GRAY MEDIA, INC (GTN)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Media, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.

This section of our Annual Report discusses 2024 and 2023 items and year-over-year comparisons between 2024 and 2023. A detailed discussion of 2022 items and year-over-year comparisons between 2023 and 2022 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report for the year ended December 31, 2023.

Business Overview. We are a multimedia company headquartered in Atlanta, Georgia. We are the nation’s largest owner of top-rated local television stations and digital assets serving 113 television markets that collectively reach approximately 37 percent of US television households. The portfolio includes 78 markets with the top-rated television station and 99 markets with the first and/or second highest rated television station, as well as the largest Telemundo Affiliate group with 44 markets totaling over 1.5 million Hispanic TV Households. We also own Gray Digital Media, a full-service digital agency offering national and local clients digital marketing strategies with the most advanced digital products and services. Our additional media properties include video production companies Raycom Sports, Tupelo Media Group, and PowerNation Studios, and studio production facilities Assembly Atlanta and Third Rail Studios.

Our operating revenues are derived primarily from broadcast and digital advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the years ended December 31, 2024, 2023 and 2022, we generated revenue of $3.6 billion, $3.3 billion and $3.7 billion, respectively.

Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.

We also sell digital advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.

34

Our broadcast and digital advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:

We derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During the years ended December 31, 2024, 2023 and 2022 approximately 23%, 27% and 28%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to the services sector. During the years ended December 31, 2024, 2023 and 2022 approximately 20%, 20% and 17%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to automotive customers. Revenue from these industries may represent a lower percentage of total revenue in even-numbered years due to, among other things, the decreased availability of advertising time, as a result of such years being the “on-year” of the two-year election cycle.

Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.

Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.

2024 Refinancing and Debt Reduction Activities. During 2024 we completed several steps to enhance our liquidity, to extend the maturity of portions of our debt obligations that were scheduled to mature in the near future and to reduce the principal amount of our debt outstanding. Please refer to Note 4. “Long-Term Debt” for further information. During 2024, we:

35

In addition, in the year ended December 31, 2024 we used $327 million of cash to repurchase and retire an aggregate principal amount of $373 million of our outstanding 2019 Term Loan, 2027 Notes, 2030 Notes and 2031 Notes on the open market. Currently, our Board of Directors has authorized us to make additional open market repurchases of our indebtedness of $250 million.

Together with other payments at par, collectively, these actions resulted in a $520 million reduction in the principal amount of our outstanding indebtedness at December 31, 2024, as compared to December 31, 2023.

Risk Factors. The broadcast television industry relies primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant risk factors that may affect our business, see “Item 1A. Risk Factors” included elsewhere herein.

Revenue

Set forth below are the principal types of revenue, less agency commissions, and the percentage contribution of each to our total revenue (dollars in millions):

Results of Operations

Year Ended December 31, 2024 (“2024”) Compared to Year Ended December 31, 2023 (“2023”)

Revenue. Total revenue increased $363 million, or 11%, to $3.6 billion for 2024 compared to 2023.

During 2024:

Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization, impairment and gain on disposal of assets) increased $49 million, or 2%, to $2.3 billion for 2024, compared to 2023.

36

During 2024:

Production Company Expenses. Production company expenses (before depreciation, amortization, impairment and gain or loss on disposal of assets) decreased by approximately $32 million in 2024 to $83 million, compared to $115 million in 2023. Production company operating expenses decreased in 2024 primarily due to significant expenses incurred in 2023, which did not re-occur in 2024.

Corporate and administrative expenses. Corporate and administrative expenses (before depreciation, amortization, impairment and gain or loss on disposal of assets) decreased by $8 million, or 7%, to $104 million in 2024 compared to $112 million in 2023, primarily as a result of decreases in professional services costs. We recorded corporate non-cash stock-based compensation expense of $17 million and $15 million in 2024 and 2023, respectively.

Depreciation. Depreciation of property and equipment totaled $144 million and $145 million for 2024 and 2023, respectively.

Amortization of intangible assets. Amortization of intangible assets totaled $125 million and $194 million for 2024 and 2023, respectively. Amortization decreased primarily due to finite-lived intangible assets becoming fully amortized.

Impairment of goodwill and other intangible assets. In 2024 we did not incur impairment charges, compared to $43 million of impairment charges incurred in 2023.

Loss on Disposals of Assets, Net. We recognized a loss on disposal of assets of $20 million in 2024 compared to a loss on disposal of assets of $21 million in 2023. The loss in 2024 was primarily related to the acquisition of a construction permit to build television station KCBU in exchange for the divestiture of television stations KCWY and KGWN in which we recognized a loss of $14 million. The loss in 2023 was primarily related to the sale of television station KNIN, in which we recognized a loss of $14 million in 2023.

Miscellaneous Income, Net. Miscellaneous income, net totaled $117 million and $7 million in 2024 and 2023, respectively. Miscellaneous income, net in 2024 was due primarily to a gain of $110 million from the sale of our investment in BMI.

Impairment of Investments. During 2024 and 2023, we wrote down the value of certain investments to their estimated net realizable values. The total impairment charges were $25 million and $29 million in 2024 and 2023, respectively.

Interest Expense. Interest expense increased $45 million, or 10%, to $485 million for 2024 compared to 2023. This increase was primarily attributable to several factors including: increases in average interest rates on all of our debt to 7.2% in 2024 compared to 6.5% in 2023, partially offset by a decrease in the outstanding principal balances of our debt, for a net increase of $22 million; a reduction in the amount of capitalized construction period of interest which increased interest expense by $19 million; an increase in deferred financing cost amortization, consistent with our 2024 refinancing activities, which increased interest expense by $2 million; and an increase in the amortization of costs related to our interest rate caps which increased interest expense by $2 million.

37

Gain (Loss) on Early Extinguishment of Debt. We recorded a gain on the early extinguishment of debt of $34 million in 2024, primarily as a result of our open-market repurchases of debt, partially offset by the write-off of deferred financing costs related to the open-market repurchases and expenses incurred related to our refinancing activities. We recorded a loss on the early extinguishment of debt of $3 million in 2023 related the write-off of deferred financing costs related to the partial repayment of a portion of our 2017 Term Loan.

Income Tax Expense. Our effective income tax rate increased to a net provision of 24% for 2024 from 7% for 2023. Our effective income tax rates differed from the statutory rate due to the following items:

We file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts. We estimate that these income tax payments, before deducting refunds, will be within a range of $80 million to $100 million in 2025.

Liquidity and Capital Resources

General. Our primary sources of liquidity are cash on hand, cash flows from operations and borrowing capacity under our Revolving Credit Facility.

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of December 31, 2024, while others are considered future commitments. Our contractual obligations primarily consist of amounts required to be paid for: the acquisition of television stations; the purchase of property and equipment; service and other agreements; commitments for various syndicated television programs; and commitments under affiliation agreements with networks. In addition to our contractual obligations, we expect that our primary anticipated uses of liquidity in 2025 will be to reduce our indebtedness, fund our working capital, make interest and tax payments, fund capital expenditures, pursue certain strategic opportunities and maintain operations. For a description of the Company’s various contractual and other commitments requiring future payments, see Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein. In addition, for a description of the Company's interest payments and future maturities of long-term debt, see Note 4 “Long-term Debt” of our audited consolidated financial statements included elsewhere herein.

38

The following tables present data that we believe is helpful in evaluating our liquidity and capital resources (dollars in millions):

Net Cash Provided By (Used In) Operating, Investing and Financing Activities – 2024 Compared to 2023

Net cash provided by operating activities increased $103 million to $751 million in 2024 compared to net cash provided by operating activities of $648 million in 2023. The increase in cash provided by operating activities was primarily due to an increase in net income of $451 million; offset, in part, by a $144 million decrease in cash provided by changes in working capital; and a decrease in net non-cash charges of $204 million.

Net cash used in investing activities decreased $263 million to $28 million for 2024 compared to $291 million for 2023. The net decrease in the amount used was primarily due to a decrease in cash used for purchases of property and equipment and an increase in proceeds received from the sale of investments and other assets.

Net cash used in financing activities increased $212 million to $609 million in 2024 compared to net cash used in financing activities of $397 million in 2023. During 2024 and 2023, we used $52 million of cash to pay dividends to holders of our preferred stock and $32 million and $30 million, respectively, to pay dividends to holders of our common stock. During 2024 and 2023, we used a net amount of $474 million and $310 million, respectively, for principal payments net of borrowings on our long-term debt.

Liquidity. Based on our debt outstanding as of December 31, 2024, we estimate that we will make approximately $450 million in debt interest payments over the twelve months immediately following December 31, 2024. Although our cash flows from operations are subject to a number of risks and uncertainties, we anticipate that our cash on hand, future cash expected to be generated from operations, borrowings from time to time under the Senior Credit Agreement (or any such other credit facility as may be in place at the appropriate time) and, potentially, external equity or debt financing, will be sufficient to fund any debt service obligations, estimated capital expenditures and acquisition-related obligations for the next twelve months and the forseeable future. Any potential equity or debt financing would depend upon, among other things, the costs and availability of such financing at the appropriate time. We also believe that our future cash expected to be generated from operations and borrowing availability under the Senior Credit Agreement (or any such other credit facility) will be sufficient to fund our future capital expenditures and long-term debt service obligations for the next twelve months and the forseeable future.

39

Collateral, Covenants and Restrictions of our Credit Agreements. Our obligations under the Senior Credit Agreement and the 2029 Notes are secured by substantially all of our consolidated assets, excluding real estate. In addition, substantially all of our subsidiaries are joint and several guarantors of, and our ownership interests in those subsidiaries are pledged to collateralize, our obligations under the Senior Credit Agreement. Gray Media, Inc. is a holding company, and has no material independent assets or operations. For all applicable periods, the 2026 Notes, 2027 Notes, 2030 Notes and 2031 Notes have been fully and unconditionally guaranteed, on a joint and several, senior unsecured basis, by substantially all of Gray Media, Inc.’s subsidiaries. Any subsidiaries of Gray Media, Inc. that do not guarantee the 2026 Notes, 2027 Notes, 2030 Notes and 2031 Notes are not material or are designated as unrestricted under the Senior Credit Agreement. As of December 31, 2024, there were no significant restrictions on the ability of Gray Media, Inc.’s subsidiaries to distribute cash to Gray or to the guarantor subsidiaries.

The Senior Credit Agreement contains affirmative and restrictive covenants with which we must comply, including: (a) limitations on additional indebtedness, (b) limitations on liens, (c) limitations on the sale of assets, (d) limitations on guarantees, (e) limitations on investments and acquisitions, (f) limitations on the payment of dividends and share repurchases, (g) limitations on mergers and (h) maintenance of the First Lien Leverage Ratio while any amount is outstanding under the revolving credit facility, as well as other customary covenants for credit facilities of this type. The 2026 Notes, 2027 Notes, 2029 Notes, 2030 Notes and 2031 Notes include covenants with which we must comply which are typical for financing transactions of their nature. As of December 31, 2024, we were in compliance with all required covenants under all of our debt obligations.

In addition to results prepared in accordance with U.S. GAAP, “Leverage Ratio Denominator” is a metric that management uses to calculate our compliance with our financial covenants in our indebtedness agreements. This metric is calculated as specified in our Senior Credit Agreement and is a significant measure that represents the denominator of a formula used to calculate compliance with material financial covenants within the Senior Credit Agreement that govern our ability to incur indebtedness, incur liens, make investments and make restricted payments, among other limitations usual and customary for credit agreements of this type. Accordingly, management believes this metric is a very material metric to our debt and equity investors.

Leverage Ratio Denominator gives effect to the revenue and broadcast expenses of all completed acquisitions and divestitures as if they had been acquired or divested, respectively, on January 1, 2023. It also gives effect to certain operating synergies expected from the acquisitions and related financings, and adds back professional fees incurred in completing the acquisitions. Certain of the financial information related to the acquisitions, if applicable, has been derived from, and adjusted based on, unaudited, un-reviewed financial information prepared by other entities, which Gray cannot independently verify. We cannot assure you that such financial information would not be materially different if such information were audited or reviewed and no assurances can be provided as to the accuracy of such information, or that our actual results would not differ materially from this financial information if the acquisitions had been completed on the stated date. In addition, the presentation of Leverage Ratio Denominator as determined in the Senior Credit Agreement and the adjustments to such information, including expected synergies, if applicable, resulting from such transactions, may not comply with U.S. GAAP or the requirements for pro forma financial information under Regulation S-X under the Securities Act of 1933. Leverage Ratio Denominator, as determined in the Senior Credit Agreement, represents an average amount for the preceding eight quarters then ended.

40

Our “Adjusted Total Indebtedness”, “First Lien Adjusted Total Indebtedness” and “Secured Adjusted Total Indebtedness”, in each case “Net of All Cash”, represents the amount of outstanding principal of our long-term debt, plus certain other obligations as defined in our Senior Credit Agreement, less all cash (excluding restricted cash) for the applicable amount of indebtedness.

Below is a calculation of our “Leverage Ratio”, “First Lien Leverage Ratio” and “Secured Leverage Ratio” as defined in our Senior Credit Agreement as of December 31, 2024:

Calculation of Leverage Ratio, First Lien Leverage Ratio and Secured Leverage Ratio, as each is defined in our Senior Credit Agreement (Unaudited):

(1) At any time any amounts are outstanding under our revolving credit facility, our maximum First Lien Leverage Ratio cannot exceed 4.25 to 1.00.

41

Retirement Plans

We sponsor and contribute to defined benefit and defined contribution retirement plans. Effective on January 1, 2025, these plans were:

The Gray Pension Plan is a defined benefit pension plan covering certain of our legacy employees. Benefits under the Gray Pension Plan are frozen and can no longer increase, and no new participants can be added to the plan.

Our funding policy for the Gray Pension Plan is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of United States Generally Accepted Accounting Principles (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 2024, was 5.48%, which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 2023 was 4.79%. Our assumptions regarding expected return on plan assets reflects asset allocations, the investment strategy and the views of investment managers, as well as historical experience. In 2024, we used an assumed rate of return of 6.25% for our assets invested in the Gray Pension Plan. The estimated asset returns for this plan, calculated on a mean market value assuming mid-year contributions and benefit payments, were a gain of 0.7% for the year ended December 31, 2024, and a gain of 13.7% for the year ended December 31, 2023. Other significant assumptions relate to inflation, retirement and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. Retirement rates are based on actual plan experience and mortality rates are based on the Pri-2012 total mortality table and the MP-2021 projection scale published by the Society of Actuaries.

During the year ended December 31, 2024, we determined that no contribution to the Gray Pension Plan was required. During the year ended December 31, 2023, we contributed $4 million to the Gray Pension Plan. Currently we do not expect that a contribution to the Gray Pension Plan will be needed in 2025. The use of significantly different assumptions, or if actual experienced results differ significantly from those assumed, could result in our funding obligations being materially different.

The Gray 401(k) Plan is a defined contribution plan intended to meet the requirements of section 401(k) of the Internal Revenue Code. During 2024 and 2023, employer contributions under the Gray 401(k) Plan include matching cash contributions at a rate of 100% of the first 1% of each employee’s salary deferral, and 50% of the next 5% of each employee’s salary deferral. In addition, the Company, at its discretion, may make an additional profit-sharing contribution, based on annual Company performance, to those employees who meet certain criteria. For the years ended December 31, 2024 and 2023, our matching contributions to our Capital Accumulation Plan were approximately $28 million and $26 million, respectively. An additional profit-sharing contribution was not approved for 2024. As of and for the year ended December 31, 2023, an additional profit-sharing contribution of $10 million was approved and accrued as a liability. This liability was settled in the first quarter of 2024 by the issuance of Gray common stock to the participants of the Gray 401(k) Plan.

In connection with the Meredith Transaction, in 2021, we assumed a defined benefit pension plan covering certain legacy Meredith bargaining class employees. As of December 31, 2024 and 2023, the Meredith Plan had combined plan assets of $22 million and $16 million, respectively, and combined projected benefit obligations of $18 million and $11 million, respectively. A net asset of $4 million and $5 million for this plan are recorded in our financial statements as of December 31, 2024 and 2023, respectively.

42

See Note 11 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning these retirement plans.

Capital Expenditures

We currently expect that our capital expenditures will range between approximately $85 million to $90 million during 2025, which includes capital expenditures at our Assembly Atlanta project. We incurred costs to build public infrastructure within the Assembly Atlanta project. Pursuant to our Purchase and Sale Agreement with the Doraville Community Improvement District (the “CID”), we receive cash reimbursements for the transfer of specific infrastructure projects to the CID and for other construction costs previously incurred. Consistent with previous practice, we anticipate transferring certain public infrastructure at Assembly Atlanta to the CID for which we anticipate receiving proceeds during 2025. We expect reimbursements of approximately $25 million in 2025 for work completed to date, and that our capital expenditures in 2025 will be less than the reimbursements we expect to receive. We can give no assurances of the actual proceeds to be received in the future from the CID, nor the timing of any such proceeds.

Off-Balance Sheet Arrangements

Operating Commitments. We have various commitments for syndicated television programs. We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such as Wheel of Fortune and off network reruns are programs such as The Big Bang Theory. First run programs have not been produced at the time the contract to air such programming is signed, and off network reruns have already been produced. For all syndicated television contracts, we record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off-network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.

The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.

The following are our material expected off balance sheet contractual obligations and commitments as of December 31, 2024:

43

For more information about these off-balance sheet contractual obligations and commitments please refer to Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein.

Subsequent Events

In December 2024, we entered into a series of agreements through which we anticipate receiving approximately $35 million in return for (a) all of Gray’s interests in certain third-party leases for space at Gray-owned tower sites, and (b) the exclusive right to market and lease space at those Gray-owned tower sites to third parties. We will retain ownership and control of each such tower site and will not incur any additional operating costs with respect to the subject tower sites. We anticipate closing the transactions at various times during 2025, with the majority of closings occurring in the first half of 2025.

Inflation

During 2024, we have experienced moderate inflation of our operating expenses and increases in interest rates on amounts outstanding under our Senior Credit Agreement. There can be no assurance that further increases in the rate of inflation or interest rates in the future would not have an adverse effect on operating results.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those reported amounts. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require significant judgments or estimations in their application where variances may result in significant differences to future reported results. Our policies concerning intangible assets and income taxes are disclosed below.

Variability of Critical Accounting Estimates. Our critical accounting estimates include estimates and assumptions that are material to our financial statements. These estimates and assumptions are used in:

Our estimates and assumptions have been materially accurate in the past and have not changed materially. We do not expect that these assumptions are likely to change materially in the future.

44

Annual Impairment Testing of Broadcast Licenses and Goodwill. We evaluate broadcast licenses and goodwill for impairment on an annual basis, or more often when certain triggering events occur. Goodwill is evaluated at the reporting unit level.

Our broadcasting operating segment is comprised of a single reporting unit. Each of the distinct businesses within our production companies operating segment represent a reporting unit. Therefore, as of December 31, 2024, we evaluated our goodwill for impairment for five reporting units. One reporting unit for all of our broadcast television operations and four for each of the distinct businesses within our production companies. The Company has considered the requirements as stipulated within ASC 350. Management has identified the applicable assets and liabilities for each of the reporting units in accordance with ASC 350.

In the performance of our annual broadcast license and reporting unit impairment assessments, we have the option of performing a qualitative assessment to determine if it is more likely than not that the respective asset has been impaired. In 2024, we performed a qualitative assessment for 56 of our broadcast licenses and three of our reporting units. In 2023, we performed a qualitative assessment for 59 of our broadcast licenses and one of our reporting units.

As part of this qualitative assessment, we evaluate the relative impact of factors that are specific to the reporting units as well as industry, regulatory and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.

If we conclude that it is more likely than not that a broadcast license or reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we perform the quantitative assessment which involves comparing the estimated fair value of the broadcast license or reporting unit to its respective carrying value.

For our annual broadcast licenses impairment test in 2024, we concluded that it was more likely than not that all of our broadcast licenses that were evaluated were not impaired based upon our qualitative assessments. We elected to perform a quantitative assessment for our remaining broadcast licenses and concluded that their fair values exceeded their carrying values. To estimate the fair value of our broadcast licenses, we considered assumptions related to historical market and station growth trends, third party market specific industry data, the anticipated performance of the stations and discount rates. Our valuation technique included theoretical assumptions of the costs that would be incurred to construct a station when the only owned asset is the broadcast license and theoretical assumptions for the associated revenues, operating margins and capital expenditures expected to be incurred in the start-up years. We also consider other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market.

For our annual goodwill impairment test in 2024, we concluded that it was more likely than not that goodwill was not impaired based upon our qualitative assessments for one of our reporting units. We elected to perform a quantitative assessment for the remainder of our reporting units and concluded that their fair values exceeded their carrying values. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our reporting units. We also consider a market multiple approach to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value our television stations.

45

We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our broadcast licenses and reporting units were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.

At December 31, 2024 and 2023, the recorded value of our broadcast licenses was $5.3 billion and the recorded value of our goodwill was $2.6 billion, at each date. See Note 13 “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein, for the results of our annual impairment tests for the years ended December 31, 2024, 2023 and 2022.

During 2023, as a result of the bankruptcy of Diamond Sports Group, LLC (“Diamond”), our production companies segment recorded a non-cash charge of $43 million for impairment of goodwill and other intangible assets.

Valuation of Network Affiliation Agreements. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.

Certain other broadcasting companies have valued their stations on the basis that it is the network affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship, and include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or reporting units.

The methodology we used to value our stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired from 2002 through December 31, 2024, we generally ascribe no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Due to certain characteristics of a small number of the stations acquired in 2023, we ascribed approximately $14 million of the value of those transactions to network affiliations.

Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.

If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are finite-lived intangible assets, this reallocation of value might have a significant impact on our operating results. There is diversity of practice within the industry, and some broadcast companies have considered such network affiliation intangible assets to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.

46

The following table reflects the hypothetical impact of the reassignment of value from broadcast licenses to network affiliations for our historical acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period as of our most recent impairment testing date of December 31, 2024 (in millions, except per share data):

For future acquisitions, if any, the valuation of the network affiliations may differ from the values of previous acquisitions due to the different characteristics of each station and the market in which it operates.

Recent Accounting Pronouncements. See Note 1 “Description of Business and Summary of Significant Accounting Policies” of our audited consolidated financial statements included elsewhere herein for more information.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.

This section of our Annual Report on Form 10-K discusses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022. A detailed discussion of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. of our Annual Report on Form 10-K for the year ended December 31, 2022.

Business Overview. We are a multimedia company headquartered in Atlanta, Georgia. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Our television stations serve 113 television markets that collectively reach approximately 36 percent of US television households. This portfolio includes 79 markets with the top-rated television station and 102 markets with the first and/or second highest rated television station. We also own video program companies Raycom Sports, Tupelo Media Group, PowerNation Studios, as well as the studio production facilities Assembly Atlanta and Third Rail Studios.

Our operating revenues are derived primarily from broadcast and internet advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the years ended December 31, 2023, 2022 and 2021, we generated revenue of $3.3 billion, $3.7 billion and $2.4 billion, respectively.

Impact of Recent Acquisitions and Divestitures. During 2022 and 2021 we completed several transactions that have, collectively, had a significant impact on our financial condition, results of operations and cash flows. We refer to these transactions collectively as the “Acquisitions”. Please see Note 3 “Acquisitions and Divestitures” in our consolidated financial statements contained elsewhere herein for further discussion of the Acquisitions. The impact of the Acquisitions is described in more detail in the following discussion of our operating results. The most significant of the transactions were:

34

The following table summarizes the “Transaction Related Expenses” incurred in connection with the Acquisitions during the year ended December 31, 2023, 2022 and 2021, by type and by financial statement line item (in millions):

Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.

We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.

35

Our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:

We derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During the years ended December 31, 2023, 2022 and 2021 approximately 27%, 28% and 29%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to the services sector. During the years ended December 31, 2023, 2022 and 2021 approximately 20%, 17% and 17%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to automotive customers. Revenue from these industries may represent a higher percentage of total revenue in odd-numbered years due to, among other things, the increased availability of advertising time, as a result of such years being the “off year” of the two-year election cycle.

Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.

Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.

Risk Factors. The broadcast television industry relies primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant risk factors that may affect our business, see “Item 1A. Risk Factors” included elsewhere herein.

36

Revenue

Set forth below are the principal types of revenue, less agency commissions, and the percentage contribution of each to our total revenue (dollars in millions):

Results of Operations

Year Ended December 31, 2023 (“2023”) Compared to Year Ended December 31, 2022 (“2022”)

Revenue. Total revenue decreased $395 million, or 11%, to $3.3 billion for 2023 compared to 2022. During 2023:

Broadcasting Expenses. Broadcasting expenses (before depreciation, amortization, impairment and gain on disposal of assets) increased $103 million, or 5%, to $2.3 billion for 2023, compared to 2022. During 2023:

Production Company Expenses. Production company expenses (before depreciation, amortization, impairment and gain or loss on disposal of assets) increased by approximately $32 million in 2023 to $115 million, compared to $83 million in 2022. Production company operating expenses included $17 million allowance for credit losses related to the bankruptcy of Diamond, a counterparty in contracts with us and $18 million to settle litigation related to the Assembly Atlanta project.

37

Corporate and administrative expenses. Corporate and administrative expenses (before depreciation, amortization, impairment and gain or loss on disposal of assets) increased by $8 million, or 8%, to $112 million in 2023 compared to 2022, primarily as a result of; increases in compensation expense of $4 million, increases in professional services costs of $6 million and decreases in transaction related legal and other professional services of $2 million in 2023. We recorded corporate non-cash stock-based amortization expense of $15 million and $18 million in 2023 and 2022, respectively.

Depreciation. Depreciation of property and equipment totaled $145 million and $129 million for 2023 and 2022, respectively. Depreciation increased primarily due to the addition of depreciable assets.

Amortization of intangible assets. Amortization of intangible assets totaled $194 million and $207 million for 2023 and 2022, respectively. Amortization decreased primarily due to finite-lived intangible assets becoming fully amortized.

Impairment of Goodwill and Other Intangible Assets. Several years ago, our Raycom Sports subsidiary sublicensed certain ACC football and basketball games from ESPN to Fox Sports that were assumed by Diamond upon its acquisition of Fox Sports. In March 2023, Diamond sought bankruptcy protection. On July 7, 2023, the bankruptcy court granted the request of Diamond (supported by us) for the early rejection, and therefore the termination, of the ACC sports rights agreements. On July 13, 2023, The CW announced that it had entered into an agreement with Raycom Sports for a similar package of sports rights related to the ACC games that had been included in the now-terminated agreement with Diamond. Concurrently, Raycom Sports and ESPN modified their license agreement to correspond with the terms of The CW sublicense agreement. The new agreements mitigate a portion of the losses caused by Diamond’s rejection of its ACC sports rights agreement with Raycom Sports. As a result of the bankruptcy filings and these new July 2023 agreements, our production companies segment recorded a non-cash charge of $43 million, for impairment of goodwill and other intangible assets.

Loss (Gain) on Disposals of Assets, Net. We recognized a loss on disposal of assets of $21 million in 2023 compared to a gain on disposal of assets of $2 million in 2022, primarily related to the sale of television station KNIN in the Boise, Idaho market, in which we recognized a loss of $14 million in 2023.

Miscellaneous Income (Expense), Net. Miscellaneous income, net totaled $7 million in 2023 and miscellaneous expense, net totaled $4 million 2022.

Impairment of Investments. During 2023 and 2022, we wrote down the value of certain investments to their estimated net realizable values. The total impairment charges were $29 million and $18 million in 2023 and 2022, respectively.

Interest Expense. Interest expense increased $86 million, or 24%, to $440 million for 2023 compared to 2022. This increase was primarily attributable to the increase in average interest rates on our outstanding debt, net of the impact of our pre-payment of our outstanding 2017 Term Loan balance. Excluding amounts recorded as interest expense resulting from the amortization of deferred financing costs, the average interest rate on all of our outstanding debt increased to 6.5% in 2023 compared to 5.1% in 2022. The average outstanding principal balance of all our debt was $6.3 billion and $6.7 billion during 2023 and 2022, respectively.

38

Income Tax Expense. Our effective income tax rate decreased to a net provision of 7% for 2023 from 26% for 2022. Our effective income tax rates differed from the statutory rate due to the following items:

We file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts. We estimate that these income tax payments, before deducting refunds, will be within a range of $190 million to $210 million in 2024.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash flows from operations and borrowing capacity under Revolving Credit Facility.

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of December 31, 2023, while others are considered future commitments. Our contractual obligations primarily consist of amounts required to be paid for: the acquisition of television stations; the purchase of property and equipment; service and other agreements; commitments for various syndicated television programs; and commitments under affiliation agreements with networks. In addition to our contractual obligations, we expect that our primary anticipated uses of liquidity in 2024 will be to reduce our indebtedness, fund our working capital, make interest and tax payments, fund capital expenditures, pursue certain strategic opportunities and maintain operations. For a description of the Company’s various contractual and other commitments requiring future payments, see Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein. In addition, for a description of the Company's interest payments and future maturities of long-term debt, see Note 4 “Long-term Debt” of our audited consolidated financial statements included elsewhere herein.

We believe that our cash balance, our cash flow from operations and availability under our Revolving Credit Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations for at least the next twelve months and the foreseeable future. See below for more information on our liquidity and capital resources.

39

General. The following tables present data that we believe is helpful in evaluating our liquidity and capital resources (dollars in millions):

Net Cash Provided By (Used In) Operating, Investing and Financing Activities – 2023 Compared to 2022

Net cash provided by operating activities decreased $181 million to $648 million in 2023 compared to net cash provided by operating activities of $829 million in 2022. The decrease in cash provided by operating activities was primarily due to a decrease in net income of $531 million offset, in part, by an increase in cash provided from changes in working capital of $328 million and an increase in non-cash charges of $22 million. The change in working capital resulted primarily from the sale of accounts receivable under our accounts receivable securitization facility.

Net cash used in investing activities decreased $212 million to $291 million for 2023 compared to $503 million for 2022. The net decrease in the amount used was primarily due to; a reduction in cash used for the purchase of property and equipment of $88 million, an increase in cash received from both the sale of a television station, and from a quasi-governmental authority related to infrastructure components of construction on the Assembly Atlanta project, of $74 million; and a reduction of cash used to acquire businesses and broadcast licenses of $52 million.

Net cash used in financing activities decreased $57 million to $397 million in 2023 compared to net cash used of $454 million in 2022. During 2023 and 2022, we used $52 million of cash to pay dividends to holders of our preferred stock and $30 million to pay dividends to holders of our common stock. During 2023 and 2022, we used a net amount of $310 million and $315 million, respectively, for pre-payments and required principal reductions of our long-term debt. We did not repurchase any shares of our common stock in 2023, but in 2022, we used $50 million to repurchase shares of our common stock on the open market.

Retirement Plans

We sponsor and contribute to defined benefit and defined contribution retirement plans:

40

The Gray Pension Plan is a defined benefit pension plan covering certain of our legacy employees. Benefits under the Gray Pension Plan are frozen and can no longer increase, and no new participants can be added to the plan.

Our funding policy for the Gray Pension Plan is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of United States Generally Accepted Accounting Principles (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 2023, was 4.79%, which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 2022 was 4.99%. Our assumptions regarding expected return on plan assets reflects asset allocations, the investment strategy and the views of investment managers, as well as historical experience. In 2023, we used an assumed rate of return of 6.25% for our assets invested in the Gray Pension Plan. The estimated asset returns for this plan, calculated on a mean market value assuming mid-year contributions and benefit payments, were a gain of 13.7% for the year ended December 31, 2023, and a loss of 12.0% for the year ended December 31, 2022. Other significant assumptions relate to inflation, retirement and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. Retirement rates are based on actual plan experience and mortality rates are based on the Pri-2012 total mortality table and the MP-2021 projection scale published by the Society of Actuaries.

During each of the years ended December 31, 2023 and 2022, we contributed $4 million to the Gray Pension Plan, and we anticipate making a contribution of $4 million to the Gray Pension Plan in 2024. The use of significantly different assumptions, or if actual experienced results differ significantly from those assumed, could result in our funding obligations being materially different.

The Gray 401(k) Plan is a defined contribution plan intended to meet the requirements of section 401(k) of the Internal Revenue Code. Employer contributions under the Gray 401(k) Plan include matching cash contributions at a rate of 100% of the first 1% of each employee’s salary deferral, and 50% of the next 5% of each employee’s salary deferral. In addition, the Company, at its discretion, may make an additional profit-sharing contribution, based on annual Company performance, to those employees who meet certain criteria. For the years ended December 31, 2023 and 2022, our matching contributions to our Capital Accumulation Plan were approximately $26 million and $17 million, respectively. For the years ended December 31, 2023 and 2022, we accrued contributions of approximately $10 million and $9 million respectively, as discretionary profit-sharing contributions, each in the form of our common stock.

In connection with the Meredith Transaction, in 2021, we assumed a defined benefit pension plan covering certain legacy Meredith bargaining class employees. As of December 31, 2023 and 2022, the Meredith Plan had combined plan assets of $16 million and $14 million, respectively, and combined projected benefit obligations of $11 million, in each year. A net asset of $5 million and $3 million for this plan are recorded in our financial statements as of December 31, 2023 and 2022, respectively.

See Note 11 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning these retirement plans.

Capital Expenditures

We currently expect that our routine capital expenditures will range between approximately $115 million to $120 million during 2024 for broadcasting, production company and corporate purposes. We currently expect capital expenditures of approximately $21 million, net of $31 million of certain incentive payments, related to the Assembly Atlanta project. We can give no assurances of the actual proceeds to be received in the future from incentive payments, nor the timing of any such proceeds.

41

Off-Balance Sheet Arrangements

Operating Commitments. We have various commitments for syndicated television programs. We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such as Wheel of Fortune and off network reruns are programs such as The Big Bang Theory. First run programs have not been produced at the time the contract to air such programming is signed, and off network reruns have already been produced. For all syndicated television contracts, we record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off-network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.

The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.

The following are our material expected off balance sheet contractual obligations and commitments as of December 31, 2023:

For more information about these off-balance sheet contractual obligations and commitments please refer to Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein.

42

Subsequent Events

Exchange of television stations. On February 1, 2024, we announced that we have entered into agreements with Marquee Broadcasting, Inc. (“Marquee”) to exchange television stations. Under the terms of the agreement, our television stations in the Cheyenne-Scottsbluff and Casper television markets (DMAs 194 and 198, respectively) are expected to be sold to Marquee in exchange for Marquee’s FCC permit authorizing the construction of new television station, that will be built in the Salt Lake City, Utah market (DMA 27), and will be known as KCBU. Neither party will pay additional cash or consideration to fulfill the terms of this exchange. The transactions are expected to close simultaneously in the second quarter of 2024 and are subject to the customary closing conditions and the receipt of regulatory and other approvals.

BMI Investment Proceeds. On February 8, 2024, we received $110 million in pre-tax cash proceeds from the closing of the previously announced sale of Broadcast Music, Inc. (“BMI”) to a shareholder group led by New Mountain Capital, LLC. $50 million of the net proceeds from the sale of BMI were used to pay in full the amount then outstanding under are Revolving Credit Facility. We intend to use the remaining proceeds for general corporate purposes.

Amendment of Revolving Credit Facility. On February 16, 2024, Gray entered into a second amendment (the “Second Amendment”) to its Senior Credit Facility. The Second Amendment, among other things, (i) increases the aggregate commitments under the Gray’s existing $500 million Revolving Credit Facility by $125 million, resulting in aggregate commitments under the Revolving Credit Facility of $625 million and (ii) extends the maturity date of a $552.5 million tranche of the Revolving Credit Facility to December 31, 2027 (subject to a springing maturity in certain circumstances set forth in the Second Amendment), with a remaining non-extending tranche of the Revolving Credit Facility of $72.5 million maturing on December 1, 2026 (subject to a springing maturity in certain circumstances set forth in the Second Amendment). Except as modified by the Amendment, the existing terms of the Senior Credit Facility remain in effect.

Executive Update. On February 20, 2024, we announced that our Chief Financial Officer, Jim Ryan has notified us of his voluntary decision to transition into retirement after 2025. We also announced the hiring of Jeff Gignac, who currently serves as a Managing Director and Head of Media & Telecom Investment Banking at Wells Fargo Securities. Mr. Gignac will join us, initially as Executive Vice President, Finance, on April 1, 2024, and he will step into Mr. Ryan’s role as Executive Vice President, Chief Financial Officer on July 1, 2024.  Mr. Ryan will work closely with Mr. Gignac and our entire executive team until he retires at the end of 2025.

Inflation

During 2023, we have experienced moderate inflation of our operating expenses and increases in interest rates on amounts outstanding under our Senior Credit Facility. There can be no assurance that further increases in the rate of inflation or interest rates in the future would not have an adverse effect on operating results.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those reported amounts. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require significant judgments or estimations in their application where variances may result in significant differences to future reported results. Our policies concerning intangible assets and income taxes are disclosed below.

Variability of Critical Accounting Estimates. Our critical accounting estimates include estimates and assumptions that are material to our financial statements. These estimates and assumptions are used in:

Our estimates and assumptions have been materially accurate in the past and have not changed materially. We do not expect that these assumptions are likely to change materially in the future.

Annual Impairment Testing of Broadcast Licenses and Goodwill. We evaluate broadcast licenses and goodwill for impairment on an annual basis, or more often when certain triggering events occur. Goodwill is evaluated at the reporting unit level.

Our broadcasting operating segment is comprised of a single reporting unit. Each of the distinct businesses within our production companies operating segment represent a reporting unit. Therefore, as of December 31, 2023, we evaluated our goodwill for impairment for five reporting units. One reporting unit for all of our broadcast television operations and four for each of the distinct businesses within our production companies. The Company has considered the requirements as stipulated within ASC 350. Management has identified the applicable assets and liabilities for each of the reporting units in accordance with ASC 350.

In the performance of our annual broadcast license and reporting unit impairment assessments, we have the option of performing a qualitative assessment to determine if it is more likely than not that the respective asset has been impaired. In 2023, we performed a qualitative assessment for 59 of our broadcast licenses and three of our reporting units. In 2022, we performed a qualitative assessment for 57 of our broadcast licenses and one of our reporting units.

43

As part of this qualitative assessment, we evaluate the relative impact of factors that are specific to the reporting units as well as industry, regulatory and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.

If we conclude that it is more likely than not that a broadcast license or reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we perform the quantitative assessment which involves comparing the estimated fair value of the broadcast license or reporting unit to its respective carrying value.

For our annual broadcast licenses impairment test in 2023, we concluded that it was more likely than not that all of our broadcast licenses that were evaluated were not impaired based upon our qualitative assessments. We elected to perform a quantitative assessment for our remaining broadcast licenses and concluded that their fair values exceeded their carrying values. To estimate the fair value of our broadcast licenses, we utilize a discounted cash flow model assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market.

For our annual goodwill impairment test in 2023, we concluded that it was more likely than not that goodwill was not impaired based upon our qualitative assessments for one of our reporting units. We elected to perform a quantitative assessment for the remainder of our reporting units and concluded that their fair values exceeded their carrying values. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our reporting units. We also consider a market multiple approach to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value our television stations.

We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our broadcast licenses and reporting units were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.

As of December 31, 2023 and 2022, the recorded value of our broadcast licenses was $5.3 billion at each date. As of December 31, 2023 and 2022, the recorded value of our goodwill was $2.6 billion and $2.7 billion, respectively. See Note 13 “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein, for the results of our annual impairment tests for the years ended December 31, 2023, 2022 and 2021.

44

During 2023, as a result of the bankruptcy of Diamond Sports Group, LLC (“Diamond”), our production companies segment recorded a non-cash charge of $43 million, for impairment of goodwill and other intangible assets.

Valuation of Network Affiliation Agreements. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.

Certain other broadcasting companies have valued their stations on the basis that it is the network affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship, and include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or reporting units.

The methodology we used to value our stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired from 2002 through December 31, 2023, we generally ascribe no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Due to certain characteristics of a small number of the stations acquired in 2022, we ascribed approximately $14 million million of the value of those transactions to network affiliations, respectively.

Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.

If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are finite-lived intangible assets, this reallocation of value might have a significant impact on our operating results. There is diversity of practice within the industry, and some broadcast companies have considered such network affiliation intangible assets to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.

45

The following table reflects the hypothetical impact of the reassignment of value from broadcast licenses to network affiliations for our historical acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period as of our most recent impairment testing date of December 31, 2023 (in millions, except per share data):

For future acquisitions, if any, the valuation of the network affiliations may differ from the values of previous acquisitions due to the different characteristics of each station and the market in which it operates.

Income Taxes. As of December 31, 2023, we have an aggregate of approximately $299 million of various state operating loss carryforwards, of which we expect that approximately one-third will be utilized. We expect that approximately $201 million of these state net operating loss carryforwards will not be utilized due to section 382 limitations and those that will expire prior to utilization.

Recent Accounting Pronouncements. See Note 1 “Description of Business and Summary of Significant Accounting Policies” of our audited consolidated financial statements included elsewhere herein for more information.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.

This section of our Annual Report on Form 10-K discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. A detailed discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Business Overview. We are a multimedia company headquartered in Atlanta, Georgia.  We are the nation’s largest owner of top-rated local television stations and digital assets in the United States.  Our television stations serve 113 television markets that collectively reach approximately 36 percent of US television households.  This portfolio includes 79 markets with the top-rated television station and 101 markets with the first and/or second highest rated television station.  We also own video program companies Raycom Sports, Tupelo Media Group (formerly Tupelo Honey), PowerNation Studios, as well as the studio production facilities Assembly Atlanta and Third Rail Studios.

Our operating revenues are derived primarily from broadcast and internet advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the years ended December 31, 2022, 2021 and 2020, we generated revenue of $3.7 billion, $2.4 billion and $2.4 billion, respectively.

Impact of the COVID-19 Global Pandemic and Related Government Restrictions on our Markets and Operations. The impact of the COVID-19 global pandemic, measures to prevent its spread, and supply chain and inflation that accompanied the lifting of such measures, continue to affect our businesses in a number of ways. The extent to which the COVID-19 global pandemic impacts our business, financial condition, results of operations and cash flows will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the negative impact it has on global and regional economies and economic activity, changes in advertising customers and consumer behavior, impact of governmental regulations that might be imposed in response to the pandemic; its short and longer-term impact on the levels of consumer confidence; and how economies, supply chains and capital markets recover after the COVID-19 global pandemic subsides. The COVID-19 global pandemic’s impact on the capital markets could impact our cost of borrowing. See “The “COVID-19” global pandemic has had and may continue to have an adverse impact on our business.” in Part I, Item 1A. “Risk Factors”.

Impact of Recent Acquisitions and Divestitures. During 2022, 2021 and 2020, we completed several transactions that have, collectively, had a significant impact on our financial condition, results of operations and cash flows. We refer to these transactions collectively as the “Acquisitions”. Please see Note 3. “Acquisitions and Divestitures” in our consolidated financial statements contained elsewhere herein for further discussion of the Acquisitions. The impact of the Acquisitions is described in more detail in the following discussion of our operating results. The most significant of the transactions were:

33

The following table summarizes the “Transaction Related Expenses” incurred in connection with the Acquisitions during the year ended December 31, 2022, 2021 and 2020, by type and by financial statement line item (in millions):

Due to the significant effect that the 2021 Acquisitions have had on our results of operations, and in order to provide more meaningful period over period comparisons, we present herein certain financial information excluding the impact of the 2021 Acquisitions. This financial information does not include any adjustments for other events attributable to the 2021 Acquisitions unless otherwise described.

34

Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.

We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.

Our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:

We derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During the years ended December 31, 2022, 2021 and 2020 approximately 28%, 29% and 28%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to the services sector. During the years ended December 31, 2022, 2021 and 2020 approximately 17%, 17% and 21%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to automotive customers. Revenue from these industries may represent a higher percentage of total revenue in odd-numbered years due to, among other things, the increased availability of advertising time, as a result of such years being the “off year” of the two-year election cycle.

Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.

Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.

Risk Factors. The broadcast television industry relies primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant risk factors that may affect our business, see “Item 1A. Risk Factors” included elsewhere herein.

35

Revenue

Set forth below are the principal types of revenue, less agency commissions, and the percentage contribution of each to our total revenue (dollars in millions):

Results of Operations

Year Ended December 31, 2022 (“2022”) Compared to Year Ended December 31, 2021 (“2021”)

Revenue. Total revenue increased approximately $1.3 billion, or 52%, to $3.7 billion for 2022 compared to 2021, primarily as a result of the television stations acquired in our 2021 Acquisitions. Total revenue from the stations acquired in our 2021 Acquisitions increased by $974 million in 2022, compared to 2021. During 2022, excluding the net impact of the 2021 Acquisitions:

Broadcasting operating expenses. Broadcasting operating expenses (before depreciation, amortization and gain on disposal of assets) increased $617 million, or 40%, to $2.2 billion for 2022, compared to 2021, primarily as a result of the television stations acquired in our 2021 Acquisitions. Broadcast expense from the stations acquired in our 2021 Acquisitions increased by $548 million in 2022, compared to 2021. During 2022, excluding the net impact of the 2021 Acquisitions:

36

We recorded broadcast non-cash stock-based amortization expense of $4 million and $2 million in 2022 and 2021, respectively.

Production Company Operating Expenses. Production company operating expenses (before depreciation, amortization and gain on disposal of assets) increased by approximately $21 million in 2022 to $83 million, compared to $62 million 2021. These increases were primarily due to increases in professional services consistent with increasing business activity consistent with the diminished effects of the COVID-19 global pandemic and costs related to the Assembly Atlanta development.

Corporate and administrative expenses. Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) decreased by $55 million, or 35%, to $104 million in 2022 compared to 2021. Primarily as a result of decreased transaction related professional services costs in 2022. We recorded corporate non-cash stock-based amortization expense of $18 million and $12 million in 2022 and 2021, respectively.

Depreciation. Depreciation of property and equipment totaled $129 million and $104 million for 2022 and 2021, respectively. Depreciation expense increased due to the 2021 Acquisitions and to purchases of property and equipment at our existing stations.

Amortization of intangible assets. Amortization of intangible assets totaled $207 million and $117 million for 2022 and 2021, respectively. Amortization expense increased due to the 2021 Acquisitions.

(Gain) loss on disposal of assets, net. We reported a gain on disposals of assets of $2 million in 2022 and a loss of $42 million in 2021. The gain in 2022 was the result of normal business activity. The losses in 2021 were primarily related the divestitures of television stations required in order to comply with regulatory requirements for the 2021 Acquisitions and to asset disposals from the FCC Repack process.

Interest expense. Interest expense increased $149 million, or 73%, to $354 million for 2022 compared to 2021 due to additional borrowings of $1.5 billion under our Senior Credit Facility and the issuance of $1.3 billion of our 2031 Notes to finance our acquisition of Meredith, at the end of 2021. Our borrowings in 2021, were partially offset by our voluntary and required prepayments in 2022, of amounts outstanding under our Senior Credit Facility totaling $315 million. During 2022, the average interest rate on our Senior Credit Facility increased consistent with market conditions. Excluding the amortization of deferred financing costs, the average interest rate on our Senior Credit Facility increased to 4.4% in 2022, from 2.6% in 2021.

Income tax expense. Our effective income tax rate decreased to a net provision of 26% for 2022 from 46% for 2021. Our effective income tax rates differed from the statutory rate due to the following items:

We file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts. We estimate that these income tax payments, before deducting refunds, will be within a range of $90 million to $110 million in 2023.

37

Liquidity and Capital Resources

General. The following tables present data that we believe is helpful in evaluating our liquidity and capital resources (dollars in millions):

Dividend on common stock and Class A common stock. Beginning in 2021, the Board declared a quarterly cash dividend of $0.08 per share of its common stock and Class A common stock. We paid cash dividends on our common stock and Class A common stock totaling $30 million and $31 million in the years ended December 31, 2022 and 2021, respectively.

Net Cash Provided By (Used In) Operating, Investing and Financing Activities – 2022 Compared to 2021

Net cash provided by operating activities increased $529 million to $829 million in 2022 compared to net cash provided by operating activities of $300 million in 2021. The increase in cash provided by operating activities was due primarily to the net impact of several factors including: an increase in net income of $365 million; an increase of $117 million in non-cash expenses; and a increase of $47 million due to changes in working capital balances.

Net cash used in investing activities was $503 million for 2022 compared to $3.5 billion for 2021. The net decrease was due primarily to the use of $58 million of cash in 2022, compared to $3.3 billion of cash in 2021, for acquisitions of businesses, net of divestiture proceeds. In addition, our purchases of property and equipment increased to $436 million in 2022, compared to $207 million in 2021. This increase was primarily related to the Assembly Atlanta project.

Net cash used in financing activities was $454 million in 2022 compared to net cash provided of $2.7 billion in 2021. The change in 2022, compared to 2021, was primarily due to our use of $315 million in 2022, to make voluntary and required payments of the amount outstanding under our Senior Credit Facility compared to cash provided by the borrowings of $1.5 billion in term loan financing under our Senior Credit Facility and the $1.3 billion of 2031 Notes to fund a portion of the cash consideration of the Meredith Transaction in 2021.

38

Retirement Plans

We sponsor and contribute to defined benefit and defined contribution retirement plans:

The Gray Pension Plan is a defined benefit pension plan covering certain of our legacy employees. Benefits under the Gray Pension Plan are frozen and can no longer increase, and no new participants can be added to the plan.

Our funding policy for the Gray Pension Plan is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of United States Generally Accepted Accounting Principles (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 2022, was 4.99%, which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 2021 was 2.73%. Our assumptions regarding expected return on plan assets reflects asset allocations, the investment strategy and the views of investment managers, as well as historical experience. In 2022, we use an assumed rate of return of 6.25% for our assets invested in the Gray Pension Plan. The estimated asset returns for this plan, calculated on a mean market value mid-year contributions and benefit payments, were a loss of 12.0% for the year ended December 31, 2022, and a gain of 11.4% for the year ended December 31, 2021. Other significant assumptions relate to inflation, retirement and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. Retirement rates are based on actual plan experience and mortality rates are based on the Pri-2012 total mortality table and the MP-2021 projection scale published by the Society of Actuaries.

During each of the years ended December 31, 2022 and 2021, we contributed $4 million to the Gray Pension Plan, and we anticipate making a contribution of $4 million to the Gray Pension Plan in 2023. The use of significantly different assumptions, or if actual experienced results differ significantly from those assumed, could result in our funding obligations being materially different.

The Gray 401(k) Plan is a defined contribution plan intended to meet the requirements of section 401(k) of the Internal Revenue Code. Employer contributions under the Gray 401(k) Plan include matching cash contributions at a rate of 100% of the first 1% of each employee’s salary deferral, and 50% of the next 5% of each employee’s salary deferral. In addition, the Company, at its discretion, may make an additional profit-sharing contribution, based on annual Company performance, to those employees who meet certain criteria. For the years ended December 31, 2022 and 2021, our matching contributions to our Capital Accumulation Plan were approximately $17 million and $15 million, respectively. For the years ended December 31, 2022 and 2021, we accrued contributions of approximately $9 million and $7 million respectively, as discretionary profit-sharing contributions, each in the form of our common stock.

In connection with the Meredith Transaction, on December 1, 2021, we assumed a defined benefit pension plan covering certain legacy Meredith bargaining class employees. As of December 31, 2022 and 2021, the Meredith Plan had combined plan assets of $14 million and $15 million and combined projected benefit obligations of $11 million and $17 million, respectively. A net asset of $3 million and a net liability of $2 million for this plan are recorded in our financial statements as of December 31, 2022 and 2021, respectively.

39

See Note 11 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning these retirement plans.

Capital Expenditures

We currently expect that our routine capital expenditures will range between approximately $105 million to $115 million during 2023 for broadcasting, production company and corporate purposes. In addition, we currently expect that our net capital expenditures related to the Assembly Atlanta project will range between $70 million and $75 million. This range is comprised of anticipated Assembly Atlanta construction expenditures of $195 million to $205 million, offset by anticipated proceeds from property sales and incentive payments of approximately $125 million to $130 million, at various times during 2023. We can give no assurances of the actual proceeds to be received in the future from property sales and incentive payments, nor the timing of any such proceeds.

Off-Balance Sheet Arrangements

Operating Commitments. We have various commitments for syndicated television programs. We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such as Wheel of Fortune and off network reruns are programs such as The Big Bang Theory. First run programs have not been produced at the time the contract to air such programming is signed, and off network reruns have already been produced. For all syndicated television contracts, we record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.

The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.

The following are our material expected off balance sheet contractual obligations and commitments as of December 31, 2022:

40

For more information about these off-balance sheet contractual obligations and commitments please refer to Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein.

Subsequent Events

Marquee Transaction. On February 15, 2023, we announced that we have reached agreements with Marquee Broadcasting, Inc. (“Marquee”) through which we will sell television station KNIN (FOX) in the Boise, Idaho market (DMA 102) for $6 million, and purchase television station WPGA (MeTV) in the Macon, Georgia market (DMA 126) for $6 million. The completion of the transactions is subject to regulatory and other approvals.

Securitization Facility. On February 23, 2023, we, certain of our subsidiaries and a wholly-owned special purpose subsidiary (the “SPV”), entered into a three-year $300 million revolving accounts receivable securitization facility (the “Securitization Facility”) with Wells Fargo Bank, N.A., as administrative agent, for the purpose of providing additional liquidity in order to repay indebtedness under the Senior Credit Facility. The Securitization Facility permits the SPV to draw up to a total of $300 million, subject to the outstanding amount of the receivables pool and other factors. The Securitization Facility is subject to interest charges, at the one-month Secured Overnight Financing Rate (“SOFR”) plus 100 basis points on the amount of the outstanding facility. The SPV is also required to pay an upfront fee and a commitment fee in connection with the Securitization Facility. On February 23, 2023, we drew $300 million under the Securitization Facility and intend to use the proceeds to pre-pay the outstanding principal balance of $295 million of Term Loan B under our Senior Credit Facility on March 1, 2023.

Under the Securitization Facility, the SPV will sell certain receivables and related rights (“Sold Receivables”) and guarantee the collection of the Sold Receivables and pledge the remaining receivables and related rights that it owns in order to secure such guarantee. We will service the accounts receivables on behalf of the SPV for a fee.

The SPV is a separate legal entity with its own separate creditors who will be entitled to access the SPV’s assets before the assets become available to us. As a result, the SPV’s assets are not available to pay our creditors or any of our subsidiaries, although collections from the receivables in excess of amounts required to repay the purchasers under the Securitization Facility and other creditors of the SPV may be remitted to us.

The sale of receivables from SPV will be accounted for in the Company’s financial statements as a "true-sale" under Accounting Standards Codification ("ASC") Topic 860.

Interest Rate Cap. On February 23, 2023, we entered into interest rate caps pursuant to an International Swaps and Derivatives Association ("ISDA") Master Agreement with Wells Fargo Bank, NA and Truist Bank, respectively. The caps have a combined fixed notional value of approximately $2.6 billion through the last business day in 2024 and then a reduction in notional value to approximately $2.1 billion until maturity on December 31, 2025. The agreement effectively limits the annual interest charged on all of our variable rate debt to a maximum one-month LIBOR rate of 5 percent, plus the Applicable Margin, as specified in our Senior Credit Facility. The Company is also required to pay aggregate fees in connection with the agreement of approximately $32 million that is due and payable on December 31, 2025. The ISDA Master Agreement, together with its related schedules, contain customary representations, warranties and covenants. This hedging agreement was entered into to mitigate the interest rate risk inherent in our variable rate debt and is not for speculative trading purposes.

Inflation

During 2022, we have experienced moderate inflation of our operating expenses and increases in interest rates on amounts outstanding under our Senior Credit Facility. There can be no assurance that further increases in the rate of inflation or interest rates in the future would not have an adverse effect on operating results.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those reported amounts. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require significant judgments or estimations in their application where variances may result in significant differences to future reported results. Our policies concerning intangible assets and income taxes are disclosed below.

Variability of Critical Accounting Estimates. Our critical accounting estimates include estimates and assumptions that are material to our financial statements. These estimates and assumptions are used in:

Our estimates and assumptions have been materially accurate in the past and have not changed materially. We do not expect that these assumptions are likely to change materially in the future.

Annual Impairment Testing of Broadcast Licenses and Goodwill. We evaluate broadcast licenses and goodwill for impairment on an annual basis, or more often when certain triggering events occur. Goodwill is evaluated at the reporting unit level.

41

Our broadcasting operating segment is comprised of a single reporting unit. Each of the distinct businesses within our production companies operating segment represent a reporting unit. Therefore, we evaluate our goodwill for impairment for five reporting units. One reporting unit for all of our broadcast television operations and four for each of the distinct businesses within our production companies. The Company has considered the requirements as stipulated within ASC 350. Management has identified the applicable assets and liabilities for each of the reporting units in accordance with ASC 350.

In the performance of our annual broadcast license and reporting unit impairment assessments, we have the option of performing a qualitative assessment to determine if it is more likely than not that the respective asset has been impaired. In 2022, we performed a qualitative assessment for 57 of our broadcast licenses and three of our reporting units. In 2021, we performed a qualitative assessment for 59 of our broadcast licenses and one of our reporting units.

As part of this qualitative assessment, we evaluate the relative impact of factors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.

If we conclude that it is more likely than not that a broadcast license or reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we perform the quantitative assessment which involves comparing the estimated fair value of the broadcast license or reporting unit to its respective carrying value.

For our annual broadcast licenses impairment test in 2022, we concluded that it was more likely than not that all of our broadcast licenses that were evaluated were not impaired based upon our qualitative assessments. We elected to perform a quantitative assessment for our remaining broadcast licenses and concluded that their fair values exceeded their carrying values. To estimate the fair value of our broadcast licenses, we utilize a discounted cash flow model assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market.

For our annual goodwill impairment test in 2022, we concluded that it was more likely than not that goodwill was not impaired based upon our qualitative assessments for one of our reporting units. We elected to perform a quantitative assessment for the remainder of our reporting units and concluded that their fair values exceeded their carrying values. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our reporting units. We also consider a market multiple approach to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value our television stations.

42

We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our broadcast licenses and reporting units were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.

As of December 31, 2022 and 2021, the recorded value of our broadcast licenses was $5.3 billion at each date. As of December 31, 2022 and 2021, the recorded value of our goodwill was $2.7 billion and $2.6 billion, respectively. See Note 13 “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein, for the results of our annual impairment tests for the years ended December 31, 2022, 2021 and 2020.

Valuation of Network Affiliation Agreements. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.

Certain other broadcasting companies have valued their stations on the basis that it is the network affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship and include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or reporting units.

The methodology we used to value our stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired from 2002 through December 31, 2022, we generally ascribe no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Due to certain characteristics of a small number of the stations acquired in 2022 and 2021, we ascribed approximately $14 million and $136 million of the value of those transactions to network affiliations, respectively.

Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.

If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are finite-lived intangible assets, this reallocation of value might have a significant impact on our operating results. There is diversity of practice within the industry, and some broadcast companies have considered such network affiliation intangible assets to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.

43

The following table reflects the hypothetical impact of the reassignment of value from broadcast licenses to network affiliations for our historical acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period as of our most recent impairment testing date of December 31, 2022 (in millions, except per share data):

For future acquisitions, if any, the valuation of the network affiliations may differ from the values of previous acquisitions due to the different characteristics of each station and the market in which it operates.

Income Taxes. As of December 31, 2022, we have an aggregate of approximately $344 million of various state operating loss carryforwards, of which we expect that approximately one-third will be utilized. We expect that approximately $226 million of these state net operating loss carryforwards will not be utilized due to section 382 limitations and those that will expire prior to utilization.

Recent Accounting Pronouncements. See Note 1 “Description of Business and Summary of Significant Accounting Policies” of our audited consolidated financial statements included elsewhere herein for more information.

44

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Introduction. The following discussion and analysis of the financial condition and results of operations of Gray Television, Inc. and its consolidated subsidiaries (except as the context otherwise provides, “Gray,” the “Company,” “we,” “us” or “our”) should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere herein.

This section of our Annual Report on Form 10-K discusses 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. A detailed discussion of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Business Overview. We are a multimedia company headquartered in Atlanta, Georgia, that is the nation’s second largest television broadcaster in terms of revenues. We are the nation’s largest owner of top-rated local television stations and digital assets in the United States. Our television stations serve 113 television markets that collectively reach approximately 36 percent of US television households. This portfolio includes 80 markets with the top-rated television station and 100 markets with the first and/or second highest rated television station. We also own video program companies Raycom Sports, Tupelo Honey, PowerNation Studios and Third Rail Studios.

Our operating revenues are derived primarily from broadcast and internet advertising, retransmission consent fees and, to a lesser extent, other sources such as production of television and event programming, television commercials, tower rentals and management fees. For the years ended December 31, 2021, 2020 and 2019, we generated revenue of $2.4 billion, $2.4 billion and $2.1 billion, respectively.

Impact of the COVID-19 Global Pandemic and Related Government Restrictions on our Markets and Operations. The impact of the COVID-19 global pandemic and measures to prevent its spread continue to affect our businesses in a number of ways. The extent to which the COVID-19 global pandemic impacts our business, financial condition, results of operations and cash flows will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic; the negative impact it has on global and regional economies and economic activity, changes in advertising customers and consumer behavior, impact of governmental regulations that might be imposed in response to the pandemic; its short and longer-term impact on the levels of consumer confidence; actions governments, businesses and individuals take in response to the pandemic; and how quickly economies recover after the COVID-19 global pandemic subsides. The COVID-19 global pandemic’s impact on the capital markets could impact our cost of borrowing.

We have continued to actively monitor the global outbreak and spread of COVID-19 and continue to take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts. We are focused on navigating these challenges presented by the COVID-19 global pandemic through protecting the safety of our employees, seeking to maintain revenues and reducing expenses. There are certain limitations on our ability to mitigate the adverse financial impact of the pandemic, including the high fixed-cost nature of our businesses. The COVID-19 global pandemic, and the related economic disruptions and uncertainty also makes it more challenging for management to estimate future performance of our businesses, particularly over the near to medium term, and consequently the broader impact that it could have on our business, financial condition, results of operations and cash flows. See “The “COVID-19” global pandemic has had and is expected to continue to have an adverse impact on our business.” in Part I, Item 1A. Risk Factors of our 2021 Form 10-K.

33

In March 2020, most of our employees began working from home, with only essential employees working on site. We have implemented plans to reopen our offices through a hybrid format in which our employees work part of each week in our offices and part remotely. We are generally following the requirements and protocols published by the U.S. Centers for Disease Control, the World Health Organization and state and local governments and we continue to monitor the latest public health and government guidance related to COVID-19, including vaccine availability to our employees. We cannot predict when or how these policies will change in the future. We continue to maintain operations while employing the latest guidelines to promote the health of our employees including a requirement that all employees be fully vaccinated against COVID-19 (except where otherwise required by applicable law).

Quincy Transaction. On August 2, 2021, we completed the acquisition of all the equity interests of Quincy for an adjusted purchase price of $936 million, which amount includes an additional $6 million for working capital. Quincy owned and operated television stations in 16 markets. Also on August 2, 2021, and concurrently with the acquisition of Quincy, we completed the divestiture to Allen of television stations in seven markets previously owned by Quincy and located in our existing television markets, for an adjusted divestiture price of $401 million, which amount includes $21 million for working capital. The Quincy Divestiture resulted in a non-cash loss of $45 million.

Acquisition of Meredith. On December 1, 2021, we completed the acquisition of all the equity interests of Meredith, after the spinoff of Meredith’s National Media Group to the current Meredith shareholders for $16.99 per share in cash, or $2.8 billion in total enterprise value. In this transaction we acquired Meredith’s remaining operating division, known as the Local Media Group, which owns 17 television stations in 12 local markets, adding 11 new markets to our operations. To facilitate regulatory approvals for the Meredith transaction, on September 23, 2021, we divested our existing television station WJRT (ABC) in the Flint-Saginaw, Michigan market, to Allen for and adjusted purchase price, including working capital, of $72 million in cash.

Acquisition of Studio Production Facilities. On April 7, 2021, we acquired land in the Atlanta suburb of Doraville, Georgia for approximately $80 million of cash. We intend to use this property, in part, for future studio production facilities. On September 13, 2021, we completed the acquisition of Third Rail Studios for an adjusted purchase price of $27 million in cash. The transaction represents an initial step in the broader development of our planned studio production facilities.

Please see Note 3. “Acquisitions and Divestitures” in our consolidated financial statements contained elsewhere herein for further discussion of these transactions.

Revenues, Operations, Cyclicality and Seasonality. Broadcast advertising is sold for placement generally preceding or following a television station’s network programming and within local and syndicated programming. Broadcast advertising is sold in time increments and is priced primarily on the basis of a program’s popularity among the specific audience an advertiser desires to reach. In addition, broadcast advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Broadcast advertising rates are generally the highest during the most desirable viewing hours, with corresponding reductions during other hours. The ratings of a local station affiliated with a major network can be affected by ratings of network programming. Most advertising contracts are short-term, and generally run only for a few weeks.

34

We also sell internet advertising on our stations’ websites and mobile apps. These advertisements may be sold as banner advertisements, video advertisements and other types of advertisements or sponsorships.

Our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature. These factors include:

We derived a material portion of our non-political broadcast advertising revenue from advertisers in a limited number of industries, particularly the services sector, comprising financial, legal and medical advertisers, and the automotive industry. The services sector has become an increasingly important source of advertising revenue over the past few years. During the years ended December 31, 2021, 2020 and 2019 approximately 29%, 28% and 25% of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to the services sector. During the years ended December 31, 2021, 2020 and 2019 approximately 17%, 21% and 25%, respectively, of our broadcast advertising revenue (excluding political advertising revenue) was obtained from advertising sales to automotive customers. Revenue from these industries may represent a higher percentage of total revenue in odd-numbered years due to, among other things, the increased availability of advertising time, as a result of such years being the “off year” of the two-year election cycle.

While our total revenues have increased in recent years as a result of our acquisitions, our revenue remains under pressure from the impact on the advertising market as a result of the COVID-19 global pandemic and from the internet as a competitor for advertising spending. We have been taking steps to mitigate the impacts of COVID-19 and we continue to enhance and market our internet websites in an effort to generate additional revenue. Our aggregate internet revenue is derived from both advertising and sponsorship opportunities directly on our websites.

Our primary broadcasting operating expenses are employee compensation, related benefits and programming costs. In addition, the broadcasting operations incur overhead expenses, such as maintenance, supplies, insurance, rent and utilities. A large portion of the operating expenses of our broadcasting operations is fixed. We continue to monitor our operating expenses and seek opportunities to reduce them where possible.

Please see our “Results of Operations” and “Liquidity and Capital Resources” sections below for further discussion of our operating results.

35

Risk Factors. The broadcast television industry relies primarily on advertising revenue and faces significant competition. For a discussion of certain other presently known, significant risk factors that may affect our business, see “Item 1A. Risk Factors” included elsewhere herein.

Revenue

Set forth below are the principal types of revenue, less agency commissions, and the percentage contribution of each to our total revenue (dollars in millions):

Results of Operations

Year Ended December 31, 2021 (“2021”) Compared to Year Ended December 31, 2020 (“2020”)

Revenue. Total revenue increased approximately $32 million, or 1%, to $2.4 billion for 2021 compared to 2020, primarily as a result of the television stations acquired in our 2021 Acquisitions and increases in combined local and national advertising revenue and retransmission consent revenue at our legacy television stations. Total broadcasting revenue from our 2021 Acquisitions was $128 million.

Excluding the revenue from our 2021 Acquisitions:

Local and national advertising revenue also increased due to the broadcast of the Olympic Games that contributed approximately $14 million, and the broadcast of the 2021 Super Bowl on our CBS-affiliated stations was approximately $6 million, compared to $3 million that we earned from the broadcasting of the 2020 Super Bowl on our FOX-affiliated stations.

Broadcasting operating expenses. Broadcasting operating expenses (before depreciation, amortization and gain on disposal of assets) increased $208 million, or 16%, to $1.5 billion for 2021, compared to 2020, primarily as a result of the television stations acquired in our 2021 Acquisitions. Total broadcasting operating expenses from our 2021 Acquisitions were $79 million.

36

Excluding the broadcasting operating expenses from our 2021 Acquisitions:

We recorded broadcast non-cash stock-based amortization expense of $2 million and $5 million in 2021 and 2020, respectively.

Production Company Operating Expenses. Production company operating expenses (before depreciation, amortization and gain on disposal of assets) increased by approximately $10 million in 2021 to $62 million, compared to $52 million 2020. These increases were primarily due to increasing business activity consistent with the diminished effects of the COVID-19 global pandemic.

Corporate and administrative expenses. Corporate and administrative expenses (before depreciation, amortization and gain or loss on disposal of assets) increased by $94 million, or 145%, to $159 million in 2021 compared to 2020. Compensation expenses increased by approximately $15 million in 2021 primarily as a result of increases in incentive compensation. Non-payroll corporate expenses increased by approximately $80 million which included corporate transaction related expenses of $71 million in 2021. We recorded corporate non-cash stock-based amortization expense of $12 million and $11 million in 2021 and 2020, respectively.

Depreciation. Depreciation of property and equipment totaled $104 million and $96 million for 2021 and 2020, respectively. Depreciation expense increased due to the 2021 Acquisitions and to purchases of property and equipment at our existing stations.

Amortization of intangible assets. Amortization of intangible assets totaled $117 million and $105 million for 2021 and 2020, respectively. Amortization expense increased due to the 2021 Acquisitions.

Loss (gain) on disposal of assets, net. We reported a loss on disposals of assets of $42 million in 2021 and a gain of $29 million in 2020. These losses and gains were primarily related the divestitures of television stations required in order to comply with regulatory requirements for the 2021 Acquisitions and to asset disposals from the FCC Repack process.

Interest expense. Interest expense increased $14 million, or 7%, to $205 million for 2021 compared to 2020 due to additional borrowings of $1.5 billion under our Senior Credit Facility and the issuance of $1.3 billion of our 2031 Notes to finance our acquisition of Meredith. During 2021 the average interest rate on our Senior Credit Facility, excluding the amortization of deferred financing costs, decreased to 2.6% from 3.1% in 2020.

37

Income tax expense. Our effective income tax rate increased to a net provision of 46% for 2021 from 25% for 2020. Our effective income tax rates differed from the statutory rate due to the following items:

Liquidity and Capital Resources

General. The following tables present data that we believe is helpful in evaluating our liquidity and capital resources (dollars in millions):

Financing Transactions. To complete the Meredith Transaction, we (1) incurred a $1.5 billion incremental term loan under our Senior Credit Facility, (2) amended our existing revolving credit facility to increase our borrowing capacity under the facility from up to $300 million to up to $500 million, which will consist of (i) a $425 million five year revolving credit facility and (ii) a $75 million revolving credit facility with commitments expiring January 2, 2026 and (3) on November 9, 2021, issued $1.3 billion in aggregate principal amount of 5.375% senior unsecured notes due 2031 at par (the “2031 Notes”). The interest rate and yield on the 2031 Notes is 5.375%. The 2031 Notes rank equally with the 2030 Notes, 2027 Notes and the 2026 Notes. The 2031 Notes mature on November 15, 2031 and interest is payable semiannually, on May 15 and November 15 of each year.

The proceeds of the transactions mentioned above, plus cash on hand, after deducting transaction fees and estimated expenses, were used to pay a portion of the consideration for the Meredith Transaction.

Income Taxes. We file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts. We estimate that these income tax payments, net of refunds, will be within a range of $170 million to $190 million in 2022.

Dividend on common stock and Class A common stock. Beginning in 2021, the Board declared a quarterly cash dividend of $0.08 per share of its common stock and Class A common stock. We paid cash dividends on our common stock and Class A common stock totaling $31 million in the year ended December 31, 2021.

38

Net Cash Provided By (Used In) Operating, Investing and Financing Activities – 2021 Compared to 2020

Net cash provided by operating activities decreased $352 million to $300 million in 2021 compared to net cash provided by operating activities of $652 million in 2020. The decrease in cash provided by operating activities was due primarily to the net impact of several factors including: a decrease in net income of $320 million; a net decrease of $43 million in non-cash expenses; and an increase of $11 million due to changes in working capital balances.

Net cash used in investing activities increased to $3.5 billion for 2021 compared to $211 million for 2020. The net increase was due primarily to $3.8 billion of cash used to finance our acquisitions of businesses in 2021. In 2020, we completed only $91 million of acquisition transactions. Other significant changes in 2021 compared to 2020 included the receipt in 2021 of $473 million in proceeds from the divestiture of television stations to facilitate regulatory approval of our acquisitions of businesses in 2021.

Net cash provided by financing activities was $2.7 billion in 2021 compared to $120 million in 2020. This increase of $2.6 billion was due primarily to the borrowings of $1.5 billion in term loan financing under our Senior Credit Facility and the $1.3 billion of 2031 Notes to fund a portion of the cash consideration of the Meredith Transaction in 2021. During 2020, we borrowed $800 million of our 2030 Notes and redeemed our 2024 Notes in the amount of $525 million. Also during 2021, we used $30 million of cash to repurchase shares of our common stock compared to $75 million in 2020. During 2021 and 2020, we used $52 million of cash in each year to pay dividends on our Series A Perpetual Preferred stock. In 2021 paid $31 million of cash dividends our our common stock and Class A common stock. During 2021 we paid $30 million of deferred loan costs primarily related to the term loan financing and the 2031 Notes. In 2020 we paid $14 million of deferred loan costs related to the 2030 Notes.

Retirement Plans

We sponsor and contribute to defined benefit and defined contribution retirement plans:

The Gray Pension Plan is a defined benefit pension plan covering certain of our legacy employees. Benefits under the Gray Pension Plan are frozen and can no longer increase, and no new participants can be added to the plan.

Our funding policy for the Gray Pension Plan is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of 1974. A discount rate is selected annually to measure the present value of the benefit obligations. In determining the selection of a discount rate, we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds. The yield curve is based on an externally published index specifically designed to meet the criteria of United States Generally Accepted Accounting Principles (“U.S. GAAP”). The discount rate selected for determining benefit obligations as of December 31, 2021, was 2.73%, which reflects the results of this yield curve analysis. The discount rate used for determining benefit obligations as of December 31, 2020 was 2.38%. Our assumptions regarding expected return on plan assets reflects asset allocations, the investment strategy and the views of investment managers, as well as historical experience. In 2021, we use an assumed rate of return of 6.25% for our assets invested in the Gray Pension Plan. The estimated asset returns for this plan, calculated on a mean market value assuming mid-year contributions and benefit payments, were a gain of 11.4% for the year ended December 31, 2021, and a gain of 11.1% for the year ended December 31, 2020. Other significant assumptions relate to inflation, retirement and mortality rates. Our inflation assumption is based on an evaluation of external market indicators. Retirement rates are based on actual plan experience and mortality rates are based on the Pri-2012 total mortality table and the MP-2021 projection scale published by the Society of Actuaries.

39

During each of the years ended December 31, 2021 and 2020, we contributed an aggregate of $4 million, and $3 million, respectively, to the Gray Pension Plan, and we anticipate making an aggregate contribution of approximately $4 million to the Gray Pension Plan in 2022. The use of significantly different assumptions, or if actual experienced results differ significantly from those assumed, could result in our funding obligations being materially different.

The Gray 401(k) Plan is a defined contribution plan intended to meet the requirements of section 401(k) of the Internal Revenue Code. Employer contributions under the Gray 401(k) Plan include matching cash contributions at a rate of 100% of the first 1% of each employee’s salary deferral, and 50% of the next 5% of each employee’s salary deferral. In addition, the Company, at its discretion, may make an additional profit-sharing contribution, based on annual Company performance, to those employees who meet certain criteria. For the years ended December 31, 2021 and 2020, our matching contributions to our Capital Accumulation Plan were approximately $15 million and $13 million, respectively. For the years ended December 31, 2021 and 2020, we accrued contributions of approximately $7 million and $6 million respectively, as discretionary profit-sharing contributions. Each of these discretionary profit-sharing contributions was subsequently made in the form of shares of our common stock.

In connection with the Meredith Transaction, On December 1, 2021, we assumed a defined benefit pension plan covering certain legacy Meredith bargaining class employees. The Meredith Plan had combined plan assets of $15 million and combined projected benefit obligations of $17 million. The net liability for this plan is recorded as a liability in our financial statements as of December 31, 2021.

See Note 11 “Retirement Plans” of our audited consolidated financial statements included elsewhere herein for further information concerning these retirement plans.

Capital Expenditures

In April 2017, the FCC began the process of requiring certain television stations to change channels and/or modify their transmission facilities (“Repack”). Capital expenditures, including Repack, for each of the 2021 and 2020 periods were $207 million and $110 million, respectively. Excluding Repack, our capital expenditures were $199 million and $87 million, respectively. Our capitalized Repack costs for the 2021 and 2020 periods were $8 million and $23 million, respectively. As of December 31, 2021, the amount requested from the FCC for Repack, but not yet received, was approximately $7 million. Excluding Repack, we expect that our capital expenditures will be approximately $125 million during 2022 for routine purchases of broadcasting and production company equipment. In addition, we currently anticipate capital expenditures of between $110 million and $120 million in connection with development of our studio production facilities for our own use and several additional such facilities that we anticipate constructing on our property pursuant to a long-term lease with a major content creation company. Additional capital expenditures for Repack during 2022 are expected to be approximately $2 million and we anticipate being reimbursed for the majority of these Repack costs. However, reimbursement may be received in periods subsequent to those in which they were expended.

40

Off-Balance Sheet Arrangements

Operating Commitments. We have various commitments for syndicated television programs. We have two types of syndicated television program contracts: first run programs and off network reruns. First run programs are programs such as Wheel of Fortune and off network reruns are programs such as The Big Bang Theory. First run programs have not been produced at the time the contract to air such programming is signed, and off network reruns have already been produced. For all syndicated television contracts, we record an asset and corresponding liability for payments to be made only for the current year of the first run programming and for the entire contract period for off network programming. Only an estimate of the payments anticipated to be made in the year following the balance sheet date of the first run contracts are recorded on the current balance sheet, because the programs for the later years of the contract period have not been produced or delivered.

The total license fee payable under a program license agreement allowing us to broadcast programs is recorded at the beginning of the license period and is charged to operating expense over the period that the programs are broadcast. The portion of the unamortized balance expected to be charged to operating expense in the succeeding year is classified as a current asset, with the remainder classified as a non-current asset. The liability for license fees payable under program license agreements is classified as current or long-term, in accordance with the payment terms of the various license agreements.

The following are our material expected off balance sheet contractual obligations and commitments as of December 31, 2021:

For more information about these off-balance sheet contractual obligations and commitments please refer to Note 12 “Commitments and Contingencies” of our audited consolidated financial statements included elsewhere herein.

41

Inflation

The impact of inflation on operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results, particularly since amounts outstanding under the Senior Credit Facility incur interest at a variable rate.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments and estimations that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those reported amounts. We consider our accounting policies relating to intangible assets and income taxes to be critical policies that require significant judgments or estimations in their application where variances may result in significant differences to future reported results. Our policies concerning intangible assets and income taxes are disclosed below.

Variability of Critical Accounting Estimates. Our critical accounting estimates include estimates and assumptions that are material to our financial statements. These estimates and assumptions are used in:

Our estimates and assumptions have been materially accurate in the past and have not changed materially. We do not expect that these assumptions are likely to change in the future.

Annual Impairment Testing of Broadcast Licenses and Goodwill. We evaluate broadcast licenses and goodwill for impairment on an annual basis, or more often when certain triggering events occur. Goodwill is evaluated at the reporting unit level.

Beginning in 2021, we have changed our methodology for performing our annual evaluation of goodwill. Consistent with changes in our internal reporting systems and management structure for television station operations, we have determined that our broadcasting operating segment is comprised of six regional components, all of which report to the same segment manager. Based upon the economic similarities and the manner in which the six components of the broadcasting segment are managed, we have concluded that they aggregate into a single reporting unit.

Each of the distinct businesses within our production companies operating segment continue to be separately managed and each represent a reporting unit. This is consistent with the Company’s historical view of its reporting units within the production companies operating segment.

Therefore, beginning with our 2021 annual evaluation we now evaluate our goodwill for impairment for five reporting units. One reporting unit for all of our broadcast television operations and four for each of the distinct businesses within our production companies.

With respect to the accounting effects of this reorganization, the Company has considered the requirements as stipulated within ASC 350. Based upon the updated reporting structure, Management has identified the applicable assets and liabilities for each of the reporting units in accordance with ASC 350. With respect to the reassignment of goodwill to the Broadcast reporting unit, this reporting unit is an aggregation of the entirety of the Company’s previous television market reporting units prior to the reorganization. As such, the goodwill attributable to the Broadcast reporting unit would be the aggregate sum of the previous reporting units which now have been aggregated within the broadcast reporting unit. There is no reassignment of goodwill required within the Production Companies operating segment as the identified reporting units have not changed from Management’s previously identified reporting units.

In the process of preparing for this change we considered potential impairment of reporting units prior to the realignment using our prior definition of reporting units. In the performance of this test of reporting unit impairment assessments, we had the option of performing a qualitative assessment to determine if it is more likely than not that the respective asset has been impaired. We performed a qualitative assessment for all of our reporting units as then defined and concluded that there was no impairment at the time of change.

42

In the first quarter of 2020, the COVID-19 global pandemic and measures to prevent its spread began to affect our businesses in a number of ways. In the first quarter of 2020, we concluded that the uncertainties surrounding this event were a triggering event that required us to evaluate whether or not it was more likely than not that the value of our goodwill and other intangible assets were impaired. Based upon our analysis of both qualitative and quantitative factors, we concluded that such assets were not impaired. We will continue to evaluate both the subjective and objective criteria that may cause us to re-evaluate this conclusion in the future.

In the performance of our annual broadcast license and reporting unit impairment assessments, we have the option of performing a qualitative assessment to determine if it is more likely than not that the respective asset has been impaired. In 2021, we performed a qualitative assessment for 59 of our broadcast licenses and one of our reporting units. In 2020, we performed a qualitative assessment for 55 of our broadcast licenses and 36 of our reporting units.

As part of this qualitative assessment we evaluate the relative impact of factors that are specific to the reporting units as well as industry, regulatory, and macroeconomic factors that could affect the significant inputs used to determine the fair value of the assets. We also consider the significance of the excess fair value over the carrying value reflected in prior quantitative assessments and the changes to the reporting units’ carrying value since the last impairment test.

If we conclude that it is more likely than not that a broadcast license or reporting unit is impaired, or if we elect not to perform the optional qualitative assessment, we perform the quantitative assessment which involves comparing the estimated fair value of the broadcast license or reporting unit to its respective carrying value.

For our annual broadcast licenses impairment test in 2021, we concluded that it was more likely than not that all of our broadcast licenses that were evaluated were not impaired based upon our qualitative assessments. We elected to perform a quantitative assessment for our remaining broadcast licenses and concluded that their fair values exceeded their carrying values. To estimate the fair value of our broadcast licenses, we utilize a discounted cash flow model assuming an initial hypothetical start-up operation maturing into an average performing station in a specific television market and giving consideration to other relevant factors such as the technical qualities of the broadcast license and the number of competing broadcast licenses within that market.

For our annual goodwill impairment test in 2021, we concluded that it was more likely than not that goodwill was not impaired based upon our qualitative assessments for one of our reporting units. We elected to perform a quantitative assessment for the remainder of our reporting units and concluded that their fair values exceeded their carrying values. To estimate the fair value of our reporting units, we utilize a discounted cash flow model supported by a market multiple approach. We believe that a discounted cash flow analysis is the most appropriate methodology to test the recorded value of long-term assets with a demonstrated long-lived/enduring franchise value. We believe the results of the discounted cash flow and market multiple approaches provide reasonable estimates of the fair value of our reporting units because these approaches are based on our actual results and reasonable estimates of future performance, and also take into consideration a number of other factors deemed relevant by us including, but not limited to, expected future market revenue growth, market revenue shares and operating profit margins. We have historically used these approaches in determining the value of our reporting units. We also consider a market multiple approach to corroborate our discounted cash flow analysis. We believe that this methodology is consistent with the approach that a strategic market participant would utilize if they were to value our television stations.

We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our broadcast licenses and reporting units were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.

43

The recorded value of our broadcast licenses was $5.3 billion and $3.6 billion at December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the recorded value of our goodwill was $2.6 billion and $1.5 billion, respectively. See Note 13 “Goodwill and Intangible Assets” of our audited consolidated financial statements included elsewhere herein, for the results of our annual impairment tests for the years ended December 31, 2021, 2020 and 2019.

Valuation of Network Affiliation Agreements. We believe that the value of a television station is derived primarily from the attributes of its broadcast license rather than its network affiliation agreement. These attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming.

Certain other broadcasting companies have valued their stations on the basis that it is the network affiliation and not the other attributes of the station, including its broadcast license, which contributes to the operational performance of that station. As a result, we believe that these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship and include in their network affiliation valuation amounts related to attributes which we believe are more appropriately reflected in the value of the broadcast license or reporting units.

The methodology we used to value our stations was based on our evaluation of the broadcast licenses acquired and the characteristics of the markets in which they operated. Given our assumptions and the specific attributes of the stations we acquired from 2002 through December 31, 2021, we generally ascribe no incremental value to the incumbent network affiliation relationship in each market beyond the cost of negotiating a new agreement with another network and the value of any terms of the affiliation agreement that were more favorable or unfavorable than those generally prevailing in the market. Due to certain characteristics of a small number of the stations acquired in 2021 and 2020, we ascribed approximately $136 million and $11 million of the value of those transactions to network affiliations, respectively.

Some broadcast companies may use methods to value acquired network affiliations different than those that we use. These different methods may result in significant variances in the amount of purchase price allocated to these assets among broadcast companies.

If we were to assign higher values to all of our network affiliations and less value to our broadcast licenses or goodwill and if it is further assumed that such higher values of the network affiliations are finite-lived intangible assets, this reallocation of value might have a significant impact on our operating results. There is diversity of practice within the industry, and some broadcast companies have considered such network affiliation intangible assets to have a life ranging from 15 to 40 years depending on the specific assumptions utilized by those broadcast companies.

44

The following table reflects the hypothetical impact of the reassignment of value from broadcast licenses to network affiliations for our historical acquisitions (the first acquisition being in 1994) and the resulting increase in amortization expense assuming a hypothetical 15-year amortization period as of our most recent impairment testing date of December 31, 2021 (in millions, except per share data):

For future acquisitions, if any, the valuation of the network affiliations may differ from the values of previous acquisitions due to the different characteristics of each station and the market in which it operates.

Income Taxes. As of December 31, 2021, we have an aggregate of approximately $10 million of federal operating loss carryforwards that expect to utilize in 2022 We have an aggregate of approximately $424 million of various state operating loss carryforwards. We expect to have state taxable income in the carryforward periods. Therefore, we believe that it is more likely than not that approximately half of the state operating loss carryforwards will be utilized.

Recent Accounting Pronouncements. See Note 1 “Description of Business and Summary of Significant Accounting Policies” of our audited consolidated financial statements included elsewhere herein for more information.