##### 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 June 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
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)51,382,793 shares
outstanding as of August
11, 2010
    
    5,753,020 shares outstanding as of August 11, 2010




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##### 



INDEX
 GRAY TELEVISION, INC.
 PAGEPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed consolidated balance sheets (Unaudited)  June 30, 2010
and December 31, 2009
    
    
    3Condensed consolidated statements of operations (Unaudited) 
three months and six months ended June 30, 2010 and 2009
    
    
    5Condensed consolidated statement of stockholders equity and
comprehensive loss (Unaudited)  six months ended June 30, 2010
    
    
    6Condensed consolidated statements of cash flows (Unaudited) 
six months ended June 30, 2010 and 2009
    
    
        7Notes to condensed consolidated financial statements (Unaudited) 
June 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
    
    
    33Item 4.
    
    Controls and Procedures
    
    
    34PART II.
    
    OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    34Item 5.
    
    Other Information
    
    
    34Item 6.
    
    Exhibits
    
    
    35SIGNATURES
    
    
    36EX-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)
 June 30,
    
    
    December 31,2010
    
    
    2009Assets:Current assets:Cash
    
    $
    15,714
    
    
    $
    16,000Trade accounts receivable, less allowance for doubtful accounts
of $826 and $1,092, respectively
    
    
    53,793
    
    
    
    57,179Current portion of program broadcast rights, net
    
    
    3,153
    
    
    
    10,220Deferred tax asset
    
    
    1,597
    
    
    
    1,597Prepaid and other current assets
    
    
    3,056
    
    
    
    1,788Total current assets
    
    
    77,313
    
    
    
    86,784Property and equipment, net
    
    
    138,654
    
    
    
    148,092Deferred loan costs, net
    
    
    13,322
    
    
    
    1,619Broadcast licenses
    
    
    818,981
    
    
    
    818,981Goodwill
    
    
    170,522
    
    
    
    170,522Other intangible assets, net
    
    
    1,074
    
    
    
    1,316Investment in broadcasting company
    
    
    13,599
    
    
    
    13,599Other
    
    
    4,552
    
    
    
    4,826Total assets
    
    $
    1,238,017
    
    
    $
    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)
 June 30,
    
    
    December 31,2010
    
    
    2009Liabilities and stockholders equity:Current liabilities:Trade accounts payable
    
    $
    3,827
    
    
    $
    6,047Employee compensation and benefits
    
    
    9,197
    
    
    
    9,675Accrued interest
    
    
    10,953
    
    
    
    13,531Other accrued expenses
    
    
    4,312
    
    
    
    4,814Interest rate hedge derivatives
    
    
    
    
    
    
    6,344Federal and state income taxes
    
    
    4,122
    
    
    
    4,206Current portion of program broadcast obligations
    
    
    8,317
    
    
    
    15,271Acquisition related liabilities
    
    
    863
    
    
    
    863Deferred revenue
    
    
    6,215
    
    
    
    6,241Current portion of long-term debt
    
    
    5,011
    
    
    
    8,080Total current liabilities
    
    
    52,817
    
    
    
    75,072Long-term debt, less current portion
    
    
    841,761
    
    
    
    783,729Long-term accrued facility fee
    
    
    26,139
    
    
    
    18,307Program broadcast obligations, less current portion
    
    
    1,353
    
    
    
    1,531Deferred income taxes
    
    
    141,387
    
    
    
    142,204Long-term deferred revenue
    
    
    2,345
    
    
    
    2,638Long-term accrued dividends
    
    
    10,777
    
    
    
    18,917Accrued pension costs
    
    
    14,427
    
    
    
    13,969Other
    
    
    1,972
    
    
    
    2,366Total liabilities
    
    
    1,092,978
    
    
    
    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)
    
    
    36,945
    
    
    
    93,386Stockholders equity:Common stock, no par value; authorized 100,000 shares,
issued 56,037 shares and 47,530 shares, respectively
    
    
    479,641
    
    
    
    453,824Class A common stock, no par value; authorized 15,000 shares,
issued 7,332 shares
    
    
    15,321
    
    
    
    15,321Accumulated deficit
    
    
    (318,911
    )
    
    
    (303,698
    )Accumulated other comprehensive loss, net of income tax benefit
    
    
    (5,444
    )
    
    
    (9,314
    )170,607
    
    
    
    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
    
    
    108,094
    
    
    
    93,620Total liabilities and stockholders equity
    
    $
    1,238,017
    
    
    $
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues (less agency commissions)
    
    $
    75,636
    
    
    $
    65,057
    
    
    $
    146,118
    
    
    $
    126,411Operating expenses before depreciation, amortization
and gain on disposal of assets, net:Broadcast
    
    
    46,092
    
    
    
    45,167
    
    
    
    93,659
    
    
    
    90,821Corporate and administrative
    
    
    3,837
    
    
    
    3,592
    
    
    
    6,759
    
    
    
    7,638Depreciation
    
    
    7,931
    
    
    
    8,253
    
    
    
    15,906
    
    
    
    16,514Amortization of intangible assets
    
    
    120
    
    
    
    145
    
    
    
    242
    
    
    
    294Gain on disposals of assets, net
    
    
    (480
    )
    
    
    (1,098
    )
    
    
    (524
    )
    
    
    (2,620
    )57,500
    
    
    
    56,059
    
    
    
    116,042
    
    
    
    112,647Operating income
    
    
    18,136
    
    
    
    8,998
    
    
    
    30,076
    
    
    
    13,764Other income (expense):Miscellaneous income, net
    
    
    19
    
    
    
    1
    
    
    
    58
    
    
    
    13Interest expense
    
    
    (17,431
    )
    
    
    (20,007
    )
    
    
    (37,042
    )
    
    
    (30,120
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (349
    )
    
    
    (8,352
    )Income (loss) before income taxes
    
    
    724
    
    
    
    (11,008
    )
    
    
    (7,257
    )
    
    
    (24,695
    )Income tax expense (benefit)
    
    
    190
    
    
    
    (4,360
    )
    
    
    (3,048
    )
    
    
    (9,127
    )Net income (loss)
    
    
    534
    
    
    
    (6,648
    )
    
    
    (4,209
    )
    
    
    (15,568
    )Preferred dividends (includes accretion of issuance
cost
of $3,952, $301, $4,253, and $602, respectively)
    
    
    6,453
    
    
    
    4,051
    
    
    
    11,004
    
    
    
    8,101Net loss available to common stockholders
    
    $
    (5,919
    )
    
    $
    (10,699
    )
    
    $
    (15,213
    )
    
    $
    (23,669
    )Basic and diluted per share information:Net loss available to common stockholders
    
    $
    (0.11
    )
    
    $
    (0.22
    )
    
    $
    (0.30
    )
    
    $
    (0.49
    )Weighted-average shares outstanding
    
    
    54,453
    
    
    
    48,506
    
    
    
    51,525
    
    
    
    48,498Dividends 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 LOSS (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,209
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on derivatives, net of
income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,870
    
    
    
    Comprehensive loss
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (339
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,004
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,004
    )Issuance of common stock:Exchange for preferred stock
    
    
    
    
    
    
    
    
    
    
    8,500,000
    
    
    
    25,585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,585401(k) plan
    
    
    
    
    
    
    
    
    
    
    7,048
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217Balance at June 30, 2010
    
    
    7,331,574
    
    
    $
    15,321
    
    
    
    56,036,550
    
    
    $
    479,641
    
    
    $
    (318,911
    )
    
    
    (1,578,554
    )
    
    $
    (22,398
    )
    
    
    (4,654,750
    )
    
    $
    (40,115
    )
    
    $
    (5,444
    )
    
    $
    108,094
 See notes to condensed consolidated financial statements.
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##### Table of Contents



GRAY TELEVISION, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Operating activitiesNet loss
    
    $
    (4,209
    )
    
    $
    (15,568
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation
    
    
    15,906
    
    
    
    16,514Amortization of intangible assets
    
    
    242
    
    
    
    294Amortization of deferred loan costs
    
    
    634
    
    
    
    181Amortization of notes original issue discount
    
    
    225
    
    
    
    Amortization of restricted stock awards
    
    
    116
    
    
    
    122Amortization of stock option awards
    
    
    101
    
    
    
    576Write-off loan acquisition costs from early
extinguishment of debt
    
    
    349
    
    
    
    8,352Accrual of long-term facility fee
    
    
    7,832
    
    
    
    Amortization of program broadcast rights
    
    
    7,705
    
    
    
    7,531Payments on program broadcast obligations
    
    
    (7,728
    )
    
    
    (7,656
    )Common stock contributed to 401(k) Plan
    
    
    15
    
    
    
    133Deferred income taxes
    
    
    (3,291
    )
    
    
    (9,010
    )Gain on disposal of assets, net
    
    
    (524
    )
    
    
    (2,620
    )Pension expense net of contributions
    
    
    463
    
    
    
    752Other
    
    
    (386
    )
    
    
    (311
    )Changes in operating assets and liabilities:Receivables and other current assets
    
    
    2,368
    
    
    
    4,001Accounts payable and other current liabilities
    
    
    (3,278
    )
    
    
    (7,306
    )Accrued interest
    
    
    (2,579
    )
    
    
    4,392Net cash provided by operating activities
    
    
    13,961
    
    
    
    377Investing activitiesPurchases of property and equipment
    
    
    (6,150
    )
    
    
    (9,485
    )Proceeds from asset sales
    
    
    246
    
    
    
    9Equipment transactions related to spectrum reallocation, net
    
    
    (72
    )
    
    
    (131
    )Payments on acquisition-related liabilities
    
    
    (304
    )
    
    
    (352
    )Other
    
    
    (18
    )
    
    
    361Net cash used in investing activities
    
    
    (6,298
    )
    
    
    (9,598
    )Financing activitiesProceeds from borrowings on long-term debt
    
    
    358,010
    
    
    
    Repayments of borrowings on long-term debt
    
    
    (303,273
    )
    
    
    (4,531
    )Deferred loan costs
    
    
    (12,686
    )
    
    
    (7,111
    )Dividends paid, net of accreted preferred dividend
    
    
    (14,892
    )
    
    
    Redemption of preferred stock
    
    
    (60,693
    )
    
    
    Proceeds from issuance of common stock
    
    
    25,585
    
    
    
    Net cash used in financing activities
    
    
    (7,949
    )
    
    
    (11,642
    )Net decrease in cash
    
    
    (286
    )
    
    
    (20,863
    )Cash at beginning of period
    
    
    16,000
    
    
    
    30,649Cash at end of period
    
    $
    15,714
    
    
    $
    9,786
 See notes to condensed consolidated financial statements.
 7




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GRAY TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Basis of Presentation
  Seasonality
  Use of Estimates
  Earnings Per Share
  Three
Months EndedJune 30,
    

Six
Months EndedJune 30,2010
    
    2009
    
    2010
    
    2009Weighted-average shares outstanding  basic
    
    
    54,453
    
    
    
    48,506
    
    
    
    51,525
    
    
    
    48,498Stock options and restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average shares outstanding  diluted
    
    
    54,453
    
    
    
    48,506
    
    
    
    51,525
    
    
    
    48,498
 8




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##### Table of Contents



1. Basis of Presentation (Continued)
 Earnings Per Share (Continued)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2010
    
    2009
    
    2010
    
    2009Potentially dilutive common
shares outstanding
at end of period:Employee stock options
    
    
    1,152
    
    
    
    1,926
    
    
    
    1,152
    
    
    
    1,926Unvested restricted stock
    
    
    66
    
    
    
    100
    
    
    
    66
    
    
    
    100Total
    
    
    1,218
    
    
    
    2,026
    
    
    
    1,218
    
    
    
    2,026
 Accumulated Other Comprehensive Loss
  June 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
    )
 Property and Equipment
  9




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1. Basis of Presentation (Continued)
 Property and Equipment (Continued)
  June 30,
    
    
    December 31,2010
    
    
    2009Property and equipment:Land
    
    $
    23,052
    
    
    $
    23,046Buildings and improvements
    
    
    51,644
    
    
    
    51,606Equipment
    
    
    295,491
    
    
    
    291,682370,187
    
    
    
    366,334Accumulated depreciation
    
    
    (231,533
    )
    
    
    (218,242
    )Total property and equipment, net
    
    $
    138,654
    
    
    $
    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.
 Changes in Classifications
  10




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2. Long-term Debt and Accrued Facility Fee
  June 30,
    
    
    December 31,2010
    
    
    2009Long-term debt including current portion:Senior credit facility excluding long-term accrued facility fee
    
    $
    488,536
    
    
    $
    791,809101/2% senior secured second lien notes
    
    
    365,000
    
    
    
    Total long-term debt at liquidation value
    
    
    853,536
    
    
    
    791,809Less unamortized discount on 101/2% senior secured second lien notes
    
    
    (6,764
    )
    
    
    Total long-term debt at recorded value
    
    
    846,772
    
    
    
    791,809Long-term accrued facility fee
    
    
    26,139
    
    
    
    18,307Total long-term debt and accrued facility fee at recorded value
    
    $
    872,911
    
    
    $
    810,116Borrowing ability under our senior credit facility
    
    
    40,000
    
    
    
    31,681First lien leverage ratio as defined in our senior credit facilty:Actual (1)
    
    
    5.35
    
    
    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 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 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)
    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 June 30, 2010
    
    As of December 31, 2009Balance Sheet
    
    Fair
    
    Balance Sheet
    
    FairLocation
    
    Value
    
    Location
    
    ValueDerivatives designated as hedging
instruments:Interest rate swap agreements
    
    Current liabilities
    
    $
    
    
    
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest rate swap agreements:Liability at beginning of period
    
    $
    (360
    )
    
    $
    (20,451
    )
    
    $
    (6,344
    )
    
    $
    (24,611
    )Effective portion of gains recognized in other comprehensive loss
    
    
    6,531
    
    
    
    8,156
    
    
    
    18,624
    
    
    
    13,933Effective portion of losses recorded in accumulated other comprehensive loss and reclassified into interest expense
    
    
    (6,171
    )
    
    
    (4,611
    )
    
    
    (12,280
    )
    
    
    (6,228
    )Portion 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
    
    
    
    
    
    
    (696
    )
    
    
    
    
    
    
    (696
    )Liability at end of period
    
    $
    
    
    
    $
    (17,602
    )
    
    $
    
    
    
    $
    (17,602
    )
  Credit-risk Related Contingent Features
   16




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##### Table of Contents



4. Fair Value Measurement
  Recurring Fair Value Measurements
  Recurring Fair Value Measurements
 As of June 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 Six Months EndedAs of June 30, 2010
    
    
    June 30,Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    2010
    
    
    2009Assets:Property and equipment, net
    
    $
    
    
    
    $
    
    
    
    $
    138,654
    
    
    $
    138,654
    
    
    $
    
    
    
    $
    Program broadcast rights
    
    
    
    
    
    
    
    
    
    
    4,161
    
    
    
    4,161
    
    
    
    172
    
    
    
    114Investment in broadcasting
company
    
    
    
    
    
    
    
    
    
    
    13,599
    
    
    
    13,599
    
    
    
    
    
    
    
    Broadcast licenses
    
    
    
    
    
    
    
    
    
    
    818,981
    
    
    
    818,981
    
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    170,522
    
    
    
    170,522
    
    
    
    
    
    
    
    Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    1,074
    
    
    
    1,074
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
    
    
    $
    1,146,991
    
    
    $
    1,146,991
    
    
    $
    172
    
    
    $
    114
 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    883
    
    
    $
    774
    
    
    $
    1,766
    
    
    $
    1,551Interest cost
    
    
    640
    
    
    
    550
    
    
    
    1,280
    
    
    
    1,100Expected return on plan assets
    
    
    (477
    )
    
    
    (501
    )
    
    
    (955
    )
    
    
    (1,003
    )Loss amortization
    
    
    248
    
    
    
    102
    
    
    
    497
    
    
    
    205Net periodic benefit cost
    
    $
    1,294
    
    
    $
    925
    
    
    $
    2,588
    
    
    $
    1,853
  7. Stock-based Compensation
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation expense, gross
    
    $
    62
    
    
    $
    345
    
    
    $
    217
    
    
    $
    698Income tax benefit at our statutory rate associated
with stock-based compensation
    
    
    (24
    )
    
    
    (135
    )
    
    
    (85
    )
    
    
    (272
    )Stock-based compensation expense, net
    
    $
    38
    
    
    $
    210
    
    
    $
    132
    
    
    $
    426
 20




---



##### Table of Contents



7. Stock-based Compensation (Continued)
 Long-term Incentive Plan
  Six Months Ended June 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
    
    
    (265
    )
    
    $
    10.10
    
    
    
    (12
    )
    
    $
    12.37Options forfeited
    
    
    (59
    )
    
    $
    11.37
    
    
    
    (11
    )
    
    $
    8.11Stock options outstanding 
end of period
    
    
    1,152
    
    
    $
    8.29
    
    
    
    1,926
    
    
    $
    8.29Exercisable at end of period
    
    
    1,142
    
    
    $
    7.70
    
    
    
    643
    
    
    $
    9.87
  Directors Restricted Stock Plan
  21




---



##### Table of Contents



7. Stock-based Compensation (Continued)
 Long-term Incentive 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, June 30, 2010
    
    
    66
    
    
    $
    6.36
 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
    
    Six Months EndedJune 30,
    
    June 30,2010
    
    2009
    
    2010
    
    2009Income tax expense (benefit)
    
    $
    190
    
    
    $
    (4,360
    )
    
    $
    (3,048
    )
    
    $
    (9,127
    )Effective income tax rate
    
    
    26
    %
    
    
    40
    %
    
    
    42
    %
    
    
    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 June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of Total
    
    
    Amount
    
    
    of TotalRevenue:Local
    
    $
    45,886
    
    
    
    60.7
    %
    
    $
    43,272
    
    
    
    66.5
    %
    
    $
    89,397
    
    
    
    61.2
    %
    
    $
    82,558
    
    
    
    65.3
    %National
    
    
    13,791
    
    
    
    18.2
    %
    
    
    12,373
    
    
    
    19.0
    %
    
    
    27,742
    
    
    
    19.0
    %
    
    
    25,248
    
    
    
    20.0
    %Internet
    
    
    3,124
    
    
    
    4.1
    %
    
    
    2,711
    
    
    
    4.2
    %
    
    
    6,196
    
    
    
    4.2
    %
    
    
    5,275
    
    
    
    4.2
    %Political
    
    
    5,588
    
    
    
    7.4
    %
    
    
    942
    
    
    
    1.4
    %
    
    
    8,371
    
    
    
    5.7
    %
    
    
    1,951
    
    
    
    1.5
    %Retransmission
consent
    
    
    4,670
    
    
    
    6.2
    %
    
    
    3,959
    
    
    
    6.1
    %
    
    
    9,309
    
    
    
    6.4
    %
    
    
    7,599
    
    
    
    6.0
    %Production and
other
    
    
    1,854
    
    
    
    2.5
    %
    
    
    1,628
    
    
    
    2.5
    %
    
    
    3,786
    
    
    
    2.6
    %
    
    
    3,470
    
    
    
    2.7
    %Network
compensation
    
    
    173
    
    
    
    0.2
    %
    
    
    172
    
    
    
    0.3
    %
    
    
    217
    
    
    
    0.1
    %
    
    
    310
    
    
    
    0.3
    %Consulting
revenue
    
    
    550
    
    
    
    0.7
    %
    
    
    
    
    
    
    0.0
    %
    
    
    1,100
    
    
    
    0.8
    %
    
    
    
    
    
    
    0.0
    %Total
    
    $
    75,636
    
    
    
    100.0
    %
    
    $
    65,057
    
    
    
    100.0
    %
    
    $
    146,118
    
    
    
    100.0
    %
    
    $
    126,411
    
    
    
    100.0
    %
 Results of Operations
 Three Months Ended June 30, 2010 (2010 three-month period) Compared to Three Months Ended June
30, 2009 (2009 three-month period)
 Revenue
 25




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##### 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.
 Six Months Ended June 30, 2010 (2010 six-month period) Compared to Six Months Ended June 30, 2009
(2009 six-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 on early extinguishment of debt
 Income tax expense or benefit.
 Preferred stock dividends.
 Liquidity and Capital Resources
 General
  Six Months Ended June 30,2010
    
    
    2009Net cash provided by operating activities
    
    $
    13,961
    
    
    $
    377Net cash used in investing activities
    
    
    (6,298
    )
    
    
    (9,598
    )Net cash used in financing activities
    
    
    (7,949
    )
    
    
    (11,642
    )Decrease in cash
    
    $
    (286
    )
    
    $
    (20,863
    )
 As ofJune 30,
    
    December 31,2010
    
    2009Cash
    
    $
    15,714
    
    
    $
    16,000Long-term debt including current portion
    
    $
    846,772
    
    
    $
    791,809Long-term accrued facility fee
    
    $
    26,139
    
    
    $
    18,307Preferred stock, excluding unamortized original issue
discount
    
    $
    36,945
    
    
    $
    93,386Borrowing availability under our senior credit facility
    
    $
    40,000
    
    
    $
    31,681First lien leverage ratio as defined under our senior
credit facilty:Actual (1)
    
    
    5.35
    
    
    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
  29




---



##### Table of Contents



Amendment of Senior Credit Facility and Issuance of 101/2% senior secured second lien notes due 2015
(the Notes)
       30




---



##### 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%
or BASE plus 2.50%
    
    Same
    
    SameAnnual interest rate on outstandingrevolving 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 undrawnrevolving 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 withJune 30, 2010 through
September 29, 2010
    
    
    6.50x
    
    
    
    9.50x
    
    
    a first lien
leverage testSeptember 30, 2010 through 
March 30, 2011
    
    
    6.50x
    
    
    
    9.75x
    
    
    as descibed above.March 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
   31




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##### Table of Contents



Series D Perpetual Preferred Stock
     Net Cash Provided By (Used In) Operating, Investing and Financing Activities
    Capital Expenditures
  32




---



##### Table of Contents



Other
    Critical Accounting Policies
  Cautionary Note Regarding Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosure About Market Risk
  33




---



##### Table of Contents



Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  Our ability to successfully negotiate future retransmission consent agreements may be hindered
by the interests of networks with whom we are affiliated and by potential legislative or regulatory
changes to the framework under which these agreements are negotiated.
   
 Item 5. Other Information
  34




---



##### Table of Contents



Item 6. Exhibits
     35




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##### Table of Contents



SIGNATURES
  GRAY TELEVISION, INC.
(Registrant)Date:  August 12, 2010
    By:
    /s/ James C. RyanJames C. Ryan,Senior Vice President and Chief Financial Officer 36