Gray Reports Operating Results for the Three Months and Nine Months Ended September 30, 2008

Gray Reports Operating Results for the Three Months and Nine Months Ended September 30, 2008

ATLANTA, Nov. 5 /PRNewswire-FirstCall/ -- Gray Television, Inc. ("Gray," "we" or "us") (NYSE:GTN) today announced results from operations for the three months (the "third quarter") and nine months ended September 30, 2008 as compared to the three months and nine months ended September 30, 2007.

Comments on Results of Operations for the Three Months Ended September 30, 2008:

Revenues.

Total net revenue increased $9.0 million, or 12%, to $82.6 million due primarily to increased political and internet advertising revenue, partially offset by decreased local and national advertising revenue in the third quarter of 2008. The increase in political advertising revenue reflects increased advertising from political candidates in the 2008 general elections. Spending on political advertising during the third quarter of 2008 was the strongest at our stations in Colorado, West Virginia, Wisconsin, Michigan and North Carolina, accounting for approximately 67% of the total political net revenue for the third quarter of 2008. 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 the general weakness in the economy offset in part by $3.4 million of net revenue earned in the third quarter attributable to the broadcast of the 2008 Summer Olympics on our ten NBC stations.

Political advertising revenue increased $11.6 million, or 801%, to $13.1 million.

Internet advertising revenue increased $0.4 million, or 18%, to $3.0 million.

Local advertising revenue decreased $1.5 million, or 3%, to $46.3 million.

National advertising revenue decreased $1.7 million, or 9%, to $17.5 million.

Operating expenses.

Broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $0.3 million, or 1%, to $49.9 million. This modest increase primarily reflects the impact of increased national sales representative commissions on the incremental political advertising revenues offset in part by a slight reduction in payroll related costs.

Corporate and administrative expenses (before depreciation, amortization and gain/loss on disposal of assets) decreased $0.2 million, or 5%, to $3.8 million primarily reflecting a decrease in incentive based compensation expenses.

We recorded non-cash stock-based compensation expense during the three months ended September 30, 2008 and 2007 of $399,000 and $285,000, respectively.

Comments on Results of Operations for the Nine Months Ended September 30, 2008:

Revenues.

Total net revenue increased $9.4 million, or 4%, to $232.4 million due primarily to increased political and internet advertising revenue, partially offset by decreased local and national advertising revenue in the nine months ended September 30, 2008. The increase in political advertising revenue reflects increased advertising from political candidates in the 2008 primary and general elections. Spending on political advertising was the strongest at our stations in Colorado, West Virginia, Wisconsin, Michigan and North Carolina, accounting for approximately 60% of the total political net revenue for the nine months ended September 30, 2008. 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 the general weakness in the economy and due to the change in networks broadcasting the Super Bowl. During the first nine 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 approximately $750,000 of net revenue relating to the 2007 Super Bowl broadcast on our 17 CBS channels during the first nine months of 2007. The decrease in local and national revenue was offset in part by $3.4 million of net revenue earned in the third quarter attributable to the broadcast of the 2008 Summer Olympics on our ten NBC stations.

Political advertising revenue increased $15.9 million, or 307%, to $21.1 million.

Internet advertising revenue increased $1.8 million, or 26%, to $8.6 million.

Local advertising revenue decreased $5.0 million, or 3%, to $141.5 million.

National advertising revenue decreased $3.8 million, or 7%, to $52.4 million.

Operating expenses.

Broadcast expenses (before depreciation, amortization and gain/loss on disposal of assets) increased $0.9 million, or 1%, to $148.4 million. This modest increase primarily reflects the impact of increased national sales representative commissions on the incremental political advertising revenues.

Corporate and administrative expenses (before depreciation, amortization and loss on disposal of assets) decreased $1.6 million, or 13%, to $10.0 million primarily reflecting a decrease in incentive based compensation expenses.

We recorded non-cash stock-based compensation expense during the nine months ended September 30, 2008 and 2007 of $1,088,000 and $1,115,000, 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-month and nine-month periods ended September 30, 2008 compared to the three-month and nine-month periods ended September 30, 2007.

                     Gray Websites - Aggregate Page Views                                                         Three Months Ended                                                          September 30,                                                                        %                                                       2008    2007   Change                                                       (in millions)   Total Aggregate Page Views (including video    plays and cell phone page views)                  149.3   101.2     48%                                                          Nine Months Ended                                                          September 30,                                                                        %                                                       2008    2007   Change                                                       (in millions)   Total Aggregate Page Views (including video    plays and cell phone page views)                  461.8   304.8     52%    

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:                                                September 30,     December 31,                                                   2008              2007                                                       (in thousands)    Cash and cash equivalents                      $32,575           $15,338   Total debt                                     830,446           925,000   Preferred stock                                 91,883                 -   Credit commitment under senior credit    facility                                      100,000           100,000                                                 Nine Months Ended September 30,                                                   2008              2007                                                       (in thousands)    Net cash provided by operating activities      $36,692           $11,919   Net cash used in investing activities          (12,144)          (22,575)   Net cash (used in) provided by    financing activities                           (7,311)            7,148    

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 under our senior credit facility. We retained the remaining $3.6 million of the net proceeds for general corporate purposes.

On July 15, 2008, we issued an additional 250 shares of Series D Perpetual 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 under our senior credit facility.

Subsequent Event:

On October 3, 2008, we used cash on hand to make a voluntary prepayment of $10 million on our term loan under our senior credit facility. After applying this voluntary prepayment, the total outstanding balance on our term loan was $820.4 million and we had no amounts outstanding on our revolving credit facility under our senior credit facility.

                             Gray Television, Inc.                      Selected Operating Data (Unaudited)            (in thousands except for per share data and percentages)                                                      Three Months Ended                                                        September 30,                                                                        %                                                  2008        2007    Change    Revenues (less agency commissions)           $82,631     $73,585      12%   Operating expenses before depreciation,    amortization and gain on disposal of    assets, net:     Broadcast                                   49,907      49,583       1%     Corporate and administrative                 3,754       3,932      (5)%   Depreciation and amortization of    intangible assets                             8,797      10,156     (13)%   (Gain) loss on disposals of assets, net         (338)          5   (6860)%                                                 62,120      63,676      (2)%   Operating income                              20,511       9,909     107%   Other income (expense):     Miscellaneous income, net                       36         177     (80)%     Interest expense                           (12,626)    (16,812)    (25)%   Income (loss) before income tax                7,921      (6,726)   Income tax expense (benefit)                   3,277      (2,546)   Net income (loss)                              4,644      (4,180)   Preferred dividends (includes    accretion of issuance cost of $275 and    $0, respectively)                             3,167           -   Net income (loss) available to common    stockholders                                 $1,477     $(4,180)    Basic per share information:     Net income (loss) available to common      stockholders                                $0.03      $(0.09)     Weighted average shares outstanding         48,370      47,760       1%    Diluted per share information:     Net income (loss) available to common      stockholders                                $0.03      $(0.09)     Weighted average shares outstanding         48,413      47,760       1%    Political revenue (less agency commission)   $13,065      $1,450     801%                                Gray Television, Inc.                      Selected Operating Data (Unaudited)            (in thousands except for per share data and percentages)                                                     Nine Months Ended                                                      September 30,                                                                        %                                                  2008        2007    Change    Revenues (less agency commissions)          $232,373    $223,015       4%   Operating expenses before depreciation,    amortization and gain on disposal of    assets, net:     Broadcast                                  148,383     147,449       1%     Corporate and administrative                10,015      11,577     (13)%   Depreciation and amortization of    intangible assets                            26,788      30,048     (11)%   (Gain) loss on disposals of assets, net       (1,343)        122   (1201)%                                                183,843     189,196      (3)%   Operating income                              48,530      33,819      43%   Other income (expense):     Miscellaneous income, net                      126         984     (87)%     Interest expense                           (41,827)    (50,610)    (17)%     Loss on early extinguishment of debt             -     (22,853)   Income (loss) before income tax benefit        6,829     (38,660)   Income tax expense (benefit)                   2,820     (14,021)   Net income (loss)                              4,009     (24,639)   Preferred dividends (includes accretion    of issuance   cost of $275 and $439, respectively)           3,292       1,626     102%   Net income (loss) available to common    stockholders                                   $717    $(26,265)    Basic per share information:     Net income (loss) available to common      stockholders                                $0.01     $(0.55)     Weighted average shares outstanding         48,253      47,728       1%    Diluted per share information:     Net income (loss) available to common      stockholders                                $0.01     $(0.55)     Weighted average shares outstanding         48,293      47,728       1%    Political revenue (less agency commission)   $21,089      $5,181     307%     Guidance for the Fourth Quarter of 2008  

We currently anticipate that our broadcast results of operations for the three months ending December 31, 2008 (the "fourth quarter of 2008") will approximate the ranges presented in the table below.

                                           %                  %                               2008      Change    2008     Change                             Guidance     From    Guidance   From                               Low       Actual    High     Actual   Actual   Selected Operating Data:    Range      2007     Range     2007     2007                                        (dollars in thousands)   OPERATING REVENUES:     Revenues (less      agency commissions)     $90,000        7%   $95,000      13%   $84,272    OPERATING EXPENSES:   (before depreciation,    amortization    and other expenses)     Broadcast                $51,500      (1)%   $52,000       0%   $52,238     Corporate and      administrative           $3,000     (15)%    $3,500       0%    $3,513    OTHER SELECTED DATA:     Broadcast political      revenues (less      agency commissions)     $26,000             $26,500             $2,627      Expense for non-cash      contributions to      401(k) plan                $550                $600               $411      Expense for corporate      non-cash stock-based      compensation               $375                $400               $134     Comments on Guidance  

Total revenues anticipated for the fourth quarter of 2008 reflect an incremental increase in political revenues. Local non-political advertising revenue for the fourth quarter of 2008 is currently anticipated to be down approximately mid double digits compared to the results of the three-month period ended December 31, 2007 (the "fourth quarter of 2007"). National non- political advertising revenue is currently anticipated to be down approximately 25% in the fourth quarter of 2008 compared to the fourth quarter of 2007. Internet advertising revenue for the fourth quarter of 2008 is currently anticipated to increase approximately 10% to 15% compared to the fourth quarter of 2007.

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 disclosures issued prior to December 31, 2007, 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- month and nine month periods ended September 30, 2008 and 2007, respectively (dollars in thousands):

                                         Three Months Ended September 30,                                          2008                   2007                                             Percent                Percent                                    Amount   of Total      Amount   of Total   Broadcasting net revenues:     Local                         $46,279      56.0%     $47,761      64.9%     National                       17,546      21.2%      19,237      26.1%     Internet                        2,954       3.6%       2,505       3.4%     Political                      13,065      15.8%       1,450       2.0%     Retransmission consent            762       0.9%         501       0.7%     Production and other            1,841       2.2%       1,951       2.7%     Network compensation              184       0.3%         180       0.2%       Total                       $82,631     100.0%     $73,585     100.0%                                           Nine Months Ended September 30,                                          2008                   2007                                             Percent                Percent                                    Amount   of Total      Amount   of Total   Broadcasting net revenues:     Local                        $141,493      60.9%    $146,467      65.7%     National                       52,362      22.5%      56,192      25.2%     Internet                        8,631       3.7%       6,830       3.1%     Political                      21,089       9.1%       5,181       2.3%     Retransmission consent          2,209       1.0%       1,443       0.6%     Production and other            6,025       2.6%       6,338       2.8%     Network compensation              564       0.2%         564       0.3%       Total                      $232,373     100.0%    $223,015     100.0%    

The aggregate internet revenue 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 third quarter operating results on November 5, 2008. The call will begin at 11:00 AM Eastern Time. The live dial-in number is 1 (800) 533-7619 and the confirmation code is 8072046. 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: 8072046 until December 4, 2008.

   Reconciliations:   Reconciliation of net income (loss) to the non-GAAP terms (in thousands):                                                              As Reported                                                          Three Months Ended                                                             September 30,                                                            2008        2007    Net income (loss)                                      $4,644     $(4,180)     Adjustments to reconcile to Broadcast Cash Flow      Less Cash Corporate Expenses:         Depreciation and amortization of intangible          assets                                           8,797      10,156         Amortization of non-cash stock based          compensation                                       399         285         (Gain) loss on disposals of assets, net            (338)          5         Miscellaneous (income) expense, net                 (36)       (177)         Interest expense                                 12,626      16,812         Income tax expense (benefit)                      3,277      (2,546)         Amortization of program broadcast rights          3,926       3,750         Common stock contributed to 401(k) plan          excluding corporate 401(k) contributions           553         550         Network compensation revenue recognized            (184)       (180)         Network compensation per network affiliation          agreement                                           30          78         Payments for program broadcast rights            (3,708)     (3,821)   Broadcast Cash Flow Less Cash Corporate Expenses       29,986      20,732         Corporate and administrative expenses          excluding amortization of non-cash          stock-based compensation                         3,355       3,647   Broadcast Cash Flow                                   $33,341     $24,379                                                               As Reported                                                           Nine Months Ended                                                             September 30,                                                            2008        2007    Net income (loss)                                      $4,009    $(24,639)     Adjustments to reconcile to Broadcast Cash Flow      Less Cash Corporate Expenses:         Depreciation and amortization of intangible          assets                                          26,788      30,048         Amortization of non-cash stock based          compensation                                     1,088       1,115         (Gain) loss on disposals of assets, net          (1,343)        122         Miscellaneous (income) expense, net                (126)       (984)         Interest expense                                 41,827      50,610         Loss on early extinguishment of debt                  -      22,853         Income tax expense (benefit)                      2,820     (14,021)         Amortization of program broadcast rights         11,598      11,345         Common stock contributed to 401(k) plan          excluding corporate 401(k) contributions         1,751       1,750         Network compensation revenue recognized            (564)       (564)         Network compensation per network affiliation          agreement                                           90         235         Payments for program broadcast rights           (10,149)    (11,507)   Broadcast Cash Flow Less Cash Corporate Expenses       77,789      66,363         Corporate and administrative expenses          excluding amortization of non-cash          stock-based compensation                         8,927      10,462   Broadcast Cash Flow                                   $86,716     $76,825     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 39 digital second channels including 1 ABC, 5 Fox, 7 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 fourth 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 November 5, 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.

First Call Analyst:
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

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

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Profile: International Entertainment