Gray Reports Operating Results, Including Record Revenue, For the Three-Month and Six-Month Periods Ended June 30, 2012

Gray Reports Operating Results, Including Record Revenue, For the Three-Month and Six-Month Periods Ended June 30, 2012

ATLANTA, Aug. 3, 2012 /PRNewswire/ -- Gray Television, Inc. ("Gray," "we," "us" or "our") (NYSE: GTN and GTN.A) today announced results from operations for the three-month period (the "second quarter of 2012") and six-month period ended June 30, 2012 as compared to the three-month period (the "second quarter of 2011") and six-month period ended June 30, 2011.

Highlights:

Our revenue for the second quarter of 2012 was the highest revenue Gray has reported for a second quarter. For the second quarters of 2012 and 2011, our revenue, broadcast expense and corporate and administrative expense were as follows:






Three Months Ended June 30,
---------------------------
2012 2011
% Change
--------
(in thousands except for
percentages)

Revenue (less agency commissions) $94,691 $76,201 24 %

Operating expenses (before
depreciation,
amortization and gain on disposal
of assets):
Broadcast $52,829 $47,930 10 %
Corporate and administrative $3,629 $3,402 7 %


We are pleased with our operating results for the second quarter of 2012. Our period over period increase in revenue for the second quarter was primarily due to increases in political advertising revenue and retransmission consent revenue. In addition, our local advertising, national advertising, internet advertising and other revenue also increased.

Our period over period increase in broadcast and corporate and administrative expenses (excluding depreciation, amortization and gain on disposal of assets) reflects increases in compensation, programing costs and national sales commissions.

Comments on Results of Operations for the Three-Month Period Ended June 30, 2012:

Revenue.

Our total revenue for the second quarter of 2012 was the highest revenue Gray has reported for a second quarter. Total revenue increased $18.5 million, or 24%, to $94.7 million for the second quarter of 2012 compared to the second quarter of 2011 due primarily to increased political advertising, retransmission consent, local advertising, national advertising, internet advertising, and other revenue. Political advertising revenue increased due to increased advertising from political candidates and special interest groups in the "on year" of the two-year election cycle. Our political advertising revenue also increased due to additional advertising related to a special election to recall the Governor of Wisconsin, where we own three television stations. Retransmission consent revenue increased primarily due to improved terms in our retransmission contracts. A significant portion of our retransmission consent contracts expired on December 31, 2011 and we were able to renew substantially all of these contracts under terms more favorable to Gray, which resulted in increased revenue in the second quarter of 2012 compared to the second quarter of 2011. Local, national and internet advertising revenue increased due to our increased spending by advertisers in a gradually improving economic environment. Other revenue increased due to receipt of certain cable copyright royalty payments during the second quarter of 2012. If any similar copyright royalty payments are received in future periods, they are likely to recur in lower amounts. We also continued to earn consulting revenue under our agreement with Young Broadcasting, Inc. ("Young"). This agreement expires on December 31, 2012.

The principal components of our revenue for the second quarter of 2012 compared to the second quarter of 2011 were as follows:



<blockquote>
Local advertising revenue increased $0.6 million, or 1%, to $48.4 million.

National advertising revenue increased $0.9 million, or 7%, to $14.3 million.

Internet advertising revenue increased $1.5 million, or 31%, to $6.4 million.

Political advertising revenue increased $10.8 million, or 467%, to $13.1 million.

Retransmission consent revenue increased $3.2 million, or 64%, to $8.3 million.

Other revenue increased $1.4 million, or 65%, to $3.6 million.

Consulting revenue from our agreement with Young remained at $0.6 million in the second quarter of 2012.


</blockquote>
Our five largest nonpolitical advertising categories on a combined local and national basis by customer type for the second quarter of 2012 demonstrated the following changes in revenue during the second quarter of 2012 compared to the second quarter of 2011: automotive increased 20%; medical increased 8%; restaurant decreased 5%; communications increased 2%; and furniture and appliances increased 3%.

Operating expenses.

Broadcast expenses (before depreciation, amortization and gain on disposal of assets) increased $4.9 million, or 10%, to $52.8 million for the second quarter of 2012 compared to the second quarter of 2011. This increase was due primarily to increases in compensation expense of $3.2 million and non-compensation expense of $1.7 million. Compensation expense increased primarily due to increases in salaries, incentive compensation, pension expenses and healthcare expenses. Non-compensation expense increased primarily due to an increase in programing costs and national sales commissions. As of June 30, 2012 and 2011, we employed 2,070 and 2,087 total employees, respectively, in our broadcast operations.

Corporate and administrative expenses (before depreciation, amortization and gain on disposal of assets) increased $0.2 million, or 7%, to $3.6 million. The increase was due primarily to increases in compensation expense of $0.3 million partially offset by a decrease in non-compensation expense of $0.1 million. Compensation expense increased primarily due to increases in salaries, incentive compensation and stock-based compensation expense. We recorded non-cash stock-based compensation expense during the second quarter of 2012 and the second quarter of 2011 of $140,000 and $34,000, respectively. Non-cash stock-based compensation expense increased due to the grant of additional equity incentive awards during the second quarter of 2012.

Comments on Results of Operations for the Six-Month Period Ended June 30, 2012:

Revenue.

Our total revenue for the first six months of 2012 was the highest revenue Gray has reported for the first half of a year. Total revenue increased $29.4 million, or 20%, to $175.4 million for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 due primarily to increased political advertising, retransmission consent, local advertising, national advertising, internet advertising, and other revenue. Political advertising revenue reflected increased advertising from political candidates and special interest groups during the "on year" of the two-year political advertising cycle. Our political advertising revenue also increased due to additional advertising related to a special election to recall the Governor of Wisconsin, where we have three television stations. Local, national and internet advertising revenue increased due to increased spending by advertisers in a gradually improving economic environment. In addition, local and national net advertising revenue was positively influenced by the broadcast of the 2012 Super Bowl on our ten primary NBC channels, earning us approximately $0.8 million, an increase of approximately $0.6 million compared to the broadcast of the 2011 Super Bowl on our one primary FOX-affiliated channel and four secondary digital FOX-affiliated channels, which earned us approximately $0.2 million.

Retransmission consent revenue increased primarily due to improved terms in our retransmission contracts. A significant portion of our retransmission consent contracts expired on December 31, 2011 and we were able to renew substantially all of these contracts under terms more favorable to Gray, which resulted in increased revenue in the six months ended June 30, 2012 compared to the six months ended June 30, 2011. Other revenue increased due to our receipt of a cable copyright royalty distribution during 2012 period. If any similar copyright royalty payments are received in future periods, they are likely to recur in lower amounts. We continued to earn consulting revenue under our agreement with Young in the six-month period ended June 30, 2012.

The principal components of our revenue for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 were as follows:



<blockquote>
Local advertising revenue increased $2.7 million, or 3%, to $94.3 million.

National advertising revenue increased $0.9 million, or 3%, to $27.3 million.

Internet advertising revenue increased $2.9 million, or 32%, to $12.1 million.

Political advertising revenue increased $14.4 million, or 390%, to $18.1 million.

Retransmission consent revenue increased $6.7 million, or 66%, to $16.8 million.

Other revenue increased $1.5 million, or 38%, to $5.5 million.

Consulting revenue from our agreement with Young was $1.3 million in the six-month period ended June 30, 2012.


</blockquote>
Our five largest nonpolitical advertising categories on a combined local and national basis by customer type for the six-month period ended June 30, 2012 demonstrated the following changes in revenue during the six-month period ended June 30, 2012 compared to the six-month period ended June 30, 2011: automotive increased 14%; medical increased 11%; restaurant increased 1%; communications increased 9%; and furniture and appliances increased 4%.

Operating expenses.

Broadcast expenses (before depreciation, amortization and gain on disposal of assets) increased $7.5 million, or 8%, to $103.6 million for the six-month period ended June 30, 2012 compared to the six-month period ended June 30, 2011. This increase was due primarily to increases in compensation expense of $3.9 million and non-compensation expense of $3.5 million. Compensation expense increased primarily due to increases in salaries, incentive compensation and pension expenses. Non-compensation expense increased primarily due to an increase in programing costs, other professional services and national sales commissions.

Corporate and administrative expenses (before depreciation, amortization and gain on disposal of assets) increased $0.3 million, or 5%, to $6.7 million. The increase was due primarily to an increase in compensation expense of $0.5 million, partially offset by a decrease in non-compensation expense of $0.2 million. Compensation expense increased primarily due to increases in salaries, incentive compensation and stock-based compensation expense. We recorded non-cash stock-based compensation expense during the six-month periods ended June 30, 2012 and 2011 of $154,000 and $68,000, respectively. Non-cash stock-based compensation expense increased due to the grant of additional equity incentive awards during the six-month period ended June 30, 2012.

Detailed table of operating results:


Gray Television, Inc.
Selected Operating Data (Unaudited)
(in thousands except for net income per share data)

Three Months Ended
June 30,
--------

2012 2011
---- ----

Revenue (less agency
commissions) $94,691 $76,201
Operating expenses
before depreciation,
amortization and gain
on disposal of
assets, net:
Broadcast 52,829 47,930
Corporate and
administrative 3,629 3,402
Depreciation 5,716 6,638
Amortization of
intangible assets 18 34
Gain on disposals of
assets, net (547) (831)
61,645 57,173
------ ------
Operating income 33,046 19,028
Other income
(expense):
Miscellaneous income,
net - 3
Interest expense (15,126) (15,343)
------- -------
Income before income
tax 17,920 3,688
Income tax expense 6,926 1,129
----- -----
Net income 10,994 2,559
Preferred stock
dividends (includes
accretion of
issuance cost of $77
and $118,
respectively) 1,179 1,788
Net income
attributable to
common stockholders $9,815 $771
====== ====

Basic per share
information:
Net income
attributable to
common stockholders $0.17 $0.01
===== =====
Weighted-average
shares outstanding 57,151 57,115
====== ======

Diluted per share
information:
Net income
attributable to
common stockholders $0.17 $0.01
===== =====
Weighted-average
shares outstanding 57,190 57,116
====== ======

Political advertising
revenue (less agency
commissions) $13,138 $2,316








Gray Television, Inc.
Selected Operating Data (Unaudited)
(in thousands except for net income per share data)

Six Months Ended
June 30,
--------

2012 2011
---- ----

Revenue (less
agency
commissions) $175,365 $145,943
Operating expenses
before
depreciation,
amortization and
gain on disposal
of assets, net:
Broadcast 103,601 96,109
Corporate and
administrative 6,735 6,440
Depreciation 11,607 13,636
Amortization of
intangible assets 37 68
Gain on disposals
of assets, net (482) (844)
121,498 115,409
------- -------
Operating income 53,867 30,534
Other income
(expense):
Miscellaneous
income, net 2 3
Interest expense (30,289) (31,343)
------- -------
Income (loss)
before income tax
expense (benefit) 23,580 (806)
Income tax expense
(benefit) 9,215 (282)
----- ----
Net income (loss) 14,365 (524)
Preferred stock
dividends
(includes
accretion of
issuance cost of
$154 and $236,
respectively) 2,358 3,577
Net income (loss)
attributable to
common
stockholders $12,007 $(4,101)
======= =======

Basic per share
information:
Net income (loss)
attributable to
common
stockholders $0.21 $(0.07)
===== ======
Weighted-average
shares outstanding 57,149 57,113
====== ======

Diluted per share
information:
Net income (loss)
attributable to
common
stockholders $0.21 $(0.07)
===== ======
Weighted-average
shares outstanding 57,169 57,113
====== ======

Political
advertising
revenue (less
agency
commissions) $18,097 $3,697



Other Financial Data:

June 30, 2012 December 31, 2011
------------- -----------------
(in thousands)

Cash $28,041 $5,190
Long-term debt,
including current
portion $821,498 $832,233
Preferred stock
(1) $24,996 $24,841
Borrowing
availability
under our senior
credit facility $40,000 $31,000

Six Months Ended June 30,
2012 2011
---- ----
(in thousands)

Net cash provided
by operating
activities $45,107 $17,262
Net cash used in
investing
activities (10,845) (16,199)
Net cash used in
financing
activities (11,411) (3,037)
Net increase
(decrease) in
cash $22,851 $(1,974)
======= =======



(1) As of June 30, 2012, preferred stock does not include unaccreted original issuance costs and accrued preferred stock dividends of $0.9 million and $15.9 million, respectively. As of December 31, 2011, preferred stock does not include unaccreted original issuance costs and accrued preferred stock dividends of $1.1 million and $13.7 million, respectively.

Internet Initiatives:

We continue to focus on expanding local content on our websites to drive increased traffic. Our website page view data for the three-month and six-month periods ended June 30, 2012 compared to the three-month and six-month periods ended June 30, 2011 is as follows:

Gray Websites - Data

Three Months Ended June 30,
---------------------------
2012 2011 % Change
---- ---- --------
(in millions, except percentages)

Advertising
impressions
generated 1,077.4 878.6 23 %
Total
page
views
(including
mobile
page
views) 383.9 267.0 44 %

Six Months Ended June 30,
-------------------------
2012 2011 % Change
---- ---- --------
(in millions, except percentages)

Advertising
impressions
generated 2,108.9 1,671.2 26 %
Total
page
views
(including
mobile
page
views) 763.8 537.7 42 %

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

Our aggregate internet revenues 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 revenue 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."

Guidance for the Third Quarter of 2012



We currently anticipate that our results of operations for the three-month period ending September 30, 2012 (the "third quarter of 2012") will approximate the ranges presented in the table below. Based on our estimates, we believe our third quarter 2012 revenue will set a new third quarter record for Gray.

Low End % Change High End % Change
Guidance From Guidance
for From Actual
for Actual the Third Actual
Third Quarter of Third
Quarter Quarter
of of Third
the Third
Quarter of Quarter of
Selected
operating
data: 2012 2011 2012 2011 2011
--------- ---- ---- ---- ---- ----
(dollars in thousands)
OPERATING
REVENUE:
Revenue
(less
agency
commissions) $98,000 28 % $100,000 31 % $76,518

OPERATING
EXPENSES
(before
depreciation,
amortization
and gain on
disposals of
assets):
Broadcast $52,650 8 % $53,250 9 % $48,678
Corporate
and
administrative $3,900 (5)% $4,100 0 % $4,089

OTHER SELECTED
DATA:
Political
advertising
revenue (less
agency
commissions)
$20,000 281 % $21,000 301 % $5,243



Comments on Guidance:

Revenue.

Based on our current forecasts, we believe that our third quarter of 2012 local revenue, excluding political advertising revenue, will increase from the three-month period ended September 30, 2011 (the "third quarter of 2011") by approximately 6% to 8%. We currently believe our third quarter of 2012 national revenue, excluding political advertising revenue, will increase from the third quarter of 2011 by approximately 6% to 7%.

We anticipate our third quarter of 2012 internet revenue, excluding political advertising revenue, will increase from the third quarter of 2011 by approximately 17% to 18%.

We anticipate our third quarter of 2012 retransmission consent revenue will increase from the third quarter of 2011 by approximately 62% to approximately $8.4 million.

We estimate our base consulting revenue will be $0.6 million for the third quarter of 2012. We do not anticipate recording any incentive consulting revenue in the third quarter of 2012.

Broadcast Operating Expense (before depreciation, amortization and gain on disposal of assets).

The anticipated increase in broadcast operating expense for the third quarter 2012 compared to the third quarter of 2011 is due primarily to anticipated increases in compensation expense, programming expense and national sales commission expense.

Revenue (less agency commissions) by Category:

The table below presents our net revenue (less agency commissions) or "net revenue" by type for the three-month and six-month periods ended June 30, 2012 and 2011, respectively (dollars in thousands):

Three Months Ended June 30,
---------------------------
2012 2011
---- ----
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
Revenue (less agency commissions):
Local $48,417 51.1% $47,785 62.7%
National 14,321 15.1% 13,428 17.6%
Internet 6,359 6.7% 4,865 6.4%
Political 13,138 13.9% 2,316 3.0%
Retransmission consent 8,279 8.7% 5,055 6.6%
Other 3,627 3.8% 2,202 3.0%
Consulting 550 0.7% 550 0.7%
Total $94,691 100.0% $76,201 100.0%
======= ===== ======= =====



Six Months Ended June 30,
-------------------------
2012 2011
---- ----
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
Revenue (less agency commissions):
Local $94,292 53.8% $91,550 62.7%
National 27,327 15.6% 26,403 18.1%
Internet 12,051 6.9% 9,112 6.2%
Political 18,097 10.3% 3,697 2.5%
Retransmission consent 16,757 9.6% 10,102 6.9%
Other 5,496 3.1% 3,979 2.8%
Consulting 1,345 0.7% 1,100 0.8%
Total $175,365 100.0% $145,943 100.0%
======== ===== ======== =====

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



Non-GAAP Terms

From time to time, Gray supplements its financial results prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") by disclosing the non-GAAP financial measures 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 contained in our senior credit facility. Broadcast Cash Flow is defined as net income (loss) plus corporate and administrative expense, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast obligations and network compensation revenue and network payments. Corporate and administrative 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 not defined in GAAP and our definitions may differ from, and therefore not be comparable to, similarly titled measures used by other companies, thereby limiting their usefulness. Such terms are used by management 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 income (loss) and cash flows reported in accordance with GAAP.

Reconciliations:

Reconciliation of net income (loss) to the non-GAAP terms (dollars in thousands):

As Reported
Three Months Ended June 30,
---------------------------
2012 2011 % Change
---- ---- --------
Net income $10,994 $2,559
Adjustments to reconcile
from net income to
Broadcast Cash Flow Less
Cash Corporate Expenses:
Depreciation 5,716 6,638
Amortization of
intangible assets 18 34
Non-cash stock based
compensation 140 34
Gain on disposals of
assets, net (547) (831)
Miscellaneous (income)
expense, net - (3)
Interest expense 15,126 15,343
Income tax expense 6,926 1,129
Amortization of program
broadcast rights 2,719 3,581
Common stock contributed
to 401(k) plan
excluding corporate
401(k) contributions 5 8
Network compensation
revenue recognized (156) (173)
Network compensation per
network affiliation
agreement - (60)
Payments for program
broadcast rights (2,801) (4,944)
------ ------
Broadcast Cash Flow Less
Cash Corporate Expenses 38,140 23,315 64 %
Corporate and
administrative expenses
excluding
depreciation,
amortization of
intangible assets and
non-cash stock-based
compensation 3,489 3,368
Broadcast Cash Flow $41,629 $26,683 56 %
======= =======



As Reported
Six Months Ended June 30,
-------------------------
2012 2011 % Change
---- ---- --------
Net income (loss) $14,365 $(524)
Adjustments to reconcile
from net income (loss) to
Broadcast Cash Flow Less
Cash Corporate Expenses:
Depreciation 11,607 13,636
Amortization of intangible
assets 37 68
Non-cash stock based
compensation 154 68
Gain on disposals of
assets, net (482) (844)
Miscellaneous (income)
expense, net (2) (3)
Interest expense 30,289 31,343
Income tax expense
(benefit) 9,215 (282)
Amortization of program
broadcast rights 5,477 7,414
Common stock contributed
to 401(k) plan
excluding corporate 401(k)
contributions 12 16
Network compensation
revenue recognized (313) (351)
Network compensation per
network affiliation
agreement (60) (120)
Payments for program
broadcast rights (5,596) (8,738)
------ ------
Broadcast Cash Flow Less
Cash Corporate Expenses 64,703 41,683 55 %
Corporate and
administrative expenses
excluding
depreciation, amortization
of intangible assets and
non-cash stock-based
compensation 6,581 6,372
Broadcast Cash Flow $71,284 $48,055 48 %
======= =======

See the previous page for the definition of Non-GAAP terms.



The Company

Gray Television, Inc. is a television broadcast company headquartered in Atlanta, GA. Gray currently owns and operates television stations broadcasting 36 primary channels in 30 markets. Currently, we broadcast a primary channel from each of our stations and also operate at least one secondary channel from the majority of our stations. Each of our primary channels are affiliated with either CBS (17 channels), NBC (10 channels), ABC (8 channels) or FOX (1 channel). In addition, we currently broadcast 41 digital second channels that are affiliated with either ABC (1 channel), FOX (4 channels), CW (8 channels), MyNetworkTV (18 channels), Untamed Sports Network (1 channel), The Country Network (1 channel), MeTV Network (1 channel) or are operated as local news/weather channels (7 channels). In addition, we have entered into agreements to launch three additional CBS affiliated secondary channels in certain of our existing markets in the fall of 2012.

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

This press release contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and the federal securities laws. These "forward-looking statements" are not statements of historical facts, and may include, among other things, statements regarding our current expectations and beliefs of operating results for the third quarter of 2012 or other periods, internet strategies, future expenses, launching of future stations and other future events. Actual results are subject to a number of risks and uncertainties and may differ materially from the current expectations and beliefs discussed in this press release. All information set forth in this release is as of August 3, 2012. We do not intend, and undertake no duty, to update this information to reflect future events or circumstances. Information about certain potential factors that could affect our business and financial results and cause actual results to differ materially from those expressed or implied in any 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, 2011 and may be contained in reports subsequently filed with the U.S. Securities and Exchange Commission (the "SEC") and available at the SEC's website at www.sec.gov.

Conference Call Information

We will host a conference call to discuss our second quarter operating results on August 3, 2012. The call will begin at 11:00 AM Eastern Time. The live dial-in number is 1 (800) 946-0709 and the confirmation code is 4223794. 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: 4223794 until September 2, 2012.

Web site: www.gray.tv

SOURCE Gray Television, Inc.

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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