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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

For the transition period from _________ to _________ .

Commission File Number 1-13796

Gray Television, Inc.

4370 Peachtree Road, NE, Atlanta, Georgia 30319

(404) 504-9828

Gray Communications Systems, Inc.

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X]    NO [  ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

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INDEX

GRAY TELEVISION, INC.

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PART I.      FINANCIAL INFORMATION

Item 1.        Financial Statements

GRAY TELEVISION, INC.

See notes to condensed consolidated financial statements.

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GRAY TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

See notes to condensed consolidated financial statements.

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GRAY TELEVISION, INC.

See notes to condensed consolidated financial statements.

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GRAY TELEVISION, INC.

[Additional columns below]

[Continued from above table, first column(s) repeated]

							Class A
							Treasury Stock
			Retained
			Earnings				Shares				Amount				Total
Balance at December 31, 2001			$	8,089,745				(1,113,107	)		$	(8,338,718	)		$	142,195,577
Net loss for the six months ended June 30, 2002				(34,957,767	)			-0-				-0-				(34,957,767	)
Common stock cash dividends ($0.04) per share				(627,443	)			-0-				-0-				(627,443	)
Preferred stock dividends				(803,362	)			-0-				-0-				(803,362	)
Non-cash preferred dividends associated with the exchange of preferred stock				(3,969,125	)			-0-				-0-				(3,969,125	)
Issuance of common stock:
	401(k) plan			-0-				-0-				-0-				385,179
	Non-qualified stock plan			-0-				-0-				-0-				613,275
Exchange of series A and series B preferred stock				-0-				-0-				-0-				(4,636,663	)
Income tax benefit relating to stock plans				-0-				-0-				-0-				88,000
Balance at June 30, 2002			$	(32,267,952	)			(1,113,107	)		$	(8,338,718	)		$	98,287,671

See notes to condensed consolidated financial statements.

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GRAY TELEVISION, INC.

See notes to condensed consolidated financial statements.

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GRAY TELEVISION, INC.

NOTE A — BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements of Gray Television, Inc. (formerly known as Gray Communications Systems, Inc.) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month and three-month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

Accounting for Derivatives

     On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and for Hedging Activities,” as amended (“SFAS 133”). SFAS 133 provides a comprehensive standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes “special accounting” for the different types of hedges. Changes in the fair value of derivatives that do not meet the hedged criteria are included in earnings in the same period of the change.

     In 1999, the Company entered into an interest rate swap agreement that is designated as a hedge against fluctuations in interest expense resulting from a portion of its variable rate debt. Due to the terms of the interest rate swap agreement, it does not qualify for hedge accounting under SFAS 133. Therefore, the changes in the fair value of the interest rate swap agreement are recorded in the Company’s earnings as income or expense in the period in which the change in value occurs.

Earnings Per Share

     The Company computes earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“EPS”). The following table reconciles net income (loss) before extraordinary charge and cumulative effect of accounting change to net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders for the three months and six months ended June 30, 2002 and 2001 (in thousands):

     For the three and six month periods ended June 30, 2002 and 2001, the Company incurred a net loss before extraordinary charge and cumulative effect of accounting change available to common stockholders. As a result common shares related to employee stock-based compensation plans and warrants that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share as they would have an antidilutive effect for the periods. The number of common shares that were not included in diluted earnings per share because they would be antidilutive for the respective periods are as follows (in thousands):

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NOTE A — BASIS OF PRESENTATION (Continued)

Earnings Per Share (Continued)

     The weighted average shares used to calculated basic an diluted earnings per share for the three months and the six months ended June 30, 2002 does not include 885,269 class B common shares that were issued to an escrow agent in connection with the proposed acquisition of Stations Holding Co. See Note B for further information about the issuance of these shares.

Implementation of New Accounting Principle

     In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). These standards change the accounting for business combinations by, among other things, prohibiting the prospective use of pooling-of-interests accounting and requiring companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, goodwill and intangible assets deemed to have an indefinite useful life will be subject to an annual review for impairment. The new standards were effective for the Company on January 1, 2002. Upon adoption of SFAS 142, the Company recorded a one-time, non-cash charge of approximately $39.5 million ($30.6 million after income taxes) to reduce the carrying value of its goodwill, licenses and network affiliation agreements. Such charge is reflected as a cumulative effect of an accounting change in the accompanying condensed consolidated statement of operations. For additional discussion on the impact of adopting SFAS 142, see Note D.

Reclassifications

     Certain prior year amounts in the accompanying condensed consolidated financial statements have been reclassified to conform with the 2002 presentation.

NOTE B — BUSINESS ACQUISITION

     On June 4, 2002, the Company executed a merger agreement with Stations Holding Company, Inc., (“Stations”), the parent company of Benedek Broadcasting Corporation (“Benedek”). The merger agreement provides that the Company will acquire Stations by merging our newly formed wholly-owned subsidiary, Gray MidAmerica Television, Inc., into Stations. For Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations in accordance with a plan of reorganization filed by Stations with the United States bankruptcy court in Delaware on July 1, 2002 and amended July 9, 2002. We may pay additional cash consideration that is currently estimated at $9.3 million for certain estimated net working capital, as specified in the merger agreement. Benedek plans to sell or already has sold, prior to the effective time of the merger, a total of nine designated television stations. Upon completion of the merger, we will own a total of 28 stations serving 23 television markets. Based on results for the year ended December 31, 2001, the combined Gray and Benedek television stations produced approximately $213.9 million of net revenue and $84.8 million of broadcast cash flow. Including our publishing and other operations, the combined Gray and Benedek operations for 2001 produced approximately $263.8 million of net revenue and $97.1 million of media cash flow.

     We intend to finance the merger by incurring approximately $300 million of additional indebtedness and issuing $250.0 million of equity. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger. For advisory services rendered by Bull Run Corporation, Inc. in connection with the merger, the Company advanced to Bull Run

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NOTE B — BUSINESS ACQUISITION (Continued)

an advisory fee of $5.0 million on June 10, 2002. This advisory fee must be repaid to the Company if the merger is not completed. Bull Run is a principal investor in the Company. We currently estimate that the total transaction fees we will incur relating to this acquisition, including the advisory fee to Bull Run, underwriting and other debt issuance fees and other professional service fees including attorneys and accountants will be between $25 million and $30 million.

     In conjunction with the execution of the merger agreement, the Company executed a $12.5 million letter of credit under its existing senior credit agreement and deposited 885,269 shares of the Company’s Class B Common stock with an escrow agent.

     If the closing does not occur due to a material default by the Company, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. The aggregate proceeds of the drawing on the letter of credit and the escrow shares will total $25.0 million, but the Company may replace some or all of the escrow shares with a cash payment or payments in increments of $500,000.

     We expect the merger, if it closes, to be completed by the fourth quarter of 2002.

NOTE C — LONG-TERM DEBT

     At June 30, 2002, the balance outstanding and the balance available under the Company’s senior credit agreement were $200.0 million and $37.5 million, respectively, and the interest rate on the balance outstanding was 5.3%. The Company has established a $12.5 million letter of credit in connection with the proposed acquisition of Stations. If the transaction does not close under certain circumstances, Stations could draw upon the letter of credit as discussed in Note B.

NOTE D — GOODWILL AND INTANGIBLE ASSETS

     As discussed in Note A, in January 2002, the Company adopted SFAS 142, which requires companies to discontinue amortizing goodwill and certain intangible assets with indefinite useful lives. Instead, SFAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS 142 and annually thereafter. The Company will perform its annual impairment review during the fourth quarter of each year, commencing in the fourth quarter of 2002. Other intangible assets will continue to be amortized over their useful lives.

     Under SFAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. As of January 1, 2002, the Company performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. Under SFAS 142, the annual impairment tests are performed at the lowest level for which there are identifiable cash flows. As a result of implementing SFAS 142 and the required impairment tests at January 1, 2002, the Company recognized a non-cash impairment of goodwill and other intangible assets of $39.5 million ($30.6 million net of income taxes). Such charge is reflected as a cumulative effect of an accounting change in the accompanying condensed consolidated statement of operations. In calculating the impairment charge, the fair value of the reporting units underlying the segments were estimated using a discounted cash flow methodology.

     The Company expects to receive future benefits from previously acquired goodwill and licenses over an indefinite period of time. Upon adoption of SFAS 142 on January 1, 2002, the Company stopped amortizing these assets. Amortization of these assets totaled $3.4 million ($2.8 million after income taxes) for the three months ended June 30, 2001 and $6.9 million ($5.5 million after income taxes) for the six months ended June 30, 2001.

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NOTE D — GOODWILL AND INTANGIBLE ASSETS (Continued)

     A summary of changes in the Company’s goodwill and other intangible assets during the six month period ended June 30, 2002, by business segment is as follows (in thousands):

     As of June 30, 2002 and December 31, 2001, the Company’s intangible assets and related accumulated amortization consisted of the following (in thousands):