Gray Media - 10-Q quarterly report FY

 

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GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)

(in thousands except for per share data)

(in thousands except for number of shares)

(in thousands)

NOTE A—BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements of Gray Television, Inc. (“Gray”, “we”, “us”, “our” or “the Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. The Company’s operations consist of one reportable segment. Operating results for the six month period ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, refer to the consolidated financial statements and footnotes thereto included in Gray’s Annual Report on Form 10-K for the year ended December 31, 2005.

     On January 1, 2006, Gray adopted Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”), Share Based Payment. Prior to January 1, 2006, Gray accounted for stock-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The intrinsic value method of accounting resulted in our recognition of expense over the vesting period of restricted stock awards. The expense recognized was equal to the fair value of the restricted shares on the date of grant based on the number of shares granted and the quoted price of our common stock. Under the intrinsic value method we did not recognize any compensation costs for our stock options because the exercise prices of the options were equal to the market prices of the underlying stock on the date of grant.

     Gray adopted SFAS123(R) using the modified prospective method, which requires measurement of compensation cost for all stock based awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The recognized expense is net of expected forfeitures and the restatement of prior periods is not required. The fair value of restricted stock is determined based on the number of shares granted and the quoted market price of our common stock. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for options in footnote disclosures under Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, as amended by Statement of Financial Accounting Standards No. 148,Accounting for Stock Based Compensation – Transition and Disclosure.

     On March 29, 2005, the Securities and Exchange Commission (“SEC”) published Staff Accounting Bulletin No. 107 (“SAB 107”), which provides the Staff’s views on a variety of matters related to stock based payments. SAB 107 requires that stock based compensation be classified in the same expense line items as cash compensation. The application of SFAS 123(R) had the following effect on the three months and six months ended June 30, 2006 reported amounts relative to amounts that would have been reported using the intrinsic value method under previous accounting (in thousands, except per share amounts):

     No stock options were granted during the six months ended June 30, 2006. The fair value for each stock option granted in the six months ended June 30, 2005 was estimated at the date of grant using the Black-Scholes option pricing model, using weighted average assumptions as follows: risk free interest rate 3.7%; dividend yield of 0.81%; volatility of the expected market price of the Company’s stock of 0.33 and a weighted average expected life of the options of 4.28 years. The Company’s expected forfeitures were 2.5%. Expected volatilities are based on historical volatilities of our common stock and Class A common stock. The expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to the vesting schedules and our historical exercise patterns. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected life of the option. Expected forfeitures were estimated based on historical forfeiture rates.

NOTE A—BASIS OF PRESENTATION (Continued)

     Stock based compensation for the six months ended June 30, 2005 was determined using the intrinsic value method. The following table provides supplemental information for the three and six months ended June 30, 2005 as if stock-based compensation had been computed under SFAS 123(R) (in thousands, except per share data):

     Gray computes earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“EPS”). The following table reconciles weighted average shares outstanding – basic to weighted average shares outstanding – diluted for the three and six months ended June 30, 2006 and 2005 (in thousands):

     For all periods presented the Company generated net income; therefore, common stock equivalents related to employee stock-based compensation plans, warrants and convertible preferred stock were included in the computation of diluted earnings per share to the extent that their exercise costs and conversion prices exceeded market value. The number of antidilutive common stock equivalents excluded from diluted earnings per share for the respective periods are as follows (in thousands):

NOTE A—BASIS OF PRESENTATION (Continued)

     During the month of July 2006, the Company purchased 898,100 shares of its own common stock (ticker: GTN) for a total cost of $5.6 million. Theses shares are currently held in treasury.

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

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109, (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires management to evaluate its open tax positions that exist on the date of initial adoption in each jurisdiction. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has not yet determined the effect of implementing this standard.

     On March 3, 2006, the Company acquired all of the capital stock of Michiana Telecasting Corporation, operator of WNDU-TV, from The University of Notre Dame. The total cost was $88.8 million, which included the contract price of $85.0 million, working capital adjustments of $3.4 million and transaction costs of $0.4 million. WNDU-TV serves the South Bend – Elkhart, Indiana television market and is an NBC affiliate. In January 2006, the Company borrowed $100.0 million under its senior credit facility. These funds were used to fund the acquisition of WNDU-TV and to reduce other portions of the Company’s then outstanding revolving credit facility debt.

     The acquisition of WNDU-TV was accounted for under the purchase method of accounting. Under the purchase method of accounting, the results of operations of an acquired business are included in the accompanying condensed consolidated financial statements as of its acquisition date. The identifiable assets and liabilities of the acquired business are recorded at their estimated fair values with the excess of the purchase price over such identifiable net assets allocated to goodwill. The amounts assigned to these assets and liabilities are preliminary pending receipt of all transactional costs. The following table summarizes the preliminary fair values of the assets acquired and the liabilities assumed at the date of the acquisition of WNDU-TV (in thousands):

     The goodwill recorded in association with the acquisition is not deductible for income tax purposes. Broadcast licenses and goodwill are indefinite lived intangible assets.

     On November 30, 2005, the Company acquired the assets of WSAZ-TV. The Company’s acquisitions of WNDU-TV and WSAZ-TV are significant in comparison to the Company’s previously existing operations. Therefore, the following unaudited pro forma information is provided to disclose the effect of both acquisitions.

     This unaudited pro forma operating data does not purport to represent what the Company’s actual results of operations would have been had the Company acquired WNDU-TV and WSAZ-TV on January 1, 2005 and should not serve as a forecast of the Company’s operating results for any future periods. The pro forma adjustments are based solely upon certain assumptions that management believes are reasonable under the circumstances at this time. Unaudited pro forma operating data for the three and six months ended June 30, 2006 and 2005 are presented as though WNDU-TV and WSAZ-TV had been acquired at the beginning of the respective periods as follows (in thousands, except per common share data):

     In addition to the operating results of WNDU-TV and WSAZ-TV, the pro forma results presented above include adjustments to reflect (i) additional interest expense associated with debt to finance the acquisition, (ii) depreciation and amortization of assets acquired and (iii) the income tax effect of such pro forma adjustments.

     On December 30, 2005, the Company completed the spinoff of all of the outstanding stock of Triple Crown Media, Inc. (“TCM”). Immediately prior to the spinoff, the Company contributed all of the membership interests in Gray Publishing, LLC which owned and operated the Company’s Gray Publishing and GrayLink Wireless businesses and certain other assets to TCM. The financial position and results of operations of the publishing and wireless businesses are reported in the Company’s consolidated balance sheet and statement of operations as discontinued operations for the three and six months ended June 30, 2005.

     As of December 31, 2005, Gray’s senior credit facility consisted of a revolving facility, term loan A facility and a term loan B facility. In addition, an incremental loan facility was also made available under the senior credit facility. On January 31, 2006, Gray borrowed $100.0 million under the incremental loan facility (term loan C) partially to finance the acquisition of WNDU-TV as well as to reduce the outstanding revolving credit facility.

     The amount outstanding under the senior credit facility as of June 30, 2006 was $601.8 million and was allocated as follows: revolving loan of $4.0 million, term loan A of $150.0 million, term loan B of $348.3 million and term loan C of $99.5 million. As of June 30, 2006, Gray had $96.0 million of available credit under the senior credit facility.

     During the six months ended June 30, 2006, Gray repurchased $1.1 million, face amount, of its Senior Subordinated Notes due 2011 (the “9¹/4% Notes”) in the open market. Associated with this repurchase, Gray recorded a loss upon early extinguishment of debt of $110,000. As of June 30, 2006, Gray’s 9¹/4% Notes had a balance outstanding of $256.6 million excluding unaccreted discount of $0.7 million.

     The 9¹/4% Notes are jointly and severally guaranteed (the “Subsidiary Guarantees”) by all of Gray’s subsidiaries (the “Subsidiary Guarantors”). The obligations of the Subsidiary Guarantors under the Subsidiary Guarantees are subordinated, to the same extent as the obligations of Gray in respect of the 9¹/4% Notes, to the prior payment in full of all existing and future senior debt of the Subsidiary Guarantors (which will include any guarantee issued by such Subsidiary Guarantors of any senior debt).

     Gray is a holding company with no material independent assets or operations, other than its investment in its subsidiaries. The aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of Gray on a consolidated basis. The Subsidiary Guarantors are, directly or indirectly, wholly owned subsidiaries of Gray and the Subsidiary Guarantees are full, unconditional and joint and several. All of the current and future direct and indirect subsidiaries of Gray are guarantors of the 9¹/4% Notes. Accordingly, separate financial statements and other disclosures of each of the Subsidiary Guarantors are not presented because Gray has no independent assets or operations, the guarantees are full and unconditional and joint and several and any subsidiaries of the parent company other than the Subsidiary Guarantors are minor. The senior credit facility is collateralized by substantially all of Gray’s existing and hereafter acquired assets except for real estate.

     On February 9, 2006, the Company entered into an interest rate swap agreement having a notional amount of $100.0 million. Under this agreement, the Company will pay at an annual fixed rate of 5.05% and receive interest at the 90 day LIBOR rate. The swap agreement will expire on January 3, 2007.

     During the month of July 2006, Gray purchased and retired $3.5 million, face amount, of its 9.25% Senior Subordinated Notes.

     The following table provides the components of net periodic benefit cost for Gray’s pension plans for the three and six months ended June 30, 2006 and 2005, respectively (in thousands):

     During the three and six months ended June 30, 2006, Gray contributed $791,000 and $1.5 million to its pension plans respectively. During the remainder of 2006, Gray expects to contribute an additional $2.1 million to its pension plans.

     On December 30, 2005, the Company completed the spinoff of TCM. As a result of the change in the underlying value of the Company’s common stock, on January 3, 2006, the Company adjusted the exercise price and corresponding number of options in its incentive plans. The adjustment affected all of the employees holding the Company’s stock options. All of the other terms and conditions of the options remained unchanged. The fair market value of the options outstanding prior to the adjustment was equal to the fair market value of the outstanding options after the adjustment. Therefore the adjustment did not result in an accounting charge for the Company.

     On September 16, 2002, the shareholders of the Company approved the 2002 Long Term Incentive Plan (the “2002 Incentive Plan”), which replaced the prior long-term incentive plan, the 1992 Long Term Incentive Plan. Originally, the 2002 Incentive Plan had 2.8 million shares of the Company’s common stock reserved for grants to key personnel for (i) incentive stock options, (ii) non-qualified stock options, (iii) stock appreciation rights, (iv) restricted stock awards and (v) performance awards, as defined by the 2002 Incentive Plan. On May 26, 2004, the shareholders of the Company approved an amendment to the 2002 Incentive Plan, which increased the number of shares reserved for issuance thereunder by two million shares to a total of 4.8 million shares. As of June 30, 2006, 2.6 million shares were available for issuance under the 2002 Incentive Plan. Shares of common stock underlying outstanding options or performance awards are counted against the 2002 Incentive Plan’s maximum shares while such options or awards are outstanding. Under the 2002 Incentive Plan, the options granted typically vest after a two-year period and expire three years after full vesting. However, options will vest immediately upon a “change in control” of the Company as such term is defined in the 2002 Incentive Plan. All options have been granted with purchase prices that equal the market value of the underlying stock on the date of the grant. During 2003, the Company granted 100,000 shares of restricted stock to the Company’s president of which 60,000 shares were fully vested as of June 30, 2006. During 2003 and in connection with this grant, the Company recorded a liability for unearned compensation of $1.4 million.

     On May 14, 2003, the Company’s shareholders approved a restricted stock plan for its Board of Directors (the “Directors’ Restricted Stock Plan”). The Company has reserved 1.0 million shares of the Company’s common stock for issuance under this plan and as of June 30, 2006 there were 880,000 shares available for award. The Directors’ Restricted Stock Plan replaced the Company’s non-employee director stock option plan. Under the Directors’ Restricted Stock Plan, each director can be awarded up to 10,000 shares of restricted stock each calendar year. Under this plan, the Company granted 55,000 and 5,000 shares of restricted common stock, in total, to its directors during the six months ended June 30, 2006 and 2005, respectively. Of the total shares granted to the directors since the beginning of the directors’ plan, 40,000 shares were fully vested as of June 30, 2006.

     The total amount of unearned compensation for all restricted stock was originally equal to the market value of the shares as of the date of grant. The unearned compensation is being amortized as an expense over the vesting period of the stock. Unearned compensation for all outstanding restricted stock as of June 30, 2006 and December 31, 2005 was $968,000 and $736,000, respectively. Upon the adoption of SFAS 123(R), this liability was reclassified from unearned compensation to common stock.

     Included in expenses recognized in the three and six months ended June 30, 2006 is $193,000 and $391,000 of non-cash expense for stock-based compensation. The amounts presented for the three and six months ended June 30, 2005 include $98,000 and $196,000 respectively for non-cash stock based compensation related to restricted stock awards.

     A summary of the Company’s stock option activity for class A common stock, and related information, for the six months ended June 30, 2006 is as follows (in thousands, except weighted average data):

     The exercise price for class A common stock options outstanding as of June 30, 2006 is $15.39. The weighted-average remaining contractual life of the class A common stock options outstanding is 2.4 years.

     A summary of the Company’s stock option activity for common stock, and related information for the six months ended June 30, 2006 is as follows (in thousands, except weighted average data):

     Information concerning common stock options outstanding has been segregated into four groups with similar option prices and is disclosed as follows:

     The closing market price of the Company’s common stock was less than the exercise price for all of the company’s outstanding stock options. Therefore, outstanding options as of June 30, 2006 and options vested during the six months ended June 30, 2006 had no intrinsic value. No options were exercised in the six months ended June 30, 2006.

     All of the Company’s options for its class A common stock are vested. The following table summarizes the Company’s non-vested options for its common stock and restricted shares during the six months ended June 30, 2006:

     As of June 30, 2006, there was $1.2 million of total unrecognized compensation cost related to all nonvested share based compensation arrangements. The cost is expected to be recognized over a weighted average period of 1.3 years.

     On May 14, 2003, the Company’s shareholders approved the adoption of the Gray Television, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”). The Stock Purchase Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code and to provide eligible employees of the Company with an opportunity to purchase the Common Stock through payroll deductions. An aggregate of 500,000 shares of the Common Stock are reserved for issuance under the Stock Purchase Plan and are available for purchase, subject to adjustment in the event of a stock split, stock dividend or other similar change in the common stock or the capital structure of the Company. As of June 30, 2006, 383,840 shares were available under the plan. The price per share at which shares of common stock may be purchased under the Stock Purchase Plan during any purchase period is 85% of the fair market value of the common stock on the last day of the purchase period. The Company’s board of directors has the discretion to establish a different purchase price for a purchase period provided that such purchase price will not be less than 85% of the fair market value of the Common Stock on the transaction date. For the three and six months ended June 30, 2006, the Company expensed approximately $26,000 and $56,000, respectively. For the three and six months ended June 30, 2005, the Company expensed approximately $41,000 and $63,000, respectively.

     A summary of changes in the Company’s goodwill and other intangible assets for the six months ended June 30, 2006 is as follows (in thousands):

     As of June 30, 2006 and December 31, 2005, the Company’s intangible assets and related accumulated amortization consisted of the following (in thousands):

     During the six months ended June 30, 2006, the Company recorded $85.5 million of additional intangible assets. Of this amount, $84.7 million was associated with the acquisition of WNDU-TV and this amount was allocated among goodwill, broadcast licenses and definite lived intangible. Also, $862,000 was related to additional costs related to the acquisition of WSAZ-TV and this amount was allocated to WSAZ-TV’s goodwill. Based on the current amount of intangible assets subject to amortization, the amortization expense for the succeeding five years is as follows: 2006: $1.1 million; 2007: $806,000; 2008: $773,000; 2009: $558,000 and 2010: $467,000. As acquisitions and dispositions occur in the future, actual amounts may vary from these estimates.

     The Company is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions, will not materially affect the Company’s financial position.

     The Company has an equity investment in Sarkes Tarzian, Inc. (“Tarzian”) representing shares in Tarzian which were originally held by the estate of Mary Tarzian (the “Estate”). As described more fully below, the Company’s ownership of the Tarzian shares was subject to certain litigation, which has now concluded.

     On February 12, 1999, Tarzian filed suit in the United States District Court for the Southern District of Indiana against U.S. Trust Company of Florida Savings Bank as Personal Representative of the Estate, claiming that Tarzian had a binding and enforceable contract to purchase the Tarzian shares from the Estate. On February 3, 2003, the Court entered judgment on a jury verdict in favor of Tarzian for breach of contract and awarded Tarzian $4.0 million in damages. The Estate appealed the judgment and the Court’s rulings on certain post-trial motions, and Tarzian cross-appealed. On February 14, 2005, the U.S. Court of Appeals for the Seventh Circuit issued a decision concluding that no contract was ever created between Tarzian and the Estate, reversing the judgment of the District Court, and remanding the case to the District Court with instructions to enter judgment for the Estate. Tarzian’s petition for rehearing was denied by the Seventh Circuit Court of Appeals, and the U.S. Supreme Court denied Tarzian’s petition for certiorari. Tarzian also filed a motion for a new trial in the District Court based on the Estate’s alleged failure to produce certain documents in discovery. The District Court denied Tarzian’s motion, the Seventh Circuit Court of Appeals affirmed the District Court’s ruling, and on June 12, 2006 the U.S. Supreme Court denied Trazian’s petition for certiorari, ending the litigation between Tarzian and the Estate.

     On March 7, 2003, Tarzian filed suit in the United States District Court for the Northern District of Georgia against Bull Run Corporation and the Company for tortious interference with contract and conversion. The lawsuit alleged that Bull Run Corporation and the Company purchased the Tarzian shares with actual knowledge that Tarzian had a binding agreement to purchase the stock from the Estate. The lawsuit sought damages in an amount equal to the liquidation value of the interest in Tarzian that the stock represented, which Tarzian claimed to be as much as $75.0 million, as well as attorneys’ fees, expenses, and punitive damages. The lawsuit also sought an order requiring the Company and Bull Run Corporation to turn over the stock certificates to Tarzian and relinquish all claims to the stock. On May 27, 2005, the Court issued an Order administratively closing the case pending resolution of Tarzian’s lawsuit against the Estate in Indiana federal court. On July 26, 2006, following the conclusion of the Indiana federal case, the parties filed a Stipulation of Dismissal with Prejudice in the Georgia federal case, ending the litigation between Tarzian, Bull Run Corporation, and the Company.

     Through a rights-sharing agreement with Host Communications, Inc. (“Host”), a wholly owned subsidiary of TCM, a related party, the Company participated jointly with Host in the marketing, selling and broadcasting of certain collegiate sporting events and in related programming, production and other associated activities related to the University of Kentucky. The initial agreement which commenced April 1, 2000 terminated April 15, 2005. As of December 31, 2005, Host owed $1.6 million to the Company, which was reported as a related party receivable. This amount was collected in full during the first quarter of 2006.

     On October 12, 2004, the University of Kentucky jointly awarded a new sports marketing agreement to the Company and Host. The new agreement commenced on April 16, 2005 and has an initial term of seven years with the option to extend the license for three additional years. Aggregate license fees to be paid to the University of Kentucky over a full ten year term for the agreement will be approximately $80.5 million. The Company and Host will share equally the cost of the license fees. During the three months and six months ended June 30, 2006, the Company recognized losses under the sports marketing agreement of $135,000 and $71,000, respectively. The contract is recorded as a non-current related party investment of $3.4 million as of June 30, 2006 and $1.7 million as of December 31, 2005.

     The following analysis of the financial condition and results of operations of Gray Television, Inc. (“the Company” or “Gray”) should be read in conjunction with Gray’s financial statements contained in this report and in Gray’s annual report filed on Form 10-K for the year ended December 31, 2005.

     Gray Television, Inc. is a television broadcast company headquartered in Atlanta, GA. Gray operates 36 television stations serving 30 markets. Each of the stations are affiliated with either CBS (17 stations), NBC (10 stations), ABC (8 stations), or Fox (1 station). In addition, Gray currently operates 13 digital multi-cast television channels which are currently affiliated with either UPN or Fox in certain of its existing markets.

     The operating revenues of the Company’s television stations are derived primarily from broadcast advertising revenues and, to a much lesser extent, from ancillary services such as production of commercials and tower rentals as well as compensation paid by the networks to the stations for network programming.

     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 the A. C. Nielsen Company. 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 71% of the net revenues of the Company’s television stations for the six months ended June 30, 2006, were generated from local advertising (including political advertising revenues), 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 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 years due to spending by political candidates, which spending typically is heaviest during the fourth quarter. Consistent with this trend the Company has earned $6.5 million of political advertising revenue during the six months ended June 30, 2006.

     The primary operating expenses are employee compensation, related benefits and programming costs. In addition, the operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of the operations is fixed.

     On March 3, 2006, the Company acquired all of the outstanding capital stock of Michiana Telecasting Corporation, operator of WNDU-TV, from The University of Notre Dame. The total cost was $88.8 million, which included the contract price of $85.0 million, working capital adjustments of $3.4 million and transaction costs of $0.4 million. WNDU-TV serves the South Bend – Elkhart, Indiana television market and is an NBC affiliate. In

January 2006, the Company borrowed $100.0 million under its senior credit facility. These funds were used to fund the acquisition of WNDU-TV and to reduce other portions of the Company’s then outstanding revolving credit facility debt.

     On December 30, 2005, the Company completed the spinoff of all of the outstanding stock of Triple Crown Media, Inc. (“TCM”). Immediately prior to the spinoff, the Company contributed all of the membership interests in Gray Publishing, LLC which owned and operated the Company’s Gray Publishing and GrayLink Wireless businesses and certain other assets, to TCM. The financial position and results of operations of the publishing and wireless businesses are reported in the Company’s consolidated balance sheet and statement of operations as discontinued operations for the three and six months ended June 30, 2006.

     Set forth below are the principal types of broadcast revenues earned by Gray for the periods indicated and the percentage contribution of each to Gray’s total revenues (dollars in thousands):