Gray Sets Record For Revenue and Reports Operating

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Nov 12, 2012 at 5:13 AM

Gray Sets Record For Revenue and Reports Operating Results For the Three-Month and Nine-Month Periods Ended September 30, 2012

ATLANTA , Oct. 31, 2012 /PRNewswire/ -- Gray Television, Inc. ("Gray," "we," "us" or "our") (NYSE: GTN and GTN.A) today announced results from operations for the three-month period (the "third quarter of 2012") and nine-month period ended September 30, 2012 as compared to the three-month period (the "third quarter of 2011") and nine-month period ended September 30 , 2011.

Recent Refinancing Developments:

As previously disclosed, during and following the completion of the third quarter of 2012, Gray undertook a number of significant financing transactions intended to simplify and strengthen our capital structure and balance sheet. These transactions included:

completing the repurchase of all of our outstanding Series D Perpetual Preferred Stock;
completing the offer and sale of $300.0 million aggregate principal amount of 7½% Senior Notes due 2020 (the "2020 Notes");
completing a cash tender offer (the "Tender Offer") pursuant to which we repurchased $222.6 million of our 10½% Senior Secured Second Lien Notes due 2015 (the "2015 Notes");
repaying all amounts outstanding under our prior senior credit facility (the "2007 Senior Credit Facility") and entering into an amended and restated senior credit facility (the "New Senior Credit Facility"); and
issuing a notice of redemption for all 2015 Notes that remained outstanding following the completion of the Tender Offer. Redemption of the remaining 2015 Notes (the "Redemption") is expected to occur on November 13, 2012 .

After giving effect to completion of the Redemption on November 13, 2012 , we anticipate that our long-term debt at face value, including current portion, on that date will be $855.0 million , consisting of $555.0 million in term loans under the New Senior Credit Facility, which mature in 2019, and $300.0 million in aggregate principal amount of 2020 Notes, at a weighted average interest rate of 5.7% per annum. The interest rate on the 2020 Notes is 7.5% per annum.

Highlights of Operating Results:

Gray reported record revenue, Broadcast Cash Flow and Broadcast Cash Flow Less Cash Corporate Expenses for the third quarter of 2012 and the nine-month period ended September 30, 2012 as follows:

third quarter of 2012 revenue was $102.9 million ; previous third quarter record was $85.3 million set in the three-month period ended September 30, 2010 ;
nine-month period ended September 30, 2012 revenue was $278.2 million ; previous record for a nine-month period ended September 30 was $232.4 million set in the nine-month period ended September 30, 2008 ;
third quarter of 2012 Broadcast Cash Flow Less Cash Corporate Expenses was $46.8 million ; previous third quarter record was $31.9 million set in the three-month period ended September 30, 2010 ;
nine-month period ended September 30, 2012 Broadcast Cash Flow Less Cash Corporate Expenses was $111.5 million ; previous record for a nine-month period ended September 30 was $85.2 million set in the nine-month period ended September 30, 2006 ;
third quarter of 2012 Broadcast Cash Flow was $50.7 million ; previous third quarter record was $35.2 million set in the three-month period ended September 30, 2010 ; and
nine-month period ended September 30, 2012 Broadcast Cash Flow was $122.0 million ; previous record for a nine-month period ended September 30 was $94.8 million set in the nine-month period ended September 30, 2006 .

Broadcast Cash Flow and Broadcast Cash Flow Less Cash Corporate Expenses are non-GAAP terms. These terms are defined on page 11 and reconciled to net income on page 12 of this press release.

For the third quarters of 2012 and 2011 , our revenue, broadcast expenses and corporate and administrative expenses were as follows:


	Three Months Ended September 30,
			%
	2012	2011	Change
	(in thousands except for percentages)
Revenue (less agency commissions)	$ 102,879	$ 76,518	34 %

Operating expenses (before depreciation, amortization and loss or (gain) on disposal of assets):
Broadcast	$ 52,034	$ 48,678	7 %
Corporate and administrative	$ 4,010	$ 4,089	(2)%

We are pleased with our operating results for the third quarter of 2012 . Our period over period increase in revenue for the third quarter was primarily due to increases in political advertising revenue and retransmission consent revenue. In addition, our local advertising, national advertising, internet advertising and other revenue also increased.

Our period over period increase in broadcast expenses (excluding depreciation, amortization and loss or (gain) on disposal of assets) reflects increases in compensation, programing costs and national sales commissions .

Comments on Results of Operations for the Three-Month Period Ended September 30, 2012 :

Revenue.

Our total revenue for the third quarter of 2012 was the highest revenue Gray has reported for a third quarter. Total revenue increased $26.4 million , or 34%, to $102.9 million for the third quarter of 2012 compared to the third quarter of 2011 due primarily to increased political advertising, retransmission consent, local advertising, national advertising, internet advertising, and other revenue. Political advertising revenue increased due to increased advertising from political candidates and special interest groups in the "on year" of the two-year election cycle. Retransmission consent revenue increased primarily due to the improved terms of our retransmission contracts. A significant portion of our retransmission consent contracts expired in 2011 and we were able to renew substantially all of these contracts under terms more favorable to Gray, which resulted in increased revenue in the third quarter of 2012 compared to the third quarter of 2011.

Revenue increased due to increased spending by advertisers in a gradually improving economic environment and our broadcast of the 2012 Summer Olympics. During the 2012 three-month period, we earned approximately $4.0 million of revenue from local and national advertisers and $1.1 million of revenue from political advertisers during the broadcast of the 2012 Summer Olympics on our ten primary NBC stations. There were no Olympic games during 2011. While our internet advertising revenue has also benefited from an improved economy, we continue to focus on and invest resources into our internet sales efforts, which have also resulted in increased internet revenue.

We also continued to earn consulting revenue under our agreement with Young Broadcasting, Inc. ("Young") in the third quarter of 2012. This agreement expires on December 31, 2012 .

The principal components of our revenue for the third quarter of 2012 compared to the third quarter of 2011 were as follows:

Local advertising revenue increased $2.0 million, or 4% , to $46.7 million.

National advertising revenue increased $0.6 million, or 4% , to $14.3 million.

Internet advertising revenue increased $1.2 million, or 22% , to $6.4 million.

Political advertising revenue increased $19.3 million, or 367%, to $24.5 million .

Retransmission consent revenue increased $3.4 million, or 65% , to $8.5 million.

Other revenue increased $0.1 million, or 4% , to $1.9 million.

Consulting revenue from our agreement with Young remained at $0.6 million in the third quarter of 2012 .

Our five largest nonpolitical advertising categories on a combined local and national basis by customer type for the third quarter of 2012 demonstrated the following changes in revenue during the third quarter of 2012 compared to the third quarter of 2011: automotive increased 25%; medical increased 17%; restaurant decreased 13%; communications decreased 4%; and furniture and appliances increased 12%.

Operating expenses .

Broadcast expenses (before depreciation, amortization and loss or (gain) on disposal of assets) increased $3.4 million, or 7% , to $52.0 million for the third quarter of 2012 compared to the third quarter of 2011. This increase was due primarily to increases in compensation expense of $1.2 million and non-compensation expense of $2.1 million . Compensation expense increased primarily due to increases in salaries, incentive compensation and pension expenses. Non-compensation expense increased primarily due to an increase in programing costs and national sales commissions. As of September 30, 2012 and 2011, we employed 2,062 and 2,088 total employees, respectively, in our broadcast operations.

Corporate and administrative expenses (before depreciation, amortization and loss or (gain) on disposal of assets) decreased $0.1 million , or 2%, to $4.0 million . The decrease was due primarily to a decrease in non-compensation expense of $0.3 million partially offset by an increase in compensation expense of $0.2 million . Compensation expense increased primarily due to increases in salaries, incentive compensation, pension and stock-based compensation expense. We recorded non-cash stock-based compensation expense during the third quarter of 2012 and the third quarter of 2011 of $170,000 and $34,000 , respectively. Non-cash stock-based compensation expense increased due to the grant of additional equity incentive awards during 2012.

Comments on Results of Operations for the Nine-Month Period Ended September 30, 2012 :

Revenue.

Our total revenue for the first nine months of 2012 was the highest revenue Gray has reported for a nine-month period. Total revenue increased $55.8 million , or 25%, to $278.2 million for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 due primarily to increased political advertising, retransmission consent, local advertising, national advertising, internet advertising, and other revenue. Political advertising revenue reflected increased advertising from political candidates and special interest groups during the "on year" of the two-year political advertising cycle. Our political advertising revenue also increased due to additional advertising related to a special election to recall the Governor of Wisconsin , where we have three television stations. Retransmission consent revenue increased primarily due to the improved terms of our retransmission contracts. A significant portion of our retransmission consent contracts expired in 2011 and we were able to renew substantially all of these contracts under terms more favorable to Gray, which resulted in increased revenue in the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 .

Revenue increased due to increased spending by advertisers in a gradually improving economic environment and our broadcast of the 2012 Summer Olympics. During the 2012 nine-month period, we earned approximately $4.0 million of revenue from local and national advertisers and $1.1 million of revenue from political advertisers during the broadcast of the 2012 Summer Olympics on our ten primary NBC stations. There were no Olympic games during 2011. In addition, local and national advertising revenue was positively influenced by the broadcast of the 2012 Super Bowl on our ten primary NBC channels, earning us approximately $0.8 million , an increase of approximately $0.6 million compared to the broadcast of the 2011 Super Bowl on our then-one primary FOX-affiliated channel and then-four secondary digital FOX-affiliated channels, which earned us approximately $0.2 million . While our internet advertising revenue has also benefited from an improved economy, we continue to focus on and invest resources into our internet sales efforts, which have also resulted in increased internet revenue.

Other revenue increased due to our receipt of a cable copyright royalty distribution during the 2012 period. If any similar copyright royalty payments are received in future periods, they are likely to recur in lower amounts. We continued to earn consulting revenue under our agreement with Young in the nine -month period ended September 30, 2012 .

The principal components of our revenue for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 were as follows:

Local advertising revenue increased $4.7 million, or 3% , to $141.0 million.

National advertising revenue increased $1.5 million, or 4% , to $41.7 million.

Internet advertising revenue increased $4.1 million, or 29% , to $18.4 million.

Political advertising revenue increased $33.7 million, or 377%, to $42.6 million .

Retransmission consent revenue increased $10.0 million, or 66% , to $25.3 million.

Other revenue increased $1.6 million, or 27% , to $7.4 million.

Consulting revenue from our agreement with Young was $1.9 million in the nine-month period ended September 30, 2012 .

Our five largest nonpolitical advertising categories on a combined local and national basis by customer type for the nine-month period ended September 30, 2012 demonstrated the following changes in revenue during the nine-month period ended September 30, 2012 compared to the nine-month period ended September 30, 2011 : automotive increased 18%; medical increased 13%; restaurant decreased 4%; communications increased 5%; and furniture and appliances increased 7%.

Operating expenses .

Broadcast expenses (before depreciation, amortization and gain on disposal of assets) increased $10.8 million , or 7%, to $155.6 million for the nine-month period ended September 30, 2012 compared to the nine-month period ended September 30, 2011 . This increase was due primarily to increases in compensation expense of $5.2 million and non-compensation expense of $5.7 million . Compensation expense increased primarily due to increases in salaries, incentive compensation and pension expenses. Non-compensation expense increased primarily due to an increase in programing costs and national sales commissions.

Corporate and administrative expenses (before depreciation, amortization and gain on disposal of assets) increased $0.2 million , or 2%, to $10.7 million . The increase was due primarily to an increase in compensation expense of $0.7 million , partially offset by a decrease in non-compensation expense of $0.5 million . Compensation expense increased primarily due to increases in salaries, incentive compensation, pension and stock-based compensation expense. We recorded non-cash stock-based compensation expense during the nine-month periods ended September 30, 2012 and 2011 of $324,000 and $102,000 , respectively. Non-cash stock-based compensation expense increased due to the grant of additional equity incentive awards during 2012.