cquisitions

and Dispositions

During

2017,

2016

and

2015,

we entered into a number of acquisition and disposition transactions. The acquisition transactions were and are expected to, among other things, increase our revenues and cash flows from operating activities, and allow us to operate more efficiently and effectively by increasing our scale and providing us, among other things, with the ability to negotiate more favorable terms in our agreements with

third

parties.

2017

Acquisitions

January 13, 2017,

we acquired

the assets of KTVF-TV (NBC), KXDF-TV (CBS), and KFXF-TV (FOX) in the Fairbanks, Alaska television market (DMA

202

), from Tanana Valley Television Company and Tanana Valley Holdings, LLC for an adjusted purchase price of

$8.0

million (the “Fairbanks Acquisition”), with cash on hand.

As described in Note

above, on

January 17, 2017,

we completed the Media General Acquisition, for an adjusted purchase price of

$269.9

million using cash on hand.

May 1, 2017,

we acquired

the assets of WDTV-TV (CBS) and WVFX-TV (FOX/CW) in the Clarksburg-Weston, West Virginia television market (DMA

169

) from Withers Broadcasting Company of West Virginia (the “Clarksburg Acquisition”) for a total purchase price of

$26.5

million with cash on hand. On

May 13, 2016,

we announced that we agreed to enter into the Clarksburg Acquisition. On

June 1, 2016,

we made a partial payment of

$16.5

million and acquired the non-license assets of these stations. Also, on that date we began operating these stations, subject to the control of the seller, under a local marketing agreement (“LMA”) that terminated upon completion of the acquisition.

May 1, 2017,

we acquired

the assets of WABI-TV (CBS/CW) in the Bangor, Maine television market (DMA

156

) and WCJB-TV (ABC/CW) in the Gainesville, Florida television market (DMA

159

) from Community Broadcasting Service and Diversified Broadcasting, Inc. (collectively, the “Diversified Acquisition”) for a total purchase price of

$85.0

million with cash on hand. On

April 1, 2017,

we began operating these stations, subject to the control of the seller, under an LMA that terminated upon completion of the acquisition.

August 1, 2017,

we acquired

the assets of WCAX-TV (CBS) in the Burlington, Vermont – Plattsburgh, New York television markets (DMA

) from Mt. Mansfield Television, Inc., for an adjusted purchase price of

$29.0

million in cash (the “Vermont Acquisition”). On

June 1, 2017,

we advanced

$23.2

million of the purchase price to the seller and began to operate the station under an LMA, subject to the control of the seller. At closing, we paid the remaining

$5.8

million of the purchase price with cash on hand and the LMA was terminated.

We refer to the

eight

stations

that we began operating and acquired (excluding the stations acquired in the Clarksburg Acquisition, which we began operating under an LMA in

2016

) during

2017

as the

“2017

Acquisitions.” The following table summarizes fair value estimates of the assets acquired, liabilities assumed and resulting goodwill of the

2017

Acquisitions and the Clarksburg Acquisition (in thousands):

	Acquisition
	Fairbanks			Media General			Clarksburg			Diversified			Vermont			Total

Current assets	$	122		$	666		$	462		$	361		$	312		$	1,923
Property and equipment		2,650			20,181			4,133			12,329			9,513			48,806
Goodwill		471			86,287			3,222			35,486			316			125,782
Broadcast licenses		2,228			149,846			17,003			26,219			7,592			202,888
Other intangible assets		2,702			13,398			2,234			11,051			8,268			37,653
Other non-current assets		71			282			51			27			3,310			3,741
Current liabilities		(140	)		(695	)		(554	)		(423	)		(311	)		(2,123	)
Other long-term liabilities		(84	)		-			(51	)		(50	)		-			(185	)

Total	$	8,020		$	269,965		$	26,500		$	85,000		$	29,000		$	418,485

These amounts are based upon management

’s determination of the fair values using valuation techniques including income, cost and market approaches. In determining the preliminary fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The fair value estimates of the assets acquired in the Clarksburg Acquisition, Diversified Acquisition and the Vermont Acquisition are still considered to be preliminary, and, as such, the actual amounts

may

differ materially from these estimates.

Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from

three

years to

years.

Amounts related to other intangible assets represent primarily the estimated fair values of retransmission agreements

$27.9

million; advertising client relationships of

$5.3

million; and favorable income leases of

$3.0

million. These intangible assets are being amortized over their estimated useful lives of approximately

5.1

years for retransmission agreements; approximately

10.7

years for advertising client relationships; and approximately

11.9

years for favorable income leases.

Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do

not

qualify for separate recognition, including assembled workforce, as well as future synergies that

we expect to generate from each acquisition. We recorded

$125.8

million of goodwill related to stations acquired in

2017.

The goodwill recognized related to these acquisitions is deductible for income tax purposes.

The Company

’s consolidated results of operations for year ended

December 31, 2017

include the results of the

2017

Acquisitions from the date of each transaction. Revenues attributable thereto and included in our consolidated statement of operations for the year ended

December 31, 2017

were

$79.8

million. Operating income attributable thereto and included in our consolidated statement of operations for year ended

December 31, 2017

was

$33.7

million.

In connection with

acquiring the

2017

Acquisitions, we incurred

$1.1

million of transaction related costs during the year ended

December 31, 2017,

primarily related to legal, consulting and other professional services.

2016

Acquisitions

and Dispositions

February 16, 2016,

we completed the acquisition of the television and radio broadcast assets of Schurz Communications, Inc. (“Schurz”) for an adjusted

purchase price of

$443.1

million plus transaction related expenses (the “Schurz Acquisition”).

o facilitate regulatory approval for the Schurz Acquistion, on

February 1, 2016,

we exchanged the assets of KAKE-TV (ABC) (and its satellite stations) in the Wichita, Kansas television market, for the assets of Lockwood Broadcasting, Inc.’s television station WBXX-TV (CW) in the Knoxville, Tennessee television market and

$11.2

million of cash (the “WBXX Acquisition”). In connection with the divestiture of KAKE-TV’s assets, we recorded a gain of approximately

$2.0

million, excluding transaction related expenses.

To further faciliate regulatory approvals for the Schurz Acquis

ition, on

February 16, 2016,

we exchanged the assets of WSBT-TV for the assets of Sinclair Broadcast Group, Inc.’s television station WLUC-TV (NBC/FOX) in the Marquette, Michigan television market (the “WLUC Acquisition”), and we sold the Schurz radio broadcast assets (the “Schurz Radio Stations”) for

$16.0

million to

three

third

-party radio broadcasters. We did

not

record a gain or loss related to the WLUC Acquisition or related to the divestiture of the Schurz Radio Stations because the fair value of the assets given were determined to be equal to the assets received.

The Schurz Acquisition, the WBXX Acquisition, the WLUC Acquisition, and the sale of the Schurz Radio Stations are referred to collectively as the “Schurz Acquisition and Related Transactions.” We used borrowings of

$425.0

million (the

“2016

Term Loan”) under our

then-existing senior credit facility, as amended (the

“2014

Senior Credit Facility”), to fund a portion of the purchase price to complete the Schurz Acquisition and to pay a portion of the related fees and expenses, the remainder of which were paid from cash on hand. See Note

“Long-term Debt” for further information regarding our financing activities.

The net consideration to complete the Schurz Acquisition and Related Transactions was as follows (in thousands):

						Schurz
						Acquisition
						and the
	Divestiture			Acquisition		Acquisition
	of KAKE-TV			of WBXX-TV		of WLUC-TV			Total

Base purchase price	$	-		$	30,000	$	442,500		$	472,500
Purchase price adjustment		-			-		574			574
Adjusted purchase price		-			30,000		443,074			473,074
Cash consideration received from sale of Schurz Radio Stations		-			-		(16,000	)		(16,000	)
Net adjusted purchase price allocated to assets acquired and liabilities assumed		-			30,000		427,074			457,074
Non-cash consideration received		(30,000	)		-		-			(30,000	)
Cash consideration received		(11,200	)		-		-			(11,200	)
Net consideration - the Schurz Acquisition and Related Transactions	$	(41,200	)	$	30,000	$	427,074		$	415,874

June 27, 2016,

we completed the acquisition of KYES-TV (MY, Ant.), a television station serving the Anchorage, Alaska television market, from Fireweed Communications, LLC (the “KYES-TV Acquisition”). The purchase price of

$0.5

million, plus transaction related expenses, was paid with cash on hand.

e refer to the stations acquired and retained in

2016,

as well as the Clarksburg Acquisition, whose stations we began operating under and LMA in

June 2016,

as the

“2016

Acquisitions.” The fair values of the assets acquired, liabilities assumed and resulting goodwill of the television station acquisitions we completed in

2016

are summarized as follows (in thousands):

						Schurz
						Acquisition
						and the
	Acquisition		Acquisition			Acquisition
	of KYES-TV		of WBXX-TV			of WLUC-TV			Total

Accounts receivable	$	-	$	-		$	19,226		$	19,226
Other current assets		-		429			4,606			5,035
Property and equipment		176		1,633			97,814			99,623
Goodwill		28		10,288			61,981			72,297
Broadcast licenses		254		18,199			231,391			249,844
Other intangible assets		42		-			19,523			19,565
Other non-current assets		-		408			3,028			3,436
Current liabilities		-		(460	)		(8,903	)		(9,363	)
Other long-term liabilities		-		(497	)		(1,592	)		(2,089	)

Total	$	500	$	30,000		$	427,074		$	457,574

These amounts are based upon management

’s determination of the fair values using valuation techniques including income, cost and market approaches. In determining the fair value of the acquired assets and assumed liabilities, the fair values were determined based on, among other factors, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.

Accounts receivable are recorded at their fair value representing the amount we expect to collect. Gross contractual amounts receivable are approximately

$0.2

million more than their recorded fair value.

Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from

three

years to

years.

Amounts related to other intangible assets represent primarily the estimated fair values of retransmission agreements

$14.9

million; advertising client relationships of

$1.6

million; and favorable income leases of

$2.6

million. These intangible assets are being amortized over their estimated useful lives of approximately

4.9

years for retransmission agreements; approximately

5.5

years for advertising client relationships; and approximately

9.5

years for favorable income leases.

not

qualify for separate recognition, including assembled workforce, as well as future synergies that

we expect to generate from each acquisition. We recorded

$72.3

million of goodwill related to stations acquired in

2016.

The goodwill recognized related to these acquisitions is deductible for income tax purposes.

The Company

’s consolidated results of operations for year ended

December 31, 2016

include the results of the

2016

Acquisitions from the date of each transaction. Revenues attributable thereto and included in our consolidated statement of operations for the year ended

December 31, 2016

were

$130.4

million. Operating income attributable thereto and included in our consolidated statement of operations for year ended

December 31, 2016

was

$55.8

million.

In connection with

acquiring the

2016

Acquisitions, we incurred

$7.4

million of transaction related costs during the year ended

December 31, 2016,

primarily related to legal, consulting and other professional services.

2015

Acquisitions

and Dispositions

September 1, 2015,

we entered into an asset purchase agreement

with The Cedar Rapids Television Company and The Gazette Company to acquire the assets of KCRG-TV, which is affiliated with the ABC Network and serves the Cedar Rapids, Iowa television market (the “Cedar Rapids Acquisition”). Also on

September 1, 2015,

we acquired certain non-license operating assets of this station and entered into an LMA with the licensee. Under the terms of the LMA, we operated the station subject to the control of the seller and its obligations under the station’s FCC license. As a result of the terms of the LMA, we included the operating results of the station in our financial statements beginning on

September 1, 2015.

October 1, 2015,

we acquired the non-license related real estate assets of KCRG-TV. The acquisition was completed on

November 1, 2015,

with the acquisition of the FCC license and license related assets. The purchase price for the station assets was

$100.0

million, and was funded with cash on hand.

On Ju

2015,

we acquired from ICA Broadcasting I, LTD, the assets of KOSA-TV, whose digital channels are affiliated with the CBS and MY Networks and which station serves the Odessa-Midland, Texas television market (the “Odessa Acquisition”). The purchase price was

$33.6

million and was funded with cash on hand.

Jul

2015,

we acquired from Neuhoff Media Twin Falls, LLC the assets of KMVT-TV, whose digital channels are affiliated with the CBS and CW Networks, as well as KSVT-LD, whose digital channel is affiliated jointly with the FOX and MY Networks. These stations serve the Twin Falls, Idaho television market (the “Twin Falls Acquisition”). The purchase price was

$17.5

million, and was funded with cash on hand.

July 1, 2015,

we acquired

from Davis Television Wausau, LLC certain non-license assets of WFXS-TV, which had served as the FOX affiliate for the Wausau-Rhinelander, Wisconsin television market (the “Wausau Acquisition”). On that date WFXS-TV ceased operating, and we began broadcasting its former program streams on our digital low power television station in Wausau, WZAW-LD. The purchase price was

$14.0

million, and was funded with cash on hand.

July 1, 2015,

we acquired

from NEPSK, Inc. the assets of WAGM-TV, whose digital channels are affiliated with the CBS and FOX Networks and which station serves the Presque Isle, Maine television market (the Presque Isle Acquisition”). The purchase price was

$10.3

million, and was funded with cash on hand.

July 1, 2015,

we acquired

from Eagle Creek Broadcasting of Laredo, LLC certain non-license assets of KVTV-TV, which had served as the CBS affiliate for the Laredo, Texas television market (the “Laredo Acquisition”). On that date KVTV-TV ceased operating, and we began broadcasting its former program streams on our digital low power television station in Laredo, KYLX-LD. The purchase price was

$9.0

million, and was funded with cash on hand.

e refer to the stations acquired and retained in

2015

as the

“2015

Acquisitions.” The fair values of the acquired assets, assumed liabilities and the resulting goodwill from the

2015

Acquisitions are summarized as follows (in thousands):

	Acquisition
	Cedar Rapids			Odessa			Twin Falls			Wausau			Presque Isle			Laredo			Total

Other current assets	$	503		$	87		$	93		$	87		$	45		$	22		$	837
Property and equipment		13,754			4,629			5,172			1,985			2,822			1,411			29,773
Goodwill		25,006			3,719			2,587			11,616			245			5,154			48,327
Broadcast licenses		55,676			22,253			6,333			-			6,150			-			90,412
Other intangible assets		5,849			3,067			3,485			397			1,039			2,435			16,272
Other non-current assets		13			13			32			87			-			13			158
Current liabilities		(792	)		(155	)		(170	)		(85	)		(51	)		(22	)		(1,275	)
Other long-term liabilities		(13	)		(13	)		(32	)		(87	)		-			(13	)		(158	)

Total	$	99,996		$	33,600		$	17,500		$	14,000		$	10,250		$	9,000		$	184,346

These amounts are based upon management

Property and equipment are recorded at their fair value and are being depreciated over their estimated useful lives ranging from

three

years to

years.

The amount related to other intangible assets primarily represents the estimated fair values of retransmission agreements of $

9.7

million; advertising client relationships of

$1.0

million; and income leases of

$5.4

million. These intangible assets are being amortized over the estimated remaining useful lives of

5.3

years for retransmission agreements;

9.6

years for advertising client relationships; and

16.9

years for income leases.

not

qualify for separate recognition, including assembled workforce, as well as future synergies that

we expect to generate from each acquisition. We recorded

$48.3

million of goodwill related to stations acquired in

2015.

The goodwill recognized related to these acquisitions is deductible for income tax purposes.

We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation. Consistent with that determination,

fair value was separately allocated to the acquired network affiliation agreements.

September 1, 2015,

we donated the FCC license and certain other assets of KMTF-TV in Helena, Montana, which formerly simulcast the CW channel broadcast by our KTVH-

D2,

to Montana State University (“MSU”). This donation allowed MSU to operate a full power PBS affiliated television station in the state’s capital for the

first

time, augmenting the statewide PBS network that MSU operates. We recorded a loss on disposal of approximately

$0.1

million related to this donation.

November 1, 2015,

we sold to Cordillera Communications, LLC television station KBGF-TV, the NBC affiliate for the Great Falls, Montana television market, and television station KTVH-TV, the NBC and CW affiliate for the Helena, Montana television market. Total consideration received was

$3.0

million, and we recorded a gain on disposal of approximately

$0.9

million related to this disposition in

2015.

The Company

’s consolidated results of operations for year ended

December 31, 2015

include the results of the

2015

Acquisitions from the date of each transaction. Net revenues and operating income of the businesses acquired in the

2015

Acquisitions included in our audited consolidated statement of operations for the year ended

December 31, 2015

were

$23.2

million and

$8.6

million, respectively.

In connection with acquiring the

2015

Acquisitions, we incurred transaction costs totaling

$6.5

million

primarily related to legal, consulting and other professional services that are included in our corporate and administrative expenses in the year ended

December 31, 2015.

Unaudited

Pro Forma Financial Information

Pro Forma Data

– Acquisitions Completed in

2017.

The following table sets forth certain unaudited pro forma information for the years ended

December 31, 2017

and

2016

assuming that the acquisitions completed in

2017

occurred on

January

2016

(in thousands, except per share data):

	Years Ended
	December 31,
	2017		2016

Revenue (less agency commissions)	$	895,081	$	926,799
Net income	$	260,909	$	88,679

Basic net income per share	$	3.57	$	1.23
Diluted net income per share	$	3.53	$	1.22

This pro forma financial information is based on Gray

’s historical results of operations and the historical results of operations of the acquisitions completed in

2017,

adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is

not

necessarily indicative of what our results would have been had we acquired each of the stations acquired in

2017

January

2016

or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the years ended

December 31, 2017

and

2016

reflect depreciation expense and amortization of finite-lived intangible assets related to the fair value of the assets acquired, and the related tax effects of the adjustments. This pro forma financial information has been prepared based on estimates and assumptions that we believe are reasonable as of the date hereof, and are subject to change based on, among other things, changes in the fair value estimates or underlying assumptions.

Pro Forma Data

– Acquisitions Completed in

2016.

The following table sets forth certain unaudited pro forma information for the years ended

December 31, 2016

and

2015

assuming that the acquisitions completed in

2016

occurred on

January

2015

(in thousands, except per share data):

	Years Ended
	December 31,
	2016		2015

Revenue (less agency commissions)	$	825,787	$	701,550
Net income	$	57,795	$	39,360

Basic net income per share	$	0.80	$	0.58
Diluted net income per share	$	0.79	$	0.57

This pro forma financial information is based on Gray’s historical results of operations and the historical results of operations of the stations acquired in

2016,

adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is

not

necessarily indicative of what our results would have been had we acquired each of the stations acquired in

2016

January

2015

or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the years ended

December 31, 2016

and

2015

Pro Forma Data -

2015

Acquisitions

The following table sets forth certain unaudited pro forma information for the year ended

December 31, 2015

assuming that the

2015

Acquisitions occurred on

January

2015

(in thousands, except per share data):

	Year Ended
	December 31,
	2015

Revenue (less agency commissions)	$	621,530
Net income	$	46,181

Basic net income per share	$	0.68
Diluted net income per share	$	0.67

This pro forma financial informa

tion is based on Gray’s historical results of operations and the

2015

Acquisitions’ historical results of operations, adjusted for the effect of fair value estimates and other acquisition accounting adjustments, and is

not

necessarily indicative of what our results would have been had we completed each of the

2015

Acquisitions on

January

2015

or on any other historical date, nor is it reflective of our expected results of operations for any future period. The pro forma adjustments for the year ended

December 31, 2015