    
    23,401
    
    
    
    24,538Amortization of intangible assets
    
    
    120
    
    
    
    145
    
    
    
    362
    
    
    
    440Gain on disposals of assets, net
    
    
    (85
    )
    
    
    (1,835
    )
    
    
    (609
    )
    
    
    (4,455
    )60,695
    
    
    
    55,816
    
    
    
    176,737
    
    
    
    168,463Operating income
    
    
    24,650
    
    
    
    10,630
    
    
    
    54,726
    
    
    
    24,394Other income (expense):Miscellaneous (expense) income, net
    
    
    (15
    )
    
    
    13
    
    
    
    43
    
    
    
    26Interest expense
    
    
    (16,671
    )
    
    
    (19,400
    )
    
    
    (53,713
    )
    
    
    (49,520
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (349
    )
    
    
    (8,352
    )Income (loss) before income taxes
    
    
    7,964
    
    
    
    (8,757
    )
    
    
    707
    
    
    
    (33,452
    )Income tax expense (benefit)
    
    
    2,456
    
    
    
    (3,237
    )
    
    
    (592
    )
    
    
    (12,364
    )Net income (loss)
    
    
    5,508
    
    
    
    (5,520
    )
    
    
    1,299
    
    
    
    (21,088
    )Preferred dividends (includes accretion of issuance
cost
of $118, $301, $4,371, and $903, respectively)
    
    
    1,789
    
    
    
    4,468
    
    
    
    12,793
    
    
    
    12,569Net income (loss) available to common stockholders
    
    $
    3,719
    
    
    $
    (9,988
    )
    
    $
    (11,494
    )
    
    $
    (33,657
    )Basic per share information:Net income (loss) available to common
stockholders
    
    $
    0.07
    
    
    $
    (0.21
    )
    
    $
    (0.22
    )
    
    $
    (0.69
    )Weighted-average shares outstanding
    
    
    57,071
    
    
    
    48,519
    
    
    
    53,394
    
    
    
    48,505Diluted per share information:Net income (loss) available to common
stockholders
    
    $
    0.07
    
    
    $
    (0.21
    )
    
    $
    (0.22
    )
    
    $
    (0.69
    )Weighted-average shares outstanding
    
    
    57,072
    
    
    
    48,519
    
    
    
    53,394
    
    
    
    48,505
 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 income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on derivatives, net of
income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,870
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,169Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,793
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,793
    )Issuance of common stock:Exchange for preferred
stock
    
    
    
    
    
    
    
    
    
    
    8,500,000
    
    
    
    25,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,518401(k) plan
    
    
    
    
    
    
    
    
    
    
    10,489
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274Balance at September 30,
2010
    
    
    7,331,574
    
    
    $
    15,321
    
    
    
    56,039,991
    
    
    $
    479,639
    
    
    $
    (315,192
    )
    
    
    (1,578,554
    )
    
    $
    (22,398
    )
    
    
    (4,654,750
    )
    
    $
    (40,115
    )
    
    $
    (5,444
    )
    
    $
    111,811
 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)
  Nine Months EndedSeptember 30,2010
    
    
    2009Operating activitiesNet income (loss)
    
    $
    1,299
    
    
    $
    (21,088
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation
    
    
    23,401
    
    
    
    24,538Amortization of intangible assets
    
    
    362
    
    
    
    440Amortization of deferred loan costs
    
    
    1,333
    
    
    
    250Amortization of notes original issue discount
    
    
    564
    
    
    
    Amortization of restricted stock awards
    
    
    174
    
    
    
    185Amortization of stock option awards
    
    
    100
    
    
    
    859Write-off loan acquisition costs from early
extinguishment of debt
    
    
    349
    
    
    
    8,352Payment of long-term facility fee, net of accrual
    
    
    (7,168
    )
    
    
    Amortization of program broadcast rights
    
    
    11,438
    
    
    
    11,353Payments on program broadcast obligations
    
    
    (11,590
    )
    
    
    (11,483
    )Common stock contributed to 401(k) Plan
    
    
    23
    
    
    
    141Deferred income taxes
    
    
    (551
    )
    
    
    (12,296
    )Gain on disposal of assets, net
    
    
    (609
    )
    
    
    (4,455
    )Pension expense net of contributions
    
    
    (546
    )
    
    
    (371
    )Other
    
    
    (661
    )
    
    
    (454
    )Changes in operating assets and liabilities:Receivables and other current assets
    
    
    (163
    )
    
    
    6,499Accounts payable and other current liabilities
    
    
    3,082
    
    
    
    (7,894
    )Accrued interest
    
    
    3,902
    
    
    
    10,862Net cash provided by operating activities
    
    
    24,739
    
    
    
    5,438Investing activitiesPurchases of property and equipment
    
    
    (10,478
    )
    
    
    (13,683
    )Proceeds from asset sales
    
    
    275
    
    
    
    15Equipment transactions related to spectrum reallocation,
net
    
    
    (179
    )
    
    
    75Payments on acquisition-related liabilities
    
    
    (533
    )
    
    
    (613
    )Other
    
    
    (1
    )
    
    
    260Net cash used in investing activities
    
    
    (10,916
    )
    
    
    (13,946
    )Financing activitiesProceeds from borrowings on long-term debt
    
    
    358,010
    
    
    
    Repayments of borrowings on long-term debt
    
    
    (304,525
    )
    
    
    (6,551
    )Deferred loan costs
    
    
    (13,071
    )
    
    
    (7,390
    )Dividends paid, net of accreted preferred dividend
    
    
    (14,892
    )
    
    
    Redemption of preferred stock
    
    
    (60,693
    )
    
    
    Proceeds from issuance of common stock
    
    
    25,518
    
    
    
    Net cash used in financing activities
    
    
    (9,653
    )
    
    
    (13,941
    )Net increase (decrease) in cash
    
    
    4,170
    
    
    
    (22,449
    )Cash at beginning of period
    
    
    16,000
    
    
    
    30,649Cash at end of period
    
    $
    20,170
    
    
    $
    8,200
 See notes to condensed consolidated financial statements.
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##### Table of Contents



GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Basis of Presentation
  Seasonality
  Use of Estimates
  Earnings Per Share
  8




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##### Table of Contents



1. Basis of Presentation (Continued)
 Earnings Per Share (Continued)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Weighted-average shares outstanding  basic
    
    
    57,071
    
    
    
    48,519
    
    
    
    53,394
    
    
    
    48,505Stock options and restricted stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average shares outstanding  diluted
    
    
    57,072
    
    
    
    48,519
    
    
    
    53,394
    
    
    
    48,505
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Potentially dilutive common shares outstanding
at end of period:Employee stock options
    
    
    1,036
    
    
    
    1,921
    
    
    
    1,036
    
    
    
    1,921Unvested restricted stock
    
    
    66
    
    
    
    100
    
    
    
    66
    
    
    
    100Total
    
    
    1,102
    
    
    
    2,021
    
    
    
    1,102
    
    
    
    2,021Common stock equivalents included in diluted
weighted-average shares outstanding
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Potentially dilutive securities excluded from
diluted weighted-average shares outstanding
    
    
    1,101
    
    
    
    2,021
    
    
    
    1,102
    
    
    
    2,021
 Accumulated Other Comprehensive Loss
  September 30,
    
    
    December 31,2010
    
    
    2009Accumulated balances of items included in accumulated
other comprehensive loss:Cumulative loss on derivatives, net of income tax
    
    $
    
    
    
    $
    (3,870
    )Pension liability adjustments, net of income tax
    
    
    (5,444
    )
    
    
    (5,444
    )Accumulated other comprehensive loss
    
    $
    (5,444
    )
    
    $
    (9,314
    )
 9




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##### Table of Contents



1. Basis of Presentation (Continued)
 Property and Equipment
   September 30,
    
    
    December 31,2010
    
    
    2009Property and equipment:Land
    
    $
    23,052
    
    
    $
    23,046Buildings and improvements
    
    
    51,726
    
    
    
    51,606Equipment
    
    
    299,680
    
    
    
    291,682374,458
    
    
    
    366,334Accumulated depreciation
    
    
    (238,794
    )
    
    
    (218,242
    )Total property and equipment, net
    
    $
    135,664
    
    
    $
    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.
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2. Long-term Debt and Accrued Facility Fee
  September 30,
    
    
    December 31,2010
    
    
    2009Long-term debt including current portion:Senior credit facility excluding long-term accrued facility fee
    
    $
    487,283
    
    
    $
    791,809101/2% senior secured second lien notes
    
    
    365,000
    
    
    
    Total long-term debt at liquidation value
    
    
    852,283
    
    
    
    791,809Less unamortized discount on 101/2% senior secured second lien notes
    
    
    (6,426
    )
    
    
    Total long-term debt at recorded value
    
    
    845,857
    
    
    
    791,809Long-term accrued facility fee
    
    
    11,139
    
    
    
    18,307Total long-term debt and accrued facility fee at recorded value
    
    $
    856,996
    
    
    $
    810,116Borrowing ability under our senior credit facility
    
    
    40,000
    
    
    
    31,681First lien leverage ratio as defined in our senior credit facilty:Actual (1)
    
    
    5.10
    
    
    naMaximum allowed (1)
    
    
    7.00
    
    
    na
 
 (1)
    
    The Company was not required to comply with this ratio prior to June 30, 2010. Senior Credit Facility
  Amendment of Senior Credit Facility and Issuance of 101/2% senior secured second lien notes due 2015
(the Notes)
   11




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2. Long-term Debt and Accrued Facility Fee (Continued)
 Amendment of Senior Credit Facility and Issuance of 101/2% senior secured second lien notes due 2015
(the Notes)(Continued)
     12




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2. Long-term Debt and Accrued Facility Fee (Continued)
 Amendment of Senior Credit Facility and Issuance of 101/2% senior secured second lien notes due 2015
(the Notes)(Continued)
  As Amended and
    
    As Amended andPrior to Issuance
    
    After Issuance ofof Notes and
    
    Notes and RelatedPrior to Amendment
    
    Related Repayment
    
    Repayment of theDescription
    
    on March 31, 2010
    
    of the Term Loan
    
    Term LoanAnnual interest rate on outstanding 
term loan balance
    
    LIBOR plus 3.50%
or BASE plus 2.50%
    
    Same
    
    SameAnnual interest rate on outstanding 
revolving loan balance
    
    LIBOR plus 3.50%
or BASE plus 2.50%
    
    Same
    
    SameAnnual facility fee rate
    
    3.00% with
a potential for
reduction in
future periods.
    
    3.00% with
a potential for
reduction in
future periods.
    
    0.75% with 
a potential for 
reduction in 
future periods.Annual incentive fee rate
    
    None
    
    
    2.00
    %
    
    NoneAnnual commitment fee on undrawn 
revolving loan balance
    
    
    0.50
    %
    
    Same
    
    SameRevolving loan commitment
    
    $50 million
    
    $40 million
    
    $40 millionMaximum total net leverage ratio at:March 31, 2010 through
June 29, 2010
    
    
    7.00x
    
    
    
    9.00x
    
    
    Replaced with
a first lienJune 30, 2010 through
September 29, 2010
    
    
    6.50x
    
    
    
    9.50x
    
    
    leverage test
as descibed above.September 30, 2010 through
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
 13




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##### Table of Contents



2. Long-term Debt and Accrued Facility Fee (Continued)
 Amendment of Senior Credit Facility and Issuance of 101/2% senior secured second lien notes due 2015
(the Notes)(Continued)
    Payment of Principal Balances Under our Senior Credit Facility Subsequent to September 30, 2010
  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
  14




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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 September 30, 2010
    
    As of December 31, 2009Balance Sheet
    
    Fair
    
    Balance Sheet
    
    FairLocation
    
    Value
    
    Location
    
    ValueDerivatives designated as
hedging
instruments:Interest rate swap agreements
    
    NA
    
    $
    
    
    
    Current liabilities
    
    $
    6,344
 15




---



##### Table of Contents



3. Derivatives (Continued)
 Cash Flow Hedges of Interest Rate Risk (Continued)
  Cash Flow Hedging Relationships for theThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest rate swap agreements:Liability at beginning of period
    
    $
    
    
    
    $
    (17,602
    )
    
    $
    (6,344
    )
    
    $
    (24,611
    )Effective portion of (losses) or gains recognized in
other comprehensive loss
    
    
    
    
    
    
    (417
    )
    
    
    (5,936
    )
    
    
    1,060Effective portion of (losses) or gains recorded in
accumulated other comprehensive loss and
reclassified into interest expense
    
    
    
    
    
    
    5,060
    
    
    
    12,280
    
    
    
    11,288Portion of gains (losses) representing the
amount of hedge ineffectiveness and the amount
excluded from the assessment of hedge
effectiveness and recorded as an increase (decrease)
in interest expense
    
    
    
    
    
    
    513
    
    
    
    
    
    
    
    (183
    )Liability at end of period
    
    $
    
    
    
    $
    (12,446
    )
    
    $
    
    
    
    $
    (12,446
    )
  Credit-risk Related Contingent Features
   16




---



##### Table of Contents



4. Fair Value Measurement
  Recurring Fair Value Measurements
  Recurring Fair Value Measurements
 As of September 30, 2010Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities:Interest rate swap agreements
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 As of December 31, 2009Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities:Interest rate swap agreements
    
    $
    
    
    
    $
    6,344
    
    
    $
    
    
    
    $
    6,344
  17




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##### Table of Contents



4. Fair Value Measurement (Continued)
 Non-Recurring Fair Value Measurements
  Non-Recurring Fair Value Measurements
 Impairment Lossfor the Nine Months EndedAs of September 30, 2010
    
    
    September 30,Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    2010
    
    
    2009Assets:Property and equipment, net
    
    $
    
    
    
    $
    
    
    
    $
    135,664
    
    
    $
    135,664
    
    
    $
    
    
    
    $
    Program broadcast rights
    
    
    
    
    
    
    
    
    
    
    14,566
    
    
    
    14,566
    
    
    
    185
    
    
    
    122Investment in broadcasting
company
    
    
    
    
    
    
    
    
    
    
    13,599
    
    
    
    13,599
    
    
    
    
    
    
    
    Broadcast licenses
    
    
    
    
    
    
    
    
    
    
    818,981
    
    
    
    818,981
    
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    170,522
    
    
    
    170,522
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    954
    
    
    
    954
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
    
    
    $
    1,154,286
    
    
    $
    1,154,286
    
    
    $
    185
    
    
    $
    122
 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
  18




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##### Table of Contents



4. Fair Value Measurement (Continued)
 Fair Value of Other Financial Instruments (Continued)
   5. Preferred Stock
     19




---



##### Table of Contents



6. Retirement Plans
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    723
    
    
    $
    451
    
    
    $
    2,489
    
    
    $
    2,002Interest cost
    
    
    980
    
    
    
    249
    
    
    
    2,260
    
    
    
    1,349Expected return on plan assets
    
    
    (738
    )
    
    
    43
    
    
    
    (1,693
    )
    
    
    (960
    )Loss amortization
    
    
    256
    
    
    
    520
    
    
    
    753
    
    
    
    725Net periodic benefit cost
    
    $
    1,221
    
    
    $
    1,263
    
    
    $
    3,809
    
    
    $
    3,116
  7. Stock-based Compensation
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation expense, gross
    
    $
    57
    
    
    $
    346
    
    
    $
    274
    
    
    $
    1,044Income tax benefit at our statutory rate associated
with stock-based compensation
    
    
    (22
    )
    
    
    (135
    )
    
    
    (107
    )
    
    
    (407
    )Stock-based compensation expense, net
    
    $
    35
    
    
    $
    211
    
    
    $
    167
    
    
    $
    637
 20




---



##### Table of Contents



7. Stock-based Compensation (Continued)
 Long-term Incentive Plan
  Nine Months Ended September 30,2010
    
    2009Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    ExerciseOptions
    
    Price
    
    Options
    
    PriceCommon stock:Stock options outstanding 
beginning of period
    
    
    1,476
    
    
    $
    8.28
    
    
    
    1,949
    
    
    $
    8.31Options expired
    
    
    (368
    )
    
    $
    9.99
    
    
    
    (12
    )
    
    $
    12.37Options forfeited
    
    
    (72
    )
    
    $
    10.43
    
    
    
    (16
    )
    
    $
    8.27Stock options outstanding 
end of period
    
    
    1,036
    
    
    $
    7.52
    
    
    
    1,921
    
    
    $
    8.29Exercisable at end of period
    
    
    1,036
    
    
    $
    7.52
    
    
    
    638
    
    
    $
    9.88
  Directors Restricted Stock Plan
   Weighted-AverageNumber of
    
    
    Fair ValueShares
    
    
    Per ShareRestricted Stock:Non-vested common restricted shares, December 31, 2009
    
    
    66
    
    
    $
    6.36Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Non-vested common restricted shares, September 30, 2010
    
    
    66
    
    
    $
    6.36
 21




---



##### Table of Contents



8. Commitments and Contingencies
 Legal Proceedings and Claims
  Sports Marketing Agreement
   9. Goodwill and Intangible Assets
  22




---



##### Table of Contents



10. Income Taxes
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Income tax expense (benefit)
    
    $
    2,456
    
    
    $
    (3,237
    )
    
    $
    (592
    )
    
    $
    (12,364
    )Effective income tax rate
    
    
    31
    %
    
    
    37
    %
    
    
    (84
    )%
    
    
    37
    %
  23




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Executive Overview
 Introduction
  Overview
       24




---



##### Table of Contents



Revenue
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalRevenue:Local
    
    $
    44,278
    
    
    
    51.9
    %
    
    $
    41,135
    
    
    
    61.9
    %
    
    $
    133,675
    
    
    
    57.8
    %
    
    $
    123,693
    
    
    
    64.1
    %National
    
    
    14,294
    
    
    
    16.7
    %
    
    
    12,783
    
    
    
    19.2
    %
    
    
    42,036
    
    
    
    18.2
    %
    
    
    38,031
    
    
    
    19.7
    %Internet
    
    
    3,329
    
    
    
    3.9
    %
    
    
    2,925
    
    
    
    4.4
    %
    
    
    9,525
    
    
    
    4.1
    %
    
    
    8,200
    
    
    
    4.3
    %Political
    
    
    16,042
    
    
    
    18.8
    %
    
    
    3,071
    
    
    
    4.6
    %
    
    
    24,413
    
    
    
    10.5
    %
    
    
    5,022
    
    
    
    2.6
    %Retransmission
consent
    
    
    4,658
    
    
    
    5.5
    %
    
    
    4,312
    
    
    
    6.5
    %
    
    
    13,967
    
    
    
    6.0
    %
    
    
    11,911
    
    
    
    6.2
    %Production and other
    
    
    2,022
    
    
    
    2.4
    %
    
    
    1,735
    
    
    
    2.6
    %
    
    
    5,808
    
    
    
    2.5
    %
    
    
    5,205
    
    
    
    2.7
    %Network compensation
    
    
    172
    
    
    
    0.2
    %
    
    
    172
    
    
    
    0.3
    %
    
    
    389
    
    
    
    0.2
    %
    
    
    482
    
    
    
    0.2
    %Consulting revenue
    
    
    550
    
    
    
    0.6
    %
    
    
    313
    
    
    
    0.5
    %
    
    
    1,650
    
    
    
    0.7
    %
    
    
    313
    
    
    
    0.2
    %Total
    
    $
    85,345
    
    
    
    100.0
    %
    
    $
    66,446
    
    
    
    100.0
    %
    
    $
    231,463
    
    
    
    100.0
    %
    
    $
    192,857
    
    
    
    100.0
    %
 Results of Operations
 Three Months Ended September 30, 2010 (2010 three-month period) Compared to Three Months Ended
September 30, 2009 (2009 three-month period)
 Revenue
 25




---



##### Table of Contents



Broadcast expenses
 Corporate and administrative expenses.
 Depreciation.
 Gain on disposal of assets.
 26




---



##### Table of Contents



Interest expense.
 Income tax expense or benefit.
 Preferred stock dividends.
 Nine Months Ended September 30, 2010 (2010 nine-month period) Compared to Nine Months Ended
September 30, 2009 (2009 nine-month period)
 Revenue
 27




---



##### Table of Contents



Broadcast expenses
 Corporate and administrative expenses.
 Depreciation.
 Gain on disposal of assets.
 Interest expense.
 28




---



##### Table of Contents



Loss from early extinguishment of debt
 Income tax expense or benefit.
 Preferred stock dividends.
 29




---



##### Table of Contents



Liquidity and Capital Resources
 General
  Nine Months Ended September 30,2010
    
    
    2009Net cash provided by operating activities
    
    $
    24,739
    
    
    $
    5,438Net cash used in investing activities
    
    
    (10,916
    )
    
    
    (13,946
    )Net cash used in financing activities
    
    
    (9,653
    )
    
    
    (13,941
    )Increase (decrease) in cash
    
    $
    4,170
    
    
    $
    (22,449
    )
 As ofSeptember 30, 2010
    
    December 31, 2009Cash
    
    $
    20,170
    
    
    $
    16,000Long-term debt including current portion
    
    $
    845,857
    
    
    $
    791,809Long-term accrued facility fee
    
    $
    11,139
    
    
    $
    18,307Preferred stock, excluding unamortized original issue
discount
    
    $
    37,063
    
    
    $
    93,386Borrowing availability under our senior credit facility
    
    $
    40,000
    
    
    $
    31,681First lien leverage ratio as defined under our senior
credit facility:Actual (1)
    
    
    5.10
    
    
    naMaximum allowed (1)
    
    
    7.00
    
    
    na
 
 (1)
    
    The Company was not required to comply with this ratio prior to June 30, 2010. Senior Credit Facility
  Amendment of Senior Credit Facility and Issuance of 101/2% senior secured second lien notes due 2015
(the Notes)
   30




---



##### Table of Contents



31




---



##### Table of Contents



As Amended and
    
    As Amended andPrior to Issuance
    
    After Issuance ofof Notes and
    
    Notes and RelatedPrior to Amendment
    
    Related Repayment
    
    Repayment of theDescription
    
    on March 31, 2010
    
    of the 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 descibed 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 bededucted from total debt to
calculatenet debt in the total net
leverage ratio(or first lien leverage test, as
applicable)
    
    $10.0 million
    
    Same
    
    $15.0 million
   32




---



##### Table of Contents



Series D Perpetual Preferred Stock
     Net Cash Provided By (Used In) Operating, Investing and Financing Activities
    33




---



##### Table of Contents



Payment of Principal Balances Under our Senior Credit Facility Subsequent to September 30, 2010
  Capital Expenditures
  Other
   Critical Accounting Policies
  Cautionary Note Regarding Forward-Looking Statements
  34




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 5. Other Information
 Gray Television, Inc.
 Description of Annual Incentive Plan Structure
   35




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##### Table of Contents



Item 6. Exhibits
     36




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##### Table of Contents



SIGNATURES
  GRAY TELEVISION, INC.(Registrant)
 Date:  November 8, 2010
    By:
    /s/ James C. RyanJames C. Ryan,Senior Vice President and Chief Financial Officer 37