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, 2018,

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

December 31, 2018,

and our accompanying unaudited condensed consolidated financial statements as of

March 31, 2019

and for the periods ended

March 31, 2019

and

2018,

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 presentation have been included. Subsequent to the Raycom Merger (as defined herein) we manage our business on the basis of

two

operating segments, broadcasting and production companies. 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, 2018 (

the

“2018

Form

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

three

-months ended

March 31, 2019,

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, 2019.

In addition, we have changed our reporting increment for dollars from thousands to millions.

Overview

We are a television broadcast company headquartered in Atlanta, Georgia. On

January 2, 2019,

we completed the Raycom Merger (as defined herein), which completed our transformation from a small, regional broadcaster to a leading media company with nationwide scale based on high-quality stations with exceptional talent in attractive markets. Upon the completion of the Raycom Merger on

January 2, 2019,

we became the largest owner of top-rated local television stations and digital assets in the United States. Currently, we own television stations in

television markets broadcasting almost

400

separate program streams including approximately

150

affiliates of the ABC Network (“ABC”), the NBC Network (“NBC”), the CBS Network (“CBS”) and the FOX Network (“FOX”). We refer to these major broadcast networks

collectively as the “Big Four” networks. Our television stations ranked

first

second

among all local television stations in

of our

markets between

December 2017

and

November 2018.

Our station portfolio reaches approximately

24%

of total United States television households. We also own video program production, marketing, and digital businesses including Raycom Sports, Tupelo-Raycom, and RTM Studios, the producer of PowerNation programs and content.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our actual results could differ materially from these estimated amounts. Our most significant estimates are of our allowance for doubtful accounts in receivables, valuation of goodwill and intangible assets, amortization of program 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 available to common stockholders by the weighted-average number of common shares outstanding during the relevant period. The weighted-average number of common 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 common shares, including restricted shares and shares underlying stock options, in the diluted weighted-average shares outstanding calculation, unless their inclusion would be antidilutive.

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

three

-months ended

March 31, 2019

and

2018,

respectively (in millions):

	Three Months Ended
	March 31,
	2019		2018

Weighted-average common shares outstanding-basic		99		89
Common stock equivalents for stock options and restricted stock		-		1
Weighted-average common shares outstanding-diluted		99		90

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss balances as of

March 31, 2019

and

December 31, 2018,

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

three

-months ended

March 31, 2019

and

2018

consisted of net (loss) income and an adjustment to the tax effect of our pension liability as a result of our adoption of Accounting Standards Update (“ASU”)

2018

02,

Income Statement - Reporting Comprehensive Income

(Topic

220

) –

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

. As of

March 31, 2019

and

December 31, 2018

the balances were as follows (in millions):

	March 31,			December 31,
	2019			2018

Accumulated balances of items included in accumulated other comprehensive loss:
Increase in pension liability	$	(35	)	$	(35	)
Income tax benefit		(12	)		(14	)
Accumulated other comprehensive loss	$	(23	)	$	(21	)

operty and Equipme

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 millions):

							Estimated
	March 31,			December 31,			Useful Lives
	2019			2018			(in years)
Property and equipment:
Land	$	114		$	52
Buildings and improvements		270			166		7	to	40
Equipment		711			548		3	to	20
		1,095			766
Accumulated depreciation		(423	)		(403	)
Total property and equipment, net	$	672		$	363

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. Forty-

seven

of our current full power stations and

thirty-seven

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) loss 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 millions):

	Three Months Ended
	March 31,
	2019			2018
(Gain) loss on disposal of fixed assets, net:
Proceeds from sale of assets	$	(2	)	$	-
Proceeds from Repack		(12	)		(1	)
Net book value of assets disposed		2			-
Other		2			-
Total	$	(10	)	$	(1	)

Purchase of property and equipment:
Recurring purchases - operations	$	9		$	4
Repack		9			2
Total	$	18		$	6

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

January 2017,

the Financial Accounting Standards Board (“FASB”) issued 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.

August 2018,

the FASB issued ASU

2018

14,

Compensation Retirement Benefits Defined Benefit Plans General

(Subtopic

715

) -

Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans.

ASU

2018

adds, removes, and modifies disclosure requirements related to defined benefit pension and other postretirement plans. The update amends only annual disclosure requirements. Retrospective adoption of the update is required in fiscal

2022.

The standard allows for early adoption, but we have

not

yet made a determination as to whether to early-adopt this standard. The adoption of this guidance requires a change in disclosures only and is

not

expected to have a material impact on our financial statements.

Adoption of Accounting

tandards and R

eclassifications

February 2016,

the FASB issued ASU

2016

02,

Leases

Topic

842

(“ASC

842”

). ASU

2016

superseded Topic

840

(“ASC

840”

), Leases, and thus superseded 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. In

July 2018,

the FASB issued ASU

2018

11,

Leases (Topic

842

) –

Targeted Improvements

, which provided the option of applying the requirements of the new lease standard in the period of adoption using the modified retrospective approach with

restatement of comparative periods. We adopted the standard effective

January 1, 2019,

using the modified retrospective approach provided in ASU

2018

11.

The transition guidance allowed for the election of a number of practical expedients. We elected the package of practical expedients and the short term lease practical expedient. The package of practical expedients allowed us to carryforward our classification of existing leases. With the election of the short-term practical expedient, we are

not

required to recognize on our consolidated balance sheet, the present value of leases with an initial term of

twelve

months or less. We also implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The standard had a material impact in our consolidated balance sheets, but did

not

have an impact in our consolidated income statements. Upon the adoption of this standard, we recorded a right of use (“ROU”) asset and a lease obligation liability of approximately

$21

million. In addition, upon the completion of the Raycom Merger on

January 2, 2019,

we implemented these standards to the leases acquired in the Raycom Merger and recorded a ROU asset and a lease obligation liability of approximately

$52

million and

$52

million, respectively. Please refer to Note

“Acquisitions and Divestitures” and Note

“Leases” for further information.

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. We have adopted this standard effective on

January 1, 2019

and have recorded an adjustment of

million to increase our retained earnings and accumulated other comprehensive loss.

January 2017,

the FASB issued ASU

2017

01,

Business Combinations

(Topic

805

) –

Clarifying the Definition of a Business

. ASU

2017

adds guidance to assist entities in the determination of whether an acquisition (or disposal) represents assets or a business. The update provides a test to determine whether or

not

an acquisition is a business. If substantially all of the fair value of the assets acquired is concentrated in a single asset or a group of similar identifiable assets, the acquired assets do

not

represent a business. If this test is

not

met, the update provides further guidance to evaluate if the acquisition represents a business. The Company adopted the guidance on

January 1, 2019.

The adoption did

not

have an impact on our financial statements.

In addition to the reclassification of our 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.