1.	Basis of Presentation

The accompanying condensed consolidated balance sheet of Gray Television, Inc. (and its consolidated subsidiaries, except as the context otherwise provides,“Gray,” the “Company,” “we,” “us,” and “our”) as of

December 31, 2017,

which was derived from the Company’s audited financial statements as of

December 31, 2017,

and our accompanying unaudited condensed consolidated financial statements as of

September 30, 2018

and for the periods ended

September 30, 2018

and

2017

have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form

-Q and Article

of Regulation S-

Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information

not

misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Our operations consist of

one

reportable segment. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form

-K for the year ended

December 31, 2017 (

the

“2017

Form

-K”). Our financial condition as of, and operating results for the

nine

-month period ended

September 30, 2018

are

not

necessarily indicative of the financial condition or results that

may

be expected for any future interim period or for the year ending

December 31, 2018.

June

23,

2018,

we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with, among others, Raycom Media, Inc., a Delaware corporation (the “Raycom Merger”). Giving effect to the merger including divestitures of stations due to market overlaps, upon completion we will own and/or operate television stations and leading locally focused digital platforms in

markets including affiliates of the ABC/NBC/CBS/FOX networks. The combined entity will own

ranked stations in

of the

markets. These stations were ranked

in all day Nielsen ratings in

of the combined markets and

92%

of the combined markets. In addition to high quality television stations, we will also acquire businesses that provide sports marketing, production and digital signage services, resulting in our becoming a more diversified media company. The consummation of the transaction is subject to the satisfaction or waiver of certain customary closing conditions, including approval from the Federal Communications Commission and the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of

1976,

as amended. We anticipate that the transaction will be completed later in the

fourth

quarter of

2018.

Please refer to Note

Commitments

, and Note

11.

Subsequent Events

for a description of the Raycom Merger and related transactions.

Overview

We are a television broadcast company headquartered in Atlanta, Georgia that owns and operates television stations and leading digital assets in markets throughout the United States. As of

September 30, 2018,

we owned and operated television stations in

television markets including channels affiliated with the CBS Network (“CBS”), the NBC Network (“NBC”), the ABC Network (“ABC”) and the FOX Network (“FOX”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and related notes. Our actual experience and accordingly, our results could differ materially from these estimates. The most significant estimates we make relate to our allowance for doubtful accounts in receivables, valuation of goodwill and intangible assets, amortization of program broadcast rights and intangible assets, pension costs, income taxes, employee medical insurance claims, useful lives of property and equipment and contingencies.

Earnings Per Share

We compute basic earnings per share by dividing net income by the weighted-average number of our common shares and Class A common shares outstanding during the relevant period. The weighted-average number of shares outstanding does

not

include restricted shares. These shares, although classified as issued and outstanding, are considered contingently returnable until the restrictions lapse and, in accordance with U.S. GAAP, are

not

included in the basic earnings per share calculation until the shares vest. Diluted earnings per share is computed by including all potentially dilutive shares, including restricted shares and shares underlying stock options, in the denominator of the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive.

The following table reconciles basic weighted-average shares outstanding to diluted weighted-average shares outstanding for the

three

and

nine

-month periods ended

September 30, 2018

and

2017,

respectively (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017


Weighted-average shares outstanding-basic		87,765		71,636		88,191		71,777
Common stock equivalents for stock options and restricted stock		800		818		619		714
Weighted-average shares outstanding-diluted		88,565		72,454		88,810		72,491

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balances as of

September 30, 2018

and

December 31, 2017

consist of adjustments to our pension liability and the related income tax effect. Our comprehensive income for the

three

and

nine

-month periods ended

September 30, 2018

and

2017

consisted entirely of net income. Therefore a consolidated statement of comprehensive income is

not

presented for the

three

and

nine

-month periods ended

September 30, 2018

2017.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed principally by the straight-line method. The following table lists the components of property and equipment by major category (dollars in thousands):

							Estimated
	September 30,			December 31,			Useful Lives
	2018			2017			(in years)
Property and equipment:
Land	$	51,878		$	50,458
Buildings and improvements		159,024			156,924			7	to	40
Equipment		532,422			511,878			3	to	20
		743,324			719,260
Accumulated depreciation		(399,521	)		(368,602	)
Total property and equipment, net	$	343,803		$	350,658

Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized. The cost of any assets divested, sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting profit or loss is reflected in income or expense for the period.

April 2017,

the Federal Communications Commission (the “FCC”) began a process of reallocating the broadcast spectrum (the “Repack”). Specifically, the FCC is requiring certain television stations to change channels and/or modify their transmission facilities. The U.S. Congress passed legislation which provides the FCC with a

$1.7

billion fund to reimburse all reasonable costs incurred by stations operating under a full power license and a portion of the costs incurred by stations operating under a low power license that are reassigned to new channels. Subsequent legislation in

March 2018

appropriated an additional

$1.0

billion for the Repack fund, of which up to

$750.0

million

may

be made available to reimburse the Repack costs of full power, Class A television stations and multichannel video programming distributors. Other funds are earmarked to assist low power television stations and for other transition costs. The sufficiency of the FCC’s fund to reimburse for Repack costs is dependent upon a number of factors including the amounts to be reimbursed to other industry participants for Repack costs. Therefore, we cannot predict whether the fund will be sufficient to reimburse our Repack costs to the extent authorized under the legislation. Twenty-

six

of our current full power stations and

thirty six

of our current low power stations are affected by the Repack. The Repack process began in the summer of

2017

and will take approximately

three

years to complete. The majority of our costs associated with the Repack qualify for capitalization, rather than expense. Upon receipt of funds reimbursing us for our Repack costs, we record those proceeds as a component of our (gain) loss on disposal of assets, net.

The following tables provide additional information related to gain on disposal of assets, net included in our condensed consolidated statements of operations and purchases of property and equipment included in our condensed consolidated statements of cash flows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2018			2017			2018			2017
Gain (loss) on disposal of assets, net:
Proceeds from sale of assets	$	112		$	22		$	216		$	90,972
Proceeds from Repack		4,392			-			6,238			-
Net book value of assets disposed		(932	)		(1,682	)		(1,267	)		(15,833	)
Total	$	3,572		$	(1,660	)	$	5,187		$	75,139

Purchase of property and equipment:
Recurring purchases - operations							$	16,098		$	20,983
Repack								17,256			443
Repack related								1,540			-
Total							$	34,894		$	21,426

Allowance for Doubtful Accounts

Our allowance for doubtful accounts is equal to a portion of our receivable balances that are

120

days old or older. We

may

provide allowances for certain receivable balances that are less than

120

days old when warranted by specific facts and circumstances. We generally write-off accounts receivable balances when the customer files for bankruptcy or when all commonly used methods of collection have been exhausted.

Recent Accounting Pronouncements

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

–

Leases

(Topic

842

). ASU

2016

will supersede Topic

840,

Leases, and thus will supersede nearly all existing lease guidance by requiring the reclassification of lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The standard will be effective for fiscal years beginning after

December 15, 2018.

This standard is expected to have a material effect on our balance sheets. Specifically, we expect that, once adopted, we will record a right of use asset and lease obligation liability. In

July 2018,

the FASB issued ASU

2018

11,

Leases (Topic

842

) – Targeted Improvements

, which provides the option of applying the requirements of the new lease standard in the period of adoption with

restatement of comparative periods. Under this method, the cumulative effect, if any, of applying the guidance will be recorded in the opening balance of retained earnings. We intend to use this transition method in the adoption of this standard. We are reviewing our contractual obligations, evaluating our financial statement disclosures requirements and assessing our internal controls to comply with the requirements of this standard. We are implementing a lease accounting software solution and are currently loading our leases. We continue to evaluate the effect the adoption of this standard will have on our consolidated financial statements. As of

September 30, 2018,

we estimate that our total assets and liabilities as presented in our financial statements will increase by approximately

1%.

January 2017,

the FASB issued ASU

2017

04,

Intangibles – Goodwill and Other

(Topic

350

) –

Simplifying the Test for Goodwill Impairment

. ASU

2017

amends the guidance of U.S. GAAP with the intent of simplifying how an entity is required to test goodwill for impairment by eliminating Step

from the goodwill impairment test. Step

measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. After adoption of the standard, the annual, or interim, goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized will

not

exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. The standard allows for early adoption, but we have

not

yet made a determination as to whether to early-adopt this standard. We do

not

expect that the adoption of this standard will have a material impact on our financial statements.

February 2018,

the FASB issued ASU

2018

02,

Income Statement - Reporting Comprehensive Income

(Topic

220

) –

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

. ASU

2018

allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of

2017

(“TCJA”). Consequently, the amendments eliminate the stranded tax effects resulting from the TCJA and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is

not

affected. The standard is effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The standard allows for early adoption, but we have

not

yet made a determination as to whether to early-adopt this standard. We do

not

expect that the adoption of this standard will have a material impact on our financial statements.

Adoption of Accounting Standards and Reclassifications

January 2016,

the FASB issued ASU

2016

–

Financial Instruments - Overall

(Subtopic

825

Recognition and Measurement of Financial Assets and Financial Liabilities

. ASU

2016

amends the guidance in U.S. GAAP regarding the classification and measurement of financial instruments. This ASU significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. ASU

2016

requires equity investments previously measured at cost to be measured at fair value with changes in fair value recognized in net income. However, equity investments without a readily determinable fair value

may

be measured using a proscribed measurement alternative that reflects current fair value with changes in the current fair value recognized in net income and includes a qualitative evaluation of impairment. In

February 2018,

the FASB issued ASU

2018

–

Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic

825

), Recognition and Measurement of Financial Assets and Financial Liabilities.

ASU

2018

clarifies certain aspects of the guidance issued in ASU

2016

01.

ASU

2018

is effective for interim periods beginning after

June 15, 2018.

We adopted the amendments in both updates concurrently beginning in the

first

quarter of

2018.

We currently have equity investments in the television broadcasting industry that do

not

have readily determinable fair values. We have applied the measurement alternative as defined in the amendments. These investments are reported together as a non-current asset on our balance sheet. Accordingly, the adoption of this standard did

not

have a material impact on our financial statements. We evaluate these investments on an interim basis for impairment.

March 2017,

the FASB issued ASU

2017

07,

Compensation – Retirement Benefits

(Topic

715

) -

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

. ASU

2017

amends the guidance of U.S. GAAP with the intent of improving the presentation of net periodic pension cost and net periodic postretirement benefit cost by prescribing where the amount of net benefit cost should be presented in an employer’s income statement and requiring the disclosure by line item of the amount of net benefit cost that is included in the income statement or capitalized in assets. We adopted this standard beginning in the

first

quarter of

2018.

Because our defined benefit pension plans were frozen in prior years, we have

not

incurred any service cost in our condensed consolidated statements of operations during the

three

nine

-months ended

September 30, 2018

2017.

Upon the adoption of this standard, we reclassified our net pension expense (benefit) from our operating expenses to our miscellaneous income, net. The amount was

not

material.

In addition to the reclassification of our net pension expense (benefit) in our condensed consolidated statement of operations as described above, certain amounts in the condensed consolidated statement of cash flows have also been reclassified to conform to the current presentation.