SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		for the fiscal year ended December 31, 2008 or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		for the transition period from                      to                     .

GRAY TELEVISION, INC.

(Exact Name of Registrant as Specified in Its Charter)

Georgia		58-0285030
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
4370 Peachtree Road, NE
Atlanta, GA		30319
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (404) 504-9828

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class A Common Stock (no par value)		New York Stock Exchange
Common Stock (no par value)		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     The aggregate market value of the voting stock (based upon the closing sales price quoted on the New York Stock Exchange) held by non-affiliates as of June 30, 2008: Class A and Common Stock; no par value – $126,853,103.

     The number of shares outstanding of the registrant’s classes of common stock as of February 27, 2009: Class A Common Stock; no par value – 5,753,020 shares; Common Stock, no par value – 42,837,106 shares.

     Portions of the registrant’s definitive proxy statement for the annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A is incorporated by reference into Part III hereof.

 

 

Gray Television Inc.

INDEX

PART OR ITEM		DESCRIPTION		PAGE
PART I
Item 1.		Business		3
Item 1A.		Risk Factors		15
Item 1B.		Unresolved Staff Comments		22
Item 2.		Properties		23
Item 3.		Legal Proceedings		23
Item 4.		Submission of Matters to a Vote of Security Holders		23
Item 4A.		Executive Officers of the Registrant		23
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		25
Item 6.		Selected Financial Data		30
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk		49
Item 8.		Financial Statements and Supplementary Data		50
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		104
Item 9A.		Controls and Procedures		104
Item 9B		Other Information		104
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		104
Item 11.		Executive Compensation		105
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		105
Item 13.		Certain Relationships and Related Transactions, and Director Independence		106
Item 14.		Principal Accountant Fees and Services		106
Part IV
Item 15.		Exhibits and Financial Statement Schedules		107
SIGNATURES				110
EX-10.9
EX-10.10
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART 1

Item 1. Business.

     In this Annual Report, unless otherwise indicated, the words “we,” “us,” and “our” refer to Gray Television, 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.”

     Our common stock, no par value, and our Class A common stock, no par value, have been listed and traded on The New York Stock Exchange (the “NYSE”) since September 24, 1996 and June 30, 1995, respectively. The ticker symbols are “GTN” for our common stock and “GTN.A” for our Class A common stock.

     Unless otherwise indicated, all station rank, in-market share and television household data herein are derived from reports prepared by A.C. Nielsen Company (“Nielsen”).

General

     As of the filing date of this Annual Report, we own 36 television stations serving 30 television markets. Seventeen of the stations are affiliated with CBS Inc., or “CBS,” ten are affiliated with the National Broadcasting Company, Inc., or “NBC,” eight are affiliated with the American Broadcasting Company, or “ABC” and one is affiliated with FOX Entertainment Group, Inc. or “FOX.” The combined station group has 21 markets with stations ranked #1 in local news audience and 21 markets with stations ranked #1 in overall audience within their respective markets based on the results of the average of the Nielsen November, July, May and February 2008 ratings reports. Of the 30 markets that we serve, we operate the #1 or #2 ranked station in 29 of those markets. The combined TV station group reaches approximately 6.1% of total U.S. TV households. In addition, we currently operate 38 digital second channels including one affiliated with ABC, four affiliated with FOX, seven affiliated with The CW Network, LLC (“CW”), 16 affiliated with Twentieth Television, Inc. (“MyNetworkTV” or “MyNet.”) and one affiliated with Universal Sports Network or (“Univ.”) plus eight local news/weather channels and one independent channel in certain of our existing markets. With 17 CBS affiliated stations, we are the largest independent owner of CBS affiliates in the country.

     In 1993, we implemented a strategy to foster growth through strategic acquisitions and certain select divestitures. Since January 1, 1994, our significant acquisitions have included 33 television stations. We completed our most recent acquisition on March 3, 2006.

Acquisitions, Investments and Divestitures

     We did not purchase any television stations during 2008. Our other acquisition, investment and divestiture activities during the most recent five years are described below.

2006 Acquisition

     On March 3, 2006, we completed the acquisition of the stock of Michiana Telecasting Corp., owner of WNDU-TV, the NBC affiliate in South Bend, Indiana, from the University of Notre Dame for $88.9 million, which included certain working capital adjustments and transaction fees. We financed this acquisition with borrowings under our senior credit facility.

2005 Spinoff

     On December 30, 2005, we completed the spinoff of all of the outstanding stock of Triple Crown Media, Inc. (“TCM”). Immediately prior to the spinoff, we contributed all of the membership interests in Gray Publishing, LLC which owned and operated our Gray Publishing and GrayLink Wireless businesses and certain other assets, to TCM. In the spinoff, each of the holders of our common stock received one share of TCM common stock for every ten shares of our common stock and each holder of our Class A common stock received one share of TCM common stock for every ten shares of our Class A common stock. As part of the spinoff, we received a cash dividend of approximately $44.0 million from TCM, which we used to reduce our outstanding indebtedness on December 30, 2005.

2005 Acquisitions

     On November 30, 2005, we completed the acquisition of the assets of WSAZ-TV, the NBC affiliate in Charleston-Huntington, West Virginia from Emmis Communications Corp. for approximately $185.8 million in cash plus certain transaction fees. We financed this acquisition with borrowings under our senior credit facility.

     On November 10, 2005, we completed the acquisition of the assets of WSWG-TV, the UPN affiliate serving the Albany, Georgia television market from P.D. Communications, LLC for $3.75 million in cash. We used a portion of our cash on hand to fund this acquisition. Subsequent to the acquisition, we obtained a CBS affiliation for this station.

     On January 31, 2005, we completed the acquisition of KKCO-TV from Eagle III Broadcasting, LLC for approximately $13.5 million plus certain transaction fees. KKCO-TV, Channel 11 serves the Grand Junction, Colorado television market and is an NBC affiliate. We used a portion of our cash on hand to fully fund this acquisition.

     During 2005, we acquired a Federal Communications Commission (“FCC”) license to operate a low power television station, WAHU-TV, in the Charlottesville, Virginia television market. The FOX broadcast network has agreed to an affiliation agreement to allow us to operate WAHU-TV as a FOX affiliate.

2004 Acquisition

     On August 17, 2004, we completed the acquisition of an FCC television license for WCAV-TV, Channel 19, in Charlottesville, Virginia from Charlottesville Broadcasting Corporation. Our cost to acquire that FCC license was approximately $1.0 million. CBS Inc. agreed to a ten-year affiliation agreement to allow us to operate WCAV-TV as a CBS affiliate.

Our Stations and Their Markets

     The following table is a list of all our owned and operated television stations.

Primary Network

DMA

Primary

Secondary

Broadcast

Station

News

Rank

Network

Network

License

Rank in

Rank in

(a)

Market

Station

Affil.(b)

Exp.

Affil.(b)

Exp.

Expiration

DMA (c)

DMA (d)

59

Knoxville, TN

WVLT

CBS

12/31/14

MyNet.

12/31/08

08/01/05

(h)

2

2

63

Lexington, KY

WKYT

CBS

12/31/14

CW

09/17/14

08/01/05

(h)

1

1

65

Charleston/Huntington, WV

WSAZ

NBC

01/01/12

MyNet.

09/05/09

10/01/12

1

1

69

Wichita/Hutchinson, KS

KAKE

ABC

12/31/13

NA

NA

06/01/06

(h)

2

2

(Colby, KS)

KLBY (e)

ABC

12/31/13

NA

NA

06/01/06

(h)

2

2

(Garden City, KS)

KUPK (e)

ABC

12/31/13

NA

NA

06/01/06

(h)

2

2

76

Omaha, NE

WOWT

NBC

01/01/12

Ind.

NA

06/01/06

(h)

2

1

85

Madison, WI

WMTV

NBC

01/01/12

News

NA

12/01/05

(h)

2

2

89

South Bend, IN

WNDU

NBC

12/31/11

NA

NA

08/01/13

2

2

91

Colorado Springs, CO

KKTV

CBS

12/31/14

MyNet.

09/05/09

04/01/06

(h)

1

2

News

NA

1

2

94

Waco-Temple-Bryan, TX

KWTX

CBS

12/31/14

CW

12/31/14

08/01/06

(h)

1

1

(Bryan, TX)

KBTX (f)

CBS

12/31/14

CW

12/31/14

08/01/06

(h)

1

1

103

Greenville/New Bern/

WITN

NBC

01/01/12

News

NA

12/01/04

(h)

2

1

Washington, NC

105

Tallahassee, FL/

WCTV

CBS

12/31/14

MyNet.

09/05/09

04/01/13

1

1

Thomasville, GA

106

Lincoln/Hastings/Kearney, NE

KOLN

CBS

12/31/14

MyNet.

09/05/09

06/01/06

(h)

1

1

Grand Island, NE

KGIN (g)

CBS

12/31/14

NA

NA

06/01/06

(h)

1

1

108

Reno, NV

KOLO

ABC

12/31/13

Univ.

01/09/11

10/01/06

(h)

1

1

114

Lansing, MI

WILX

NBC

01/01/12

News

NA

10/01/05

(h)

2

1

115

Augusta, GA

WRDW

CBS

12/31/14

MyNet

12/31/14

04/01/13

1

1

News

NA

127

La Crosse/Eau Claire, WI

WEAU

NBC

01/01/12

News

NA

12/01/05

(h)

1

1

132

Rockford, IL

WIFR

CBS

12/31/14

News

NA

12/01/05

(h)

1

2

135

Wausau/Rhinelander, WI

WSAW

CBS

12/31/14

MyNet.

09/05/09

12/01/05

(h)

1

2

News

NA

138

Topeka, KS

WIBW

CBS

12/31/14

MyNet.

02/18/09

06/01/06

(h)

1

1

147

Albany, GA

WSWG

CBS

12/31/14

MyNet.

09/05/09

04/01/13

3

NA (i)

151

Panama City, FL

WJHG

NBC

01/01/12

CW

09/17/12

02/01/05

(h)

1

1

MyNet.

09/05/09

161

Sherman,TX/Ada, OK

KXII

CBS

12/31/14

FOX

06/30/11

08/01/06

(h)

1

1

MyNet.

09/05/09

172

Dothan, AL

WTVY

CBS

12/31/14

CW

09/01/08

04/01/13

1

1

MyNet.

09/05/09

178

Harrisonburg, VA

WHSV

ABC

12/31/13

ABC

12/31/13

10/01/12

1

1

FOX

06/30/11

MyNet.

09/05/09

Primary Network

DMA

Primary

Secondary

Broadcast

Station

News

Rank

Network

Network

License

Rank in

Rank in

(a)

Market

Station

Affil.(b)

Exp.

Affil.(b)

Exp.

Expiration

DMA (c)

DMA (d)

182

Bowling Green, KY

WBKO

ABC

12/31/13

FOX

06/30/08

08/01/05

(h)

1

1

CW

09/01/08

183

Charlottesville, VA

WCAV

CBS

12/31/14

NA

NA

10/01/12

2

2

WVAW

ABC

12/31/13

NA

NA

10/01/12

4

4

WAHU

FOX

06/30/11

MyNet.

09/05/09

10/01/12

3

3

184

Grand Junction, CO

KKCO

NBC

01/01/16

NA

NA

04/01/06

(h)

1

1

185

Meridian, MS

WTOK

ABC

12/31/13

CW

09/17/08

06/01/05

(h)

1

1

MyNet.

09/05/09

193

Parkersburg, WV

WTAP

NBC

01/01/12

FOX

06/30/11

10/01/04

(h)

1

1

MyNet.

09/05/09

(j)

Hazard, KY

WYMT

CBS

12/31/14

NA

NA

08/01/05

(h)

1

1

Television Industry Background

     Licenses to operate a television station are granted by the FCC. Historically, there have been a limited number of channels available for broadcasting in any one geographic area.

     Television station revenues are primarily derived from local, regional and national advertising and, to a much lesser extent, from retransmission consent fees, network compensation and revenues from

studio and tower space rental and commercial production activities. Advertising refers primarily to advertisements broadcast by stations, but it also includes advertisements placed on a station’s websites. Advertising rates are based upon a variety of factors, including a program’s popularity among the viewers an advertiser wishes to attract, 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. Rates are also determined by a station’s overall ratings and in-market share, as well as the station’s ratings and share among particular demographic groups which an advertiser may be targeting. Because broadcast stations rely on advertising revenues, they are sensitive to cyclical changes in the economy. The sizes of advertisers’ budgets, which are affected by broad economic trends, affect the broadcast industry in general and the revenues of individual broadcast television stations.

     All television stations in the country are grouped by Nielsen, a national audience measuring service, into approximately 210 generally recognized television markets that are ranked in size according to various formulae based upon actual or potential audience. Each DMA is an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. Nielsen periodically publishes data on estimated audiences for the television stations in the various television markets throughout the country.

     Four major broadcast networks, ABC, NBC, CBS and FOX, dominate broadcast television. FOX, CW and MyNetworkTV provide their affiliates with a smaller portion of each day’s programming, compared to affiliates of ABC, NBC and CBS.

Network Affiliation of the Stations

     The affiliation of a station with ABC, NBC, CBS and FOX has a significant impact on the composition of the station’s programming, revenues, expenses and operations. A typical affiliate of these networks receives the majority of each day’s programming from the network. This programming, along with cash payments (“network compensation”) in certain instances, is provided to the affiliate by the network in exchange for a substantial majority of the advertising time available for sale during the airing of network programs. The network then sells this advertising time and retains the revenues. The affiliate retains the revenues from time sold during breaks between network programs and in programs the affiliate produces or purchases from non-network sources. In acquiring programming to supplement programming supplied by the affiliated network, the affiliates compete primarily with other affiliates and independent stations in their markets. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations. In addition, a television station may acquire programming through barter arrangements. Under barter arrangements, a national program distributor will retain a fixed amount of advertising time within the program in exchange for the programming it supplies, with the station paying a fixed fee (or in certain instances no fee) for such programming. Most successful commercial television stations obtain their brand identity from locally produced news programs.

     In contrast to a station affiliated with a network, a fully independent station purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs. An independent station, however, retains its entire inventory of advertising time and all the revenues obtained therefrom. As a result of the smaller amount of programming provided by its network, an affiliate of FOX, CW or MyNetworkTV must purchase or produce a greater amount of programming, resulting in generally higher programming costs. These affiliate stations, however, retain a larger portion of the inventory of advertising time and the revenues obtained therefrom compared to stations affiliated with the major networks.

     Cable-originated programming is a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels amounting

to more than a small fraction of any single major broadcast network. The advertising share of cable networks has increased as a result of the growth in cable penetration (the percentage of television households which are connected to a cable system). Notwithstanding such increases in cable viewership and advertising, as well as growth in direct broadcast satellite, or DBS, and other multichannel video program distribution services, over-the-air broadcasting remains the dominant distribution system for mass-market television advertising.

     We account for trade or barter transactions involving the exchange of tangible goods or services with our customers. The revenue is recorded at the time the advertisement is broadcast and the expense is recorded at the time the goods or services are used. The revenue and expense associated with these transactions are based on the fair value of the assets or services received.

     In accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 63, “Financial Reporting by Broadcasters,” we do not account for barter revenue and related barter expense generated from network or syndicated programming.

Seasonality

     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, political parties and special interest groups, and this spending typically is heaviest during the fourth quarter.

Competition

     Competition in the television industry exists on several levels: competition for audience, competition for programming (including news) and competition for advertisers. Additional factors that are material to a television station’s competitive position include signal coverage and assigned frequency.

Audience

     Stations compete for audience based on program popularity, which has a direct effect on advertising rates. A substantial portion of the daily programming on each of our stations is supplied by the affiliated network. During those periods, the stations are dependent upon the performance of the network programs to attract viewers. There can be no assurance that such programming will achieve or maintain satisfactory viewership levels in the future. Non-network time periods are programmed by the station with a combination of locally produced news, public affairs and other entertainment programming, including news and syndicated programs purchased for cash, cash and barter, or barter only.

     In addition, the development of methods of television transmission of video programming other than over-the-air broadcasting, and in particular cable and/or satellite television, has significantly altered competition for audience in the television industry. These other transmission methods can increase competition for a broadcasting station by bringing into its market distant broadcasting signals not otherwise available to the station’s audience and also by serving as a distribution system for non-broadcast programming.

     Other sources of competition include home entertainment systems, “wireless cable” services, satellite master antenna television systems, low power television stations, television translator stations, DBS video distribution services and the internet.

     Recent developments by many companies, including internet service providers, are expanding the variety and quality of broadcast content on the internet. Internet companies have developed business

relationships with companies that have traditionally provided syndicated programming, network television, production studios for news and live content, as well as motion picture studios.

Programming

     Competition for programming involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Each station competes against the broadcast station competitors in its market for exclusive access to off-network reruns (such as Friends) and first-run product (such as Oprah). Competition exists for exclusive news stories and features as well. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations.

Advertising

     Advertising rates are based upon the size of the market in which the station operates, a station’s overall ratings, a program’s popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the market served by the station, the availability of alternative advertising media in the market area, aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertiser messages to programming. Advertising revenues comprise the primary source of revenues for our stations. Our stations compete for such advertising revenues with other television stations in their respective markets. The stations also compete for advertising revenue with other media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, internet and local cable systems. Competition for advertising dollars in the broadcasting industry occurs primarily within individual markets.

Federal Regulation of the Company’s Business

General

     Our television broadcast operations are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). Among other things, the Communications Act empowers the FCC to: (1) issue, revoke and modify broadcasting licenses; (2) regulate stations’ operations and equipment; and (3) impose penalties for violations of the Communications Act or FCC regulations. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC.

License Grant and Renewal

     The FCC grants television station licenses for terms of up to eight years. Broadcast licenses are of paramount importance to the operations of our television stations. The Communications Act requires a broadcast license to be renewed if the FCC finds that: (1) the station has served the public interest, convenience and necessity; (2) there have been no serious violations of either the Communications Act or the FCC’s rules and regulations; and (3) there have been no other violations which, taken together, would constitute a pattern of abuse. Although in substantially all cases broadcast licenses are renewed by the FCC, there can be no assurance that our stations’ licenses will be renewed. We are not aware of any facts or circumstances that could prevent the renewal of the licenses for our stations at the end of their respective license terms. See the dates through which the current licenses are effective and the status of the renewal applications in the table “Our Stations and Their Markets” included on pages five and six of this Annual Report. Under FCC rules, a license expiration date is automatically extended pending review and grant of the renewal application.

Ownership Rules

     The FCC’s broadcast ownership rules affect the number, type and location of broadcast and newspaper properties that we may hold or acquire. The rules now in effect limit the common ownership, operation or control of, as well as the “attributable” interests or voting power in: (1) television stations serving the same area; (2) television stations and daily newspapers serving the same area; and (3) television stations and radio stations serving the same area. The rules also limit the aggregate national audience reach of television stations that may be under common ownership, operation and control, or in which a single person or entity may hold an official position or have more than a specified interest or percentage of voting power. The FCC’s rules also define the types of positions and interests that are considered attributable for purposes of the ownership limits, and thus also apply to our principals and certain investors. Pursuant to the Communications Act and recent appropriations legislation, the FCC must review all of its broadcast ownership rules every four years to determine if they remain necessary in the public interest.

     The FCC completed a comprehensive review of its ownership rules in 2003, significantly relaxing restrictions on the common ownership of television stations, radio stations and daily newspapers within the same local market. However, in 2004, the United States Court of Appeals for the Third Circuit rejected many of the FCC’s 2003 rule changes. The Court remanded the rules to the FCC for further proceedings and extended a stay on the implementation of the new rules.

     In December 2007, the FCC adopted a Report and Order addressing the issues remanded by the Third Circuit and fulfilling the FCC’s obligation to review its media ownership rules every four years. That Order left most of the FCC’s pre-2003 ownership restrictions in place, but made modifications to the newspaper/broadcast cross-ownership restriction. A number of parties appealed the FCC’s order; those appeals were consolidated in the Third Circuit in November 2008 and remain pending.

Local TV Ownership Rule

     The FCC’s December 2007 action generally reinstates the FCC’s pre-2003 local television ownership rules. Under those rules, one entity may own two commercial television stations in a DMA as long as no more than one of those stations is ranked among the top four stations in the DMA and eight independently owned, full-power stations will remain in the DMA.

Cross-Media Limits

     The newspaper/broadcast cross-ownership rule generally prohibits one entity from owning both a commercial broadcast station and a daily newspaper in the same community. The radio/television cross-ownership rule allows a party to own one or two TV stations and a varying number of radio stations within a single market. The FCC’s December 2007 decision leaves the newspaper/broadcast and radio/television cross-ownership prohibitions in place, but provides that the FCC will evaluate newly proposed newspaper/broadcast combinations under a non-exhaustive list of four public interest factors. The FCC will apply a presumption that the combination is in the public interest if it is located in a top 20 DMA and involves the combination of a newspaper and only one television station or radio station. If the combination involves a television station, the positive presumption will only apply where the station is not among the top four in the DMA and at least eight independently owned and operated major newspapers and/or full-power commercial television stations remain in the DMA. All other combinations will be presumed not in the public interest. That negative presumption can be reversed if the combination will result in at least seven hours of new local news programming or if the property being acquired has failed or is failing.

National Television Station Ownership Rule

     The maximum percentage (or “cap”) of U.S. households that a single owner can reach through commonly owned television stations is 39 percent. This limit was specified by Congress in 2004 and is not affected by the December 2007 FCC decision. The FCC applies a 50 percent “discount” for ultra-high frequency (“UHF”) stations, but the FCC indicated in the December 2007 decision that it will conduct a separate proceeding to determine how or whether the UHF discount will operate in the future.

     As indicated above, the FCC’s latest actions concerning media ownership will be subject to further judicial review, but we cannot predict the outcome of potential appellate litigation.

Attribution Rules

     Under the FCC’s ownership rules, a direct or indirect purchaser of certain types of our securities could violate FCC regulations if that purchaser owned or acquired an “attributable” interest in other media properties in the same areas as stations owned by us. Pursuant to FCC rules, the following relationships and interests generally are considered attributable for purposes of broadcast ownership restrictions: (1) all officers and directors of a corporate licensee and its direct or indirect parent(s); (2) voting stock interests of at least five percent; (3) voting stock interests of at least 20 percent, if the holder is a passive institutional investor (investment companies, banks, insurance companies); (4) any equity interest in a limited partnership or limited liability company, unless properly “insulated” from management activities; (5) equity and/or debt interests which in the aggregate exceed 33 percent of a licensee’s total assets, if the interest holder supplies more than 15 percent of the station’s total weekly programming, or is a same-market broadcast company or daily newspaper publisher; (6) time brokerage of a broadcast station by a same-market broadcast company; and (7) same market radio joint sales agreements. In addition, the FCC is considering making same-market television joint sales agreements attributable.

     To our knowledge, no officer, director or five percent stockholder currently holds an attributable interest in another television station, radio station or daily newspaper that is inconsistent with the FCC’s ownership rules and policies or with ownership by us of our stations.

Alien Ownership Restrictions

     The Communications Act restricts the ability of foreign entities or individuals to own or hold interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-citizens, representatives of non-citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-citizens, collectively, may directly or indirectly own or vote up to 20 percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than 25 percent of whose capital stock is owned or voted by non-U.S. citizens if the FCC finds that the public interest will be served by the refusal or revocation of such license. We serve as a holding company of wholly owned subsidiaries, of which one is a licensee for our stations; therefore we may be restricted from having more than one-fourth of our stock owned or voted directly or indirectly by non-citizens, foreign governments, representatives of non-citizens or foreign governments, or foreign corporations.

Programming and Operation

     Rules and policies of the FCC and other federal agencies regulate certain programming practices and other areas affecting the business or operations of broadcast stations.

     The Children’s Television Act of 1990 limits commercial matter in children’s television programs and requires stations to present educational and informational children’s programming. Broadcasters have been required for several years to provide at least three hours of children’s educational programming per week on their analog channels. The FCC has determined that the amount of children’s educational programming a digital (“DTV”) broadcaster must air will increase proportionately with the number of free video programming streams it broadcasts simultaneously (or “multicasts”).

     In November of 2007, the FCC adopted an Order imposing new public file and public interest reporting requirements on broadcasters. These new requirements must be approved by the Office of Management and Budget before they become effective, and the OMB has not yet approved them. Therefore, it is unclear when, if ever, these rules will be implemented. Pursuant to these new requirements, stations that have websites will be required to make certain portions of their public inspection files accessible online. All stations will be required to notify their audiences twice daily during regular station identification announcements that the public file is available for viewing at the main studio and, if applicable, the station website. Stations also will be required to electronically file quarterly a new, standardized form that will track various types and quantities of local programming. The form will require information about programming related to local news and community issues, local civic affairs, local electoral affairs, and underserved communities as well as public service announcements, independently produced programming and religious programming. Stations will also have to detail any efforts made to assess the programming needs of their station’s community, whether the station is providing required close captioning, efforts to make emergency information accessible to persons with disabilities and, if applicable, any local marketing or joint sales agreements involving the station. The new standardized form will significantly increase recordkeeping requirements for television broadcasters. Several station owners and other interested parties have asked the FCC to reconsider the new reporting requirements and have sought to postpone their implementation. In addition, the Order imposing the new rules is currently on appeal in the U.S. Court of Appeals for the District of Columbia Circuit.

     In December of 2007, the FCC issued a Report on Broadcast Localism and Notice of Proposed Rulemaking or the Report. The Report tentatively concluded that broadcast licensees should be required to have regular meetings with permanent local advisory boards to ascertain the needs and interests of the communities. The Report also tentatively adopted specific renewal application processing guidelines that would require broadcasters to air a minimum amount of local programming. The Report sought comment on a variety of other issues concerning localism including potential changes to the main studio rule, network affiliation rules and sponsorship identification rules. We cannot predict whether the FCC will codify some or all of the specific localism initiatives discussed in the Report.

     The FCC has increased its enforcement efforts regarding broadcast indecency and profanity over the past few years. In June 2006, the statutory maximum fine for broadcast indecency material increased from $32,500 to $325,000 per incident. Several judicial appeals of FCC indecency enforcement actions are currently pending, and their outcomes could affect future Commission policies in this area.

EEO Rules

     The FCC’s Equal Employment Opportunity (“EEO”) rules impose job information dissemination, recruitment, documentation and reporting requirements on broadcast station licensees. Broadcasters are subject to random audits to ensure compliance with the new EEO rules and could be sanctioned for noncompliance.

Cable and Satellite Transmission of Local Television Signal

     Under FCC regulations, cable systems must devote a specified portion of their channel capacity to the carriage of the signals of local television stations. Television stations may elect between “must carry” rights or a right to restrict or prevent cable systems from carrying the station’s signal without the station’s permission (“retransmission consent”). Stations must make this election once every three years, and did so most recently on October 1, 2008. All broadcast stations that made carriage decisions on October 1, 2008 will be bound by their decisions throughout the 2009-2011 cycle. Our stations generally have elected retransmission consent and are in the process of negotiating or have entered into carriage agreements with cable systems serving their markets.

     The FCC also has established a market-specific requirement for mandatory carriage of local television stations by direct broadcast satellite (“DBS”) operators similar to that applicable to cable systems, for those markets in which a DBS carrier provides any local signal. In addition, the FCC has adopted rules relating to station eligibility for DBS carriage and subscriber eligibility for receiving signals. There are also specific statutory requirements relating to satellite distribution of distant network signals to “unserved households” (i.e. households that do not receive a Grade B signal from a local network affiliate). We cannot predict the impact of DBS service on our business. We have, however, entered into retransmission consent agreements with EchoStar DirectTV for the retransmission of our television stations’ signals into the local markets that each of these DBS providers respectively serves. 

Digital Television Service

     In 1997, the FCC adopted rules for implementing DTV service, which will improve the technical quality of television signals received by viewers and give broadcasters the ability to provide new services including high definition television. With certain limited exceptions, broadcasters holding licenses or construction permits for full-power television stations were temporarily assigned a second channel in order to provide DTV programming. Currently, all full-power stations licensed to us are broadcasting digitally.

     At the end of the DTV transition, analog television transmissions will cease, television broadcasters will surrender their analog spectrum to the government, and DTV channels will be reassigned to a smaller segment of the broadcast spectrum. In December 2007, the FCC established policies to facilitate broadcasters’ construction of their final digital facilities by the transition deadline. Additionally, the FCC finalized most broadcasters’ post-transition DTV channel assignments in the Spring of 2008. The FCC also imposed consumer education requirements on broadcasters, effective March 31, 2008. Further, Congress charged the National Telecommunications and Information Administration (NTIA) with implementing a $1.5 billion program to provide digital converter boxes to American households that do not have DTV sets or television sets connected to cable or satellite.

     Congress recently postponed the deadline for completion of the DTV transition from February 17, 2009 to June 12, 2009. Stations generally had the option to cease broadcasting in analog on or before February 17, 2009, and twenty-eight of Gray’s stations did so. Currently, eight Gray television stations are still broadcasting an analog signal. Certain of these stations may be permitted to cease analog broadcasting prior to June 12, 2009 by seeking authorization from the FCC and airing specified viewer notifications. Otherwise, these stations must continue broadcasting an analog signal until June 12, 2009.

     Broadcasters may use their digital spectrum to either provide a single DTV signal or “multicast” several program streams. Broadcasters also may use some of their digital spectrum to offer non-broadcast “ancillary” services (i.e. subscription video, data transfer or audio signals), provided that they pay the government a fee of five percent of gross revenues received from such ancillary services. Under the FCC’s rules relating to “must carry” rights of digital broadcasters, which apply to cable and certain DBS

systems: (1) broadcasters are not entitled to carriage of both their analog and their digital streams during the transition; (2) digital-only television stations are entitled to must-carry rights; and (3) a digital-only station asserting must carry rights is entitled only to carriage of a single programming stream and other “program-related” content even if it multicasts. In November of 2007, the FCC decided that after the transition, cable operators will have two options to ensure that all analog cable subscribers will continue to be able to receive the signals of stations electing must-carry status. Cable operators can choose to either broadcast the signal in digital format for digital customers and “down-convert” the signal to analog format for analog customers, or the cable operator may deliver the signal in digital format to all subscribers as long as the cable operator has ensured that all subscribers with analog service have set-top boxes that will convert the digital signal to analog format.

     The FCC has adopted rules and procedures regarding the digital conversion of Low Power Television (“LPTV”) stations, TV translator stations and TV booster stations. Under these rules, existing LPTV and TV translator stations may convert to digital operations on their current channels. Alternatively, LPTV and translator licenses may seek a digital “companion” channel for their analog station operations. At a later date, the FCC will determine the date by which those stations obtaining a digital companion channel must surrender one of their channels.

     Beginning December 31, 2006, DTV broadcasters were required to comply with Emergency Alert System (“EAS”) rules and ensure that viewers of all programming streams can receive EAS messages.

     The foregoing does not purport to be a complete summary of the Communications Act, other applicable statutes, or the FCC’s rules, regulations or policies. Proposals for additional or revised regulations and requirements are pending before, and are considered by, Congress and federal regulatory agencies from time to time. We cannot predict the effect of existing and proposed federal legislation, regulations or policies on our business. Also, several of the foregoing matters are now, or may become, the subject of litigation, and we cannot predict the outcome of any such litigation or the effect on our business.

Employees

     As of January 31, 2009, we had 1,988 full-time employees, of which 1,965 were employed in our broadcast operations and 23 were corporate and administrative personnel. We have 106 full-time employees and 23 part-time employees that are represented by unions. We believe that our relations with our employees are satisfactory.

Available Information

     Our Internet address is http://www.gray.tv. We make the following reports filed with the Securities and Exchange Commission (the “SEC”) available, free of charge, on our website under the heading “SEC Filings”:

	•		Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to the foregoing reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act;
	•		Our proxy statements; and
	•		Initial Statements of Beneficial Ownership of Securities on Form 3, Statements of Changes in Beneficial Ownership on Form 4 and Annual Statements of Beneficial Ownership on Form 5, in each case as filed by certain of our officers, directors and large stockholders pursuant to Section 16 of the Exchange Act.

     These filings are also available at the SEC’s website located at http://www.sec.gov. The public may read and copy any materials filed with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information about us from the SEC’s public reference room by calling the SEC at 1-800-SEC-0330.

     The foregoing reports are made available on our website as soon as practicable after they are filed with, or furnished to, the SEC. The information found on our website is not incorporated by reference or part of this or any other report we file with or furnish to the SEC.

     We have adopted a Code of Ethics that applies to all of its directors, executive officers and employees. The Code is available on our website at http://www.gray.tv under the heading of Corporate Governance.  If any waivers of the Code are granted, the waivers will be disclosed in an SEC filing on Form 8-K. We have also filed the Code as an exhibit to the Annual Report filed on Form 10-K for the year ended December 31, 2004 and it is incorporated by reference to this report.

     Our website also includes our Corporate Governance Principles, the Charter of the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee.

     All such information is also available to any shareholder upon request by telephone at (404) 504-9828.

Certification with the NYSE and SOX Certification

     On July 17, 2008, our Chief Executive Officer filed with the NYSE the annual written affirmation certifying compliance with the NYSE’s corporate governance listing standards as required by Listed Company Manual Rule 303A.12.

     The certifications of our Chairman and Chief Executive Officer, and of our Senior Vice President and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.

Item 1A. Risk Factors.

Risks Related to Our Business

We depend on advertising revenues, which fluctuate as a result of a number of factors and also experience seasonal fluctuations.

     Our main source of revenue is sales of advertising time and space. Our ability to sell advertising time and space depends on:

	•		the health of the economy in the areas where our stations are located and in the nation as a whole such as the national economic recession which began in 2008 and is continuing as of the date of this filing;
	•		the popularity of our programming;
	•		changes in the makeup of the population in the areas where our stations are located;
	•		pricing fluctuations in local and national advertising which can be impacted by the availability of programming, the popularity of that programming, the relative supply of and demand for commercial advertising and general national or local economic conditions;

	•		the activities of our competitors, including increased competition from other forms of advertising based mediums, particularly network, cable television, direct satellite television and the Internet;
	•		the outbreak and duration of hostilities or the occurrence of terrorist attacks and the duration and extent of network preemption of regularly scheduled programming and decisions by advertisers to withdraw or delay planned advertising expenditures as a result of military action or terrorist attacks; and
	•		other factors that may be beyond our control.

     For example, a labor dispute or other disruption at a major national advertiser, programming provider or network, or a recession nationally and/or in a particular market, would make it more difficult to sell advertising time and space and could reduce our revenue.

     In addition, our results are subject to seasonal fluctuations, which typically result in second and fourth quarter broadcast operating income being greater than first and third quarter broadcast operating income. This seasonality is primarily attributable to increased expenditures by advertisers in the spring and in anticipation of holiday season spending and an increase in viewership during this period. Furthermore, revenues from political advertising are significantly higher in even-numbered years, in particular, during presidential elections.

Our operating and financial flexibility is limited by the terms of our senior secured credit facility.

     Our senior secured credit facility prevents us from taking certain actions and requires us to meet certain tests. These limitations and tests include, without limitation, the following:

	•		limitations on additional indebtedness;
	•		limitations on liens;
	•		limitations on amendments to our by-laws and articles of incorporation;
	•		limitations on mergers and the sale of assets;
	•		limitations on guarantees;
	•		limitations on investments and acquisitions;
	•		limitations on the payment of dividends and the redemption of our capital stock;
	•		maintenance of a specified leverage ratio not to exceed certain maximum limits;
	•		limitations on related party transactions;
	•		limitations on the purchase of real estate;
	•		limitations on entering into multiemployer retirement plans

     These restrictions and tests may prevent us from taking action that could increase the value of our business or securities, or may require actions that decrease the value of our business or securities. In addition, we may fail to meet the tests and thereby default under such senior secured credit facility. If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this occurred, we could be forced to sell assets or take other action that would reduce the value of our business or securities.

Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.

     Our ability to service our debt depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our senior

secured credit facility, or otherwise, in an amount sufficient to enable us to pay our debt or to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Additional debt or equity financing may not be available in sufficient amounts or on terms acceptable to us, or at all. If we are unable to implement one or more of these alternatives, we may not be able to service our debt obligations.

Our operating and financial flexibility is limited by the terms of our Series D Perpetual Preferred Stock.

     Our Series D Perpetual Preferred Stock prevents us from taking certain actions and requires us to meet certain tests. These limitations and tests include, without limitation, the following:

	•		limitations on additional indebtedness;
	•		limitations on liens;
	•		limitations on amendments to our by-laws and articles of incorporation;
	•		limitations on our ability to issue equity securities having liquidation preferences senior or equivalent to the liquidation preferences of the Series D Perpetual Preferred Stock;
	•		limitations on mergers and the sale of assets;
	•		limitations on guarantees;
	•		limitations on investments and acquisitions;
	•		limitations on the payment of dividends and the redemption of our capital stock;
	•		limitations on related party transactions;

     These restrictions may prevent us from taking action that could increase the value of our business or securities, or may require actions that decrease the value of our business or securities.

We have suspended cash dividends on both classes of our common stock and have not paid certain accumulated dividends under our Series D Perpetual Preferred Stock.

     Our Board of Directors did not declare a dividend, in cash or in stock, for our common stock or Class A common stock for the fourth quarter of 2008 and we can provide no assurances when or if any future dividends will be declared on either class of common stock.

     We did not fund the Series D Perpetual Preferred Stock cash dividend payment due on January 15, 2009 that had accumulated for the fourth quarter of 2008. If three consecutive cash dividends payments with respect to the Series D Perpetual Preferred Stock remain unfunded the dividend rate will increase from 15% per annum to 17% per annum. While any Series D Perpetual Preferred Stock dividend payments are in arrears, we are prohibited from repurchasing, declaring and/or paying any cash dividend with respect to any equity securities having liquidation preferences equivalent to or junior in ranking to the liquidation preferences of the Series D Perpetual Preferred Stock including our common stock and Class A common stock. We can provide no assurances when any future cash payments will be made on any accumulated and unpaid Series D Perpetual Preferred Stock cash dividends presently in arrears or that become in arrears in the future.

We may not be able to maintain our common stock listings on the NYSE for our common stock and/or Class A common stock.

     On November 4, 2008, the NYSE notified us that we did not satisfy one of the NYSE’s standards for continued listing applicable to our common stock. The NYSE noted specifically that we were “below

criteria” for the NYSE’s price criteria for our common stock because the average closing price per share, over a consecutive 30 trading-day period, was less than $1.00 per share as of November 3, 2008. Under NYSE policy, in order to cure the deficiency for this continued listing standard, our common stock share price and the average share price over a consecutive 30 trading-day period must both exceed $1.00 by May 4, 2009 which is six months following receipt of the non-compliance notice. We can give no assurances that we will be able to cure this listing standard deficiency in the time allowed.

     In addition, the NYSE has other listing standards that may apply to us including a standard that requires us to have a minimum market capitalization of at least $25 million over a 30 trading-day period. On January 22, 2009, the NYSE temporarily reduced the minimum required market capitalization to $15 million but this lower threshold is only effective to April 22, 2009 on which date the minimum market capitalization will again be $25 million. Failure to comply with this particular listing standard allows the NYSE to promptly delist a company from the exchange. As of February 26, 2009, our market capitalization over the past consecutive 30 trading-day period is $24.0 million. We can give no assurances that our market capitalization over a consecutive 30 trading-day period will be sufficient to comply with the NYSE’s listing standard then in effect.

     On February 26, 2009, the NYSE submitted to the SEC an immediately effective rule filing which suspends the NYSE’s $1 minimum price requirement on a temporary basis, initially through June 30, 2009. Further, the filing also extends until the same date the NYSE’s current easing of the average global market capitalization standard from $25 million to $15 million.  While the filing is immediately effective, it is subject to a 30-day operative delay.  The NYSE has asked the SEC to waive this operative delay and expects the SEC to do so promptly.

     If either class of our common stock cannot meet the applicable NYSE listing standards then both classes of our common stock will be delisted by the exchange.

     If our common stock and Class A common stock were to be delisted from the NYSE, we would be required to seek another national exchange or alternative over-the-counter trading forum to provide for the trading of both classes of our common stock. We can provide no assurances as to the liquidity, market pricing or investor interest in either class of our common stock if we were to be unable to maintain our listing status on the NYSE.

We may be required to take further impairment charges on our goodwill and/or broadcast licenses, which may have a material effect on the value of our total assets.

     For the year ended December 31, 2008 we recorded a non-cash impairment charge to our broadcast licenses of $240.1 million and a non-cash impairment charge to our goodwill of $98.6 million. As of December 31, 2008, the book value of our FCC licenses was $819.0 million and the book value of our goodwill was $170.5 million in comparison to total assets of $1.3 billion. Not less than annually, and more frequently if necessary, we are required to evaluate our goodwill and FCC licenses to determine if the estimated fair value of these intangible assets is less than book value. If the estimated fair value of these intangible assets is less than book value, we will be required to record a non-cash expense to write down the book value of the intangible asset to the estimated fair value. We cannot make any assurances that any required impairment charges will not have a material effect on our total assets.

We must purchase television programming in advance but cannot predict if a particular show will be popular enough to cover its cost.

     One of our most significant costs is television programming. If a particular program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the costs of the program. Since we purchase programming content from others, we also have little control over the costs of programming. We usually must purchase programming several years in advance, and may have to commit to purchase more than one year’s worth of programming. In addition, we may replace programs that are doing poorly before we have recaptured any significant portion of the costs we incurred, or fully expensed the costs for financial reporting purposes. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues. During the year ended December 31, 2008, we recorded a television program impairment expense of $601,400.

We may lose a large amount of television programming if a network terminates its affiliation with us, significantly changes the economic terms and conditions of any future affiliation agreements or significantly changes the type, quality or quantity of programming provided to us under an affiliation agreement.

     Our business depends in large part on the success of our network affiliations. Each of our stations is affiliated with a major network pursuant to an affiliation agreement. Each affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the network with which the station is affiliated. Our affiliation agreements expire at various dates through January 1, 2016.

     If we do not enter into affiliation agreements to replace our expiring agreements, we may no longer be able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences thereby reducing our ability to generate advertising revenue. Furthermore, our concentration of CBS and/or NBC affiliates makes us sensitive to adverse changes in our business relationship with, and the general success of, CBS and/or NBC.

     We can give no assurances that any future affiliation agreements will be obtainable on economic terms and/or other conditions that will be favorable to us.

     We can also give no assurances that any network(s) could not change the type, quality or quantity of programming provided to us in a way that could be detrimental to our operations.

Increases in cable and satellite viewership and advertising could result in a decrease in our advertising revenues.

     Cable-originated programming is a significant competitor for viewers of broadcast television programming. The advertising share of cable networks has increased as a result of the growth in cable/satellite penetration (the percentage of television households which are connected to a cable or satellite system). Increases in the advertising share of cable and satellite networks could result in a decrease in the advertising revenue at our television stations.

Competition from other broadcasters and other sources may cause our advertising sales to go down or our costs to go up.

     Competition in the television industry exists on several levels: competition for audience; competition for programming, including news; and competition for advertisers. Additional factors that are material to a television station’s competitive position include signal coverage and assigned frequency.

Audience

     Stations compete for audience based on program popularity, which has a direct effect on advertising rates. A substantial portion of the daily programming on each of our stations is supplied by the network affiliate. During those periods, the stations are totally dependent upon the performance of the network programs to attract viewers. There can be no assurance that this programming will achieve or maintain satisfactory viewership levels in the future. Non-network time periods are programmed by the station with a combination of self-produced news, public affairs and other entertainment programming, including news and syndicated programs purchased for cash, cash and barter, or barter only, and involve significant costs.

     In addition, the development of methods of television transmission of video programming other than over-the-air broadcasting and, in particular, cable television have significantly altered competition for audiences in the television industry. These other transmission methods can increase competition for a broadcasting station by bringing into its market distant broadcasting signals not otherwise available to the station’s audience and also by serving as a distribution system for non-broadcasting programming.

     Technological innovation and the resulting proliferation of programming alternatives, such as home entertainment systems, ‘‘wireless cable’’ services, satellite master antenna television systems, low power television stations, television translator stations, direct broadcast satellite, video distribution services, pay-per-view and the Internet, have fractionalized television viewing audiences and have subjected free over-the-air television broadcast stations to new types of competition.

     Recent developments by many companies, including internet service providers, are expanding the variety and quality of broadcast and other video content on the Internet. Internet companies have developed business relationships with companies that have traditionally provided syndicated programming, network television, production studios for news and live content, as well as motion picture studios.

Programming

     Competition for programming involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Each station competes against the broadcast station competitors in its market for exclusive access to off-network reruns, such as Seinfeld, and first-run product, such as Oprah. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations. Competition exists for exclusive news stories and features as well.

Advertising

     Advertising rates are based upon the size of the market in which the station operates, a station’s overall ratings, a program’s popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the market served by the station, the availability of alternative advertising media in the market area, aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertiser messages to programming. Advertising revenues comprise the primary source of revenues for our stations. Our stations compete for advertising revenues with other television stations in their respective markets. The stations also compete for advertising revenues with other media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, Internet and local cable systems. Competition for advertising dollars in the broadcasting industry occurs primarily within individual markets.

Materiality of a single advertising category could adversely affect our business.

      We derive a material portion of our ad revenue from the automotive and restaurant industries. For example, approximately 19% and 10% of total revenue was earned from the automotive and restaurant categories in 2008, respectively, and 25% and 11% was earned from these same industries in 2007, respectively. If automotive or restaurant related advertising revenues decrease, or if revenue from one or more other significant advertising categories, such as the communications, entertainment, financial services, professional services or retail industries, that constitutes a significant portion of our stations’ revenue in a particular period were to decrease, our business and operating results could be adversely affected as was the case during 2008 and which currently appears to be continuing into 2009 due to the general national economic recession.

The phased-in introduction of digital television will continue to require us to incur capital and operating costs and may expose us to increased competition.

     The conversion from analog to digital television services in the United States by June 12, 2009 may have the following effects on us:

Capital and operating costs

     We are incurring costs to replace equipment in our stations in order to provide digital television. Even with the flexible operating requirements, some of our stations will also incur increased utilities costs as a result of converting to digital operations. We cannot be certain we will be able to increase revenues to offset these additional costs.

Conversion and programming costs

     In addition to incurring costs to convert our stations from the current analog format to digital format, we also may incur additional costs to obtain programming for the additional channels made available by digital technology. Increased revenues from the additional channels may not make up for the conversion costs and additional programming expenses. Also, multiple channels programmed by other stations could increase competition in our markets.

Our inability to integrate acquisitions successfully would adversely affect us.

     We have acquired 33 television stations since January 1, 1994 and in the future we may make additional acquisitions. In order to integrate successfully the businesses we acquire we will need to coordinate the management and administrative functions and sales, marketing and development efforts of each company. Combining companies presents a number of challenges, including integrating the management of companies that may have different approaches to sales and service, and the integration of a number of geographically separated facilities. In addition, integrating acquisitions requires substantial management time and attention and may distract management from our day-to-day business. If we cannot successfully integrate the businesses we have acquired and any future acquisitions, our business and results of operations could be adversely affected.

Any potential hostilities or terrorist attacks may affect our revenues and results of operations.

     We expect that if the United States engages in additional foreign hostilities or there is a terrorist attack against the United States, we may lose advertising revenue and incur increased broadcasting expenses due to pre-emption, delay or cancellation of advertising campaigns and the increased costs of providing coverage of such events. We cannot predict the extent and duration of any future disruption to

our programming schedule, the amount of advertising revenue that would be lost or delayed or the amount by which our broadcasting expenses would increase as a result. Any such loss of revenue and increased expenses could negatively affect our future results of operations.

Risks Related to Regulatory Matters

Federal regulation of the broadcasting industry limits our operating flexibility.

     The FCC regulates our business, just as it does all other companies in the broadcasting industry. We must request and obtain FCC approval whenever we need a new license, seek to renew or assign a license, purchase a new station or transfer the control of one of our subsidiaries that holds a license. Our FCC licenses are critical to our operations; we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions.

     Federal legislation and FCC rules have changed significantly in recent years and can be expected to continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and may therefore affect our operating results.

The FCC’s duopoly restrictions limit our ability to own and operate multiple television stations in the same market and our ability to own and operate a television station and newspaper in the same market.

     The FCC’s ownership rules generally prohibit us from owning or having ‘‘attributable interests’’ in television stations located in the same markets in which our stations are licensed. Accordingly, our ability to expand through acquisitions of additional stations in markets where we presently are operating is constrained by those rules. Under current FCC cross-ownership rules, we also are not allowed to own and operate a television station and a newspaper in the same market.

The FCC’s National Television Station Ownership Rule limits the maximum number of households we can reach.

     The maximum percentage, or cap, of U.S. households that a single owner can reach through commonly owned television stations is 39 percent. Accordingly, our ability to expand through acquisitions of additional stations is constrained by those rules.

     Federal legislation and FCC rules have changed significantly in recent years and can be expected to continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and may therefore affect our operating results.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

     Our principal executive offices are located at 4370 Peachtree Road, NE, Atlanta, Georgia, 30319. Our administrative offices are located at 126 North Washington St., Third Floor, Albany, Georgia, 31701. Our Shared Services offices are located at 1801 Halstead Blvd. Tallahassee, FL 32309. A complete listing of our television stations and their locations is included on pages five and six of this Annual Report.

     The types of properties required to support television stations include offices, studios, transmitter sites and antenna sites. A station’s studios are generally housed within its offices in each respective market. The transmitter sites and antenna sites are generally located in elevated areas to provide optimal signal strength and coverage. As of the filing date of this report, we own or lease land, office, studio, transmitters and antennas in each of our markets necessary to support our operations in that market area. In some market areas, we also own or lease multiple properties, such as multiple towers and or translators, to optimize our broadcast capabilities. To the extent that our properties are leased, and those leases expire, we believe that those leases can be renewed, or that alternative facilities can be leased or acquired, on terms that are equal, in all material respects, to our existing properties.

Item 3. Legal Proceedings.

     We are subject to legal proceedings and claims in the normal course of our business. We do not believe, based on current knowledge, that any legal proceedings or claims are likely to have a material adverse effect on our position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of our security holders during the fourth quarter of 2008.

Item 4A. Executive Officers of the Registrant.

     Set forth below is certain information with respect to our executive officers as of January 31, 2009:

     J. Mack Robinson, age 85, has been our Chairman emeritus since resigning from his position of Chief Executive Officer on August 20, 2008. He had served as Chief Executive Officer since September 2002. Prior to that, he was our President and Chief Executive Officer since 1996. He has served as one of our directors since 1993. Mr. Robinson has been Chairman Emeritus of TCM since December 30, 2005 and previously served as Chairman of the Board of Bull Run Corporation from 1994 through 2005, Chairman of the Board and President of Delta Life Insurance Company and Delta Fire and Casualty Insurance Company since 1958 and Chairman of the Board of Atlantic American Corporation since 1974. Mr. Robinson also serves as a director of the following companies: Bankers Fidelity Life Insurance Company, American Independent Life Insurance Company, American Southern Insurance Company and American Safety Insurance Company. Mr. Robinson is the husband of Mrs. Harriett J. Robinson and the father-in-law of Mr. Hilton H. Howell, Jr., both members of our board of directors.

     Hilton H. Howell, Jr., age 46, has been our Chief Executive Officer and Vice-Chairman since August 20, 2008. He served as Vice-Chairman from September 2002 until his promotion to Chief Executive Officer. Prior to that, he was our Executive Vice President since September 2000. He has served as one of our directors since 1993. He is a member of the Executive Committee of our board of directors. He has served as President and Chief Executive Officer of Atlantic American Corporation, an insurance holding company, since 1995. He has been Executive Vice President and General Counsel of Delta Life Insurance Company and Delta Fire and Casualty Insurance Company since 1991, and Vice Chairman of Bankers Fidelity Life Insurance Company since 1992 and Vice Chairman of Georgia Casualty & Surety Company from 1992 through 2008. He has served as Chairman and as a director of

TCM since December 30, 2005 and was previously a director, Vice President and Secretary of Bull Run Corporation, from 1994 through 2005. Mr. Howell also serves as a director of the following companies: Atlantic American Corporation, Bankers Fidelity Life Insurance Company, Delta Life Insurance Company, Delta Fire and Casualty Insurance Company, American Southern Insurance Company and American Safety Insurance Company. He is the son-in-law of Mr. J. Mack Robinson and Mrs. Harriett J. Robinson, both members of our board of directors.

     Robert S. Prather, Jr., age 64, has served as our President and Chief Operating Officer since September 2002. Prior to that, he served as our Executive Vice President — Acquisitions since 1996. He has served as one of our directors since 1993. He is a member of the Executive Committee of our board of directors. He has served as President and Chief Executive Officer of TCM since December 30, 2005 and was previously a director, Vice President and Secretary of Bull Run Corporation, from 1994 through 2005. He serves as an advisory director of Swiss Army Brands, Inc., and serves on the Board of Trustees of the Georgia World Congress Center Authority and also serves as a member of the Board of Directors for Gabelli Asset Management and Victory Ventures, Inc.

     James C. Ryan, age 48, has served as our Chief Financial Officer since October 1998 and Senior Vice President since September 2002. Prior to that, he was our Vice President since October 1998. He was the Chief Financial Officer of Busse Broadcasting Corporation from 1987 until it was acquired by us in 1998.

     Robert A. Beizer, age 69, has served as our Vice President for Law and Development and Secretary since 1996. From June 1994 to February 1996, he was of counsel to Venable, LLC, a law firm, in its regulatory and legislative practice group. From 1990 to 1994, Mr. Beizer was a partner in the law firm of Sidley & Austin and was head of their communications practice group in Washington, D.C. He is a past president of the Federal Communications Bar Association and has served as a member of the American Bar Association House of Delegates. He is a member of the ABA Forum Committee on Communications Law.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     Our common stock, no par value, and our Class A common stock, no par value, have been listed and traded on the NYSE since September 24, 1996 and June 30, 1995, respectively. Prior to September 16, 2002, the common stock was named Class B common stock.

     The following table sets forth the high and low sale prices of the common stock and the Class A common stock as well as the cash dividend declared for the periods indicated. The high and low sales prices of the common stock and the Class A common stock are as reported by the NYSE.

		Common Stock												Class A Common Stock
										Cash Dividends												Cash Dividends
										Declared Per												Declared Per
		High				Low				Share				High				Low				Share
2008:
First Quarter		$	8.25			$	4.69			$	0.03			$	8.79			$	5.82			$	0.03
Second Quarter			6.02				2.67				0.03				7.00				4.00				0.03
Third Quarter			3.10				1.61				0.03				4.75				2.72				0.03
Fourth Quarter			1.75				0.18				—				3.50				0.50				—
2007:
First Quarter		$	10.75			$	7.41			$	0.03			$	10.79			$	8.20			$	0.03
Second Quarter			11.33				9.10				0.03				11.40				9.35				0.03
Third Quarter			9.75				6.53				0.03				9.40				6.70				0.03
Fourth Quarter			10.04				6.67				0.03				9.97				7.14				0.03

     As of February 17, 2009, we had 42,837,106 outstanding shares of common stock held by approximately 1,918 stockholders and 5,753,020 outstanding shares of Class A common stock held by approximately 302 stockholders. The number of stockholders includes stockholders of record and individual participants in security position listings as furnished to us pursuant to Rule 17Ad-8 under the Exchange Act.

     We have paid a cash dividend on our common stock since our initial offering in 1996 and on our Class A common stock since 1967. However, we did not declare a dividend on our common stock or Class A common stock in the fourth quarter of 2008. Our Articles of Incorporation provide that each share of common stock is entitled to one vote and each share of Class A common stock is entitled to 10 votes. The Articles of Incorporation require that the common stock and the Class A common stock receive dividends on a pari passu basis. There can be no assurance of our ability to continue to pay any dividends on either class of common stock.

     Our senior credit facility contains covenants that restrict the amount available to pay cash dividends on our capital stock. Our Series D Perpetual Preferred Stock contains requirements that, in certain circumstances, will restrict our ability to pay dividends on our Class A common stock and our common stock.

     We did not fund the Series D Perpetual Preferred Stock cash dividend payment due on January 15, 2009 that had accumulated for the fourth quarter of 2008. If three consecutive cash dividends payments with respect to the Series D Perpetual Preferred Stock remain unfunded the dividend rate will increase from 15% per annum to 17% per annum. While any Series D Perpetual Preferred Stock dividend payments are in arrears, we are prohibited from repurchasing, declaring and/or paying any cash dividend with respect to any equity securities having liquidation preferences equivalent to or junior in ranking to the liquidation preferences of the Series D Perpetual Preferred Stock including our common stock and Class A common stock. We can provide no assurances when any future cash payments will be made on any accumulated and unpaid Series D Perpetual Preferred Stock cash dividends presently in arrears or that become in arrears in the future.

     In addition to the foregoing, the declaration and payment of dividends on the common stock and the Class A common stock are subject to the discretion of our Board of Directors. Any future payments of dividends will depend on our earnings and financial position and such other factors as our Board of Directors deems relevant. See Note E. “Long-term Debt” and Note N. “Subsequent Event – Long-term Debt Modification” of our audited consolidated financial statements included elsewhere herein for further discussion of restrictions on our ability to pay dividends.

Stock Performance Graph

     The following stock performance graphs do not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing by us under the Securities Act of 1933, as amended or the Exchange Act, except to the extent we specifically incorporate these graphs by reference therein.

     The following graphs compare the cumulative total return of the common stock and the Class A common stock from December 31, 2003 to December 31, 2008 as compared to the stock market total return indexes for (1) The New York Stock Exchange Market Index and (2) The New York Stock Exchange Industry Index based upon the Television Broadcasting Stations Index on December 31, 2003.

     The graphs assume the investment of $100 in the common stock and the Class A common stock, the New York Stock Exchange Market Index and the NYSE Television Broadcasting Stations Index on December 31, 2003. Dividends are assumed to have been reinvested as paid.

Common Stock
Comparison of Cumulative Total Return
of One or More Companies, Peer Groups, Industry Indexes and/or
Broad Markets

				Fiscal Year Ending
	Company/Index/Market			12/31/2003					12/31/2004					12/31/2005					12/31/2006					12/31/2007					12/31/2008
	Gray Television Com.			$	100.00				$	104.19				$	66.70				$	50.68				$	56.20				$	2.89
	TV Broadcasting Stations			$	100.00				$	100.15				$	96.85				$	119.66				$	117.33				$	61.20
	NYSE Market Index			$	100.00				$	112.92				$	122.25				$	143.23				$	150.88				$	94.76

Class A Common Stock
Comparison of Cumulative Total Return
of One or More Companies, Peer Groups, Industry Indexes and/or
Broad Markets

				Fiscal Year Ending
	Company/Index/Market			12/31/2003					12/31/2004					12/31/2005					12/31/2006					12/31/2007					12/31/2008
	Gray Television Cl A			$	100.00				$	94.93				$	61.40				$	56.72				$	59.43				$	4.14
	TV Broadcasting Stations			$	100.00				$	100.15				$	96.85				$	119.66				$	117.33				$	61.20
	NYSE Market Index			$	100.00				$	112.92				$	122.25				$	143.23				$	150.88				$	94.76

Issuer Purchases of Common Stock and Class A Common Stock

																		Maximum Number
														Total Number of				of Shares that
						Total								Shares				May Yet Be
		NYSE				Number of				Average				Purchased as				Purchased Under
		Ticker				Shares				Price Paid				Part of Publicly				the Plans or
Period		Symbol				Purchased				per Share(1)				Announced Plans				Programs(2)
October 1, 2008 through October 31, 2008:		GTN					—			$	—				—
		GTN.A					—			$	—				—				1,162,400
November 1, 2008 through November 30, 2008:		GTN					883,200			$	0.20				883,200
		GTN.A					—			$	—				—				279,200
December 1, 2008 through December 31, 2008:		GTN					—			$	—				—
		GTN.A					—			$	—				—				279,200
Total							883,200			$	0.20				883,200

Item 6. Selected Financial Data.

     Set forth below is certain selected historical consolidated financial data. This information should be read in conjunction with our audited consolidated financial statements and related notes thereto appearing elsewhere herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

		Year Ended December 31,
		2008				2007				2006(1)				2005(2)				2004
		(in thousands, except per share data)
Statements of Operations Data
Revenues (3)		$	327,176			$	307,288			$	332,137			$	261,553			$	293,273
Impairment of goodwill and and broadcast licenses (4)			338,681				—				—				—				—
Operating (loss) income			(258,895	)			53,376				87,991				60,861				100,415
Loss on early extinguishment of debt (5)			—				(22,853	)			(347	)			(6,543	)			—
(Loss) income from continuing operations			(202,016	)			(23,151	)			11,711				4,604				36,517
(Loss) income from discontinued publishing and wireless operations, net of income tax of $0, $0, $0, $3,253 and $5,059 respectively (6)			—				—				—				(1,242	)			7,768
Net (loss) income			(202,016	)			(23,151	)			11,711				3,362				44,285
Net (loss) income available to common stockholders			(208,609	)			(24,777	)			8,464				(2,286	)			41,013
Net (loss) income from continuing operations available to common stockholders per common share:
Basic			(4.32	)			(0.52	)			0.17				(0.02	)			0.67
Diluted			(4.32	)			(0.52	)			0.17				(0.02	)			0.66
Net (loss) income available to common stockholders per common share:
Basic			(4.32	)			(0.52	)			0.17				(0.05	)			0.83
Diluted			(4.32	)			(0.52	)			0.17				(0.05	)			0.82
Cash dividends declared per common share (7)			0.09				0.12				0.12				0.12				0.24
Balance Sheet Data (at end of period):
Total assets		$	1,278,265			$	1,625,969			$	1,628,287			$	1,525,054			$	1,374,466
Long-term debt (including current portion)			800,380				925,000				851,654				792,509				655,905
Redeemable serial preferred stock (8)			92,183				—				37,451				39,090				39,003
Total stockholders’ equity			117,107				337,845				379,754				380,996				378,237

(2)		Reflects the acquisitions of KKCO-TV on January 31, 2005, WSWG-TV on November 10, 2005 and WSAZ-TV on November 30, 2005 as of their respective acquisition dates. For further information concerning these acquisitions, see Part 1, Item 1. Business included elsewhere herein.
(3)		Our revenues fluctuate significantly between years consistent with increased advertising expenditures associated with political election years, which generally occur in even numbered years.
(4)		During 2008, we recorded a non-cash impairment expense of $338.7 million resulting from a write down of $98.6 million in the carrying value of our goodwill and a write down of $240.1 million in the carrying value of our broadcast licenses. The write down of our goodwill and broadcast licenses related to seven stations and 23 stations, respectively. We tested our unamortized intangible assets for impairment at December 31, 2008. As of this testing date, we believe events had occurred and circumstances changed that more likely than not reduce the fair value of our broadcast licenses and goodwill below their carrying amounts. These events which accelerated in the fourth quarter of 2008 included: (a) the continued decline of the price of our common stock and Class A common stock; (b) the decline in the current selling prices of television stations; (c) the decline in local and national advertising revenues excluding political advertising revenue; and (d) the decline in the operating profit margins of some of our stations.
(5)		In 2007, we recorded a loss on early extinguishment of debt related to the refinancing of our senior credit facility and the redemption of our 9.25% Senior Subordinated Notes (“9.25% Notes”). In 2006, we recorded a loss on early extinguishment of debt related to the repurchase of a portion of our 9.25% Notes. In 2005, we recorded a loss on early extinguishment of debt related to two amendments to our senior credit facility and the repurchase of a portion of our 9.25% Notes.
(6)		We completed (i) the contribution of all of our membership interests in Gray Publishing, LLC, which included our Gray Publishing and Graylink Wireless businesses and certain other assets to TCM and (ii) the spinoff of all the common stock of TCM to our shareholders on December 30, 2005. The selected financial information for 2004 and 2005 reflects the reclassification of the results of operations of those businesses as discontinued operations, net of income tax. See Note B. “Discontinued Operations” to our audited consolidated financial statements included elsewhere herein.
(7)		Cash dividends for 2007 and 2006 include a cash dividend of $0.03 per share approved in the fourth quarter of 2007 and 2006, respectively, and paid in the first quarter of 2008 and 2007, respectively. Cash dividends for 2004 include a Special Cash Dividend of $0.12 per share approved in the fourth quarter of 2004 and paid in the first quarter of 2005.
(8)		On June 26, 2008, we issued 750 shares of Series D Perpetual Preferred Stock to a group of private investors. The no par value Series D Perpetual Preferred Stock has a liquidation value of $100,000 per share for a total liquidation value of $75.0 million. The issuance of the Series D Perpetual Preferred Stock generated net cash proceeds of approximately $68.6 million, after a 5.0% original issue discount, transaction fees and expenses. We used $65.0 million of the net cash proceeds to voluntarily prepay a portion of the outstanding balance under our term loan portion of our senior credit facility and used the remaining $3.6 million for general corporate purposes which included the payment of $635,000 of accrued interest. The $6.4 million of original issue discount, transaction fees and expenses will be accreted over a seven-year period ending June 30, 2015.

On July 15, 2008, we issued an additional 250 shares of our Series D Perpetual Preferred Stock to a group of qualified investors and generated net cash proceeds of approximately $23.0 million, after a 5.0% original issue discount, transaction fees and expenses. We used the net cash proceeds to make an additional $23.0 million voluntary prepayment on the outstanding balance of our term loan portion of our senior credit facility. The $2.0 million of original issue discount, transaction fees and expenses will be accreted over a seven-year period ending June 30, 2015.

On May 22, 2007, we redeemed all outstanding shares of our Series C Preferred Stock.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Executive Overview

Introduction

     The following analysis of the financial condition and results of operations of Gray Television, Inc. (“we,” “us,” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.

Overview

     We own 36 television stations serving 30 television markets. 17 of the stations are affiliated with CBS, ten are affiliated with NBC, eight are affiliated with ABC and one is affiliated with FOX. The combined station group has 21 markets with stations ranked #1 in local news audience and 21 markets with stations ranked #1 in overall audience within their respective markets based on the results of the average of the Nielsen November, July, May and February 2008 ratings reports. Of the 30 markets that we serve, we operate the #1 or #2 ranked station in 29 of those markets. The combined TV station group reaches approximately 6.1% of total U.S. TV households. In addition, we currently operate 38 digital second channels including one affiliated with ABC, four affiliated with FOX, seven affiliated with CW, 16 affiliated with MyNetworkTV and one affiliated with the Universal Sports Network plus eight local news/weather channels and one independent channel in certain of our existing markets. With 17 CBS affiliated stations, we are the largest independent owner of CBS affiliates in the United States.

     Our operating revenues are derived primarily from broadcast and internet advertising, and from other sources such as production of commercials and tower rentals and from retransmission consent fees.

     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.

     Internet advertising is sold on our stations’ websites. These advertisements are sold as banner advertisements on the websites, pre-roll advertisements or video and other types of advertisements.

     Most advertising contracts are short-term, and generally run only for a few weeks. Approximately 72% of the net revenues of our television stations for the year ended December 31, 2008 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 advertising in the spring and 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.

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

Recent Acquisition and Expansion Activity

     During 2007, we launched or rebranded four digital second channels including one CW and one My NetworkTV affiliate, as well as two local news/weather channels in certain of our existing markets. We launched these additional secondary channels in order to develop additional revenue streams while incurring minimal incremental expenses. During 2008, we discontinued two of our digital second channels.

     On March 3, 2006, we completed the acquisition of the stock of Michiana Telecasting Corp., owner of WNDU-TV, the NBC affiliate in South Bend, Indiana, from the University of Notre Dame for $88.9 million, which included certain working capital adjustments and transaction fees. We financed this acquisition with borrowings under the senior credit facility.

     In addition, during 2006, we launched or rebranded 36 digital second channels including one ABC, five FOX, seven CW and 15 MyNetworkTV affiliates plus six local news/weather channels and two “independent” channels in certain of its existing markets. We launched these additional secondary channels in order to develop additional revenue streams while incurring minimal incremental expenses. The rebranding of our existing UPN stations was necessary due to the merging of the UPN and WB networks into the CW network during 2006.

     On November 30, 2005, we completed the acquisition of the assets of WSAZ-TV, Channel 3, the NBC affiliate serving the Charleston-Huntington, West Virginia market, from Emmis Communications Corp. for approximately $185.8 million. We used funds borrowed under the senior credit facility and a portion of our cash on hand to fund this acquisition.

     On November 10, 2005, we completed the acquisition of the assets of WSWG-TV, the CBS affiliate serving Albany, Georgia from P.D. Communications, LLC for approximately $3.75 million plus related transaction costs. We used a portion of our cash on hand to fund this acquisition.

     On July 1, 2005, we acquired a third FCC license to operate a second low power television station, WAHU-TV, in the Charlottesville, Virginia television market. WAHU-TV is a FOX network affiliate. Our original cost to acquire and/or construct the combined broadcast facilities of WCAV-TV, WVAW-TV and WAHU-TV was approximately $8.5 million.

     On January 31, 2005 , we completed the acquisition of KKCO-TV for approximately $13.5 million. KKCO-TV, Channel 11 serves the Grand Junction, Colorado television market and is an NBC affiliate. We used a portion of our cash on hand to fully fund this acquisition.

2005 Spinoff

     On December 30, 2005, we completed the spinoff of all of the outstanding stock of TCM. Immediately prior to the spinoff, we contributed all of the membership interests in Gray Publishing, LLC, which owned and operated our Gray Publishing and GrayLink Wireless businesses and certain other assets, to TCM. In the spinoff, each of the holders of our common stock received one share of TCM common stock for every ten shares of our common stock and each holder of our Class A common stock received one share of TCM common stock for every ten shares of our Class A common stock. As part of

the spinoff, we received approximately $44.0 million in cash distributed from TCM, which we used to reduce our outstanding indebtedness on December 30, 2005. The financial position and results of operations of our former publishing and wireless businesses are reported in our consolidated balance sheet and statement of operations as discontinued operations for the year ended December 31, 2005. Please refer to Note B. “Discontinued Operations” of our audited consolidated financial statements included elsewhere herein.

Revenues

     Set forth below are the principal types of revenues earned by our broadcasting operations for the periods indicated and the percentage contribution of each to total revenues (dollars in thousands):

		Year End December 31,
		2008								2007								2006
						Percent								Percent								Percent
		Amount				of Total				Amount				of Total				Amount				of Total
Revenues:
Local		$	186,492				57.0	%		$	200,686				65.3	%		$	192,348				57.9	%
National			68,417				20.9	%			77,365				25.2	%			78,492				23.6	%
Internet			11,859				3.6	%			9,506				3.1	%			7,607				2.3	%
Political			48,455				14.8	%			7,808				2.5	%			42,682				12.9	%
Retransmission consent			3,046				0.9	%			2,436				0.8	%			1,563				0.5	%
Production and other			8,155				2.5	%			8,719				2.8	%			8,356				2.5	%
Network compensation			752				0.3	%			768				0.3	%			1,089				0.3	%
Total		$	327,176				100.0	%		$	307,288				100.0	%		$	332,137				100.0	%

Risk Factors

     The broadcast television industry is reliant primarily on advertising revenues and faces increased competition. For a discussion of other factors that may affect our business, see “Item 1A. Risk Factors” on page 15 of this Annual Report.

Results of Operations

Year Ended December 31, 2008 (“2008”) Compared to Year Ended December 31, 2007 (“2007”)

     Revenue. Total revenues increased $19.9 million, or 6%, to $327.2 million reflecting increased cyclical political advertising revenues. Political advertising revenues increased $40.7 million, or 521%, to $48.5 million reflecting the cyclical influence of the 2008 elections. Local advertising revenues, excluding political advertising revenues, decreased $14.2 million, or 7%, to $186.5 million. National advertising revenues, excluding political advertising revenues, decreased $9.0 million, or 12%, to $68.4 million. Internet advertising revenues, excluding political advertising revenues, increased $2.4 million, or 25%, to $11.9 million reflecting increased website traffic and internet sales initiatives in each of our markets. The increase in political advertising revenue reflects increased advertising from political candidates in the 2008 primary and general elections. Spending on political advertising was the strongest at our stations in Colorado, West Virginia, Wisconsin, Michigan and North Carolina, accounting for a significant portion of the total political net revenue for the year ended December 31, 2008. The decrease in local and national revenue was largely due to the general weakness in the economy and due to the change in networks broadcasting the Super Bowl. During 2008, we earned approximately $130,000 of net revenue relating to the 2008 Super Bowl broadcast on our six Fox channels compared to approximately

$750,000 of net revenue relating to the 2007 Super Bowl broadcast on our 17 CBS channels during 2007. The decrease in local and national revenue was offset in part by $3.4 million of net revenue earned during 2008 attributable to the broadcast of the 2008 Summer Olympics on our ten NBC stations.

     Operating expense. Broadcast expenses (before depreciation, amortization, impairment and (gain) loss on disposal of assets) decreased $0.1 million, or approximately 0%, to $199.6 million. This modest decrease primarily reflects the impact of increased national sales representative commissions on the incremental political advertising revenues and increased syndicated programming expenses offset partially by decreases in payroll and other operating expenses. We recorded an impairment expense related to our syndicated television programming $601,400 in 2008. Employee payroll and related expenses decreased due to a reduction in our number of employees in 2008 compared to 2007. As of December 31, 2008 and 2007, we employed 2,253 and 2,425 total employees in our broadcast operations which included full-time and part-time employees. This reduction in total employees is a decrease of 7.1% or 172 total employees.

     Corporate and administrative expense. Corporate and administrative expenses (before depreciation, amortization, impairment and (gain) loss on disposal of assets) decreased $1.0 million, or 7%, to $14.1 million. During 2008, corporate payroll expenses decreased by $950,000 compared to 2007 due primarily to a decrease in incentive based compensation. Corporate and administrative expenses included non-cash stock-based compensation expense during the years ended 2008 and 2007 of $1.5 million and $1.2 million, respectively.

     Depreciation. Depreciation of property and equipment totaled $34.6 million and $38.6 million for 2008 and 2007, respectively. The decrease in depreciation was the result of a large proportion of our stations’ equipment, which was acquired in 2002, becoming fully depreciated.

     Amortization of intangible assets. Amortization of intangible assets was $0.8 million for 2008 as compared to $0.8 million for 2007. Amortization expense remained consistent to that of the prior year as a result of no acquisitions or disposals of definite lived intangible assets in the current year.

     Impairment of goodwill and broadcast licenses. During 2008, we recorded a non-cash impairment expense of $338.7 million resulting from a write down of $98.6 million in the carrying value of our goodwill and a write down of $240.1 million in the carrying value of our broadcast licenses. The write down of our goodwill and broadcast licenses related to seven stations and 23 stations, respectively. We tested our unamortized intangible assets for impairment at December 31, 2008. As of this testing date, we believe events had occurred and circumstances changed that more likely than not reduce the fair value of our broadcast licenses and goodwill below their carrying amounts. These events which accelerated in the fourth quarter of 2008 included: (a) the continued decline of the price of our common stock and Class A common stock; (b) the decline in the current selling prices of television stations; (c) the decline in local and national advertising revenues excluding political advertising revenue; and (d) the decline in the operating profit margins of some of our stations. We did not record a similar impairment expense in the prior year.

     Interest expense. Interest expense decreased $13.1 million, or 20%, to $54.1 million for 2008 compared to 2007. This decrease is primarily attributable to lower average debt balances in 2008 compared to 2007 and lower average interest rates. The total average debt balance was $868.3 million and $913.0 million for 2008 and 2007, respectively. The average interest rates were 5.9% and 7.1% for 2008 and 2007, respectively. These average interest rates are for the respective period and not the respective ending balance sheet dates. They include the effects of our interest rate swap agreements.

     Loss on Early Extinguishment of Debt. In 2007, we replaced our former senior credit facility with a new senior credit facility and redeemed our 9.25% Notes. As a result of these transactions, we recorded a loss on early extinguishment of debt of $6.5 million related to the senior credit facility and $16.4 million

related to the redemption of the 9.25% Notes. The loss related to the redemption of the 9.25% Notes included $11.8 million in premiums, the write-off of $4.0 million in deferred financing costs and $614,000 in unamortized bond discount.

     Income tax expense or benefit. The effective tax rate increased to 35.5% for 2008 from 35.1% for 2007. The effective tax rates differ from the statutory rate due to the following items:

		Year Ended December 31,
		2008				2007
Statutory tax rate			35.0	%			35.0	%
State income taxes			3.7	%			4.1	%
Change in valuation allowance			0.1	%			(1.2	)%
Reserve for uncertain tax positions			(0.2	)%			(2.8	)%
Goodwill impairment			(3.0	)%			0.0	%
Other			(0.1	)%			0.0	%
			35.5	%			35.1	%

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 (“2006”)

     Revenues. Total revenues decreased $24.8 million, or 7%, to $307.3 million reflecting reduced cyclical political advertising revenues. Political advertising revenues decreased $34.9 million, or 82% to $7.8 million reflecting the cyclical influence of the 2006 elections. Local advertising revenues, excluding political advertising revenues, increased $8.4 million, or 4%, to $200.7 million. National advertising revenues, excluding political advertising revenues, decreased $1.1 million, or 1%, to $77.4 million. Internet advertising revenues, excluding political advertising revenues, increased $1.9 million, or 25%, to $9.5 million reflecting increased website traffic and internet sales initiatives in each of our markets. Network compensation revenue decreased $0.3 million, or 29%, to $0.8 million due to lower revenue from network affiliation agreements that were renewed in recent years. The decrease in political advertising revenues was partially offset by an increase of $2.0 million in non-political advertising revenue resulting from operating WNDU-TV for 12 months in 2007 compared to 10 months in 2006. We acquired WNDU-TV in 2006. The decrease in political advertising revenues was also partially offset by increased non-political advertising revenue from our expanded digital second channels.

     Operating expenses. Broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $8.2 million, or 4%, to $199.7 million due primarily to increases in the operating expenses of our primary channels totaling $5.1 million which primarily reflects routine increases in payroll, programming and promotion costs. Approximately $578,000 of this increase was the result of our operation of WNDU-TV for 12 months in 2007, compared to 10 months in 2006. The remaining $3.1 million increase is the result of additional costs associated with the expansion of the number of our digital second channels to 40 during 2007 as described above.

     Corporate and administrative expenses. Corporate and administrative expenses, before depreciation, amortization and (gain) loss on disposal of assets were unchanged, totaling $15.1 million in each of 2007 and 2006. During 2007, corporate payroll expenses increased by $479,000 compared to 2006 due primarily to routine compensation increases. The increase in payroll costs was largely offset by decreases of $447,000 in professional and other services. Corporate and administrative expenses included non-cash stock-based compensation expense during 2007 and 2006 of $1.2 million and $1.1 million, respectively.

     Depreciation. Depreciation of property and equipment increased $4.5 million, or 13%, to $38.6 million for 2007 as compared to 2006, respectively. The increase in depreciation was due to acquired stations and newly acquired equipment.

     Amortization of intangible assets. Amortization of intangible assets decreased $1.7 million, or 66%, to $0.8 million for 2007 as compared to 2006. The decrease in amortization expense was due to definite lived intangible assets of stations acquired in prior years, becoming fully amortized, partially offset by amortization of intangible assets acquired with the purchase of WNDU-TV in 2006.

     Interest expense. Interest expense increased $0.4 million, or 1%, to $67.2 million for 2007 compared to 2006. This increase is primarily attributable to higher average debt balances in 2007 compared to 2006 partially offset by lower average interest rates. The total average debt balance was $913.0 million and $814.8 million for 2007 and 2006, respectively. The average interest rates were 7.1% and 7.5% for 2007 and 2006, respectively. These average interest rates are for the respective period and not the respective ending balance sheet dates. They include the effects of our interest rate swap agreements.

     Loss on Early Extinguishment of Debt. In 2007, we replaced our former senior credit facility with a new senior credit facility and redeemed our 9.25% Notes. As a result of these transactions, we recorded a loss on early extinguishment of debt of $6.5 million related to the senior credit facility and $16.4 million related to the redemption of the 9.25% Notes. The loss related to the redemption of the 9.25% Notes included $11.8 million in premiums, the write-off of $4.0 million in deferred financing costs and $614,000 in unamortized bond discount.

     Income tax expense. The effective tax rate decreased to 35.1% for 2007 from 45.6% for 2006. The effective tax rates differ from the statutory rate due to the following items:

		Year Ended December 31,
		2007				2006
Statutory tax rate			35.0	%			35.0	%
State income taxes			4.1	%			6.2	%
Change in valuation allowance			(1.2	)%			1.0	%
Reserve for uncertain tax positions			(2.8	)%			0.0	%
Other			0.0	%			3.4	%
			35.1	%			45.6	%

Liquidity and Capital Resources

General

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

		Year Ended December 31,
		2008				2007
Net cash provided by operating activities		$	73,675			$	28,360
Net cash used in investing activities			(16,340	)			(25,662	)
Net cash (used in) provided by financing activities			(42,024	)			7,899
Increase in cash and cash equivalents		$	15,311			$	10,597
		December 31,
		2008				2007
Cash and cash equivalents		$	30,649			$	15,338
Long-term debt including current portion		$	800,380			$	925,000
Preferred stock		$	92,183			$	—
Borrowing ability under our senior credit facility		$	12,262			$	38,189

     We file a consolidated federal income tax return and such state or local tax returns as are required. Although we may earn taxable operating income in future years, as of December 31, 2008, we anticipate that through the use of our available loss carryforwards we will not pay significant amounts of federal income taxes in the next several years. However, we estimate that we will pay state income taxes in certain states over the next several years.

     We believe that current cash balances, cash flows from operations and any available funds under the revolving credit line of our senior credit facility will be adequate to provide for our capital expenditures, debt service and working capital requirements. However, our senior credit facility contains restrictive covenants that include a leverage ratio test. As of December 31, 2008, we are in compliance with all covenants under the senior credit facility. In the future, if we are unable to maintain compliance with these covenants, including the leverage ratio test, we would use reasonable efforts to seek an amendment or waiver to our senior credit facility. However, in such circumstances, we could provide no assurances that any amendment or waiver would be obtained nor of its terms. On March 31, 2009, we amended our senior credit facility. For details of the amendment, see Note N. “Subsequent Event — Long-term Debt Amendment” included elsewhere herein for discussion of the amended terms.

     We did not fund the Series D Perpetual Preferred Stock cash dividend payment due on January 15, 2009 that had accumulated for the fourth quarter of 2008. If three consecutive cash dividends payments with respect to the Series D Perpetual Preferred Stock remain unfunded the dividend rate will increase from 15% per annum to 17% per annum. While any Series D Perpetual Preferred Stock dividend payments are in arrears, we are prohibited from repurchasing, declaring and/or paying any cash dividend with respect to any equity securities having liquidation preferences equivalent to or junior in ranking to the liquidation preferences of the Series D Perpetual Preferred Stock including our common stock and Class A common stock. We can provide no assurances when any future cash payments will be made on any accumulated and unpaid Series D Perpetual Preferred Stock cash dividends presently in arrears or that become in arrears in the future. See Note G. “Preferred Stock” of our audited consolidated financial statements included elsewhere herein for further information concerning the Series D Perpetual Preferred Stock.

     Under the revolver portion of our senior credit facility, the maximum credit available under the facility is $100.0 million. The amount that we can draw upon the revolver is limited by the restrictive covenants of our senior credit facility and our Series D Perpetual Preferred Stock. As of December 31, 2008 and 2007 and pursuant to these restrictive covenants, we could have drawn $12.3 million and $38.2 million, respectively, of the $100 million maximum amount under the agreement.

     We do not believe that inflation 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.

     Net cash provided by operating activities increased $45.3 million to $73.7 million for 2008 compared to net cash provided of $28.4 million for the prior year. The increase in cash provided by operations was due primarily to several factors including: an increase in revenues of $19.9 million; a decrease in corporate expenses of $1.0 million and a net change in current operating assets and liabilities of $5.3 million.

     Net cash used in investing activities decreased $9.4 million to $16.3 million for 2008 compared to $25.7 million for the prior year. The decrease in cash used in investing activities was largely due to decreases in capital expenditures for 2008 of $8.5 million.

     Net cash (used in) provided by financing activities decreased $49.9 million to a use of $42.0 million for 2008 compared to an amount provided of $7.9 million for the prior year. This decrease was due primarily to the repayment of our senior credit facility partially offset by issuance of our Series D Perpetual Preferred Stock in 2008 compared to our acquisition-related borrowing activities in 2007.

Issuance of Series D Perpetual Preferred Stock in 2008

     On June 26, 2008, we issued 750 shares of perpetual preferred stock to a group of private investors. This preferred stock was designated Series D Perpetual Preferred Stock. The no par value Series D Perpetual Preferred Stock has a liquidation value of $100,000 per share for a total liquidation value of $75.0 million. The issuance of the Series D Perpetual Preferred Stock generated net cash proceeds of approximately $68.6 million, after a 5.0% original issue discount, transaction fees and expenses. We used $65.0 million of the net cash proceeds to voluntarily prepay a portion of the outstanding balance under our term loan portion of our senior credit facility and used the remaining $3.6 million for general corporate purposes which included the payment of $635,000 of accrued interest. The $6.4 million of original issue discount, transaction fees and expenses will be accreted over a seven-year period ending June 30, 2015.

     On July 15, 2008, we issued an additional 250 shares of our Series D Perpetual Preferred Stock to a group of private investors and generated net cash proceeds of approximately $23.0 million, after a 5.0% original issue discount, transaction fees and expenses. We used the net cash proceeds to make an additional $23.0 million voluntary prepayment on the outstanding balance of our term loan portion of our senior credit facility. The $2.0 million of original issue discount, transaction fees and expenses will be accreted over a seven-year period ending June 30, 2015.

     See Note G. “Preferred Stock” of our audited consolidated financial statements included elsewhere herein for further information concerning the Series D Perpetual Preferred Stock.

Refinancing of Existing Long-term Debt and the Redemption of the Series C Preferred Stock in 2007

     On March 19, 2007, we refinanced our then outstanding senior credit facility. The new senior credit facility had a total credit commitment of $1.025 billion consisting of a $100.0 million revolving facility and a $925.0 million institutional term loan facility. The revolving facility matures on March 19, 2014

and the term loan facility matures on December 31, 2014. In addition, the term loan facility will require quarterly installments of principal repayments equal to 0.25% of the total commitment beginning March 31, 2008. No permanent reductions to the revolving credit facility commitment will be required prior to the final maturity date of that facility.

     On March 19, 2007, we drew $8.0 million on our revolving credit facility and drew $610.0 million on the term loan facility to fund the payoff of all outstanding amounts under our former senior credit facility, to pay fees and expenses of approximately $3.2 million relating to the refinancing and for other general corporate purposes.

     On April 18, 2007, we drew $275.0 million on our term loan facility and redeemed all of our then outstanding 9.25% Notes. The redemption included the payment of all $253.8 million in outstanding principal plus $8.0 million in accrued interest and $11.8 million in premiums due to the holders of the 9.25% Notes upon the early redemption.

     On May 22, 2007, we drew $40.0 million on our term loan facility to redeem all of our outstanding Series C Preferred Stock and pay applicable accrued dividends, fees and expenses related to the redemption. The liquidation value per share was $10,000. The total paid to the shareholders was $37.9 million plus $429,000 in accrued dividends at 8.0% per annum. The funds remaining from the $40.0 million drawdown after the redemption were used to pay down debt balances under the revolver portion of the senior credit facility.

     In addition to the draws on our senior credit facility related to our refinancing described above, we made additional drawdowns under our senior credit facility during 2007 for working capital needs which were repaid as of December 31, 2007.

     Under the new senior credit facility, we can choose to pay interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) rate plus a margin or at the lenders’ base rate, generally equal to the lenders’ prime rate, plus a margin. The applicable margin for our revolving credit facility varies based on our leverage ratio as defined in the loan agreement.

     Presented below are the ranges of applicable margins available to us based on our performance in comparison with the terms as defined in the new senior credit facility:

		Applicable Margin for				Applicable Margin for
		Base Rate Advances				LIBOR Advances
Revolving Credit Facility			0.00% – 0.25	%			0.625% – 1.50	%
Term Loan Facility			0.25%				1.50%

     In addition, under our new senior credit facility, we pay a commitment fee on the average daily unused portion of the revolving credit facility ranging from 0.20% to 0.50% on an annual basis.

     The amount outstanding under our senior credit facility as of December 31, 2008 and 2007 was comprised solely of the term loan facility. The revolving credit facility did not have an outstanding balance as of December 31, 2008 and 2007. The weighted average interest rate on the balance outstanding under the senior credit facility at December 31, 2008 and 2007 was 4.8% and 6.7%, respectively. These rates are as of the period end and do not include the affects of our interest rate swap agreements. Including the affects of our interest rate swap agreements, the weighted average interest rate on the balance outstanding under the senior credit facility at December 31, 2008 and 2007 was 5.6% and

6.9%, respectively. As of December 31, 2008 and 2007, the commitment fee was 0.375% and 0.500%, respectively, on the available credit commitment under the senior credit facility.

     The collateral for our new senior credit facility consists of substantially all of our and our subsidiaries’ assets, excluding real estate. In addition, our subsidiaries are joint and several guarantors (“the Subsidiary Guarantors”) of the obligations and our ownership interests in our subsidiaries are pledged to collateralize the obligations. The new senior credit facility contains affirmative and restrictive covenants that we must comply with, including but not limited to (a) limitations on additional indebtedness, (b) limitations on liens, (c) limitations on amendments to our by-laws and articles of incorporation, (d) limitations on mergers and the sale of assets, (e) limitations on guarantees, (f) limitations on investments and acquisitions, (g) limitations on the payment of dividends and the redemption of our capital stock, (h) maintenance of a specified leverage ratio not to exceed certain maximum limits, (i) limitations on related party transactions, (j) limitations on the purchase of real estate, (k) limitations on entering into multiemployer retirement plans, as well as other customary covenants for credit facilities of this type. As of December 31, 2008, we were in compliance with these covenants.

     We are a holding company with no material independent assets or operations, other than our investment in our subsidiaries. The aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to our assets, liabilities, earnings and equity on a consolidated basis. The Subsidiary Guarantors are, directly or indirectly, our wholly owned subsidiaries and the guarantees of the Subsidiary Guarantors are full, unconditional and joint and several. All of our current and future direct and indirect subsidiaries are Subsidiary Guarantors. Accordingly, separate financial statements and other disclosures of each of the Subsidiary Guarantors are not presented because we have no independent assets or operations, the guarantees are full and unconditional and joint and several.

Retirement Plan

     We have three defined benefit pension plans. Two of these plans were assumed by us as a result of our acquisitions and are frozen plans. Our active defined benefit pension plan, which we consider to be our primary pension plan, covers substantially all our full-time employees. Retirement benefits are based on years of service and the employees’ highest average compensation for five consecutive years during the last ten years of employment. Our funding policy is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974.

     A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of generally accepted accounting principals in the United States of America (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 2008 was 5.79% which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 2007 was 6.10%. Our assumption regarding expected return on plan assets reflects asset allocations, investment strategy and the views of investment managers, as well as historical experience. We use an assumed return of 7.00% for our invested pension assets. Actual asset returns for these trusts decreased in value 25.28% in 2008 and an increased in value 6.57% in 2007. Other significant assumptions include inflation, salary growth, retirement rates and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. The salary growth assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation. Compensation increases over the latest five-year period have been in line with assumptions. Retirement and mortality rates are based on actual plan experience.

     During 2008 and 2007, we contributed $2.9 million and $3.1 million, respectively, to all three of our pension plans and we anticipate making a contribution of $4.3 million in 2009.

     See Note J. “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning the retirement plans.

Off-Balance Sheet Arrangements

     Operating Commitments

     We have various operating lease commitments for equipment, land and office space. We also have commitments for various syndicated television programs.

     We have two types of syndicated television program contracts: first run programs and off network reruns. The first run programs are programs such as Oprah and the off network programs are programs such as Friends. A difference between the two types of syndicated television programming is that the first run programs have not been produced at the time the contract is signed and the off network programs have been produced. For all syndicated television contracts we record an asset and corresponding liability for payments to be made for the entire “off network” contract period and for only the current year of the “first run” contract period. Only the payments in the current year of the “first run” contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced and delivered.

     Obligation to UK

     On October 12, 2004, the University of Kentucky (“UK”) jointly awarded a sports marketing agreement to us and Host Communications, Inc. (“Host”). The agreement with UK commenced on April 16, 2005 and has an initial term of seven years with the option to extend for three additional years.

     On July 1, 2006, the terms between us and Host concerning the UK sports marketing agreement were amended. The amended agreement provides that we will share in profits in excess of certain amounts specified by the agreement, if any, but not losses. The agreement also provides that we would separately retain all local broadcast advertising revenue and pay all local broadcast expenses for activities under the agreement. Under the amended agreement, Host agreed to make all license fee payments to UK. However, if Host is unable to pay the license fee to UK, we will then pay the unpaid portion of the license fee to UK. As of December 31, 2008, the aggregate license fees to be paid by Host to UK over the remaining portion of the full ten-year term (including optional three additional years) for the agreement is approximately $53.1 million. If advances are made by us on behalf of Host, Host will then reimburse us for the amount paid within 60 days subsequent to the close of each contract year which ends on June 30th. Host has also agreed to pay interest on any advance at a rate equal to the prime rate. As of December 31, 2008 and 2007, we had not advanced any amounts to UK on behalf of Host under this agreement.

     Host was formerly a wholly owned subsidiary of TCM, a related party. During November of 2007, TCM sold all of its interest in Host to IMG Worldwide, Inc. (“IMG”), an unrelated party. As of December 31, 2007, we no longer consider Host to be a related party.

Tabular Disclosure of Contractual Obligations as of December 31, 2008

     The following table aggregates our material expected contractual obligations and commitments as of December 31, 2008 (in thousands):

		Payment due by period
						Less than												More than
						1 Year				1-3 Years				3-5 Years				5 Years
Contractual Obligations		Total				2009				2010-2011				2012-2013				after 2013
Contractual obligations recorded in our balance sheet as of December 31 2008:
Long-term debt obligations (1)		$	800,380			$	8,085			$	16,170			$	16,170			$	759,955
Dividends currently accrued (2)			3,000				3,000				—				—				—
Purchase obligations currently accrued (3)			3,651				3,651				—				—				—
Programming obligations currently accrued (4)			16,770				15,236				1,278				256				—
Interest rate swap agreements (5)			24,611				14,767				9,844				—				—
Acquisition related liabilities(6)			2,595				901				1,440				254				—
Off-balance sheet arrangements as of December 31 2008:
Cash interest on long-term debt obligations (7)			290,611				54,029				106,421				104,238				25,923
Operating lease obligations (8)			7,976				1,262				1,928				1,193				3,593
Dividends not currently accrued (9)			72,000				12,000				30,000				30,000			unknown
Programming obligations not currently accrued (10)			29,436				4,688				21,348				3,400				—
Obligation to UK (11)			53,064				7,638				15,651				16,475				13,300
Total		$	1,304,094			$	125,257			$	204,080			$	171,986			$	802,771

(4)		“Programming obligations currently accrued” represent obligations for syndicated television programming whose license period has begun and the product is available. These amounts are recorded as liabilities as of the current balance sheet date.
(5)		“Interest rate swap agreements” represent certain contracts that allow us to fix the interest rate on a portion of our long-term debt balance. We have estimated obligations associated with these contracts. Although the fair value of these contracts can fluctuate significantly based on market interest rates, the amounts in the table are estimated settlement amounts and estimated settlement dates. These amounts are recorded as liabilities as of the current balance sheet date.
(6)		“Acquisition related liabilities” represent certain obligations associated with acquisitions of television stations that were completed in prior years. These amounts are recorded as liabilities as of the current balance sheet date.
(7)		“Cash interest on long-term debt obligations” represents estimated interest expense on long-term debt obligations based upon the average debt balances expected in the future and computed using the average interest rates for 2008. As of December 31, 2008, our interest rate on the balance outstanding under the senior credit facility and including the effects of our interest rate swap agreements was 5.9%.
(8)		“Operating lease obligations” represent payment obligations under non-cancelable lease agreements classified as operating leases and disclosed pursuant to SFAS No. 13, “Accounting for Leases,” as may be modified or supplemented. These amounts are not recorded as liabilities as of the current balance sheet date.
(9)		“Dividends not currently accrued” represent Series D Perpetual Preferred Stock dividends for future periods and assumes that the $100 million of Series D Perpetual Preferred Stock remains outstanding in future periods with a dividend rate of 15%. For the column headed “More than 5 years after 2014,” we can-not estimate a dividend amount due to the Series D Perpetual Stock being perpetual.
(10)		“Programming obligations not currently accrued” represent obligations for syndicated television programming whose license period has not yet begun or the product is not yet available. These amounts are not recorded as liabilities as of the current balance sheet date.
(11)		“Obligation to UK” represents total obligations and excluding any potential revenues under a sports marketing agreement awarded jointly to us and Host. These amounts are not recorded as liabilities as of the current balance sheet date. See “Off-Balance Sheet Arrangements” immediately preceding this table for additional information concerning this obligation.

     Estimates of the amount, timing and future funding obligations under our pension plans include assumptions concerning, among other things, actual and projected market performance of plan assets, investment yields, statutory requirements and demographic data for pension plan participants. Pension plan funding estimates are therefore not included in the table above because the timing and amounts of funding obligations for all future periods cannot be reasonably determined. We expect to contribute approximately $4.3 million in total to our active pension plan and the acquired pension plans during 2009.

Critical Accounting Policies

     The preparation of financial statements in conformity with U.S. GAAP requires us 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.

Valuation of Broadcast Licenses

     As of December 31, 2008, the book value of our broadcast licenses and goodwill was approximately $819.0 billion and $170.5 million, respectively. During 2008, we recorded a non-cash impairment expense of $338.7 million resulting from a write down of $98.6 million in the carrying value of our goodwill and a write down of $240.1 million in the carrying value of our broadcast licenses. See Note L. “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein for further information concerning the impairment expense recorded in 2008.

     Broadcast licenses of television stations acquired prior to January 1, 2002 were valued using a residual basis methodology (analogous to “goodwill”) where the excess of the purchase price over the fair value of all identified tangible and intangible assets was attributed to the broadcast license. This residual basis approach will generally produce higher valuations of broadcast licenses when compared to applying an income method as discussed below. The book value for these broadcast licenses was approximately $341.0 million as of December 31, 2008.

     We value the broadcast licenses of any television station acquired after December 31, 2001 using an income approach. Under this approach, a broadcast license is valued based on analyzing the estimated after-tax discounted future cash flows of the station, assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market. This income approach will generally produce lower valuations of broadcast licenses when compared to applying a residual method as discussed above. The book value for these broadcast licenses was approximately $478.0 million as of December 31, 2008.

     At the September 2004 meeting of the Emerging Issues Task Force (“EITF”), the SEC Observer clarified the SEC Staff’s position on the use of the residual method for valuation of acquired assets other than goodwill which is referred to as topic D-108. The SEC Staff believed that the residual method did not comply with the requirements of SFAS No. 141, “Business combinations” (“SFAS No. 141”) when used to value certain intangible assets that arise from legal or contractual rights. Accordingly, the SEC Staff believed that the residual method should no longer be used to value intangible assets other than goodwill. Registrants were required to apply the income approach to such assets acquired in business combinations completed after September 29, 2004, and perform impairment tests using an income approach on all intangible assets that were previously valued using the residual method no later than the beginning of their first fiscal year beginning after December 15, 2004.

     Effective January 1, 2005, we adopted the provisions of this announcement and performed a valuation assessment of its broadcast licenses using the income approach. The implementation of this pronouncement did not require us to record an impairment charge in the first quarter of the year ended December 31, 2005. However, applying the income approach to value broadcast licenses originally valued using a residual method may place a greater possibility of future impairment charges on those broadcast licenses due to the inherent “miss-match” of the fundamental assumptions between the current valuation method (a hypothetical start-up value) in comparison to the method utilized to first establish the initial value of the broadcast license (a mature station’s residual enterprise value).

Annual Impairment Testing of Broadcast Licenses and Goodwill

     The annual impairment testing of broadcast licenses and goodwill for each individual television station requires an estimation of the “fair value” of each broadcast license and the fair value of the entire

television station for evaluating goodwill. Such estimations generally rely on analysis of public and private comparative sales data as well as discounted cash flow analysis that inherently requires multiple assumptions relating to the future prospects of each individual television station including, but not limited to, the long-term market growth characteristics, a station’s viewing audience, station revenue shares within a market, future operating expenses, costs of capital and appropriate discount rates. We believe that the assumptions we utilize in analyzing potential impairment of broadcast licenses and/or goodwill for each of our television stations are reasonable individually and in the aggregate. However, these assumptions are highly subjective and changes in any one assumption, or a combination of assumptions, could produce significant differences in the calculated outcomes.

     To estimate the fair value of our reporting units we utilize a discounted cash flow model. We believe that a discounted cash flow analysis is the most appropriate methodology to test the carrying value of long-term assets with a demonstrated long-lived / enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and best estimates of 2009 annual performance, as well as considering a number of other factors, including but not limited to, future market revenue growth, market revenue shares and operating profit margins in future periods. We have consistently used these approaches in determining the value of our goodwill. We also consider a market approach utilizing market multiples to corroborate the discounted cash flow analysis. We believe that this methodology is consistent with the approach that any strategic market participant would utilize if they were to value one of our television stations.

     We also give consideration to our market capitalization. During 2008, we experienced a decline in our market capitalization due to a decline in our stock price. As of December 31, 2008, our market capitalization was less than our book value and it remains less than book value as of the date of this filing. We believe the decline in our stock price has, in part, been influenced by the current national credit crises and national economic recession. We believe that it is appropriate to view the current credit crisis and recession as relatively temporary in relation to reporting units that have demonstrated long-lived / enduring franchise value. Accordingly, we believe that a variance between market capitalization and fair value can exist and that difference could be significant at points in time due to intervening macroeconomic influences.

Valuation of Network Affiliation Agreements

     Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.

     Some broadcasting companies account for network affiliations as a significant component of the value of a station. These companies believe that stations are popular because they have generally been affiliating with networks from the inception of network broadcasts, stations with network affiliations have the most successful local news programming and the network affiliation relationship enhances the audience for local syndicated programming. As a result, these broadcast companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship.

     We ascribe no incremental value to the incumbent network affiliation relationship in a market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Instead, we believe that the value of a television station is derived primarily from the attributes of its broadcast license. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.

     We have acquired a total of 19 television stations since 2002. The methodology we used to value these stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired during 2002 through 2008, we ascribed no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market.

     Certain other broadcasting companies have valued network affiliations on the basis that it is the affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or goodwill.

     If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are definite lived intangible assets, this reallocation of value might have a significant impact on our operating results. It should be noted that there is a diversity of practice and some broadcast companies have considered such network affiliation intangible asset to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.

     The following table reflects the hypothetical impact of the hypothetical reassignment of value from broadcast licenses to network affiliations for all our prior acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period (in thousands, except per share data):

						Percentage of Total
						Value reassigned to
						Network
		As				Affiliation Agreements
		Reported				50%				25%
Balance Sheet (As of December 31, 2008):
Broadcast licenses		$	818,981			$	487,969			$	653,475
Other intangible assets, net (including network affiliation agreements)			1,893				332,905				167,399
Statement of Operations (For the year ended December 31, 2008):
Amortization of intangible assets			792				37,884				19,338
Operating loss			(258,895	)			(295,987	)			(277,441	)
Net loss			(202,016	)			(224,642	)			(213,329	)
Net loss available to common stockholders			(208,609	)			(231,235	)			(219,922	)
Net loss available to common stockholders, per share — basic and diluted		$	(4.32	)		$	(4.79	)		$	(4.55	)