Gray Reports Operating Results for the Three Months and Six Months Ended June 30, 2008

Gray Reports Operating Results for the Three Months and Six Months Ended June 30, 2008

ATLANTA, Aug. 7 /PRNewswire-FirstCall/ -- Gray Television, Inc. ("Gray," "we" or "us") (NYSE:GTN) today announced results from operations for the three months (the "second quarter") and six months ended June 30, 2008 as compared to the three months and six months ended June 30, 2007.

Comments on As Reported Results of Operations for the Three Months Ended June 30, 2008:

Revenues.

Total net revenue decreased $1.0 million, or 1%, to $78.7 million due primarily to decreased local and national advertising revenues that were partially offset by increased political and internet advertising revenue in the current year. The increase in political advertising revenue reflects increased advertising from political candidates in the 2008 primary and general elections. Increased internet advertising revenue reflects our internet sales initiatives in each of our markets. The decrease in local and national revenue was largely due to a softening economy.

Political advertising revenues increased $2.3 million, or 88%, to $5.0 million.

Internet advertising revenue increased $0.8 million, or 34%, to $3.0 million.

Local advertising revenue decreased $2.5 million, or 5%, to $49.5 million.

National advertising revenue decreased $1.4 million, or 7%, to $18.5 million.

Operating expenses.

Broadcast expenses (before depreciation, amortization and loss on disposal of assets) decreased $0.6 million, or 1%, to $48.5 million.

Corporate and administrative expenses (before depreciation, amortization and loss on disposal of assets) decreased $0.9 million, or 24%, to $2.7 million.

We recorded non-cash stock-based compensation expense during the three months ended June 30, 2008 and 2007 of $395,000 and $310,000, respectively.

   Comments on Results of Operations for the Six Months Ended June 30, 2008:    Revenues.  

Total net revenue increased $0.3 million to $149.7 million due primarily to increased political and internet advertising revenue that were partially offset by decreased local and national advertising revenue in the current year. The increase in political advertising revenue reflects increased advertising from political candidates in the 2008 primary and general elections. Increased internet advertising revenue reflects our internet sales initiatives in each of our markets. The decrease in local and national revenue was largely due to a softening economy and due to the change in networks broadcasting the Super Bowl. During the first six months of 2008, we earned approximately $130,000 of net revenue relating to the 2008 Super Bowl broadcast on our six Fox channels compared to earning approximately $750,000 of net revenue relating to the 2007 Super Bowl broadcast on our 17 CBS channels during the first six months of 2007.

Political advertising revenues increased $4.3 million, or 115%, to $8.0 million.

Internet advertising revenue increased $1.4 million, or 31%, to $5.7 million.

Local advertising revenue decreased $3.5 million, or 4%, to $95.2 million.

National advertising revenue decreased $2.1 million, or 6%, to $34.8 million.

Operating expenses.

Broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $0.6 million, or 1%, to $98.5 million.

Corporate and administrative expenses (before depreciation, amortization and loss on disposal of assets) decreased $1.4 million, or 18%, to $6.3 million.

We recorded non-cash stock-based compensation expense during the six months ended June 30, 2008 and 2007 of $689,000 and $830,000, respectively.

Internet Initiatives:

We have continued to expand our internet initiatives in each of our markets. Our focus has been to expand local content to attract traffic to our websites.

This strong revenue growth reflects the significantly increased traffic to our websites as illustrated below by the aggregate page views reported by our websites in the three months and six months ended June 30, 2008 compared to the three months and six months ended June 30, 2007.

                     Gray Websites - Aggregate Page Views                                            Three Months Ended                                                June 30,                                                               %                                       2008       2007       Change                                        (in millions)   Total Aggregate Page Views    (including video plays    and cell phone page views)        150.3       97.3        54%                                               Six Months Ended                                                 June 30,                                                          %                                       2008     2007    Change                                        (in millions)   Total Aggregate Page Views    (including video plays    and cell phone page views)        312.5      203.6         53%    

We attribute the increase in our website traffic to increased posting of local content and public awareness of our websites as the result of our on-air promotion of our websites.

The aggregate internet revenues discussed above are derived from two sources. The first source is advertising or sponsorship opportunities directly on our websites. We call this "direct internet revenue." The other source is television advertising time purchased by our clients to directly promote their involvement in our websites. We refer to this internet revenue source as "internet related commercial time sales."

In the future we anticipate our direct internet revenue will grow at a significantly faster pace relative to our internet related commercial time sales.

   Other Financial Data:                                          June 30, 2008     December 31, 2007                                                    (in thousands)    Cash                                    $22,568                $15,338   Total debt                              855,538                925,000   Preferred stock                          68,638                      -   Available credit under senior    credit facility                        100,000                100,000                                                 Six Months Ended June 30,                                             2008                   2007                                                    (in thousands)    Net cash provided by operating    activities                             $17,237                 $5,012   Net cash used in investing activities    (6,277)               (18,228)   Net cash (used in) provided by    financing activities                    (3,730)                11,853    

On June 26, 2008, we issued 750 shares of Series D Perpetual Preferred Stock (the "Series D Preferred Stock") having an aggregate liquidation value of $75.0 million in a privately placed transaction to qualified investors. We received approximately $68.6 million in net proceeds after issuance discounts and transaction expenses. Also on June 26, 2008, we used $65.0 million of the net proceeds from the issuance to make a voluntary prepayment on our term loan. The remaining $3.6 million of the net proceeds was retained by Gray for general corporate purposes.

On July 15, 2008, we issued an additional 250 shares of Series D Preferred Stock having an aggregate liquidation value of $25.0 million in a privately placed transaction to qualified investors. We received approximately $23.0 million in net proceeds after issuance discounts and transaction expenses. Also on July 15, 2008, we used the $23.0 million of net proceeds from the issuance to make a voluntary prepayment on our term loan.

                             Gray Television, Inc.                      Selected Operating Data (Unaudited)           (in thousands except for per share data and percentages)                                                      Three Months Ended                                                         June 30,                                                                        %                                               2008        2007       Change    Revenues (less agency commissions)       $78,743      $79,750       (1)%   Operating expenses  before    depreciation, amortization and    loss on disposal of assets, net:     Broadcast                               48,460       49,048       (1)%     Corporate and administrative             2,722        3,584      (24)%   Depreciation and amortization of    intangible assets                         8,907       10,117      (12)%   (Gain) loss on disposals of assets,    net                                         (84)         119     (171)%                                             60,005       62,868       (5)%   Operating income                          18,738       16,882       11 %   Other income (expense):     Miscellaneous income, net                   63          449      (86)%     Interest expense                       (13,402)     (16,525)     (19)%     Loss on early extinguishment of debt         -      (16,361)   Income (loss) before income tax            5,399      (15,555)   Income tax expense (benefit)               2,184       (5,613)   Net income (loss)                          3,215       (9,942)   Preferred dividends    (includes accretion of issuance    cost of $0 and $418, respectively)          125          847      (85)%   Net income (loss) available to common    stockholders                             $3,090     $(10,789)    Basic per share information:     Net income (loss) available to common      stockholders                            $0.06       $(0.23)     Weighted average shares outstanding     48,235       47,688        1 %    Diluted per share information:     Net income (loss) available to common      stockholders                            $0.06       $(0.23)     Weighted average shares outstanding     48,273       47,688        1 %    Political revenue    (less agency commission)                 $4,951       $2,634       88 %                              Gray Television,  Inc.                    Selected Operating Data (Unaudited)          (in thousands except for per share data and percentages)                                                      Six Months Ended                                                         June 30,                                                                         %                                              2008         2007        Change   Revenues (less agency commissions)       $149,742     $149,431        0 %   Operating expenses before    depreciation, amortization and loss    on disposal of assets, net:     Broadcast                                98,476       97,866        1 %     Corporate and administrative              6,261        7,645      (18)%   Depreciation and amortization of    intangible assets                         17,991       19,892      (10)%   (Gain) loss on disposals of assets,    net                                       (1,005)         116     (966)%                                             121,723      125,519       (3)%   Operating income                           28,019       23,912       17 %   Other income (expense):     Miscellaneous income, net                    90          807      (89)%     Interest expense                        (29,201)     (33,797)     (14)%     Loss on early extinguishment of debt          -      (22,853)   Loss before income tax benefit             (1,092)     (31,931)   Income tax benefit                           (457)     (11,475)   Net loss                                     (635)     (20,456)   Preferred dividends (includes    accretion of issuance cost of $0    and $439, respectively)                      125        1,626      (92)%   Net loss available to common    stockholders                               $(760)    $(22,082)    Basic per share information:     Net loss available to common      stockholders                            $(0.02)      $(0.46)     Weighted average shares outstanding      48,194       47,711        1 %    Diluted per share information:     Net loss available to common      stockholders                            $(0.02)      $(0.46)     Weighted average shares outstanding      48,194       47,711        1 %    Political revenue (less agency    commission)                               $8,024       $3,731      115 %     Guidance for the Third Quarter of 2008  

We currently anticipate that our broadcast results of operations for the three months ending September 30, 2008 (the "third quarter of 2008") will approximate the ranges presented in the table below.

                                       %                    %                            2008     Change      2008     Change                          Guidance    From     Guidance    From   Selected operating       Low      Actual      High     Actual     Actual    data:                  Range      2007      Range      2007       2007                                        (dollars in thousands)   OPERATING REVENUES:   Revenues  (less agency   commissions)            $84,500       15 %   $86,500       18 %   $73,585    OPERATING EXPENSES:   (before depreciation,    amortization    and other expenses)   Broadcast               $50,000        1 %   $50,500        2 %   $49,583   Corporate and    administrative          $3,900       (1)%    $4,000        2 %    $3,932    OTHER SELECTED DATA:   Broadcast political    revenues (less    agency commissions)    $13,500              $14,500               $1,450    Expense for non-cash   contributions to    401(k) plan               $575                 $600                 $564    Expense for corporate    non-cash stock-based    compensation              $400                 $425                 $285     Comments on Guidance  

Total revenues anticipated for the third quarter of 2008 reflect an incremental increase in political revenues. Local non-political advertising revenue for the third quarter of 2008 is currently anticipated to approximate the results of the three months ended September 30, 2007 (the "third quarter of 2007"). National non-political advertising revenue is currently anticipated to be down approximately 6% to 7% in the third quarter of 2008 compared to the third quarter of 2007. Internet advertising revenue for the

third quarter of 2008 is currently anticipated to increase approximately 25% to 35% compared to the third quarter of 2007.

The increase in broadcast operating expenses, before depreciation, amortization and gain on disposal of assets, primarily reflects national sales representative commissions on anticipated political revenue. For the full fiscal year ended December 31, 2008, broadcast operating expenses (before depreciation, amortization and loss on disposal of assets) are currently anticipated to increase approximately 1% compared to the full fiscal year ended December 31, 2007 results. This annual increase primarily reflects national sales representative commissions on anticipated political revenue and severance costs relating to staff reductions at certain television stations.

Changes in the classification of certain items:

The classification of certain prior year amounts in the accompanying consolidated financial statements have been changed in order to conform to the current year presentation.

In our previous disclosures, we had included internet advertising revenue with local advertising revenue and retransmission consent revenue was included with production and other revenue. We are now presenting internet advertising revenue and retransmission consent revenue separately. The table below presents our expanded disclosure for the three months and six months ended June 30, 2008 and 2007, respectively (dollars in thousands):

                                           Three Months Ended June 30,                                        2008                 2007                                            Percent              Percent                                   Amount   of Total    Amount   of Total   Broadcasting net revenues:   Local                          $49,495     62.9%    $52,009     65.2%   National                        18,479     23.4%     19,862     24.9%   Internet                         3,048      3.9%      2,267      2.9%   Political                        4,951      6.3%      2,634      3.3%   Retransmission consent             801      1.0%        488      0.6%   Production and other             1,763      2.2%      2,294      2.9%   Network compensation               206      0.3%        196      0.2%     Total                        $78,743    100.0%    $79,750    100.0%                                             Six Months Ended June 30,                                        2008                 2007                                            Percent              Percent                                  Amount    of Total    Amount   of Total    Broadcasting net revenues:   Local                          $95,214     63.6%    $98,706     66.1%   National                        34,816     23.2%     36,955     24.7%   Internet                         5,677      3.8%      4,325      2.9%   Political                        8,024      5.4%      3,731      2.5%   Retransmission consent           1,447      1.0%        942      0.6%   Production and other             4,184      2.8%      4,388      2.9%   Network compensation               380      0.2%        384      0.3%     Total                       $149,742    100.0%   $149,431    100.0%    

The aggregate internet revenues presented above are derived from two sources: (i) direct internet revenue and (ii) internet related commercial time sales.

Conference Call Information

We will host a conference call to discuss our second quarter operating results on August 7, 2008. The call will begin at 11:00 AM Eastern Time. The live dial-in number is 1 (888) 663-2258 and the confirmation code is 3464127. The call will be webcast live and available for replay at www.gray.tv . The taped replay of the conference call will be available at 1 (888) 203-1112, Confirmation Code: 3464127 until September 6, 2008.

   Reconciliations:   Reconciliation of net income (loss) to the non-GAAP terms (in thousands):                                                          As Reported                                                   Three Months Ended                                                        June 30,                                                  2008          2007   Net income (loss)                            $3,215        $(9,942)    Adjustments to reconcile to Broadcast     Cash Flow Less Cash Corporate Expenses:      Depreciation and amortization of       intangible assets                         8,907         10,117      Amortization of non-cash stock based       compensation                                395            310       (Gain) loss on disposals of assets,       net                                         (84)           119      Miscellaneous (income) expense, net          (63)          (449)      Interest expense                          13,402         16,525      Loss on early extinguishment of debt           -         16,361      Income tax expense (benefit)               2,184         (5,613)      Amortization of program broadcast       rights                                    3,821          3,803      Common stock contributed to 401(k)       plan excluding corporate 401(k)         contributions                             641            582      Network compensation revenue       recognized                                 (206)          (196)      Network compensation per network       affiliation agreement                        30             78      Payments for program broadcast rights     (2,666)        (3,882)   Broadcast Cash Flow Less Cash Corporate    Expenses                                    29,576         27,813       Corporate and administrative expenses        excluding amortization of non-cash        stock-based compensation                 2,327          3,274   Broadcast Cash Flow                         $31,903        $31,087                                                         As Reported                                                   Six Months Ended                                                        June 30,                                                  2008           2007   Net income (loss)                             $(635)      $(20,456)     Adjustments to reconcile to Broadcast      Cash Flow Less       Cash Corporate Expenses:       Depreciation and amortization of        intangible assets                       17,991         19,892       Amortization of non-cash stock based        compensation                               689            830       (Gain) loss on disposals of assets,        net                                     (1,005)           116       Miscellaneous (income) expense, net         (90)          (807)       Interest expense                         29,201         33,797       Loss on early extinguishment of debt          -         22,853       Income tax expense (benefit)               (457)       (11,475)       Amortization of program broadcast        rights                                   7,672          7,596       Common stock contributed to 401(k)        plan excluding corporate 401(k)        contributions                            1,267          1,200       Network compensation revenue        recognized                                (380)          (385)       Network compensation per network        affiliation agreement                       60            157       Payments for program broadcast rights    (6,441)        (7,687)   Broadcast Cash Flow Less Cash    Corporate Expenses                          47,872         45,631       Corporate and administrative expenses        excluding amortization of non-cash        stock-based compensation                 5,572           6,815   Broadcast Cash Flow                         $53,444         $52,446      Non-GAAP Terms  

This press release includes the non-GAAP financial measure of Broadcast Cash Flow and Broadcast Cash Flow Less Cash Corporate Expenses. These non- GAAP amounts are used by us to approximate the amount used to calculate a key financial performance covenant as defined in our senior credit facility. Broadcast Cash Flow is defined as operating income, plus corporate expense, depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and (gain) loss on disposal of assets and cash payments received or receivable under network affiliation agreements, less payments for program broadcast obligations, less network compensation revenue and less income (loss) from discontinued operations, net of income taxes. Corporate expenses (excluding depreciation, amortization and non-cash stock- based compensation) are deducted from Broadcast Cash Flow to calculate "Broadcast Cash Flow Less Cash Corporate Expenses." These non-GAAP terms are used in addition to and in conjunction with results presented in accordance with GAAP and should be considered as supplements to, and not as substitutes for, net loss calculated in accordance with GAAP.

Gray Television, Inc.

Gray Television, Inc. is a television broadcast company headquartered in Atlanta, GA. We currently operate 36 television stations serving 30 markets. Each of the stations are affiliated with either CBS (17 stations), NBC (10 stations), ABC (8 stations) or FOX (1 station). In addition, we currently operate 40 digital second channels including 1 ABC, 5 Fox, 8 CW and 16 MyNetworkTV affiliates plus 8 local news/weather channels and 2 "independent" channels in certain of our existing markets.

Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act

The comments on our current expectations of operating results for the third quarter of 2008 and other future events are "forward-looking statements" for purposes of the Private Securities Litigation Reform Act of 1995. Actual results of operations are subject to a number of risks and uncertainties and may differ materially from the current expectations discussed in this press release. All information set forth in this release and its attachments is as of August 7, 2008. We do not intend, and undertake no duty, to update this information to reflect future events or circumstances. Information about potential factors that could affect our business and financial results and cause actual results to differ materially from those in the forward-looking statements are included under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2007 which is on file with the SEC and available at the SEC's website at www.sec.gov.

FCMN Contact: dottie@gray.tv

Source: Gray Television, Inc.

CONTACT: Bob Prather, President and Chief Operating Officer,
+1-404-266-8333, or Jim Ryan Senior V.P. and Chief Financial Officer,
+1-404-504-9828, both of Gray Television, Inc.

Web site: http://www.gray.tv/

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