Edgar Filing: GRAY TELEVISION INC

GRAY TELEVISION INC.

The information in this prospectus supplement and accompanying prospectus is not complete and may be changed. This prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus Supplement dated September 27, 2002

PROSPECTUS SUPPLEMENT
(To prospectus dated September 5, 2002)

27,500,000 Shares

GRAY TELEVISION, INC.

Common Stock

Gray is selling all of the shares.

The shares trade on the New York Stock Exchange under the symbol “GTN.” On September 16, 2002, our stockholders approved a change in the name of the stock offered pursuant to this prospectus supplement to “Common Stock” from “class B common stock.” On September 25, 2002, the last sale price of the shares as reported on the New York Stock Exchange was $11.15 per share.

Investing in the Common Stock involves risks that are described in the “Risk Factors” section beginning on page 3 of the accompanying prospectus.


	Per Share	Total

Public offering price	$	$





Underwriting discount	$	$





Proceeds, before expenses, to Gray	$	$

The underwriters may also purchase up to an additional 4,125,000 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus supplement to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about October , 2002.

Joint Book-Running Managers






Deutsche Bank Securities		Merrill Lynch & Co.

Bear, Stearns & Co. Inc.

Allen & Company LLC

Wachovia Securities

SunTrust Robinson Humphrey

The date of this prospectus supplement is October , 2002.

TABLE OF CONTENTS


PROSPECTUS SUPPLEMENT SUMMARY
Our Business
Operating & Growth Strategy
Merger Summary
Recent Developments
Summary Historical Consolidated Financial Data
Summary Unaudited Pro Forma Financial Data
USE OF PROCEEDS
DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK (GTN) AND CLASS A COMMON STOCK (GTN.A)
CAPITALIZATION
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Unaudited Pro Forma Combined Condensed Statement of Operations For the Six Months Ended June 30, 2002
Unaudited Pro Forma Combined Condensed Statement of Operations For the Six Months Ended June 30, 2001
Unaudited Pro Forma Combined Condensed Statement of Operations For the Year Ended December 31, 2001
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 2002
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Stations’ Markets
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
Market Overview
Competitive Landscape
MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL STOCKHOLDERS
SUMMARY OF CERTAIN UNITED STATES TAX CONSIDERATIONS
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
INCORPORATION BY REFERENCE
INDEX TO FINANCIAL STATEMENTS OF GRAY TELEVISION, INC.
GRAY TELEVISION, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
GRAY TELEVISION, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
GRAY TELEVISION, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRAY COMMUNICATIONS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
GRAY COMMUNICATIONS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
GRAY COMMUNICATIONS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
ABOUT THIS PROSPECTUS
INDUSTRY, MARKET AND RANKING DATA
PROSPECTUS SUMMARY
RISK FACTORS
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
RATIO OF EARNINGS TO FIXED CHARGES
THE MERGER
THE MERGER AGREEMENT AND RELATED AGREEMENTS
INFORMATION REGARDING GRAY
SELECTED STATION AND MARKET INFORMATION REGARDING GRAY AND STATIONS
BUSINESS OF STATIONS HOLDING COMPANY, INC.
STATIONS SELECTED FINANCIAL DATA
STATIONS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
UNAUDITED PRO FORMA FINANCIAL DATA
DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF DEBT SECURITIES
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION BY REFERENCE
INDEX TO FINANCIAL STATEMENTS OF STATIONS HOLDING COMPANY, INC.

Prospectus Supplement


	Page

Important Notice About Information in this Prospectus Supplement and the Accompanying Prospectus		iii




Forward-Looking Statements		iv




Prospectus Supplement Summary		S-1




Use of Proceeds		S-14




Dividend Policy		S-14




Price Range of Common Stock (GTN) and Class A Common Stock (GTN.A)		S-14




Capitalization		S-15




Selected Consolidated Financial and Other Data		S-16




Unaudited Pro Forma Consolidated Financial Data		S-19




Management’s Discussion and Analysis of Financial Condition and Results of Operations		S-30




Business of Gray		S-45




Management		S-80




Certain Relationships and Related Party Transactions		S-83




Principal Stockholders		S-85




Summary of Certain United States Tax Considerations		S-87




Underwriting		S-91




Legal Matters		S-93




Experts		S-93




Where You Can Find Additional Information		S-94




Incorporation by Reference		S-94




Index to Financial Statements of Gray Television, Inc.		F-1

Prospectus


	Page

About this Prospectus		ii




Industry, Market and Ranking Data		ii




Prospectus Summary		1




Risk Factors		3




Forward-Looking Statements		17




Use of Proceeds		18




Ratio of Earnings to Fixed Charges		18




The Merger		19




The Merger Agreement and Related Agreements		21




Information Regarding Gray		29




Selected Station and Market Information Regarding Gray and Stations		34




Business of Stations Holding Company, Inc.		48




Stations Selected Financial Data		55




Stations Management’s Discussion and Analysis of Financial Condition and Results of Operation		58




Unaudited Pro Forma Financial Data		69




Description of Certain Indebtedness		80




Description of Capital Stock		82




Description of Debt Securities		84




Plan of Distribution		92




Legal Matters		92




Experts		92




Where You Can Find More Information		93




Incorporation by Reference		93




Index to Financial Statements of Stations Holding Company, Inc.		F-1

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS

SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of stock being offered, which we refer to as the “offered stock.” The second part, the base prospectus, gives more general information, some of which may not apply to the offered stock. Generally, when we refer to the “prospectus,” we are referring to both parts combined, and when we refer to the “accompanying prospectus,” we are referring to the base prospectus.

If the description of the offered stock varies between the prospectus supplement and the accompanying prospectus, you should rely on the information in the prospectus supplement.

In this prospectus supplement and the documents incorporated by reference, we rely on and refer to market information regarding the television industry from BIA Financial Network, Inc.’s MEDIA Access Pro™ Version 3.1, updated as of July 1, 2002, which we refer to as “BIA.” We also rely on and refer to market information regarding the television industry from Nielsen Station Index, Viewers in Profile, dated May 2002, as prepared by A.C. Nielsen Company, which we refer to as “Nielsen.” Although we believe that the information obtained from third parties is reliable, we have not independently verified the accuracy and completeness of the information. To the extent this information contains forward-looking statements, readers of this prospectus supplement are cautioned that these statements involve risks and uncertainty and that actual results may differ materially from those in these statements, similarly to that described in “Forward-Looking Statements.” All statements as to station ranking in this prospectus supplement are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the tables titled “Competitive Landscape” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period.

When we refer in this prospectus supplement to our markets, we include Hazard, Kentucky as a separate market. Hazard, Kentucky is a special 16 county trading area defined by Nielsen and is part of the Lexington, Kentucky designated market area. We pay Nielsen to conduct the special Hazard, Kentucky trading area study.

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FORWARD-LOOKING STATEMENTS

This prospectus supplement contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this prospectus supplement, the words “believes,” “expects,” “anticipates,” “estimates” and similar words and expressions are generally intended to identify forward-looking statements. Statements that describe our future strategic plans, goals or objectives, including our plans, goals and objectives with respect to our merger with Stations Holding Company, Inc., which we refer to as “Stations,” are also forward-looking statements. Readers of this prospectus supplement are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management or us, are not guarantees of future performance, results or events and involve risks and uncertainties, and that actual results and events may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to:


	•	the factors described in “Risk Factors” beginning on page 3 of the accompanying prospectus;

	•	general economic conditions in the markets in which we and Stations operate;

	•	competitive pressures in the markets in which we and Stations operate;

	•	the effect of future legislation or regulatory changes on our operations;

	•	high debt levels; and

	•	other factors described from time to time in our filings with the Securities and Exchange Commission, which we sometimes refer to as the “SEC.”

The forward-looking statements included in this prospectus supplement are made only as of the date hereof. We undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

PROSPECTUS SUPPLEMENT SUMMARY

In this prospectus supplement, unless otherwise indicated, the words “Gray,” “our,” “us” and “we” refer to Gray Television, Inc. (formerly known as Gray Communications Systems, Inc.) and its subsidiaries. Our discussion of the television stations that we own and operate does not include our interest in the stations owned by Sarkes Tarzian, Inc., which we refer to as “Tarzian.”

On July 25, 2002, we changed our name to “Gray Television, Inc.” from “Gray Communications Systems, Inc.” On August 30, 2002, we changed our ticker symbols to “GTN” from “GCS.B” for our common stock and to “GTN.A” from “GCS” for our class A common stock. On September 16, 2002, our stockholders approved a change in the name of the stock offered pursuant to this prospectus supplement to “Common Stock” from “class B common stock.”

This summary highlights selected information from this document and the materials incorporated by reference and does not contain all of the information that is important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus supplement, the accompanying prospectus and the documents to which we have referred you.

Our Business

We currently own and operate 13 network affiliated television stations in 11 medium-sized markets in the Southeast, Southwest and Midwest United States. Eleven of our 13 stations are ranked first in total viewing audience and news audience, with the remaining two stations ranked second in total viewing audience and second or third in news audience. Ten of our stations are affiliated with CBS Inc., or “CBS,” and three are affiliated with National Broadcasting Company, Inc., or “NBC.”

Since 1993, we have grown primarily through strategic acquisitions. Our significant historic acquisitions have included 12 television stations, three newspapers and a paging business. As a result of our acquisitions and in support of our growth strategy, we have added experienced members to our management team and have greatly expanded our operations in the television broadcasting business.

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek Broadcasting Corporation, which we refer to as “Benedek.” We plan to acquire 15 television stations from Stations in a transaction that we refer to as the “merger.” Stations is required under the merger agreement to sell its additional nine designated television stations to third parties prior to the merger. In consideration for Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations. We expect the merger, if it closes, to be completed during the fourth quarter of 2002.

We believe that the merger represents an excellent opportunity for us to acquire complementary television stations that will create significant operational and financial benefits. These benefits include increased economies of scale, greater geographic and network diversification, access to additional operating cash flow, cross-promotion opportunities and the potential to increase and enhance our local franchises. Upon the completion of the proposed merger, we will own and operate 28 television stations serving 24 markets with a strong presence in the Southeast, Southwest, Midwest and Great Lakes regions of the United States. The combined station group will include 15 CBS affiliates, seven NBC affiliates and six American Broadcasting Corporation, or “ABC,” affiliates. In addition, our 15 CBS affiliates will make us the largest independent owner of CBS affiliated stations in the country. Pro forma for the acquisition, 25 of our 28 television stations will rank first or second in viewing audience and 23 of our 28 television stations will rank first or second in local news within their respective markets. In addition, our station group will reach approximately 5% of total U.S. TV households.

We also own and operate four daily newspapers, three located in Georgia and one in Goshen, Indiana, with a total daily circulation of approximately 126,000. In addition, we own and operate a paging business located in the Southeast that had approximately 68,000 units in service at June 30, 2002.

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For the year ended December 31, 2001, pro forma for the Stations acquisition, our television stations would have produced $214.0 million of net revenue and $84.7 million of broadcast cash flow. Including our publishing and other operations, we would have produced $263.9 million of net revenue and $97.0 million of media cash flow, on a pro forma basis in 2001.

We are a Georgia corporation formed in 1891. Our principal offices are located at 4370 Peachtree Road, NE, Atlanta, Georgia 30319, and our telephone number is (404) 504-9828.

Operating & Growth Strategy

We attribute our success to date and our current opportunities to increase our revenue, media cash flow and audience share to the successful implementation of our core operating strategies, the principal components of which are to:


	•	*Focus on Local News and Programming to Maintain a Strong Local Franchise.* We currently operate 13 network affiliated television stations serving 11 markets, with 12 of our 13 stations ranked first or second in local news. After completion of the merger, we will operate 28 network affiliated television stations serving 24 markets, with 23 of our 28 stations ranked first or second in local news. We endeavor to make each of our television stations a highly recognizable, local brand and believe that providing the leading source for local news and programming in our markets enables us to strengthen audience loyalty and increase viewership among attractive demographic audiences.

	•	*Continue to Develop Innovative Local Sales and Targeted Marketing Initiatives.* We employ an experienced, high-quality local sales force at each station to increase advertising revenue by leveraging our local brand. We believe that a focused, tailored advertising solution is very attractive to local advertisers, who have historically been a more stable source of revenue than national advertisers. In 2001, approximately 59% of our net television advertising revenue was generated from our local advertisers and pro forma for the proposed merger with Stations, approximately 60% of our net television advertising revenue would have been generated from our local advertisers.

	•	*Capitalize on Leading Network Brands in Markets with Limited Competition.* Currently, ten of our stations are affiliated with CBS and three are affiliated with NBC, representing approximately 81% and 19% of our total television revenue in 2001, respectively. Following the completion of the merger, we will have a broad and diverse portfolio of 28 affiliated television stations located in 24 markets, of which 15 are affiliated with CBS, seven are affiliated with NBC and six are affiliated with ABC, representing approximately 56%, 29% and 15% of our total pro forma net television revenue in 2001, respectively. Additionally, we will be the largest independent owner of CBS affiliated stations. We believe that our markets are less competitive than larger designated market areas, which we refer to as “DMAs.” Of our 24 markets, 18 markets are served by four TV stations or fewer, and seven markets are served by three or fewer television stations. Our markets also typically have fewer radio stations than larger DMAs.

	•	*Pursue Strategic Acquisitions to Expand and Enhance Regional Clusters.* We have acquired and integrated successfully 12 of our 13 television stations since 1993, and have signed a definitive agreement to acquire an additional 15 television stations from Stations. After giving effect to the proposed merger, our television stations will be located in several distinct regions throughout the United States, diminishing potential adverse effects on our business caused by specific regional economic fluctuations. We believe that we are well positioned to participate in further consolidation of our industry, including opportunities that may arise as a result of regulatory changes, such as owning more than one television station in a market.

	•	*Attract and Retain High-Quality Management.* We believe that high-quality management at both the corporate and station level is critical to the successful implementation of our strategy. We use equity incentives to attract and retain station general managers with proven track records. Members of our senior management team have extensive experience in operating, managing and acquiring

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		television stations. Additionally, our station managers have an average of over 21 years of industry experience with individual industry experience ranging from 11 to 32 years.

	•	*Maintain Strict Financial Planning and Cost Controls.* We employ a comprehensive ongoing strategic planning and budgeting process that enables us to continually identify and implement cost savings at each station, and is designed to increase our media cash flow. We believe that owning and operating 28 television stations will enable us to achieve economies of scale and reduce expenses for syndicated programming, capital equipment and vendor services.

	•	*Increase Advertising Revenue and Circulation at Our Newspaper Publishing Operations.* We seek to increase advertising revenues and circulation at each of our four newspapers by creating a highly recognizable local brand by focusing on the depth and quality of our coverage of local news, sports and lifestyles and through community involvement. We believe we are able to differentiate our publications from larger competitors and build reader loyalty by becoming the primary source for local news and advertising information within each of our target markets. Our newspaper strategy is led by senior managers and publishers who have an average of over 32 years of experience in the newspaper business with individual industry experience ranging from 20 to 40 years.

Our senior management team has extensive experience in operating and managing our businesses, and is led by: J. Mack Robinson, Chairman and Chief Executive Officer; Robert Prather, President and Chief Operating Officer; James Ryan, Senior Vice President and Chief Financial Officer; and, following the completion of the merger, James Yager, President of Benedek, will be President of Gray MidAmerica Television, Inc. Our publishing operations are led by Thomas J. Stultz, Vice President and President-Publishing. As of July 2, 2002, our directors and executives as a group owned or controlled 59.3% of our combined voting common stock.

Merger Summary

This section of the prospectus supplement describes certain material aspects of the proposed merger. This summary does not contain all of the information that is important to you. You should carefully read the entire registration statement, the accompanying prospectus and the other documents to which we refer you, including the merger agreement, which we refer to as the “merger agreement,” for a more complete understanding of the merger.

The Merger

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek. The merger agreement provides that we will acquire Stations by merging our newly formed wholly-owned subsidiary, Gray MidAmerica Television, Inc., which we refer to as “Gray MidAmerica,” into Stations. In consideration for Stations, we will pay an estimated consideration of $502.5 million in cash, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations. We intend to finance the merger by incurring approximately $250 million of additional indebtedness and issuing approximately $307 million of equity. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

The Merger Consideration

Under the merger agreement, each share of Stations senior preferred stock (excluding shares held by Stations or any of its subsidiaries, other than in a fiduciary capacity) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive a cash payment equal to the quotient obtained by dividing (1) the total of $500,000,000, minus (A) the amount outstanding at the effective time under Stations’ debt instruments plus accrued interest thereon through the effective time, determined in accordance with Stations’ plan of reorganization, plus or minus (B) working capital

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adjustments and adjustments relating to amounts incurred by Stations and its subsidiaries with respect to the conversion of their television stations to digital broadcasting by (2) 100,000 (the number of outstanding shares of Stations’ senior preferred stock at the effective time).

Each share of Stations junior preferred stock (excluding shares held by Stations or any of its subsidiaries, other than in a fiduciary capacity) issued and outstanding immediately prior to the effective time will be converted into the right to receive a cash payment equal to the quotient obtained by dividing (1) $2,500,000 by (2) 450,000 (the number of outstanding shares of Stations junior preferred stock at the effective time).

Each share of Stations class A common stock and class B common stock and any options or warrants to acquire such shares issued and outstanding immediately prior to the effective time will be cancelled. We will not pay any cash consideration for such securities.

The Letter of Credit and the Escrow Shares

When the merger agreement was signed, we delivered to Stations a standby letter of credit in the amount of $12.5 million and deposited with an escrow agent 885,269 shares of our Common Stock. These escrow shares had an aggregate value of $12.5 million, based on the average price of our Common Stock for the 20 consecutive trading days on the New York Stock Exchange ending on June 2, 2002.

If the merger is not consummated because of a material default by us, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. The aggregate proceeds of the drawing on the letter of credit and the escrow shares will total $25.0 million, but we may replace some or all of the escrow shares with a cash payment. Under all other circumstances, the letter of credit will be terminated and the escrow shares will be returned to us.

Conditions to the Merger

The parties’ obligations to consummate the merger and related transactions generally are subject to the satisfaction or waiver of the following conditions, after which we are required by the merger agreement to consummate the merger on the seventh business day:


	•	the bankruptcy court approving the order confirming Stations’ amended plan of reorganization and such confirmation order becoming a final bankruptcy court order;

	•	the Federal Communications Commission, “FCC,” approving the transactions contemplated by the merger agreement, without any condition or qualification materially adverse to us or our subsidiaries or Stations or its subsidiaries, or materially adverse to our acquisition of control of Stations and its subsidiaries;

	•	all regulatory waiting periods applicable to the merger agreement and the related transactions expiring or terminating;

	•	subject to limited exceptions, the sale by Benedek of nine television stations to third parties; and

	•	the satisfaction of other customary conditions specified in the merger agreement.

The merger agreement further provides that we may, on one occasion, delay the effective time for up to 120 days if any of the following occurs: (1) any general suspension of trading in equity securities in the United States securities or financial markets for more than two consecutive trading days; (2) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States; (3) commencement of a war, armed hostilities or other national or international calamity directly involving the United States; (4) any limitation by any governmental authority on the extension of credit by banks or other lending institutions in the United States; or (5) if any of the

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foregoing existed on the date the merger agreement was signed, a material acceleration or worsening thereof.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the effective time by Stations and us by mutual consent. In addition, generally, either party may terminate the merger agreement:


	•	in the event of an uncured material breach by the other party of any of its representations, warranties or covenants contained in the merger agreement;

	•	if the merger is not consummated by March 31, 2003; or

	•	if it is reasonably anticipated that any of the conditions precedent to the obligations of the terminating party to consummate the merger cannot be satisfied or fulfilled by March 31, 2003 and such failure was not the fault of the terminating party.

Effects of Termination

Subject to limited exceptions, if the merger agreement is terminated, as described above, it will become void and have no effect. However, certain provisions of the merger agreement will survive termination, including provisions relating to the letter of credit and the escrow shares, confidentiality and expenses.

If the closing does not occur due to a material default by us, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. The aggregate proceeds of the drawing on the letter of credit and the escrow shares will total $25.0 million, but we may replace some or all of the escrow shares with a cash payment.

Bankruptcy Court and Regulatory Filings and Approvals

Bankruptcy Court. Stations has filed a voluntary petition under Chapter 11 of the federal bankruptcy code. Consequently, the merger is subject to the bankruptcy court’s approval of Stations’ amended plan of reorganization, and all of Stations’ obligations under the merger agreement are subject to the approval of the bankruptcy court. The bankruptcy court held a hearing on September 25, 2002, and all matters related to the confirmation of the amended and restated plan of reorganization were resolved in favor of confirmation. Consequently, the bankruptcy court determined to confirm the amended and restated plan of reorganization. A confirmation order reflecting the September 25, 2002 hearing, including the confirmation of the amended and restated plan of reorganization, is expected to be entered on September 30, 2002.

Federal Communications Commission. The merger is subject to approval by the FCC. Stations and its subsidiaries and we and our subsidiaries filed with the FCC the necessary application with respect to the change of control on June 10, 2002. On September 5, 2002, the FCC granted approval for the change of control. We expect the FCC’s grant for change of control will become final on October 16, 2002.

Antitrust. The merger is subject to the requirements of the Hart-Scott Rodino Antitrust Improvements Act of 1976, which provides that certain transactions may not be consummated until required information and materials have been furnished to the Department of Justice and the Federal Trade Commission, which we sometimes refer to as the “FTC,” and certain waiting periods have expired or been terminated. Stations and we filed the required information and materials with the Department of Justice and the FTC on June 20, 2002. Early termination of the statutory waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 was granted on July 1, 2002.

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Sale of Certain Designated Benedek Stations Prior to the Merger

Benedek has sold or plans to sell, prior to the effective time of the merger, a total of nine designated television stations, which we refer to as the “excluded stations.” Benedek plans to sell eight of the excluded stations to Chelsey Broadcasting Company, LLC, a Delaware limited liability company, which we refer to as “Chelsey,” or its affiliates pursuant to an asset purchase agreement. Benedek already has sold its television station in Wheeling, West Virginia to West Virginia Media Holding, LLC and one of its affiliates on April 30, 2002. Benedek intends to use the net proceeds of these sales to repay indebtedness under its senior secured credit facility. The sale of the nine designated television stations is a condition to the merger.

Recent Developments

KOLO-TV, Reno, Nevada

On September 3, 2002, Smith Television Group, Inc. and Smith Television License Holdings, Inc., which we refer to collectively as “Smith,” and we executed a definitive asset purchase agreement to acquire from Smith, in a transaction which we refer to as the “Reno acquisition,” all of the assets and business of KOLO-TV, a television station in Reno, Nevada, which we refer to as the “Reno station,” for $41.5 million in cash.

The Reno station is the number one rated station in the market for news and programming. For the ten month period commencing on March 1, 2001 (the date on which Smith acquired the Reno station) and the six month period ended June 30, 2002, the Reno station’s net revenue approximated $7.8 million and $4.4 million, respectively.

Upon completion of the merger with Stations and the KOLO-TV acquisition, Gray will own a total of 29 stations serving 25 television markets. The stations will include 15 CBS affiliates, 7 NBC affiliates and 7 ABC affiliates. The combined Stations group will have 22 stations ranked first in viewing audience and 23 of 29 stations ranked first in local news audience within their respects markets. The combined station group will reach over 5% of total U.S. TV households.

The acquisition is subject to certain consents, including approval by the FCC of the assignment of 23 Reno station’s licenses, permits and other authorizations issued by the FCC for the operation of the Reno station. We cannot guarantee that all required consents and approvals will be obtained, or that the transaction will be consummated. However, we currently expect the transaction, if it closes, to be completed by December 31, 2002.

Commitment for Arrangement of Financing

On September 5, 2002, we executed a commitment letter, which we refer to as the “commitment letter,” with Wachovia Bank, National Association and Wachovia Securities, Inc., which we refer to, collectively, as “Wachovia,” under which Wachovia has agreed to arrange to provide us with an aggregate $450.0 million in financing. Pursuant to the commitment letter we will enter into a $375.0 million term loan facility, which we refer to as the “term loan facility,” and a $75.0 million revolving credit facility, which we refer to as the “revolving credit facility.” We refer to the term loan facility and the revolving credit facility collectively as the “new credit facility.”

Wachovia has completed marketing the new credit facility. Bank of America, N.A. is a co-lead arranger and syndication agent and Deutsche Bank Trust Company Americas is a documentation agent. We have received firm commitments in excess of the entire amount of the new credit facility.

The term loan facility will mature on December 31, 2009 and the revolving credit facility will mature on December 31, 2010. In addition, under the commitment letter we will have the ability to borrow, for up to three years after closing, a maximum of $300.0 million of uncommitted incremental term loans at an interest rate that will be determined, subject to certain limitations, at the time of such borrowings.

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We intend to use any borrowings under the facilities to finance a portion of the merger and the Reno acquisition consideration, to refinance certain existing indebtedness and for our ongoing working capital requirements and other general corporate purposes. The consummation of the transactions contemplated by the commitment letter are subject to numerous conditions precedent and there can be no assurance that the transactions contemplated by the commitment letter will be consummated.

9 1/4% Senior Subordinated Notes

On September 9, 2002, we sold $100.0 million principal amount of our 9 1/4% senior subordinated notes due 2011, which we refer to as the “offered notes.” The offered notes were issued under the same indenture and have the same terms as our outstanding $180.0 million 9 1/4% senior subordinated notes due 2011. The offered notes mature on December 15, 2011. The interest rate on the offered notes is 9.25% per year (calculated using a 360-day year) payable on June 15 and December 15 of each year, beginning on December 15, 2002. We used the proceeds of the sale of the offered notes primarily to repay approximately $100 million of the borrowings under our existing senior secured credit facility.

S-7

The Offering


Common stock offered by us		27,500,000 shares of Common Stock

Common stock to be outstanding after this offering		36,411,454 shares of Common Stock

		6,848,467 shares of class A common stock

Voting rights


Common Stock		Holders are entitled to 1 vote on all matters on which shareholders are permitted to vote.

Class A common stock		Holders are entitled to 10 votes on all matters on which shareholders are permitted to vote.

Use of proceeds		The net proceeds from the sale of securities offered by this prospectus are expected to be used to finance the merger and for general corporate purposes, including capital expenditures, to meet working capital needs, to refinance our senior debt, to finance one or more other acquisitions, including the Reno acquisition, or all or a combination of the above.

Risk factors		Investing in the Common Stock involves risks that are described in the “Risk Factors” section beginning on page 3 of the accompanying prospectus.

New York Stock Exchange symbol


Common Stock		GTN

Class A common stock		GTN.A

We also have outstanding 4,000 shares of our Series C preferred stock, which we refer to as the “Series C” or “Series C preferred stock.” The Series C is convertible into shares of Common Stock at an initial conversion price of $14.39 per share, subject to certain adjustments. For a further description of the conversion rights and other rights attached to the Series C, see “Description of Capital Stock—Terms of Our Preferred Stock” in the accompanying prospectus.

S-8

Summary Historical Consolidated Financial Data

Set forth below is our summary historical consolidated financial data. The financial data for, and as of the end of, each of the years in the five-year period ended December 31, 2001 was derived from the audited consolidated financial statements included in our Annual Reports on Form 10-K and from other information in the Annual Reports. The financial data for, and as of the six month periods ended June 30, 2002 and 2001 was derived from our unaudited accounting records and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all normal and recurring adjustments and accruals necessary for a fair presentation of such information. More comprehensive financial information is included in the Annual Reports and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002. The financial information that follows is qualified in its entirety by reference to, and should be read in conjunction with, the Annual Reports, the Quarterly Reports and all of the financial statements and related notes contained in the Annual Reports and the Quarterly Reports.



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(dollars in thousands except per share data)




Statements of Operations Data:
Revenues




	Broadcast (less agency commissions)	$	72,300		$	91,007		$	97,015		$	120,640		$	106,430		$	52,575		$	55,006




	Publishing		24,536			29,330			37,808			41,499			41,189			19,927			21,216




	Paging		6,712			8,553			9,130			9,074			8,725			4,405			4,083

Total revenues			103,548			128,890			143,953			171,213			156,344			76,907			80,305

Operating expenses




	Broadcast, publishing and paging		65,771			82,783			93,994			105,314			104,025			50,846			50,149




	Corporate and administrative		2,528			3,063			3,448			3,594			3,615			1,829			2,116




	Depreciation and amortization		14,519			18,117			24,451			31,207			30,824			15,696			7,433

Total operating expenses			82,818			103,963			121,893			140,115			138,464			68,371			59,698

Operating income			20,730			24,927			22,060			31,098			17,880			8,536			20,607




Gain on disposition of television stations			—			72,646			—			—			—			—			—




Valuation adjustments of goodwill and other assets			—			(2,074	)		—			—			—			—			—




Appreciation (depreciation) in value of derivative, net			—			—			—			—			(1,581	)		(961	)		730




Miscellaneous income (expense), net			(31	)		(242	)		336			780			194			98			97

Income (loss) before interest expense, income taxes, extraordinary charge and cumulative effect of accounting change			20,699			95,257			22,396			31,878			16,493			7,673			21,434




Interest expense			21,861			25,454			31,021			39,957			35,783			18,167			16,866

Income (loss) before income taxes, extraordinary charge and cumulative effect of accounting change			(1,162	)		69,803			(8,625	)		(8,079	)		(19,290	)		(10,494	)		4,568




Income tax expense (benefit)			240			28,144			(2,310	)		(1,867	)		(5,972	)		(3,232	)		1,616

Net income (loss) before extraordinary charge and cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		2,952




Extraordinary charge on extinguishment of debt			—			—			—			—			—			—			(7,318	)

Net income (loss) before cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(4,366	)




Cumulative effect of accounting change, net			—			—			—			—			—			—			(30,592	)

Net income (loss)		$	(1,402	)	$	41,659		$	(6,315	)	$	(6,212	)	$	(13,318	)	$	(7,262	)	$	(34,958	)




Preferred dividends			1,410			1,318			1,010			1,012			616			308			803




Non-cash preferred dividends associated with preferred stock redemption			—			3,360			—			2,160			—			—			3,969

Net income (loss) available to common stockholders		$	(2,812	)	$	36,981		$	(7,325	)	$	(9,384	)	$	(13,934	)	$	(7,570	)	$	(39,730	)

S-9



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(dollars in thousands except per share data)




Basic earnings per common share (d):




	Net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	3.10		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)




	Extraordinary charge on extinguishment of debt, net		—			—			—			—			—			—			(0.47	)




	Cumulative effect of accounting change, net		—			—			—			—			—			—			(1.95	)

	Net income (loss) available to common stockholders	$	(0.24	)	$	3.10		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(2.54	)

Diluted earnings per common share (d):




	Net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	2.98		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)




	Extraordinary charge on extinguishment of debt, net		—			—			—			—			—			—			(0.47	)




	Cumulative effect of accounting change, net		—			—			—			—			—			—			(1.95	)

	Net income (loss) available to common stockholders	$	(0.24	)	$	2.98		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(2.54	)

Other Data:




Media cash flow(e)		$	38,061		$	46,624		$	50,944		$	66,247		$	53,074		$	26,411		$	30,520




Media cash flow margin(e)			36.8	%		36.2	%		35.4	%		38.7	%		33.9	%		34.3	%		38.0	%




Operating cash flow(f)		$	35,533		$	43,561		$	47,496		$	62,653		$	49,459		$	24,582		$	28,404




Operating cash flow margin(f)			34.3	%		33.8	%		33.0	%		36.6	%		31.6	%		32.0	%		35.4	%




Cash flows provided by (used in):




	Operating activities	$	9,744		$	20,074		$	20,842		$	22,765		$	16,823		$	8,268		$	3,355




	Investing activities		(57,498	)		(55,299	)		(126,780	)		(8,276	)		(186,165	)		(2,679	)		154,741




	Financing activities		49,071			34,744			105,839			(14,061	)		167,685			(6,109	)		(143,184	)




Capital expenditures			10,372			9,271			11,712			5,702			7,593			2,597			8,133




Cash dividends per common share (g)			0.05			0.06			0.08			0.08			0.08			0.04			0.04




Ratio of total debt to operating cash flow			6.4	x		6.2	x		8.0	x		6.0	x		8.0	x(h)		6.2x	(i)		7.1	x(i)




Ratio of operating cash flow to interest expense			1.6			1.7			1.5			1.6			1.4			1.5	(i)		1.6	(i)




Balance Sheet Data (at end of period):




Cash and cash equivalents		$	2,367		$	1,887		$	1,787		$	2,215		$	169,115	(h			) $1,695	$	15,470




Total intangible assets, net			263,425			376,015			526,434			511,616			497,311			504,458			457,633




Total assets			345,051			468,974			658,157			636,772			794,337	(h)		616,870			595,911




Long-term debt (including current portion)			227,076			270,655			381,702			374,887			551,444	(h)		368,557			378,878




Preferred stock			11,111			7,371			7,371			4,637			4,637			4,637			39,234




Total stockholders’ equity			92,295			126,703			168,188			155,961			142,196			148,765			98,288


(a)	Reflects the operating results of our acquisition of substantially all of the assets of WITN-TV and our acquisition of all of the outstanding common stock of GulfLink Communications, Inc. as of their respective acquisition dates, August 1, 1997 and April 24, 1997.

(b)	Reflects the operating results of our acquisition of all of the outstanding capital stock of Busse Broadcasting Corporation and our related acquisition of the assets of WEAU-TV in exchange for the assets of WALB-TV as of July 31, 1998, the closing date of the respective transactions. See Note B to our audited consolidated financial statements included elsewhere in this prospectus supplement.

(c)	Reflects the operating results of our acquisition of all of the outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company, as well as the assets of KXII Broadcasters Ltd., completed on October 1, 1999, and our acquisition of substantially all of the assets of The Goshen News from News Printing Company, Inc. and its affiliates, completed on March 1, 1999, as of their respective acquisition dates. See Note B to our audited consolidated financial statements included elsewhere in this prospectus supplement.

(d)	On August 20, 1998, our board of directors declared a 50% stock dividend, payable on September 30, 1998, to stockholders of record of our Common Stock and class A common stock on September 16, 1998. This stock dividend effected a three-for-two stock split. All applicable share and per share data have been adjusted to give effect to the stock split.

(e)	Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues.

S-10


(f)	Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues.

We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.


(g)	Cash dividends were $0.08 per common share for all five annual periods and $0.04 per common share for the six month periods; however, the amounts for 1997 and 1998 have been adjusted for the three-for-two stock split in 1998, which is discussed in Note (d) above.

(h)	On December 21, 2001, we deposited $168.6 million with the trustee of our 10 5/8% senior subordinated notes due 2006, which we refer to as the “10 5/8 notes” to redeem those notes, including payment of principal, the applicable premium costs and accrued interest through the redemption date of January 22, 2002. Total assets include the $168.6 million reflected as restricted cash for redemption of long-term debt and long-term debt(including current portion) includes the related $155.2 million of our 10 5/8% notes that were extinguished on January 22, 2002. The ratio of total debt to operating cash flow of 8.0x is calculated on a pro forma basis, which excludes the $155.2 million of our 10 5/8% notes.


(i)	Represents ratios for the 12 months ended June 30, 2002.

(j)	The following table presents the transitional disclosures regarding the adoption of SFAS 142:



															Six Months Ended
	Year Ended December 31,														June 30,

	1997(a)			1998(b)		1999(c)			2000			2001			2001			2000


	(dollars in thousands except per share data)




Reported net income (loss) before extraordinary charge and cumulative effect of accounting	$	(1,402	)	$	41,659	$	(6,315	)	$	(6,212	)	$	(13,318	)	$	(7,262	)	$	2,952




Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		4,175			5,697		8,499			11,022			11,033			5,516			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	2,773		$	47,356	$	2,184		$	4,810		$	(2,285	)	$	(1,746	)	$	2,952

Basic earnings per common share(d):




Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	3.10	$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)




Add back: amortization of goodwill and intangible assets with indefinite lives, net or tax		0.35			0.48		0.66			0.71			0.71			0.36			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.11		$	3.58	$	0.09		$	0.10		$	(0.18	)	$	(0.13	)	$	(0.12	)

Diluted earnings per common share(d):




Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.11		$	3.44	$	0.09		$	0.10		$	(0.18	)	$	(0.13	)	$	(0.12	)

S-11

Summary Unaudited Pro Forma Financial Data

The unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2002 and June 30, 2001 reflect the transactions associated with this offering, the note offering and the merger as if they had been completed on January 1, 2001. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2001 reflects these transactions as if they had been completed on January 1, 2001. The June 30, 2002 unaudited pro forma combined condensed balance sheet reflects these transactions as if they had been completed on June 30, 2002. The unaudited pro forma financial statements are presented under “Unaudited Pro Forma Consolidated Financial Data” included elsewhere in this prospectus supplement.

The unaudited pro forma financial data presented below is for illustrative purposes only and do not purport to be indicative of the operating results that would have actually occurred had this offering, the note offering and the acquisition of Stations been completed, nor do they purport to be indicative of future operating results. The unaudited pro forma financial data should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this prospectus supplement, and in conjunction with Stations’ consolidated financial statements and notes thereto included in the accompanying prospectus. See “Unaudited Pro Forma Consolidated Financial Data” included elsewhere in this prospectus supplement for further information about the compilation of the unaudited pro forma consolidated financial data.



		Pro Forma			Pro Forma Six
		Year Ended			Months Ended
		December 31,			June 30,

		2001			2001			2002


		(dollars in thousands except per share
		data)




Statements of Operations Data:
Revenues




	Broadcast (less agency commissions)	$	213,991		$	104,603		$	109,647




	Publishing		41,189			19,927			21,216




	Paging		8,725			4,405			4,083

Total revenues			263,905			128,935			134,946

Operating expenses




	Broadcast, publishing and paging		168,032			83,729			83,091




	Corporate and administrative		7,251			3,861			4,023




	Depreciation and amortization		40,406			20,487			12,224

Total operating expenses			215,689			108,077			99,338

Operating income			48,216			20,858			35,608




Interest expense			53,433			27,063			25,762




Appreciation (depreciation) in value of derivative, net			(1,581	)		(961	)		730




Miscellaneous income, net			353			185			153

Income (loss) from continuing operations before provision for (benefit from) income taxes			(6,445	)		(6,981	)		10,729




Income tax expense (benefit)			(808	)		(1,658	)		3,922

Net income (loss) from continuing operations			(5,637	)		(5,323	)		6,807




Preferred dividends			3,200			1,600			1,600

Net income (loss) from continuing operations available to common stockholders		$	(8,837	)	$	(6,923	)	$	5,207

Basic income (loss) per share from continuing operations available to common stockholders (a)		$	(0.21	)	$	(0.16	)	$	0.12

Diluted income (loss) per share from continuing operations available to common stockholders (a)		$	(0.21	)	$	(0.16	)	$	0.12

Other Data:




Media cash flow(b)		$	97,008		$	45,609		$	51,897




Media cash flow margin(b)			36.8	%		35.4	%		38.5	%




Operating cash flow(c)		$	89,757		$	41,748		$	47,874




Operating cash flow margin(c)			34.0	%		32.4	%		35.5	%




Capital expenditures		$	21,283		$	8,314		$	12,776




Ratio of total debt, net of cash, to operating cash flow									6.29	x(d)




Ratio of operating cash flow to interest expense									1.84	(d)

S-12


	Pro Forma
	June 30, 2002

	(dollars in thousands except per share data)




Balance Sheet Data (at end of period):




Cash and cash equivalents	$	56,252




Total intangible assets, net		1,028,377




Total assets		1,285,855




Long-term debt (including current portion)		658,907




Preferred stock		39,234




Total stockholders’ equity		381,396


(a)	The following table presents the transitional disclosures regarding the adoption of SFAS 142:



	Pro Forma			Pro Forma Six
	Year Ended			Months Ended
	December 31,			June 30,

	2001			2001			2002


	(dollars in thousands except per share data)




Reported net income (loss) before extraordinary charge and cumulative effect of accounting change	$	(5,637	)	$	(5,323	)	$	6,807




Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		11,033			5,516			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	5,396		$	193		$	6,807

Basic earnings per common share:




Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.21	)	$	(0.16	)	$	0.12




Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		0.30			0.15			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.09		$	(0.01	)	$	0.12

Diluted earnings per common share:




Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.09		$	(0.01	)	$	0.12


(b)	Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues.

(c)	Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues.


(d)	Represents ratios for the 12 months ended June 30, 2002.

S-13

USE OF PROCEEDS

We estimate that the net proceeds of this offering will be $286.7 million, after deducting the underwriting discount and estimated offering expenses. We expect to use the net proceeds of this offering primarily to finance the merger. We intend to use any remaining proceeds for general corporate purposes, including capital expenditures, to meet working capital needs, to refinance our senior debt, to finance one or more other acquisitions, including the Reno acquisition, or all or a combination of the above.

DIVIDEND POLICY

During the 2000 and 2001 fiscal years and the quarters ended March 31, 2002 and June 30, 2002 we paid a dividend of $0.02 each quarterly period. In addition, our ability to pay dividends is limited by the terms of our debt instruments. See “Description of Certain Indebtedness” in the accompanying prospectus. We anticipate that for the foreseeable future, we will continue to pay comparable cash dividends.

PRICE RANGE OF COMMON STOCK (GTN) AND CLASS A COMMON STOCK (GTN.A)

Our Common Stock and class A common stock are listed and traded on the New York Stock Exchange, which we refer to as the NYSE, under the symbols “GTN” and “GTN.A,” respectively. The following table sets forth for the periods indicated the high and low sale prices of the Common Stock and class A common stock as reported by the NYSE.



						Class A
		Common Stock				Common Stock

		High		Low		High		Low

2000




	First Quarter	$	13.69	$	10.75	$	18.13	$	11.75




	Second Quarter		11.75		9.50		12.38		9.75




	Third Quarter		11.13		9.50		11.50		9.94




	Fourth Quarter		15.50		10.38		16.25		11.00
2001




	First Quarter	$	17.65	$	14.50	$	19.04	$	15.63




	Second Quarter		16.40		14.20		19.05		15.27




	Third Quarter		15.45		13.10		18.79		15.20




	Fourth Quarter		13.23		9.60		15.20		12.20
2002




	First Quarter	$	14.50	$	10.24	$	16.16	$	12.95




	Second Quarter		14.55		13.20		18.10		14.75




	Third Quarter (through September 25, 2002)		13.35		9.95		18.15		13.00

On September 25, 2002, the last reported sale prices of our Common Stock and our class A common stock as reported by the NYSE were $11.15 and $13.18, respectively. As of September 16, 2002, there were approximately 76 holders of record of the Common Stock and 165 holders of record of the class A common stock.

S-14

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2002


	•	on an actual basis;

	•	as adjusted to give effect to the issuance of the offered stock, the issuance, which we refer to as the “note offering,” of $100.0 million of 9 1/4% senior subordinated notes due 2011 and the new credit facility; and

	•	pro forma as adjusted to give effect to the issuance of the offered stock, the note offering, the new credit facility and the merger.

The information set forth below should be read in conjunction with “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Data,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus supplement.



		As of June 30, 2002

								Pro Forma As
					As Adjusted for			Adjusted for
					this Offering, the			this Offering,
					Note Offering			the Note Offering,
					and the New			the New Credit
		Actual			Credit Facility			Facility and the Merger


		(dollars in thousands)




Cash and cash equivalents		$	15,470		$	569,323		$	56,252

Long-term debt:




	Senior Credit Facility(a)	$	200,000		$	375,000		$	375,000




	9 1/4% senior subordinated notes due 2011 net of unamortized issue discount of $1,370.		178,630			278,630			278,630




	Other		248			248			5,277

			378,878			653,878			658,907




	Less current portions		(202	)		(202	)		(2,181	)

Total long-term debt			378,676			653,676			656,726

Series C Redeemable Convertible Preferred Stock			39,234			39,234			39,234

Stockholders’ Equity:




	Class A Common Stock		20,173			20,173			20,173




	Class A Common — Treasury Stock		(8,339	)		(8,339	)		(8,339	)




	Common Stock(b)		118,721			405,449			405,449




	Accumulated Deficit		(32,268	)		(32,268	)		(35,887	)

Total Stockholders’ Equity			98,287			385,015			381,396

	Total Capitalization	$	516,197		$	1,077,925		$	1,077,356


(a)	Amounts outstanding as of June 30, 2002 for actual and for as adjusted for this offering do not include a $12.5 million standby letter of credit which we have issued in connection with the merger with Stations. As of June 30, 2002 we had senior indebtedness of $200.0 million funded under our senior secured credit facility. We have unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit.

(b)	On September 16, 2002, our stockholders voted to change the name of our class B common stock offered pursuant to this prospectus supplement. The new name of our class B common stock is “Common Stock.”

S-15

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Set forth below is our consolidated financial and other data. The financial data for, and as of the end of, each of the years in the five-year period ended December 31, 2001 was derived from the audited consolidated financial statements included in our Annual Reports on Form 10-K and from other information in the Annual Reports. The financial data for, and as of the six month periods ended June 30, 2002 and 2001 was derived from our unaudited accounting records and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all normal and recurring adjustments and accruals necessary for a fair presentation of such information. More comprehensive financial information is included in the Annual Reports and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002. The financial information that follows is qualified in its entirety by reference to, and should be read in conjunction with, the Annual Reports, the Quarterly Reports and all of the financial statements and related notes contained in the Annual Reports and the Quarterly Reports.



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(dollars in thousands except per share data)




Statements of Operations Data:
Revenues




	Broadcast (less agency commissions)	$	72,300		$	91,007		$	97,015		$	120,640		$	106,430		$	52,575		$	55,006




	Publishing		24,536			29,330			37,808			41,499			41,189			19,927			21,216




	Paging		6,712			8,553			9,130			9,074			8,725			4,405			4,083

Total revenues			103,548			128,890			143,953			171,213			156,344			76,907			80,305

Operating expenses




	Broadcast, publishing and paging		65,771			82,783			93,994			105,314			104,025			50,846			50,149




	Corporate and administrative		2,528			3,063			3,448			3,594			3,615			1,829			2,116




	Depreciation and amortization		14,519			18,117			24,451			31,207			30,824			15,696			7,433

Total operating expenses			82,818			103,963			121,893			140,115			138,464			68,371			59,698

Operating income			20,730			24,927			22,060			31,098			17,880			8,536			20,607




Gain on disposition of television stations			—			72,646			—			—			—			—			—




Valuation adjustments of goodwill and other assets			—			(2,074	)		—			—			—			—			—




Appreciation (depreciation) in value of derivative, net			—			—			—			—			(1,581	)		(961	)		730




Miscellaneous income (expense), net			(31	)		(242	)		336			780			194			98			97

Income (loss) before interest expense, income taxes, extraordinary charge and cumulative effect of accounting change			20,699			95,257			22,396			31,878			16,493			7,673			21,434




Interest expense			21,861			25,454			31,021			39,957			35,783			18,167			16,866

Income (loss) before income taxes, extraordinary charge and cumulative effect of accounting change			(1,162	)		69,803			(8,625	)		(8,079	)		(19,290	)		(10,494	)		4,568




Income tax expense (benefit)			240			28,144			(2,310	)		(1,867	)		(5,972	)		(3,232	)		1,616

Net income (loss) before extraordinary charge and cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		2,952




Extraordinary charge on extinguishment of debt			—			—			—			—			—			—			(7,318	)

Net income (loss) before cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(4,366	)




Cumulative effect of accounting change, net			—			—			—			—			—			—			(30,592	)

Net income (loss)			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(34,958	)




Preferred dividends			1,410			1,318			1,010			1,012			616			308			803




Non-cash preferred dividends associated with preferred stock redemption			—			3,360			—			2,160			—			—			3,969

Net income (loss) available to common stockholders		$	(2,812	)	$	36,981		$	(7,325	)	$	(9,384	)	$	(13,934	)	$	(7,570	)	$	(39,730	)

S-16



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(dollars in thousands except per share data)




Basic earnings per common share(d):




	Net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	3.10		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)




Extraordinary charge on extinguishment of debt, net			—			—			—			—			—			—			(0.47	)




Cumulative effect of accounting change, net			—			—			—			—			—			—			(1.95	)

Net income (loss) available to common stockholders		$	(0.24	)	$	3.10		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(2.54	)

Diluted earnings per common share(d):




	Net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	2.98		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)




	Extraordinary charge on extinguishment of debt, net		—			—			—			—			—			—			(0.47	)




	Cumulative effect of accounting change, net		—			—			—			—			—			—			(1.95	)

	Net income (loss) available to common stockholders	$	(0.24	)	$	2.98		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(2.54	)

Other Data:




Media cash flow(e)		$	38,061		$	46,624		$	50,944		$	66,247		$	53,074		$	26,411		$	30,520




Media cash flow margin(e)			36.8	%		36.2	%		35.4	%		38.7	%		33.9	%		34.3	%		38.0	%




Operating cash flow(f)		$	35,533		$	43,561		$	47,496		$	62,653		$	49,459		$	24,582		$	28,404




Operating cash flow margin(f)			34.3	%		33.8	%		33.0	%		36.6	%		31.6	%		32.0	%		35.4	%




Cash flows provided by (used in):




	Operating activities	$	9,744		$	20,074		$	20,842		$	22,765		$	16,823		$	8,268		$	3,355




	Investing activities		(57,498	)		(55,299	)		(126,780	)		(8,276	)		(186,165	)		(2,679	)		154,741




	Financing activities		49,071			34,744			105,839			(14,061	)		167,685			(6,109	)		(143,184	)




Capital expenditures			10,372			9,271			11,712			5,702			7,593			2,597			8,133




Cash dividends per common share(g)			0.05			0.06			0.08			0.08			0.08			0.04			0.04




Ratio of total debt to operating cash flow			6.4	x		6.2	x		8.0	x		6.0	x		8.0	x(h)		6.2	x(i)		7.1	x(i)




Ratio of operating cash flow to interest expense			1.6			1.7			1.5			1.6			1.4			1.5	(i)		1.6	(i)




Balance Sheet Data (at end of period):




Cash and cash equivalents		$	2,367		$	1,887		$	1,787		$	2,215		$	169,115	(h)	$	1,695		$	15,470




Total intangible assets, net			263,425			376,015			526,434			511,616			497,311			504,458			457,633




Total assets			345,051			468,974			658,157			636,772			794,337	(h)		616,870			595,911




Long-term debt (including current portion)			227,076			270,655			381,702			374,887			551,444	(h)		368,557			378,878




Preferred stock			11,111			7,371			7,371			4,637			4,637			4,637			39,234




Total stockholders’ equity			92,295			126,703			168,188			155,961			142,196			148,765			98,288


(a)	Reflects the operating results of our acquisition of substantially all of the assets of WITN-TV and our acquisition of all of the outstanding common stock of GulfLink Communications, Inc. as of their respective acquisition dates, August 1, 1997 and April 24, 1997.

(b)	Reflects the operating results of our acquisition of all of the outstanding capital stock of Busse Broadcasting Corporation and our related acquisition of the assets of WEAU-TV in exchange for the assets of WALB-TV as of July 31, 1998, the closing date of the respective transactions. See Note B to our audited consolidated financial statements included elsewhere in this prospectus supplement.

(c)	Reflects the operating results of our acquisition of all of the outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company, as well as the assets of KXII Broadcasters Ltd., completed on October 1, 1999, and our acquisition of substantially all of the assets of The Goshen News from News Printing Company, Inc. and its affiliates, completed on March 1, 1999, as of their respective acquisition dates. See Note B to our audited consolidated financial statements included elsewhere in this prospectus supplement.

(d)	On August 20, 1998, our board of directors declared a 50% stock dividend, payable on September 30, 1998, to stockholders of record of our Common Stock and class A common stock on September 16, 1998. This stock dividend effected a three-for-two stock split. All applicable share and per share data have been adjusted to give effect to the stock split.

S-17


(e)	Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues.


(f)	Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues.

	We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.


(g)	Cash dividends were $0.08 per common share for all five annual periods and $0.04 per common share for the six month periods; however, the amounts for 1997 and 1998 have been adjusted for the three-for-two stock split in 1998, which is discussed in Note (d) above.

(h)	On December 21, 2001, we deposited $168.6 million with the trustee of our 10 5/8% notes to redeem those notes, including payment of principal, the applicable premium costs and accrued interest through the redemption date of January 22, 2002. Total assets include the $168.6 million reflected as restricted cash for redemption of long-term debt and long-term debt(including current portion) includes the related $155.2 million of our 10 5/8% notes that were extinguished on January 22, 2002. The ratio of total debt to operating cash flow of 8.0x is calculated on a pro forma basis which excludes the $155.2 million of our 10 5/8% notes.


(i)	Represents ratios for the 12 months ended June 30, 2002.

(j)	The following table presents the transitional disclosures regarding the adoption of SFAS 142:



															Six Months Ended
	Year Ended December 31,														June 30,

	1997(a)			1998(b)		1999(c)			2000			2001			2001			2000


	(dollars in thousands except per share data)




Reported net income (loss) before extraordinary charge and cumulative effect of accounting	$	(1,402	)	$	41,659	$	(6,315	)	$	(6,212	)	$	(13,318	)	$	(7,262	)	$	2,952




Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		4,175			5,697		8,499			11,022			11,033			5,516			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	2,773		$	47,356	$	2,184		$	4,810		$	(2,285	)	$	(1,746	)	$	2,952

Basic earnings per common share(d):




Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	3.10	$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)




Add back: amortization of goodwill and intangible assets with indefinite lives, net or tax		0.35			0.48		0.66			0.71			0.71			0.36			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.11		$	3.58	$	0.09		$	0.10		$	(0.18	)	$	(0.13	)	$	(0.12	)

Diluted earnings per common share(d):




Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.11		$	3.44	$	0.09		$	0.10		$	(0.18	)	$	(0.13	)	$	(0.12	)

S-18

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The unaudited pro forma financial data presented below is for illustrative purposes only and do not purport to be indicative of the operating results that would have actually occurred, nor do they purport to be indicative of future operating results. The unaudited pro forma financial data should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this prospectus supplement, and in conjunction with Stations’ consolidated financial statements and notes thereto included elsewhere in the accompanying prospectus.

Stations’ historical consolidated financial statements reflect the nine designated television stations to be sold prior to our acquisition of Stations as discontinued operations. Accordingly, the operating results of those stations are excluded from continuing operations and the related assets and liabilities are segregated in the balance sheet. Those stations are:

WTRF — Wheeling, WV which was sold in April 2002

WYTV — Youngstown, OH

WHOI — Peoria-Bloomington, IL

KDLH — Duluth, MN – Superior, WI

KMIZ, K02NQ, K11TB — Columbia – Jefferson City, MO

KAUZ — Wichita Falls, TX – Lawton, OK

KHQA — Quincy, IL – Hannibal, MO – Keokuk, IA

KGWN, KSTF — Cheyenne, WY – Scottsbluff, NE

KGWC, KGWL, KGWR — Casper – Riverton, WY

The unaudited pro forma combined condensed financial statements reflect the following transactions:


	•	Our acquisition of Stations in a merger transaction for total estimated consideration of $517.8 million which includes a base price of $502.5 million, additional cash consideration of $9.3 million for certain estimated net working capital, as specified in the merger agreement, and related fees and expenses of $6.0 million.

	•	Our financing the acquisition of Stations which includes (1) revising or replacing our senior credit facility to provide additional term loan borrowings of $175.0 million, (2) the issuance of $100.0 million of senior subordinated notes and (3) the sale of $306.6 million of our Common Stock for an estimated $11.15 per share, the closing price as of September 25, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our Common Stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

	•	The incurrence of an estimated $27.8 million in fees related to the financing transactions described above. The estimated costs include (1) revising our current senior credit facility and the issuance of additional senior subordinated notes for aggregate fees of $7.9 million and (2) the sale of additional shares of our Common Stock for a fee of $19.9 million. The estimated fees and expenses have been paid or are payable to various underwriters, advisors and professional service providers, including lawyers and accountants.

	•	The issuance in April 2002 of $40.0 million liquidation value of the Series C with an 8% annual dividend rate. The pro forma adjustment for our issuance of the Series C is for the period from January 1, 2001 through April 22, 2002, the date of the issuance. Subsequent to this date, the effect of the Series C issuance on our financial statements is the actual impact on our results of operations, rather than a pro forma adjustment.

The unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2002 and June 30, 2001 reflect these transactions as if they had been completed on January 1,

S-19

2001. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2001 reflects these transactions as if they had been completed on January 1, 2001. The June 30, 2002 unaudited pro forma combined condensed balance sheet reflects these transactions as if they had been completed on June 30, 2002.

The pro forma adjustments are based on the preliminary estimates of the number of shares of our Common Stock to be issued and their related value, indebtedness to be incurred and related financing terms, the amount of the specified net working capital and certain other payments as of the closing of the merger, and the transaction costs, all determined as of the closing of the merger. Accordingly, the actual amounts of these transactions are expected to differ from the pro forma financial statements.

S-20

Unaudited Pro Forma Combined Condensed Statement of Operations

For the Six Months Ended June 30, 2002


								Pro Forma
		Gray			Stations			Adjustments			Pro Forma


		(dollars in thousands except per share data)




Operating revenues:




	Broadcasting (net of agency commissions)	$	55,006		$	54,641		$	—		$	109,647




	Publishing		21,216			—			—			21,216




	Paging		4,083			—			—			4,083

			80,305			54,641			—			134,946

Expenses:




	Broadcasting		31,975			32,942			—			64,917




	Publishing		15,420			—			—			15,420




	Paging		2,754			—			—			2,754




	Corporate and administrative		2,116			3,104			(1,197	)(a)		4,023




	Depreciation and amortization		7,433			12,353			(7,562	)(b)		12,224

			59,698			48,399			(8,759	)		99,338

Operating income			20,607			6,242			8,759			35,608




Other (income) expense:




	Interest expense		16,866			21,167			(12,271	)(c)(d)		25,762




	Miscellaneous income, net		(97	)		(56	)		—			(153	)




	Appreciation in value of derivatives, net		(730	)		—			—			(730	)




	Reorganization fees and expenses		—			1,091			(1,091	)(a)		—

	Total other (income) expense, net		16,039			22,202			(13,362	)		24,879

Income (loss) from continuing operations before provision for (benefit from) income taxes			4,568			(15,960	)		22,121			10,729




Provision for (benefit from) income taxes			1,616			(6,100	)		8,406	(e)		3,922

Income (loss) from continuing operations			2,952			(9,860	)		13,715			6,807




Preferred dividends			803			16,020			(15,223	)(f)(g)		1,600




Non-cash preferred dividends associated with redemption of preferred stock			3,969		$	—		$	(3,969	)(f)		—

Income (loss) from continuing operations available to common stockholders		$	(1,820	)							$	5,207

Basic and diluted earnings (loss) per common share:




Weighted average outstanding common shares:




	Basic		15,662									43,162	(h)

	Diluted		15,662									43,538	(h)

Basic earnings (loss) per share from continuing operations available to common stockholders		$	(0.12	)							$	0.12

Diluted earnings (loss) per share from continuing operations available to common stockholders		$	(0.12	)							$	0.12

S-21


(a)	Reflects the elimination of certain historical expenses of Stations that we will not, or do not expect to, incur subsequent to the acquisition including compensation paid to certain persons who will resign concurrent with the closing of the merger, certain professional fees and other overhead costs.

(b)	Reflects adjustment to the depreciation and amortization charges to reflect the allocation of the total consideration paid by us among the assets acquired and the liabilities assumed. The adjustment is primarily the result of eliminating Stations’ amortization of amounts assigned to FCC licenses and other indefinite lived intangible assets as these assets are no longer amortized. Of our consideration estimated to be paid, $7.6 million was assigned to network affiliation agreements, which are amortized over their remaining estimated lives.

(c)	Reflects the elimination of certain historical interest expense of Stations reflecting the repayment, in full, of certain senior and subordinated debt as part of Stations’ plan of reorganization.

(d)	Reflects adjustments to include (1) interest charges of $4.6 million on the estimated $175.0 million of newly issued senior debt with an assumed effective interest rate of 5.25%, (2) interest charges of $4.6 million on the estimated $100 million of newly issued senior subordinated indebtedness with an assumed effective interest rate of 9.25%, (3) amortization of $0.5 million of the estimated $7.9 million aggregate of deferred financing charges incurred with the revised or newly issued senior credit facility with an estimated average life to maturity of 8.25 years and the offering of the senior subordinated notes with an estimated average life to maturity of 9.2 years and (4) the elimination of $0.4 million of historical amortization expense for deferred financing charges associated with our prior senior credit facility. Also reflects recognition of interest income of $0.6 million from $56.3 million of excess cash at an interest rate of 2.0%.

(e)	Reflects the provision for (benefit from) income taxes using an effective income tax rate of 38%.

(f)

Preferred dividends have been adjusted to reflect our issuance of $40.0 million liquidation value Series C with an annual dividend rate of 8%. The pro forma adjustment for our issuance of the Series C is for the period from January 1, 2001 through April 22, 2002, the date of the issuance. Subsequent to this date, the effect of the Series C issuance on our financial statements is the actual impact on our results of operations, rather than a pro forma adjustment.


(g)	Reflects elimination of historical preferred dividends of Stations as such preferred stock is extinguished in the merger.

(h)	Reflects our assumed issuance of an additional 27,500,000 shares of our Common Stock at an assumed price of $11.15 per share, the closing price as of September 25, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our Common Stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger. Diluted average outstanding common shares include 376,762 common shares related to employee stock-based compensation plans and warrants that could potentially dilute basic earnings per share in the future.

S-22

Unaudited Pro Forma Combined Condensed Statement of Operations

For the Six Months Ended June 30, 2001


									Pro Forma
			Gray			Stations			Adjustments			Pro Forma


			(dollars in thousands except per share data)




Operating revenues:




	Broadcasting (net of agency commissions)		$	52,575		$	52,028		$	—		$	104,603




	Publishing			19,927			—			—			19,927




	Paging			4,405			—			—			4,405

				76,907			52,028			—			128,935

Expenses:




	Broadcasting			32,375			32,883			—			65,258




	Publishing			15,659			—			—			15,659




	Paging			2,812			—			—			2,812




	Corporate and administrative			1,829			3,123			(1,091	)(a)		3,861




	Depreciation and amortization			15,696			10,933			(6,142	)(b)		20,487

				68,371			46,939			(7,233	)		108,077

Operating income				8,536			5,089			7,233			20,858




Other (income) expense:




		Interest expense		18,167			20,576			(11,680	)(c)(d)		27,063




		Miscellaneous income, net		(98	)		(87	)		—			(185	)




		Depreciation in value of derivatives, net		961			—			—			961

		Total other (income) expense, net		19,030			20,489			(11,680	)		27,839

Income (loss) from continuing operations before provision for (benefit from) income taxes				(10,494	)		(15,400	)		18,913			(6,981	)




Provision for (benefit from) income taxes				(3,232	)		(5,613	)		7,187	(e)		(1,658	)

Income (loss) from continuing operations				(7,262	)		(9,787	)		11,726			(5,323	)




Preferred dividends				308		$	15,102		$	(13,810	)(f)(g)		1,600

Loss from continuing operations available to common stockholders			$	(7,570	)							$	(6,923	)

Basic and diluted loss per common share:




Weighted average outstanding common shares:




	Basic and diluted			15,587									43,087	(h)

Basic and diluted loss per share from continuing operations available to common stockholders			$	(0.49	)							$	(0.16	)(i)


(a)	Reflects the elimination of certain historical expenses of Stations that we will not, or do not expect to, incur subsequent to the acquisition including compensation paid to certain persons who will resign concurrent with the closing of the merger, certain professional fees and other overhead costs.

(b)	Reflects adjustment to the depreciation and amortization charges to reflect the allocation of the total consideration paid by us among the assets acquired and the liabilities assumed. The adjustment is primarily the result of eliminating Stations’ amortization of amounts assigned to FCC licenses and other indefinite lived intangible assets as these assets are no longer amortized. Of our consideration estimated to be paid, $7.6 million was assigned to network affiliation agreements, which are amortized over their remaining estimated lives.

S-23


(c)	Reflects the elimination of certain historical interest expense of Stations reflecting the repayment, in full, of certain senior and subordinated debt as part of Stations’ plan of reorganization.

(d)	Reflects adjustments to include (1) interest charges of $4.6 million on the estimated $175.0 million of newly issued senior debt with an assumed effective interest rate of 5.25%, (2) interest charges of $4.6 million on the estimated $100 million of newly issued senior subordinated indebtedness with an assumed effective interest rate of 9.25%, (3) amortization of $0.5 million of the estimated $7.9 million aggregate of deferred financing charges incurred with the revised or newly issued senior credit facility with an estimated average life to maturity of 8.25 years and the offering of the senior subordinated notes with an estimated average life to maturity of 9.2 years and (4) the elimination of $0.4 million of historical amortization expense for deferred financing charges associated with our prior senior credit facility. Also reflects recognition of interest income of $0.6 million from $56.3 million of excess cash at an interest rate of 2.0%.

(e)	Reflects the provision for (benefit from) income taxes using an effective income tax rate of 38%.


(f)	Preferred dividends have been adjusted to reflect our issuance of $40.0 million liquidation value Series C with an annual dividend rate of 8%.


(g)	Reflects elimination of historical preferred dividends of Stations as such preferred stock is extinguished in the merger.

(h)	Reflects our assumed issuance of an additional 27,500,000 shares of our Common Stock at an assumed price of $11.15 per share, the closing price as of September 25, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our Common Stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.


(i)	The following table presents the transitional disclosures regarding the adoption of SFAS No. 142:


		Pro Forma
		Six Months Ended
		June 30, 2001

		(dollars in thousands
		except per share data)




Reported net income (loss) before extraordinary charge and cumulative effect of accounting change		$	(5,323	)




Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax			5,516

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change		$	193

Basic earnings per common share:




	Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.16	)




	Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		0.15

	Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.01	)

Diluted earnings per common share:




	Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.01	)

S-24

Unaudited Pro Forma Combined Condensed Statement of Operations

For the Year Ended December 31, 2001


								Pro Forma
		Gray			Stations			Adjustments			Pro Forma


		(dollars in thousands except per share data)




Operating revenues:




	Broadcasting (less agency commissions)	$	106,430		$	107,561		$	—		$	213,991




	Publishing		41,189			—			—			41,189




	Paging		8,725			—			—			8,725

			156,344			107,561			—			263,905

Expenses:




	Broadcasting		66,233			64,007			—			130,240




	Publishing		31,915			—			—			31,915




	Paging		5,877			—			—			5,877




	Corporate and administrative		3,615			5,946			(2,310	)(a)		7,251




	Depreciation and amortization		30,824			21,901			(12,319	)(b)		40,406

			138,464			91,854			(14,629	)		215,689

Operating income			17,880			15,707			14,629			48,216




Other (income) expense:




	Interest expense		35,783			43,361			(25,711	)(c)(d)		53,433




	Depreciation in value of derivatives, net		1,581			—			—			1,581




	Miscellaneous income, net		(194	)		(159	)		—			(353	)

	Total other (income) expense, net		37,170			43,202			(25,711	)		54,661

Income (loss) from continuing operations before provision for (benefit from) income taxes			(19,290	)		(27,495	)		40,340			(6,445	)




Provision for (benefit from) income taxes			(5,972	)		(10,165	)		15,329	(e)		(808	)

Income (loss) from continuing operations			(13,318	)		(17,330	)		25,011			(5,637	)




Preferred dividends			616		$	31,186		$	(28,602	)(f)(g)		3,200

Loss from continuing operations available to common stockholders		$	(13,934	)							$	(8,837	)

Basic and diluted loss per common share:




Weighted average outstanding common shares:




	Basic and diluted		15,605									43,105	(h)

Basic and diluted loss per share from continuing operations available to common stockholders		$	(0.89	)							$	(0.21	)(i)


(a)	Reflects the elimination of certain historical expenses of Stations that we will not, or do not expect to, incur subsequent to the acquisition including compensation paid to certain persons who will resign concurrent with the closing of the merger, certain professional fees and other overhead costs.

(b)	Includes adjustment to the depreciation and amortization charges to reflect the allocation of the total consideration estimated to be paid by us among the assets acquired and the liabilities assumed. However, the adjustment is primarily the result of eliminating Stations’ amortization of FCC licenses and goodwill, which are no longer amortized on acquisitions occurring after July 1, 2001.

S-25


(c)	Reflects the elimination of certain historical interest expense of Stations reflecting the repayment, in full, of certain senior and subordinated debt as part of Stations’ plan of reorganization.

(d)	Reflects adjustments to include (1) interest charges of $9.2 million on the estimated $175.0 million of newly issued senior debt with an assumed effective interest rate of 5.25%, (2) interest charges of $9.2 million on the estimated $100.0 million of newly issued senior subordinated indebtedness with an assumed effective interest rate of 9.25%, (3) amortization of $0.9 million of the estimated $7.9 million aggregate of deferred financing charges incurred with the revised or newly issued senior credit facility with an estimated average life to maturity of 8.25 years and the offering of the senior subordinated notes with an estimated average life to maturity of 9.2 years and (4) the elimination of $0.9 million of the historical amortization expense for deferred financing charges associated with our prior senior credit facility. Also reflects recognition of interest income of $1.1 million from $56.3 million of excess cash at an interest rate of 2.0%.

(e)	Reflects the provision for (benefit from) income taxes using an effective income tax rate of 38%.


(f)	Preferred dividends have been adjusted to reflect our issuance of $40.0 million liquidation value Series C with an annual dividend rate of 8%.


(g)	Reflects elimination of historical preferred dividends of Stations as such preferred stock is extinguished in the merger.

(h)	Reflects our assumed issuance of an additional 27,500,000 shares of our Common Stock at an assumed price of $11.15 per share, the closing price as of September 25, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our Common Stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.


(i)	The following table presents the transitional disclosures regarding the adoption of SFAS No. 142:


		Pro Forma
		Year Ended
		December 31, 2001

		(dollars in thousands
		except per share data)




Reported net income (loss) before extraordinary charge and cumulative effect of accounting change		$	(5,637	)




Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax			11,033

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change		$	5,396

Basic earnings per common share:




	Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.21	)




	Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		0.30

	Adjusted net income before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.09

Diluted earnings per common share:




	Adjusted net income before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.09

S-26

Unaudited Pro Forma Combined Condensed Balance Sheet

as of June 30, 2002


									Pro Forma
			Gray			Stations			Adjustments			Pro Forma


			(dollars in thousands except per share data)




Assets




Current assets:




	Cash and cash equivalents		$	15,470		$	4,771		$	36,011	(a)	$	56,252




	Trade accounts receivable, less allowance for doubtful accounts			26,338			23,088			(1,650	)(b)		47,776




	Recoverable income taxes			849			—			—			849




	Inventories			959			—			—			959
	Current portion of program broadcast rights,




		Net		1,729			1,260			—			2,989




	Other current assets			1,175			2,896			—			4,071




	Assets of stations held for sale			—			33,351			(33,351	)(c)		—

Total current assets				46,520			65,366			1,010			112,896




Property and equipment, net				60,647			48,579			—			109,226




Deferred loan costs, net				11,050			3,534			(1,088	)(b)(d)		13,496




FCC licenses and network affiliation agreements				403,794			210,370			242,244	(b)		856,408




Goodwill				53,151			78,099			37,031	(b)		168,281




Consulting, noncompete and other definite lived intangible assets				688			—			3,000	(b)		3,688




Other				20,061			1,799			—			21,860

Total assets			$	595,911		$	407,747		$	282,197		$	1,285,855

Current liabilities:




	Trade accounts payable and accrued expenses		$	12,202		$	17,625		$	(9,957	)(e)	$	19,870




	Accrued interest			3,585			—			—			3,585




	Current portion of program broadcast obligations			1,532			3,471			—			5,003




	Deferred revenue			3,185			265			—			3,450




	Unrealized loss on derivatives			851			—			—			851




	Current portion of long-term debt			202			1,979			—			2,181




	Liabilities of stations held for sale			—			6,365			(6,365	)(c)		—

Total current liabilities				21,557			29,705			(16,322	)		34,940




Long-term debt, less current portion				378,676			3,050			275,000	(d)		656,726




Program broadcast obligations, less current portion				550			1,120			—			1,670




Supplemental employee benefits				449			—			—			449




Deferred income taxes				55,543			28,041			85,741	(b)(d)		169,325




Other				1,615			500			—			2,115




Liabilities subject to compromise				—			425,039			(425,039	)(e)		—

Total liabilities				458,390			487,455			(80,620	)		865,225

Senior exchangeable preferred stock				—			166,604			(166,604	)(f)		—




Seller junior discount preferred stock				—			86,166			(86,166	)(f)		—




Series C preferred stock, redeemable, exchangeable, 4,000 shares, liquidation value $10,000 per share				39,234			—			—			39,234

Total preferred stock				39,234			252,770			(252,770	)		39,234

Stockholders’ equity




	Class A common stock			20,173			—			—			20,173




	Common Stock			118,721			74			286,654	(f)(g)		405,449




	Additional paid-in capital			—			(68,585	)		68,585	(f)		—




	Retained earnings (accumulated deficit)			(32,268	)		(263,516	)		259,897	(d)(f)		(35,887	)




	Stockholder’s note receivable			—			(451	)		451	(f)		—

				106,626			(332,478	)		615,587			389,735




	Treasury stock at cost, class A common			(8,339	)		—			—			(8,339	)

Total stockholders’ equity				98,287			(332,478	)		615,587			381,396

Total liabilities and stockholders’ equity			$	595,911		$	407,747		$	282,197		$	1,285,855


(a)	Assumes excess cash on hand upon concluding the merger is retained for general corporate purposes, including capital expenditures, to meet working capital needs, to refinance our senior debt, to finance one or more other acquisitions, including the Reno acquisition, or all or a combination of the above.

S-27

(b)

Reflects the acquisition of Stations for total estimated consideration of $517.8 million which includes a base price of $502.5 million, additional cash consideration of $9.3 million for certain estimated net working capital, as specified in the merger agreement, fees and expenses of $6.0 million and the allocation of the estimated consideration among the assets acquired and the liabilities assumed as of June 30, 2002. The allocation of the consideration paid is as follows:


				Disposition of
				Designated Stations
				and Accrued Interest						Opening
				on Liabilities Subject			Fair Value			Balance
Description	SHC			to Compromise			Adjustments			Sheet


	(dollars in thousands except per share data)




Cash	$	4,771								$	4,771




Accounts receivable		23,088					$	(1,650	)		21,438




Assets of stations held for sale		33,351		$	(33,351	)					—




Current portion of program broadcast rights		1,260									1,260




Other current assets		2,896									2,896




Property and equipment		48,579									48,579




Other long term assets		1,799									1,799




Deferred loan costs		3,534						(3,126	)		408




FCC licenses, network affiliation agreements and other indefinite lived intangible assets		210,370						242,244			452,614




Consulting, noncompete and other definite lived intangible assets		—						3,000			3,000




Goodwill		78,099						37,031			115,130




Trade payables and accrued expenses		(17,625	)		9,957						(7,668	)




Current portion of notes payable		(1,979	)								(1,979	)




Current portion of program broadcast obligations		(3,471	)								(3,471	)




Liabilities of stations held for sale		(6,365	)		6,365						—




Deferred revenue		(265	)								(265	)




Deferred tax liabilities		(28,041	)		3,684			(91,643	)		(116,000	)




Long term portion of program broadcast obligations		(1,120	)								(1,120	)




Long term portion of notes payable		(3,050	)								(3,050	)




Other long term liabilities		(500	)								(500	)

Total purchase price including expenses	$	345,331		$	(13,345	)	$	185,856		$	517,842

The allocation of the consideration to the assets and liabilities of Stations acquired by us will remain preliminary until we have finalized our assessment of these assets and liabilities following the acquisition. Such assessment will be based in part upon third party evaluations, which we will not receive until after the acquisition is completed.

S-28


(c)	Reflects the elimination of assets sold or to be sold and the liabilities assumed, or to be assumed, for the nine television stations, which have been or will be sold by Stations prior to our merger.

(d)	Reflects (1) our issuance of an estimated $175.0 million of senior debt with a variable interest rate based on LIBOR plus a premium which we have assumed to be 3.00% and we have further assumed for the pro forma adjustments that the effective interest rate on this debt is 5.25% and that it will have an assumed average life to maturity of 8.25 years, (2) our offering of $100 million of senior subordinated indebtedness with an assumed effective interest rate of 9.25% and an assumed average life to maturity of 9.2 years, (3) our incurring $7.9 million of deferred financing fees in connection with revising or replacing our senior credit facility and our offering of senior subordinated notes and (4) the elimination of our historical deferred financing charges of $5.8 million associated with our prior senior credit facility net of an income tax benefit assuming an effective tax rate of 38%.

(e)	Reflects the elimination of certain senior and subordinated debt and related accrued interest of Stations reflecting the repayment, in full, of such debt as part of Stations’ plan of reorganization. The cash used to make such debt repayments is a portion of the cash provided from our proposed issuance of senior debt, subordinated debt and Common Stock as discussed below.


(f)	Reflects the elimination of the historical stockholders’ equity of Stations including all preferred stock, common stock, additional paid-in capital and accumulated deficits.

(g)

Reflects our assumed issuance of an additional 27,500,000 shares of our Common Stock at an assumed price of $11.15 per share, the closing price as of September 25, 2002, net of assumed issuance costs of $19.9 million. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our Common Stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

S-29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Introduction

The following analysis of our financial condition and results of operations of Gray Television, Inc. (formerly known as Gray Communications Systems, Inc.) should be read in conjunction with our financial statements included elsewhere in this prospectus supplement and in the other documents incorporated herein by reference.

As discussed below, we have acquired several television stations, a newspaper and an equity investment in Tarzian since January 1, 1999. Most of the acquisitions have been accounted for under the purchase method of accounting. Under the purchase method of accounting, the results of operations of the acquired businesses are included in the accompanying consolidated financial statements as of their respective acquisition dates. The assets and liabilities of acquired businesses are included based on an allocation of the purchase price. The equity investment in Tarzian is accounted for under the cost method of accounting.

On October 1, 1999, we completed our acquisition of all the outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company, as well as the assets of KXII Broadcasters Ltd. We acquired the capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company in merger transactions with the shareholders of KWTX Broadcasting Company and Brazos Broadcasting Company receiving a combination of cash and our Common Stock for their shares. We acquired the assets of KXII Broadcasters Ltd. in an all cash transaction. These transactions are referred to herein as the “Texas Acquisitions.”

On March 1, 1999, we acquired substantially all of the assets of The Goshen News from News Printing Company, Inc. and affiliates thereof, which we refer to as the “Goshen Acquisition.”

See Note B of the Notes to our audited consolidated financial statements included elsewhere in this prospectus supplement for more information concerning our Texas Acquisitions, our Goshen Acquisition and our equity investment in Tarzian.

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek. We plan to acquire 15 television stations from Stations. Stations is required under the merger agreement to sell its additional nine designated television stations to third parties prior to the merger. In consideration for Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations. We expect the merger, if it closes, to be completed during the fourth quarter of 2002.

For the Six Months Ended June 30, 2002


	Cyclicality

Broadcast advertising revenues are generally highest in the second and fourth quarters each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. In addition, broadcast advertising revenues are generally higher during even numbered election years due to spending by political candidates and other political advocacy groups, which spending typically is heaviest during the fourth quarter.

S-30

Broadcasting, Publishing and Paging Revenues

Set forth below are the principal types of revenues earned by our broadcasting, publishing and paging operations for the periods indicated and the percentage contribution of each to our total revenues:



		Six Months Ended June 30,


		2002					2001

		Amount		%			Amount		%


		(dollars in thousands)




Broadcasting net revenues:




	Local	$	31,913		39.8	%	$	30,801		40.0	%




	National		16,013		19.9			15,125		19.7




	Network compensation		2,612		3.3			3,505		4.6




	Political		2,189		2.7			127		0.2




	Production and other		2,279		2.8			3,017		3.3

		$	55,006		68.5	%	$	52,575		68.4	%

Publishing net revenues:




	Retail	$	10,402		13.0	%	$	9,486		12.3	%




	Classified		6,295		7.8			6,171		8.0




	Circulation		4,032		5.0			3,747		4.9




	Other		487		0.6			523		0.7

		$	21,216		26.4	%	$	19,927		25.9	%

Paging net revenues:




	Paging lease, sales and service	$	4,083		5.1	%	$	4,405		5.7	%

Total		$	80,305		100.0	%	$	76,907		100.0	%

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Revenues. Total revenues for the six months ended June 30, 2002 increased approximately 4% to $80.3 million as compared to the same period of the prior year.


	•	Broadcasting revenues increased approximately 5% to $55.0 million. This increase in broadcasting revenues reflects the cyclical increase in political revenue. In the first half of 2002, we had revenues from political advertising of $2.2 million compared to $127,000 during the first half of 2001. Local and national advertising revenue, excluding political revenues, increased approximately 4% and 6%, respectively. These increases in advertising revenues are due in part to an improving economy. The increases in broadcasting revenue were partially offset by a decrease in network compensation and production and other revenue. The decrease in network compensation reflects the ongoing phase out of network compensation at certain of our television stations. Production and other revenue decreased due in part to a decrease in revenues from our satellite uplink business.

	•	Publishing revenues increased approximately 7% to $21.2 million. This increase was due to increases in retail advertising, classified advertising and circulation revenue. Retail advertising revenue and classified advertising revenue increased approximately 10% and 2%, respectively. The increases in retail and classified advertising were due largely to systematic account development, rate increases and an improved economy. Circulation revenue increased approximately 8% due primarily to subscription price increases.

	•	Paging revenues decreased approximately 7% to $4.1 million. The decrease was due primarily to price competition and a reduction of units in service. We had approximately 69,000 pagers and 87,000 pagers in service at June 30, 2002 and 2001, respectively.

S-31

Operating expenses. Operating expenses for the six months ended June 30, 2002 decreased approximately 13% from the same period of the prior year to $59.7 million due primarily to a decrease in broadcasting expense, publishing expense, amortization of intangibles and depreciation expense partially offset by increased corporate expenses.


	•	Broadcasting expenses decreased approximately 1% to $32.0 million. This decrease resulted primarily from lower employee compensation costs.

	•	Publishing expenses decreased approximately 2% to $15.4 million. The decrease was due primarily to decreased newsprint expense partially offset by increased publishing payroll-related costs. The lower newsprint expense resulted from a decline in newsprint prices.

	•	Paging expenses remained constant with that of the prior year at $2.8 million.

	•	Corporate and administrative expenses increased approximately 16% to $2.1 million due to higher payroll-related costs.

	•	Depreciation of property and equipment and amortization of intangible assets was $7.4 million for the six months ended June 30, 2002, as compared to $15.7 million for the same period of the prior year, a decrease of $8.3 million, or approximately 53%. Depreciation of property and equipment decreased $1.3 million or approximately 16% from the same period of the prior year. This decrease can be attributed to certain assets becoming fully depreciated in the fourth quarter of 2001. Effective January 1, 2002, we implemented the Statement of Financial Accounting Standards No. 141, “Business Combinations,” which we refer to as “SFAS 141,” and No. 142, “Goodwill and Other Intangible Assets,” which we refer to as “SFAS 142.” Under these new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with these standards. In accordance with these standards, amortization of intangibles decreased $6.9 million or approximately 97% from the same period of the prior year. Amortization expense of $6.9 million was recorded in the six months ended June 30, 2001 for goodwill and other intangibles that were no longer being amortized in the six months ended June 30, 2002.

Appreciation (depreciation) in value of derivatives, net. We record changes in market value of the interest rate swap agreement as income or expense. Accordingly, we recognized income associated with the derivative of $729,645 in the six months ended June 30, 2002 and recognized depreciation expense associated with the derivative of $960,724 for the six months ended June 30, 2001. In the prior year, depreciation was experienced primarily due to decreasing market interest rates. In the current year, market interest rates have remained low; however as interest payments on the swap agreement are made the remaining estimated liability has decreased.

Interest expense. Interest expense decreased $1.3 million, or 7.2%, to $16.9 million for the six months ended June 30, 2002 from $18.2 million for the six months ended June 30, 2001. This decrease was due to lower interest rates.

Income tax expense (benefit). An income tax expense of $1.6 million was recorded for the six months ended June 30, 2002 as compared to an income tax benefit of $3.2 million for the six months ended June 30, 2001. The recording of the expense in the current year as compared to the benefit in the prior year was attributable to having income in the current period as compared to a loss in the prior period.

Extraordinary charge on extinguishment of debt, net of income tax benefit. On December 21, 2001, we completed our sale of $180.0 million aggregate principal amount of our 9 1/4% Senior Subordinated Notes due 2011, which we refer to as the “2001 notes.” On this same date, we instructed the trustee for our 10 5/8% notes to commence the redemption in full of the 10 5/8% notes. The net proceeds from the sale of the 2001 notes was used for the redemption of the 10 5/8% notes. The redemption was completed on January 22, 2002 and all obligations associated with the 10 5/8% notes were extinguished on that date. We

S-32

recorded an extraordinary charge of $11.3 million ($7.3 million after income tax) in the quarter ended March 31, 2002 in connection with this early extinguishment of debt.

Cumulative effect of accounting change, net of income tax benefit. On January 1, 2002, we adopted SFAS 142, which requires companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, SFAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS 142 and annually thereafter. Under SFAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. As of January 1, 2002, we performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. As a result of the required impairment test, in the quarter ended March 31, 2002, we recognized a non-cash impairment of goodwill and other intangible assets of $39.5 million ($30.6 million net of income taxes). Such charge is reflected as a cumulative effect of an accounting change in the accompanying condensed consolidated statement of operations. In calculating the impairment charge, the fair value of the reporting units underlying the segments were estimated using a discounted cash flow methodology.

Preferred dividends and non-cash preferred dividends associated with exchange of preferred stock. On April 22, 2002, we issued $40.0 million (4,000 shares) of a redeemable and convertible preferred stock to a group of private investors. As part of the transaction, holders of our series A and series B preferred stock exchanged all of the outstanding shares of each respective series, an aggregate fair value of $8.6 million, for an equal number of shares of the Series C. In connection with such exchange, we recorded a non-cash constructive dividend of $4.0 million during the six months ended June 30, 2002. Preferred dividends increased to $803,362 for the six months ended June 30, 2002 as compared to $308,174 for the six months ended June 30, 2001. The increase was due to the additional outstanding preferred stock in the current year.

Net loss available to common stockholders. Net loss available to our common stockholders for the six months ended June 30, 2002 and June 30, 2001 was $39.7 million and $7.6 million, respectively.

For the Year Ended December 31, 2001


	General

We derive our revenues from our television broadcasting, publishing and paging operations. The operating revenues of our television stations are derived from broadcast advertising revenues and, to a much lesser extent, from compensation paid by the networks to the stations for broadcasting network programming. The operating revenues of our publishing operations are derived from advertising, circulation and classified revenue. Paging revenue is derived primarily from the leasing and sale of pagers. Certain information concerning the relative contributions of our television broadcasting, publishing and paging operations is provided in Note I of the Notes to the audited consolidated financial statements for the year ended December 31, 2001, included elsewhere in this prospectus supplement.

In our broadcasting operations, broadcast advertising is sold for placement either preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach, as measured by Nielsen. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming.

Most broadcast advertising contracts are short-term, and generally run only for a few weeks. Approximately 59% of the gross revenues of our television stations for the year ended December 31, 2001 were generated from local advertising, which is sold primarily by a station’s sales staff directly to local accounts, and the remainder represented primarily by national advertising, which is sold by a station’s

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national advertising sales representative. The stations generally pay commissions to advertising agencies on local, regional and national advertising and the stations also pay commissions to the national sales representative on national advertising.

Broadcast advertising revenues are generally highest in the second and fourth quarters each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. In addition, broadcast advertising revenues are generally higher during even numbered election years due to spending by political candidates, which spending typically is heaviest during the fourth quarter.

Our publishing operations’ advertising contracts are generally entered into annually and provide for a commitment as to the volume of advertising to be purchased by an advertiser during the year. The publishing operations’ advertising revenues are primarily generated from local advertising. As with the broadcasting operations, the publishing operations’ revenues are generally highest in the second and fourth quarters of each year.

Our paging subscribers either own pagers, thereby paying solely for the use of our paging services, or lease pagers, thereby paying a periodic charge for both the pagers and the paging services. The terms of the lease contracts are month-to-month, three months, six months or twelve months in duration. Paging revenues are generally equally distributed throughout the year.

The broadcasting operations’ primary operating expenses are employee compensation, related benefits and programming costs. The publishing operations’ primary operating expenses are employee compensation, related benefits and newsprint costs. The paging operations’ primary operating expenses are employee compensation and other communications costs. In addition, the broadcasting, publishing and paging operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of the broadcasting, publishing and paging operations is fixed, although we have experienced significant variability in our newsprint costs in recent years.


	Broadcasting, Publishing and Paging Revenues



		Year Ended December 31,


		2001					2000					1999

		Amount		%			Amount		%			Amount		%


		(dollars in thousands)




Broadcasting Net Revenues:




	Local	$	63,012		40.3	%	$	65,152		38.1	%	$	57,078		39.7	%




	National		31,164		19.9			31,043		18.1			26,742		18.6




Network compensation			6,902		4.4			8,311		4.9			6,480		4.5




	Political		287		0.2			9,021		5.3			622		0.4




	Production and other		5,065		3.3			7,113		4.1			6,093		4.2

		$	106,430		68.1	%	$	120,640		70.5	%	$	97,015		67.4	%

Publishing Revenues:




	Retail	$	20,132		12.9	%	$	19,569		11.4	%	$	17,760		12.3	%




	Classifieds		12,396		7.9			13,031		7.6			12,039		8.4




	Circulation		7,730		4.9			7,659		4.5			6,791		4.7




	Other		931		0.6			1,240		0.7			1,218		0.9

		$	41,189		26.3	%	$	41,499		24.2	%	$	37,808		26.3	%

Paging Revenues:




	Paging lease, sales and service	$	8,725		5.6	%	$	9,074		5.3	%	$	9,130		6.3	%

Total		$	156,344		100.0	%	$	171,213		100.0	%	$	143,953		100.0	%

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Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues. Total revenues for the year ended December 31, 2001 decreased $14.9 million, or 8.7%, over the prior year, to $156.3 million from $171.2 million. The operating results for the year ended December 31, 2001 when compared to the year ended December 31, 2000 reflect a general economic slowdown, the cyclical decline in broadcast political revenue and the economic effects of the September 11, 2001 terrorist acts on our broadcast revenues, as discussed below. The majority of the revenue decline occurred in our broadcast operations.

Broadcasting revenues decreased $14.2 million, or 11.8%, over the prior year, to $106.4 million from $120.6 million. The decline in broadcast revenues reflects, in part, the cyclical decline in political revenue. For the year 2001, we had revenues from political advertising of only $287,000 compared to $9.0 million for the year 2000. The decline in broadcast revenues also reflected a generally soft advertising market at each of our television stations during 2001. For the year 2001 compared to 2000, local sales revenues declined 3.3%, or $2.1 million, to $63.0 million from $65.1 million. National revenues increased 0.4%, or $121,000 to $31.2 million from $31.0 million for the year 2001 compared to the year 2000. We believe that our share of the television advertising expenditures earned in each of our markets remained relatively consistent between the years ended 2001 and 2000. In addition, we estimate our broadcast revenue loss attributable to the multi-day continuous commercial free coverage of the September 11, 2001 terrorist acts and the cancellation of certain broadcasting advertising contracts resulting from the attacks totaled $1.0 million. The revenue losses resulting from the terrorist attacks were isolated to the third quarter of 2001. Furthermore, network compensation declined $1.4 million for the year ended December 31, 2001 compared to the year ended December 31, 2000, primarily reflecting the terms of the renewed CBS affiliation agreements for our three stations in Texas.

Publishing revenues decreased $310,000, or 0.7%, over the same period of the prior year, to $41.2 million from $41.5 million. Revenue declines were recorded at all of our newspapers except The Gwinnett Daily Post, located in eastern suburban Atlanta. Revenues for that paper increased approximately 5.4%. The overall publishing segment’s decline in revenues reflected a relatively soft advertising market in each paper’s local service area. Aggregate classified advertising revenues decreased 4.9% while aggregate retail advertising increased 2.9% and aggregate circulation revenues increased 0.9%. The increase in retail advertising reflects the continuing growth of both The Gwinnett Daily Post, which recorded a 11.1% increase and the Rockdale Citizen which recorded a 9.9% increase for the year 2001 as compared to the same period of 2000.

Paging revenue decreased $350,000, or 3.8%, over the same period of the prior year, to $8.7 million from $9.1 million. The decline reflected, in part, increasing competition for subscribers from alternate service providers including cellular phone providers. We had approximately 75,000 pagers and 90,000 pagers in service at December 31, 2001 and 2000, respectively.

Operating expenses. Operating expenses for the year ended December 31, 2001 decreased $1.7 million, or 1.2%, over the prior year, to $138.5 million from $140.1 million. The decrease resulted primarily from our focus on cost control in the current year.

Broadcasting expenses decreased $1.5 million or 2.3%, over the year ended December 31, 2001, to $66.2 million from $67.8 million. This focus on cost control generated decreases in broadcast payroll expense of $833,000 and decreased other broadcast expense of $941,000.

Publishing expenses for the year ended December 31, 2001 increased $507,000, or 1.6%, from the same period of the prior year, to $31.9 million from $31.4 million. The increase was primarily attributable to increased newsprint costs approximating $500,000 for the year 2001 as compared to 2000.

Paging expenses decreased $259,000, or 4.2%, over the same period of the prior year, to $5.9 million from $6.1 million. The decrease in paging expenses reflected an expense reduction plan that we instituted in the prior year.

Corporate and administrative expenses remained consistent with that of the prior year at $3.6 million.

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Depreciation of property and equipment and amortization of intangible assets was $30.8 million for the year ended December 31, 2001, as compared to $31.2 million for the prior year, an increase of $383,000, or 1.2%.

Depreciation in value of derivatives, net. On January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and for Hedging Activities,” as amended, which we refer to as “SFAS 133.” Under SFAS 133, we are required to record our interest rate swap agreement at market value. It also requires us to record any changes in market value of the interest rate swap agreement after January 1, 2001 as income or expense in our statement of operations. As a result of the general decrease in market interest rates during the year ended December 31, 2001, we recognized a non-cash derivative valuation expense of $1.6 million.

Miscellaneous income (expense), net. Miscellaneous income decreased $587,000, or 75.2%, to $194,000 for the year ended December 31, 2001 from $781,000 for the year ended December 31, 2000. The change in miscellaneous income (expense) was due primarily to the gain of $522,000 recognized upon the sale of a real estate investment in December 2000.

Interest expense. Interest expense decreased $4.2 million, or 10.4%, to $35.8 million for the year ended December 31, 2001 from $40.0 million for the year ended December 31, 2000. The decrease was due primarily to lower interest rates.

Income tax expense (benefit). Income tax benefit for the year ended December 31, 2001 and 2000 was $6.0 million and $1.9 million, respectively. The increase in the current year income tax benefit was due to an increased loss before income tax as well as a higher effective income tax rate in 2001 as compared to 2000. The higher effective income tax rate was due primarily to the differences in the amount of losses and the state income tax rates in the states in which those losses were generated.

Preferred Dividends. Preferred Dividends decreased $396,000, or 39.1%, to $616,000 for the year ended December 31, 2001 from $1.0 million for the year ended December 31, 2000. The decrease was due to fewer weighted average shares outstanding in 2000 as compared to 2001. We redeemed a portion of our preferred stock in 2000.

Non-cash preferred dividends associated with the redemption of preferred stock. Non-cash preferred dividends associated with the redemption of preferred stock was $2.2 million for the year ended December 31, 2000. The dividend was recorded in association with a partial redemption of preferred stock in 2000. No such redemption occurred in 2001.

Net loss available to common stockholders. Net loss available to our common stockholders for the year ended December 31, 2001 and 2000 was $13.9 million and $9.4 million, respectively.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues. Total revenues for the year ended December 31, 2000 increased $27.2 million, or 18.9%, over the prior year, to $171.2 million from $144.0 million. This increase was primarily attributable to the effect of (i) increased revenues resulting from the acquisition of three television stations in Texas, which we refer to as the “Texas Stations,” and The Goshen News, (ii) increased political broadcast revenue and (iii) increased publishing revenues from existing publishing operations. The year 2000 results include 12 months of operations for the Texas Stations and The Goshen News as compared to three months and ten months, respectively, in the prior year.

Broadcasting revenues increased $23.6 million, or 24.4%, over the prior year, to $120.6 million from $97.0 million. Revenue from the Texas Stations, which were acquired on October 1, 1999, increased broadcasting revenues by $17.9 million over that of the prior year. Revenues from our existing broadcasting operations continuously owned since January 1, 1999, increased $5.7 million, or 6.3%, over the prior year, to $96.5 million from $90.8 million. This $5.7 million increase was due primarily to increased political advertising revenue of $7.9 million and increased production and other revenues of $783,000 offset, in part, by decreased local revenues of $2.5 million, decreased national revenues of $156,000 and decreased

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network compensation of $267,000. For all locations, political advertising revenue was $9.0 million for the year ended December 31, 2000, compared to $622,000 for the prior year.

Publishing revenues increased $3.7 million, or 9.8%, over the same period of the prior year, to $41.5 million from $37.8 million. The increase in publishing revenues was due primarily to increased revenues from our existing publishing operations and from the revenues generated by The Goshen News, which was acquired on March 1, 1999. Revenues from our existing publishing operations continuously owned since January 1, 1999 increased $3.0 million, or 9.0%, over the prior year, to $35.8 million from $32.8 million. The primary components of the $3.0 million increase in revenues from existing operations were increases in retail advertising, classified advertising and circulation revenue of $1.4 million, $920,000 and $651,000, respectively. Revenue from The Goshen News increased publishing revenues by $724,000 over that of the prior year.

Paging revenue remained at $9.1 million for 2000 and 1999. We had approximately 90,000 pagers and 88,000 pagers in service at December 31, 2000 and 1999, respectively.

Operating expenses. Operating expenses for the year ended December 31, 2000 increased $18.2 million, or 14.9%, over the prior year, to $140.1 million from $121.9 million. The increase resulted primarily from our acquisitions in 1999.

Broadcasting expenses increased $9.1 million or 15.5%, over the year ended December 31, 2000, to $67.8 million from $58.7 million. The expenses of the Texas Stations accounted for an increase in broadcasting expenses of $9.0 million. Operating expenses of the stations continuously owned since January 1, 1999, had increases in payroll and general operating expenses that were largely offset by decreases in syndicated film expense. The increase in payroll expenses of the stations continuously owned since January 1, 1999 was limited to 0.7% as a result of a cost reduction plan that we instituted in 2000.

Publishing expenses for the year ended December 31, 2000 increased $2.6 million, or 9.1%, from the prior year, to $31.4 million from $28.8 million. The increase in publishing expenses was due primarily to increased expenses from our existing publishing operations and from the expenses of The Goshen News, which was acquired on March 1, 1999. Expenses of our publishing operations owned since January 1, 1999 increased $2.3 million, or 9.0%, over the prior year, to $27.6 million from $25.3 million. The increase in expenses at our existing publishing operations was due primarily to increased payroll of $715,000, increased newsprint expense of $637,000 and increased other operating expenses of $933,000.

Paging expenses decreased $415,000, or 6.3%, over the prior year, to $6.1 million from $6.6 million. The decrease in paging expenses reflected an expense reduction plan that we instituted in year 2000.

Corporate and administrative expenses increased $146,000 or 4.2%, over the prior year, to $3.6 million from $3.4 million. This increase was primarily attributable to increased payroll expense.

Depreciation of property and equipment and amortization of intangible assets was $31.2 million for the year ended December 31, 2000, as compared to $24.5 million for the prior year, an increase of $6.7 million, or 27.6%. This increase was primarily the result of higher depreciation and amortization costs resulting from the Texas Acquisitions and the Goshen Acquisition in 1999.

Miscellaneous income (expense), net. Miscellaneous income increased $445,000, or 132.4%, to $781,000 for the year ended December 31, 2000 from $336,000 for the year ended December 31, 1999. The change in miscellaneous income (expense) of $445,000 was due primarily to the gain of $522,000 recognized upon the sale of a real estate investment in December 2000.

Interest expense. Interest expense increased $9.0 million, or 28.8%, to $40.0 million for the year ended December 31, 2000 from $31.0 million for the year ended December 31, 1999. This increase was attributable primarily to increased levels of debt resulting from the financing of the Texas Acquisitions and the Goshen Acquisition in 1999 and higher interest rates.

Income tax expense (benefit). Income tax benefit for the year ended December 31, 2000 and 1999 was $1.9 million and $2.3 million, respectively.

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Net loss available to common stockholders. Net loss available to our common stockholders for the year ended December 31, 2000 and 1999 was $9.4 million and $7.3 million, respectively.

Liquidity and Capital Resources


	General

The following tables present certain data that we believe is helpful in evaluating our liquidity and capital resources:



		Six Months Ended
		June 30,				Year Ended
						December 31,
		2002		2001		2001

Media cash flow:




	Broadcasting	$	23,292	$	20,453	$	40,768




	Publishing		5,879		4,344		9,423




	Paging		1,349		1,614		2,883

		$	30,520	$	26,411		53,074




Corporate overhead			2,116		1,829		3,615

Operating cash flow		$	28,404	$	24,582	$	49,459




Less:




	Interest expense, excluding amortization of deferred loan costs and bond discounts		16,088		17,396		34,247




	Preferred dividends declared payable in cash		803		308		616




	Common dividends declared payable in cash		627		624		1,249




	Capital expenditures		8,133		2,597		7,593

		$	2,753	$	3,657	$	5,754


	June 30, 2002		December 31, 2001

Cash and cash equivalents	$	15,470	$	558




Restricted cash for redemption of long-term debt		—		168,557




Long-term debt including current portion		378,878		551,444




Preferred stock		39,233		4,637




Available credit under senior credit agreement		37,500		32,500




Letter of credit issued under senior credit agreement		12,500		—

We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our condensed consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. For a reconciliation of media cash flow to operating income, see Note E of the Notes to our condensed consolidated financial statements included elsewhere in this prospectus supplement.

We and our subsidiaries file a consolidated federal income tax return and such state or local tax returns as are required. As of June 30, 2002, we anticipate, for federal and certain state income taxes, that we will generate taxable operating losses for the foreseeable future.

At June 30, 2002, the balance outstanding and the balance available under our senior credit agreement were $200.0 million and $37.5 million, respectively, and the interest rate on the balance

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outstanding was 5.3%. We have established a $12.5 million letter of credit in connection with the proposed acquisition of Stations. If the transaction does not close under certain circumstances, Stations could draw upon the letter of credit. At June 30, 2001, the balance outstanding and the balance available under our senior credit agreement were $208.3 million and $56.3 million, respectively, and the effective interest rate on the balance outstanding was 7.4%.

Our management believes that current cash balances, cash flows from operations and available funds under our senior credit agreement will be adequate to provide for our capital expenditures, debt service, cash dividends and working capital requirements for the foreseeable future.

Our management does not believe that inflation in past years has had a significant impact on our results of operations nor is inflation expected to have a significant effect upon our business in the near future.


	Stations Acquisition

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek. The merger agreement provides that we will acquire Stations by merging our newly formed wholly-owned subsidiary, Gray MidAmerica, into Stations. For Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations. We may pay additional cash consideration currently estimated at $9.3 million for certain estimated net working capital, as specified in the merger agreement. Benedek plans to sell or already has sold, prior to the effective time of the merger, a total of nine designated television stations. Upon completion of the merger, we will own a total of 28 stations serving 24 television markets. Based on results for the year ended December 31, 2001, the combined Gray and Benedek television stations produced $214.0 million of net revenue and $84.7 million of broadcast cash flow. Including our publishing and other operations, the combined Gray and Benedek operations for 2001 produced $263.9 million of net revenue and $97.0 million of media cash flow.

We intend to finance the merger by incurring approximately $250 million of additional indebtedness and issuing approximately $307 million of equity. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

For advisory services rendered by Bull Run Corporation, Inc., which we refer to as “Bull Run,” in connection with the merger, we advanced to Bull Run an advisory fee of $5.0 million on June 10, 2002. This advisory fee must be repaid to us if the merger is not completed. We do not intend to compensate Bull Run for any such advisory or similar services in the future. Bull Run is one of our principal investors. We currently estimate that the total transaction fees we will incur relating to this acquisition, including the advisory fee to Bull Run, underwriting and other debt issuance fees and other professional service fees including attorneys and accountants will be between $25 million and $30 million.

In conjunction with the execution of the merger agreement, we executed a $12.5 million letter of credit under our existing senior credit agreement and deposited 885,269 shares of our Common Stock with an escrow agent.

We expect the merger, if it closes, to be completed during the fourth quarter of 2002.

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	Issuance of Series C Preferred Stock

On April 22, 2002, we issued $40.0 million (4,000 shares) of redeemable and convertible preferred stock to a group of private investors. The preferred stock was designated as Series C preferred stock and has a liquidation value of $10,000 per share.

The Series C is convertible into our Common Stock at a conversion price of $14.39 per share, subject to certain adjustments. The Series C will be redeemable at our option on or after April 22, 2007 and will be subject to mandatory redemption on April 22, 2012 at liquidation value. Dividends on the Series C will accrue at 8% per annum until April 22, 2009 after which the dividend rate shall be 8.5% per annum. Dividends, when declared by our board of directors, may be paid at our option in cash or additional shares of Series C.

As part of the transaction, holders of our series A and series B preferred stock have exchanged all of the outstanding shares of each respective series, an aggregate fair value of $8.6 million, for an equal number of shares of the Series C. The excess of the $8.6 million liquidation value of the series A and series B preferred stock over its carrying value of $4.6 million was charged to retained earnings upon the exchange in April 2002. Upon closing this transaction, the Series C is our only currently outstanding preferred stock.

Net cash proceeds approximated $30.6 million, after transaction fees and expenses and excluding the value of the series A and series B preferred stock exchanged into the Series C. We used the net cash proceeds to repay all current outstanding borrowings of $13.5 million under our revolving credit facility and intend to use the remaining net cash proceeds for other general corporate purposes.


	Digital Television Conversion

We currently are broadcasting a digital signal at five of our thirteen stations: WRDW in Augusta, Georgia; KWTX in Waco, Texas; WEAU in Eau Claire, Wisconsin; KXII in Sherman, Texas; and WKYT in Lexington, Kentucky. We have commenced installation of similar systems at several of our other television stations. We currently intend to have all such required installations completed as soon as practicable. Currently, the FCC requires that all stations be operational by May of 2002. As necessary, we have requested and received approval from the FCC to extend the May 2002 deadline by six months for all of our remaining stations that are not currently broadcasting in digital format. Given our good faith efforts to comply with the existing deadline and the facts specific to each extension request, we believe the FCC will grant any further deadline extension requests that become necessary.

The estimated total multi-year (1999 through 2004) cash capital expenditures required to implement initial digital television broadcast systems will approximate $31.7 million. As of June 30, 2002, we have incurred $13.1 million of such costs. The remaining $18.6 million of equipment or services currently is expected to be purchased during the remainder of 2002 and the first half of 2003. The cash payments for these purchases are expected to occur in 2002, 2003 and 2004.


	Income Taxes

The Internal Revenue Service, which we refer to as the “IRS,” is auditing our federal tax returns for the years ended December 31, 1996 and 1998.

In October 2001, we received a notice of deficiency from the IRS associated with its audit of our 1996 and 1998 federal income tax returns. The IRS alleges in the notice that we owe $12.1 million of tax plus interest and penalties stemming from certain acquisition related transactions, which occurred in 1996. Additionally, if the IRS is successful in its claims, we would be required to account for these acquisition transactions as stock purchases instead of asset purchases which would significantly lower the tax basis in the assets acquired. We believe the IRS claims are without merit and on January 18, 2002 filed a petition to contest the matter in United States Tax Court. We cannot predict when the tax court will conclude its ruling on this matter.

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Acquisition of Equity Investment in Tarzian

On December 3, 2001, we exercised our option to acquire 301,119 shares of the outstanding common stock of Tarzian from Bull Run, our principal shareholder. Bull Run had purchased these same shares from the Estate of Mary Tarzian, which we refer to as the “Estate,” in January 1999.

The acquired shares of Tarzian represent 33.5% of the total outstanding common stock of Tarzian (both in terms of the number of shares of common stock outstanding and in terms of voting rights), but such investment represents 73% of the equity of Tarzian for purposes of dividends if paid as well as distributions in the event of any liquidation, dissolution or other sale of Tarzian.

Tarzian is a closely held private company that owns and operates two television stations and four radio stations: WRCB-TV Channel 3 in Chattanooga, Tennessee, an NBC affiliate; KTVN-TV Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM and WTTS-FM in Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana. The Chattanooga and Reno markets are the 86th and the 110th largest DMA in the United States, respectively, as ranked by Nielsen.

We paid $10.0 million to Bull Run to complete the acquisition of the 301,119 shares of Tarzian. We have previously capitalized and paid to Bull Run $3.2 million of costs associated with our option to acquire these shares. This acquisition was accounted for under the cost method of accounting and reflected as a non-current other asset.


	Litigation concerning Acquisition of Equity Investment in Tarzian

On February 12, 1999, Tarzian filed a complaint against Bull Run and U.S. Trust Company of Florida Savings Bank as Personal Representative of the Estate in the United States District Court for the Southern District of Indiana. Tarzian claims that it had a binding and enforceable contract to purchase the Tarzian shares from the Estate prior to Bull Run’s purchase of the shares, and requested judgment providing that the contract be enforced. On May 3, 1999, the action was dismissed without prejudice against Bull Run, leaving the Estate as the sole defendant. The litigation between the Estate and Tarzian is ongoing and we cannot predict when the final resolution of the litigation will occur.

If the United States District Court for the Southern District of Indiana finds that U.S. Trust Company of Florida Savings Bank had a binding contract with Tarzian prior to the sale of the Tarzian shares to us and after final judgment, a court ordered us to relinquish ownership of the Tarzian shares, then we would be entitled to reimbursement for our initial investment and related carrying costs by U.S. Trust Company of Florida Savings Bank.

Commitments

We have future minimum annual commitments under bank and other debt agreements, noncancelable operating leases, various television film exhibition rights and for digital advanced television, which we refer to as “DTV,” equipment. Future minimum payments under bank and other debt agreements, operating leases with initial or remaining noncancelable lease terms in excess of one year, obligations under film exhibition rights for which the license period had not yet commenced and commitments for DTV equipment that had been ordered but not yet been received are as follows:


	Bank and Other Debt		DTV
Year	Agreements		Equipment		Lease		Film		Total


	(dollars in thousands)




2002	$	155,262	$	12,452	$	1,512	$	2,504	$	171,730




2003		68		3,436		911		4,740		9,155




2004		56		—		679		3,688		4,423




2005		—		—		544		1,857		2,401




2006		—		—		460		227		687




Thereafter		396,058		—		6,982		—		407,463

	$	551,444	$	15,888	$	11,088	$	13,016	$	591,444

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Through a partnership agreement with Host Communications, Inc., a wholly owned subsidiary of Bull Run, we have also acquired certain collegiate broadcast rights for sporting events through a five-year marketing agreement that commenced April 1, 2000. Our annual obligation will be determined, in part, by the number of events broadcast under the agreement; however, our obligation will not exceed $2.2 million annually.

Certain Relationships

J. Mack Robinson, Chairman and Chief Executive Officer and one of our directors is Chairman of the Board of Bull Run, one of our principal stockholders, and a beneficial owner of Bull Run’s common stock. Robert S. Prather, Jr., President and Chief Operating Officer and one of our directors, is President, Chief Executive Officer and a director of Bull Run and a beneficial owner Bull Run’s common stock. Hilton H. Howell, Jr., Vice Chairman and one of our directors, is Vice President, Secretary and a director of Bull Run.

J. Mack Robinson, Chairman and Chief Executive Officer and one of our directors and certain of his affiliates were the holders of all of our series A and series B preferred stock and, following the conversion of our series A and series B preferred stock, they currently are the holders of approximately 860 shares of our Series C preferred stock.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We consider the following accounting policies to be critical policies that require judgments or estimations in their application where variances in those judgments or estimations could make a significant difference to future reported results.


	Intangible Assets

Intangible assets are stated at cost and are amortized using the straight-line method. Goodwill, licenses and network affiliation agreements are amortized over 40 years. Non-compete agreements are amortized over the life of the specific agreement. Intangible assets, net of accumulated amortization, resulting from business acquisitions were $497.3 million and $511.6 million as of December 31, 2001 and 2000, respectively.

If facts and circumstances indicate that these assets may be impaired, an evaluation of continuing value would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with these assets would be compared to their carrying amount to determine if a write down to fair market value or discounted cash flow value is required.

In June 2001, the Financial Accounting Standards Board issued SFAS 141 and SFAS 142, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. We adopted the new rules effective January 1, 2002. During 2002, we will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets. The initial valuation date is January 1, 2002. We have not completed these initial valuation tests and have not yet determined what the effect of these tests will be on our earnings and financial position.


	Income Taxes

We have deferred tax assets related to (a) $68.0 million in federal operating loss carryforwards which expire during the years 2012 through 2021 and (b) a portion of $125.0 million of various state operating loss carryforwards. Recoverability of these deferred tax assets requires at least, in part, generation of

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sufficient taxable income prior to expiration of the loss carryforwards. The calculation of our deferred tax assets and deferred tax liabilities are based, in part, upon certain assumptions and estimations by our management.


	Accounting for Derivatives

On January 1, 2001, we adopted SFAS 133. SFAS 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes “special accounting” for those that qualify as hedges. Changes in the fair value of derivatives that do not meet the hedged criteria are included in earnings in the same period of the change.

We recognized depreciation in the value of our derivative during the year ended December 31, 2001 and a liability as of December 31, 2001 in the amount of $1.6 million, respectively. This amount is based upon an estimate made by our management after consulting with the bank who is providing the derivative. In future periods, changes to this estimate will not only affect the recorded liability but also the amount of depreciation or appreciation in the value of the derivative recognized.

Outlook

With the adoption of Regulation FD by the Securities and Exchange Commission, we are providing this guidance to widely disseminate our outlook for the full year 2002. The guidance being provided is based on the economic and market conditions as of August 1, 2002. We can give no assurances as to how changes in those conditions may affect the current expectations. We assume no obligation to update the guidance or expectations contained in this “Outlook” section. All matters discussed in this “Outlook” section are forward-looking and, as such, persons relying on this information should refer to the “Forward-Looking Statements” section contained elsewhere herein.


	Outlook for Full Year 2002

For the third quarter of 2002, we anticipate total net revenues will be approximately 15% ahead of the third quarter of 2001. We believe total operating cash flow for the third quarter of 2002 will exceed that of 2001 by approximately 50%. We also believe our broadcast net revenues for the third quarter of 2002 will exceed the results of the third quarter of 2001 by approximately 20% and broadcast media cash flow will exceed that of the third quarter of 2001 by approximately 60%. We estimate third quarter 2002 publishing revenue will exceed the results of the third quarter of 2001 by approximately 7% with a corresponding increase in media cash flow of approximately 40% over the results of the third quarter of 2001.

For the full year 2002, before giving effect to the merger and the Reno acquisition, we currently anticipate total net revenue will increase by approximately 7% to 8% over 2001 levels and total operating cash flow will show a corresponding increase of 25% to 26% over the results of the full year 2001. We currently anticipate broadcast net revenues for full year 2002 compared to 2001 will increase by 10% and broadcast media cash flow will exceed 2001 results by at least 25%. We currently believe our publishing revenues for full year 2002 compared to 2001 will increase by approximately 5% and publishing media cash flow will increase by approximately 30% over full year 2001 results.

We currently anticipate closing the merger and the Reno acquisition during the fourth quarter of 2002. On a pro forma basis assuming that these acquisitions had been completed on January 1, 2002, we anticipate that the total pro forma net revenue for the year ended December 31, 2002 will range between $290 million and $295 million and that the related operating cash flow will range between $109 million and $111 million.

Revenue generation, especially in light of current general economic conditions, is subject to many factors beyond our control. Accordingly, our ability to forecast future revenue, within the current economic environment, is limited and actual results may vary substantially from current expectations.

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At present, we anticipate that total operating expenses, excluding depreciation and amortization, for each of our operating segments for the full year 2002, will be slightly less than or equal to 2001 results. These generally favorable operating expense expectations reflect our on-going expense control and reduction efforts at all of our operating locations.

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BUSINESS OF GRAY

Our Business

We believe that the merger represents an excellent opportunity for us to acquire complementary television stations that will create significant operational and financial benefits. These benefits include increased economies of scale, greater geographic and network diversification, access to additional operating cash flow, cross-promotion opportunities and the potential to increase and enhance our local franchises. Upon the completion of the proposed merger, we will own and operate 28 television stations serving 24 markets with a strong presence in the Southeast, Southwest, Midwest and Great Lakes regions of the United States. The combined station group will include 15 CBS affiliates, seven NBC affiliates and six ABC affiliates. In addition, our 15 CBS affiliates will make us the largest independent owner of CBS affiliated stations in the country. Pro forma for the acquisition, 25 of our 28 television stations will rank first or second in viewing audience and 23 of our 28 television stations will rank first or second in local news within their respective markets. In addition, our station group will reach approximately 5% of total U.S. TV households.

Operating & Growth Strategy


	•	*Focus on Local News and Programming to Maintain a Strong Local Franchise.* We currently operate 13 network affiliated television stations serving 11 markets, with 12 of our 13 stations ranked first or second in local news. After completion of the merger with Stations, we will operate 28 network affiliated television stations serving 24 markets, with 23 of our 28 stations ranked first or second in local news. We endeavor to make each of our television stations a highly recognizable, local brand through the depth, quality and focus of its local news, programming and

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		community involvement. We believe that providing the leading source for local news and programming in our markets enables us to strengthen audience loyalty and increase viewership among attractive demographic audiences. As a result, we believe that the strength of our local franchises enables us to maximize advertising revenues from local, regional and national accounts. We believe that our commitment to local news, programming and community involvement is essential to our ability to serve each of the communities in which we operate and provides us with a strong competitive advantage.

	•	*Continue to Develop Innovative Local Sales and Targeted Marketing Initiatives.* We employ an experienced, high-quality local sales force at each station to increase advertising revenue by leveraging our local brand. In 2001, approximately 59% of our net television advertising revenue was generated from our local advertisers and pro forma for the proposed merger with Stations, approximately 60% of our net television advertising revenue would have been generated from our local advertisers. Additionally, our net revenue from local television advertisers represented approximately 67% of the combined total of our local and national net advertising revenues and, pro forma for the proposed merger with Stations, approximately 68% of the combined total of our local and national net advertising revenues would have been generated from local television advertisers. Our goal is to develop customized advertising campaigns for our customers, which directly target their desired audience and address their long-term advertising objectives. We believe that a focused, tailored advertising solution is very attractive to local advertisers, who have historically been a more stable source of revenue than national advertisers. In addition to focusing on expanding our relationships with existing advertisers, we seek to identify and create new relationships with local, regional and national customers in our markets. Each station’s sales personnel are trained to understand local advertisers’ needs and are required to meet performance standards with respect to client activity, including new customer identification.

	•	*Capitalize on Leading Network Brands in Markets with Limited Competition.* Currently, ten of our stations are affiliated with CBS and three are affiliated with NBC, representing approximately 81% and 19% of our total television revenue in 2001, respectively. Following the completion of the merger, we will have a broad and diverse portfolio of 28 affiliated television stations located in 24 markets, of which 15 are affiliated with CBS, seven are affiliated with NBC and six are affiliated with ABC, representing approximately 56%, 29% and 15% of our total pro forma net television revenue in 2001, respectively. Additionally, we will be the largest independent owner of CBS affiliated stations. Our network affiliations provide our television stations with top-rated programming, which complements and enhances our leading local brand. We believe that our markets are less competitive than larger DMAs. Of our 24 markets, 16 markets are served by four TV stations or fewer, and seven markets are served by three or fewer television stations. Our markets also typically have fewer radio stations than larger DMAs.

	•	*Pursue Strategic Acquisitions to Expand and Enhance Our Regional Clusters.* We have acquired and integrated successfully 12 of our 13 television stations since 1993, and have signed a definitive agreement to acquire an additional 15 television stations from Stations. After giving effect to the proposed merger, our television stations will be located in several distinct regions throughout the United States, with significant presence in the Southeast, Southwest, Midwest and Great Lakes regions, diminishing potential adverse effects on our business caused by specific regional economic fluctuations. We believe that we are well positioned to participate in further consolidation of our industry, including opportunities that may arise as a result of future regulatory changes. For example, a number of the FCC’s most restrictive ownership regulations, including newspaper-television cross ownership and television duopoly rules, are currently under review and could be relaxed in the future, providing us with further attractive growth opportunities. In pursuing future acquisitions, we intend to focus on network affiliated television stations in medium-sized markets that offer superior growth. Specifically, we pursue television stations proximate to our existing clusters, as evidenced by the proposed merger with Stations in which five of the 15 television stations we intend to acquire are adjacent to markets in which we currently own and operate

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		television stations. Additionally, we focus on acquiring television stations where we can successfully implement our operating strategies to establish leading local news, increase revenue and audience share, develop relevant regional content and reduce costs.

	•	*Attract and Retain High-Quality Management.* We believe that high-quality management at both the corporate and station level is critical to the successful implementation of our strategy. We use equity incentives to attract and retain station general managers with proven track records. Members of our senior management team have extensive experience in operating, managing and acquiring television stations, and include: J. Mack Robinson, Chairman and Chief Executive Officer; Robert Prather, President and Chief Operating Officer; James Ryan, Senior Vice President and Chief Financial Officer. Following the completion of the merger, James Yager, President of Benedek will be President of Gray MidAmerica Television, Inc. Additionally, our station managers have an average of over 21 years of industry experience with individual industry experience ranging from 11 to 32 years.

	•	*Maintain Strict Financial Planning and Cost Controls.* We employ a comprehensive ongoing strategic planning and budgeting process that enables us to continually identify and implement cost savings at each station, and is designed to increase our media cash flow. We believe that owning and operating 28 television stations will enable us to achieve economies of scale and reduce expenses for syndicated programming, capital equipment and vendor services. Furthermore, we believe that the synergies generated through geographic clustering, further enhanced by the Stations acquisition and the realization of technological and automation efficiencies, will enable us to achieve additional cost savings in the near future.

	•	*Increase Advertising Revenue and Circulation at Our Newspaper Publishing Operations.* We seek to increase advertising revenues and circulation at each of our four newspapers by creating a highly recognizable local brand by focusing on the depth and quality of our coverage of local news, sports and lifestyles and through community involvement. We believe we are able to differentiate our publications from larger competitors and build reader loyalty by becoming the primary source for local news and advertising information within each of our target markets. We also sponsor community events with the objective of strengthening our community relationships. We employ an experienced local sales force to increase advertising revenue by leveraging our local brand. Through our ongoing strategic planning and budgeting process, we continually identify and implement cost savings at each newspaper to increase our media cash flow. In 2001, publishing represented approximately 16% of our total pro forma net revenue. Our newspaper strategy is led by senior managers and publishers who have an average of over 32 years of experience in the newspaper business with individual experience ranging from 20 to 40 years. Our publishing operations are led by Thomas J. Stultz, Vice President and President-Publishing.

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Television Broadcasting

The following is a list of all our stations pro forma following the merger. In markets where we have satellite stations and stations that serve distant communities, the figures have been combined.


													FCC				Station
									Network Affiliation				License		Station		News		Commercial
	DMA						Analog						Renewal		Rank in		Rank in		Stations in
	Rank (a)		Market	Station			Channel		Network		Expiration		Date		DMA(b)		DMA(c)		DMA(d)

*		63	Knoxville, TN		WVLT			8		CBS		12/31/04		8/1/05		2(tied)		3		5
*		65	Lexington, KY		WKYT			27		CBS		12/31/04		8/1/05		1		1		5
*		Note(f)	Hazard, KY		WYMT			57		CBS		12/31/04		8/1/05		1		1
		66	Wichita– Hutchinson, KS		KAKE			10		ABC		1/1/06		6/1/06		3		3		6
			(Colby, KS)		KLBY	(e)		4		ABC		1/1/06		6/1/06
			(Garden City, KS)		KUPK	(e)		13		ABC		1/1/06		6/1/06
		78	Omaha, NE		WOWT			6		NBC		1/1/12		6/1/06		1		1		5
		86	Madison, WI		WMTV			15		NBC		1/1/12		12/1/05		2		3		4
*		93	Waco–Temple– Bryan, TX		KWTX			10		CBS		12/31/05		8/1/06		1		1		6
*			(Bryan, TX)		KBTX	(g)		3		CBS		12/31/05		8/1/06		1		1
		94	Colorado Springs, CO		KKTV			10		CBS		6/30/05		4/1/06		1		1		5
*		102	Lincoln–Hastings– Kearney, NE		KOLN			10		CBS		12/31/05		6/1/06		1		1		5
*			(Grand Island, NE)		KGIN	(h)		11		CBS		12/31/05		6/1/06
*		103	Greenville–New Bern–Washington, NC		WITN			7		NBC		12/31/11		12/1/04		2		2		4
*		107	Tallahassee, FL– Thomasville, GA		WCTV			6		CBS		12/31/04		4/1/05		1		1		5
		111	Lansing, MI		WILX			10		NBC		1/1/12		10/1/05		1		1		4
*		115	Augusta, GA		WRDW			12		CBS		3/31/05		4/1/05		1		1		4
*		123	La Crosse– Eau Claire, WI		WEAU			13		NBC		12/31/11		12/1/05		1		1		4
		134	Wausau– Rhinelander, WI		WSAW			7		CBS		6/30/05		12/1/05		1		1		4
		135	Rockford, IL		WIFR			23		CBS		6/30/05		12/1/05		2		1		4
		138	Topeka, KS		WIBW			13		CBS		6/30/05		6/1/06		1		1		4
*		159	Panama City, FL		WJHG			7		NBC		12/31/11		2/1/05		1		1		3
*		160	Sherman, TX–Ada, OK		KXII			12		CBS		12/31/05		8/1/06		1		1		2
		171	Dothan, AL		WTVY			4		CBS		6/30/05		4/1/05		1		1		3
		178	Harrisonburg, VA		WHSV			3		ABC		11/1/04		10/1/04		1		1		1
		180	Bowling Green, KY		WBKO			13		ABC		11/1/04		8/1/05		1		1		2
		185	Meridian, MS		WTOK			11		ABC		11/1/04		6/1/05		1		1		3
		188	Parkersburg, WV		WTAP			15		NBC		1/1/12		10/1/05		1		1		1
																			(Approximately 5% of all US television households)

[Additional columns below]

[Continued from above table, first column(s) repeated]


	In Market
	Share of		Television
	Household		Households (a)
	Viewing (b)		(in thousands)

*		22%		490
*		35%		454
*		39%		169
		21%		445
		36%		387
		30%		349
*		42%		304
*
		33%		303
*		54%		267
*
*		30%		266
*		57%		256
		39%		248
*		35%		241
*		39%		218
		42%		176
		32%		176
		49%		168
*		50%		131
*		74%		121
		69%		98
		97%		86
		83%		82
		66%		71
		96%		64

				5,437


*	Denotes a television station currently owned by Gray.


(a)	Based on data published by Nielsen.
(b)	Based on Nielsen data for the May 2002 rating period, Sunday to Saturday, 6 a.m. to 2 a.m.
(c)	Based on our review of the Nielsen data for the May 2002 rating period during various news hours.
(d)	We have included only stations that BIA has reported at one share or more in three of the four most recent rating periods.
(e)	KLBY and KUPK are satellite stations of KAKE under FCC rules.


(f)	Special 16 county trading area defined by Nielsen and is part of the Lexington, KY DMA.


(g)	KBTX is a satellite station of KWTX under FCC rules.
(h)	KGIN is a satellite station of KOLN under FCC rules.

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Our Markets

Below is a brief description of the market for each of our stations. All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the tables titled “Competitive Landscape” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period. The news ranking information is based on our management’s review of the Nielsen Station Index, Viewers in Profile, dated May 2002. As NBC affiliate stations broadcasted the Olympic games during February 2002, their ratings for this period reflect a higher than normal viewership. “CAGR” refers to compound annual growth rate and “EBI” refers to effective buying income. EBI statistics reflect data for 2000 and 2005. In the “Competitive Landscape” tables below, we have included only stations that BIA has reported at one share or more in three of the four most recent rating periods.

Knoxville, Tennessee

WVLT, a CBS affiliate, was acquired by us in September 1996 and began operations in 1988. It is the second ranked station, with the third ranked news program, in the Knoxville, Tennessee market. The Knoxville area is a center for education, manufacturing, healthcare and tourism. The University of Tennessee’s main campus with approximately 26,000 students is located within the city of Knoxville. Leading manufacturing employers in the area include: Lockheed Martin Energy Systems, Inc., DeRoyal Industries, Aluminum Company of North America, Phillips Consumer Electronics North America Corp., Clayton Homes and Sea Ray Boats, Inc.

Market Overview


	2001		2006		CAGR


	(In Thousands)




DMA Population		1,208		1,277		1.12	%




Retail Sales	$	17,255	$	22,109		5.08




EBI		19,317		25,203		5.46




Gross Market Revenue		68,700		77,600		2.47




Average Household Income		40.3		NA

Competitive Landscape

Share Summary

9 AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WBIR-TV

NBC

VHF

Gannett Company, Inc.

WVLT-TV

CBS

VHF

Gray Television, Inc.

WATE-TV

ABC

VHF

Young Broadcasting Inc.

WTNZ

FOX

UHF

Raycom Media, Inc.

WBXX-TV

UHF

Acme Communications, Inc.

Lexington and Hazard, Kentucky

WKYT, a CBS affiliate, was acquired by us in September 1994 and began operations in 1957. It is ranked first in total viewers and in news programming in the Lexington, Kentucky market. The Lexington area is a regional hub for shopping, business, healthcare, education and cultural activities. Major employers in the Lexington area include Toyota Motor Corp., Lexmark International, Inc., ALLTEL Corporation, Square D Company, Ashland, Inc., the University of Kentucky and International Business Machines Corporation. Eight hospitals are located in Lexington, reinforcing Lexington’s position as a regional medical center. The University of Kentucky’s main campus with approximately 25,000 students is located in Lexington. Frankfort, the capital of Kentucky is located within WKYT’s service area. WYMT,

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WKYT’s sister station, is located in the Lexington DMA. In addition, the Lexington market is adjacent to the Bowling Green, Kentucky market where we intend to acquire WBKO, an ABC affiliate, in the merger.

WYMT, a CBS affiliate, was acquired by us in September 1994 and began operations in 1985. It is ranked first in total viewers and in news programming in the Hazard, Kentucky market, a special 16 county trading area defined by Nielsen. The mountain region of eastern and southeastern Kentucky where Hazard is located is on the outer edges of four separate markets: Bristol-Kingsport-Johnson City, Charleston-Huntington, Knoxville and Lexington. Prior to the start of WYMT’s operations in 1985, mountain residents relied primarily on satellite dishes and cable television carrying distant signals for their television entertainment and news. WYMT is the only commercial television station in this 16-county trading area and we generally consider it to be a distinct television market even though WYMT is technically included in the Lexington market. WYMT is the sister station of WKYT and shares many resources and simulcasts some local programming with WKYT. The trading area’s economy is primarily centered around coal and related industries, such as natural gas and oil.

Market Overview


	2001		2006		CAGR


	(In Thousands)




DMA Population		1,153		1,210		0.97	%




Retail Sales	$	13,381	$	15,738		3.30




EBI		17,241		22,236		5.22




Gross Market Revenue		55,300		67,600		4.10




Average Household Income		39.2		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WKYT-TV

CBS

UHF

Gray Television, Inc.

WLEX-TV

NBC

UHF