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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                  --------------------------------------------
                                    FORM 10-K

[ ]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM           .
                                                             ----------

                         COMMISSION FILE NUMBER 1-13796
                    ----------------------------------------
                        GRAY COMMUNICATIONS SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

           GEORGIA                                             52-0285030
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)

      4370 PEACHTREE ROAD, NE
            ATLANTA, GA                                            30319
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (404) 504-9828
                     ---------------------------------------

           Securities registered pursuant to Section 12(b) of the Act:

CLASS A COMMON STOCK (NO PAR VALUE)            NEW YORK STOCK EXCHANGE
CLASS B COMMON STOCK (NO PAR VALUE)            NEW YORK STOCK EXCHANGE
- -----------------------------------            -----------------------
        Title of each class           Name of each exchange on which registered

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
                    ----------------------------------------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 1, 2001: CLASS A AND CLASS B COMMON STOCK; NO PAR
VALUE - $190,660,391

         The number of shares outstanding of the registrant's classes of common
stock as of March 1, 2001: CLASS A COMMON STOCK; NO PAR VALUE - 6,848,467
SHARES; CLASS B COMMON STOCK, NO PAR VALUE - 8,746,741 SHARES

         DOCUMENTS INCORPORATED BY REFERENCE: The registrant's definitive proxy
statement for the annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A is incorporated by reference into Part III hereof.
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                                     PART 1

ITEM 1.  BUSINESS

         As used herein, unless the context otherwise requires, the "Company"
means Gray Communications Systems, Inc. and its subsidiaries. Unless otherwise
indicated, the information herein has been adjusted to give effect to a
three-for-two stock split of the Company's Class A Common Stock, no par value
(the "Class A Common Stock"), and the Company's Class B Common Stock, no par
value (the "Class B Common Stock"), effected in the form of a stock dividend
declared on the respective class of common stock on August 20, 1998. Unless
otherwise indicated, all station rank, in-market share and television household
data herein are derived from the Nielsen Station Index, Viewers in Profile,
dated November 2000, as prepared by A.C. Nielsen Company ("Nielsen").

GENERAL

         The Company currently owns 13 network-affiliated television stations in
11 medium-size markets in the southeastern ("Southeast"), southwestern
("Southwest") and midwestern ("Midwest") United States. In nine of the 11
markets served by the Company, its stations are ranked first in viewing audience
and it has the second ranked station in the two remaining markets. The Company
has the leading local news operation in ten of the 11 markets in which it
operates while the remaining station is ranked third for news viewers. Ten of
the stations are affiliated with the CBS Television Network, a division of CBS,
Inc. ("CBS"), and three are affiliated with the NBC Television Network, a
division of the National Broadcasting Company, Incorporated ("NBC"). The Company
also owns and operates four daily newspapers located in the Southeast and the
Midwest and a paging business located in the Southeast.

         In 1993, after the acquisition of a large block of the Class A Common
Stock by Bull Run Corporation ("Bull Run"), the Company implemented a strategy
to foster growth through strategic acquisitions and certain select divestitures.
Bull Run continues to be a principal shareholder of the Company since its
investment in 1993. Since January 1, 1994, the Company's significant
acquisitions have included 12 television stations, three newspapers, a
transportable satellite uplink business and a paging business located in the
Southeast, Southwest and Midwest and the divestiture of two stations in the
Southeast. As a result of the Company's acquisitions and in support of its
growth strategy, the Company has added certain key members of management and has
greatly expanded its operations in the television broadcasting and newspaper
publishing businesses.

ACQUISITIONS AND DIVESTITURES

Option to Acquire Equity Investment in Sarkes Tarzian, Inc.

         On January 28, 1999, Bull Run acquired 301,119 shares of the
outstanding common stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of
Mary Tarzian (the "Estate") for $10.0 million. The acquired shares (the "Tarzian
Shares") represent 33.5% of the total outstanding common stock of Tarzian (both
in terms of the number of shares of common stock outstanding and in terms of
voting rights), but such investment represents 73% of the equity of Tarzian for
purposes of dividends as well as distributions in the event of any liquidation,
dissolution or other termination of Tarzian. A single shareholder controls a
majority of the voting rights of the Tarzian common stock.

         The Company has an agreement with Bull Run, whereby the Company has the
option of acquiring the Tarzian Shares from Bull Run for $10.0 million plus
related costs. These related costs include but are not limited to Bull Run's
investment charges on the incremental debt used to acquire the investment less
the aggregate amount of certain payments the Company has paid Bull Run to extend
the option period. The Company has the ability to extend the option period in
30-day increments at a fee of $66,700 per


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extension and has extended this option period through December 31, 2001. Total
fees capitalized relating to this option are $3,452,000 and $742,000 as of
December 31, 2000 and 1999, respectively. In connection with the option
agreement, the Company granted warrants to Bull Run to purchase up to 100,000
shares of the Company's Class B Common Stock at $13.625 per share. The warrants
vest immediately upon the Company's exercise of its option to purchase the
Tarzian Shares. The warrants expire 10 years following the date on which the
Company exercises its option. The Company cannot control when or if it would
receive any cash distributions from Tarzian including dividends or other
distributions on capital stock.

         Tarzian owns and operates two television stations and four radio
stations: WRCB-TV Channel 3 in Chattanooga, Tennessee, an NBC affiliate; KTVN-TV
Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM and WTTS-FM in Bloomington,
Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana. The Chattanooga and
Reno markets are the 86th and the 109th largest television markets in the United
States, respectively, as ranked by Nielsen.

         On February 12, 1999, Tarzian filed a complaint against Bull Run and
U.S. Trust Company of Florida Savings Bank as Personal Representative of the
Estate in the United States District Court for the Southern District of Indiana.
Tarzian claims that it had a binding and enforceable contract to purchase the
Tarzian Shares from the Estate prior to Bull Run's purchase of the shares, and
requested judgment providing that the contract be enforced. On May 3, 1999, the
action was dismissed without prejudice against Bull Run, leaving the Estate as
the sole defendant. The litigation between the Estate and Tarzian is ongoing and
the Company cannot predict when the final resolution of the litigation will
occur.

         Neither Bull Run's investment nor the Company's potential investment is
presently attributable under the ownership rules of the Federal Communications
Commission (the "FCC"). If the Company successfully exercises the option
agreement, the Company plans to fund the acquisition through its $300.0 million
senior bank loan agreement (the "Senior Credit Facility").

Acquisition of the Texas Stations

         On October 1, 1999, the Company completed its acquisition of all the
outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting
Company, as well as the assets of KXII Broadcasters Ltd. The Company acquired
the capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company
in merger transactions with the shareholders of KWTX Broadcasting Company and
Brazos Broadcasting Company receiving a combination of cash and the Company's
Class B Common Stock for their shares. The Company acquired the assets of KXII
Broadcasters Ltd. in an all cash transaction. These transactions are referred to
herein as the "Texas Acquisitions."

         Aggregate consideration (net of cash acquired) paid in the Company's
Class B Common Stock and cash was approximately $146.4 million which included a
base purchase price of $139.0 million, transaction expenses of $2.8 million and
certain net working capital adjustments (excluding cash) of $4.6 million. In
addition to the amount paid, the Company assumed approximately $600,000 in
liabilities in connection with the asset purchase of KXII Broadcasters Ltd. The
Company funded the acquisitions by issuing 3,435,774 shares of the Company's
Class B Common Stock (valued at $49.5 million) to the sellers, borrowing an
additional $94.4 million under its Senior Credit Facility and using cash on hand
of approximately $2.5 million.

         With the Texas Acquisitions the Company added the following television
stations to its broadcast segment: KWTX-TV, the CBS affiliate located in Waco,
Texas; KBTX-TV, the CBS affiliate located in Bryan, Texas, each serving the
Waco-Temple-Bryan, Texas television market and KXII-TV, the CBS affiliate
serving Sherman, Texas and Ada, Oklahoma. Under FCC regulations, KBTX-TV is
operated as a satellite station of KWTX-TV. The stations are collectively
referred to herein as the "Texas Stations."


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Acquisition of The Goshen News

         On March 1, 1999, the Company acquired substantially all of the assets
of The Goshen News from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement (the "Goshen Acquisition"). The Goshen News is currently
an 18,000-circulation newspaper published Monday through Sunday and serves
Goshen, Indiana and surrounding areas. The Company financed the acquisition
through borrowings under its Senior Credit Facility.

Busse - WALB Transactions

         On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was approximately $126.6 million, less the accreted value of
Busse's 11 5/8 % Senior Secured Notes due 2000 (the "Busse Senior Notes"). The
purchase price of the capital stock consisted of the contractual purchase price
of $112.0 million, associated transaction costs of $3.9 million, acquisition
costs associated with the Busse Senior Notes of $5.1 million and Busse's cash
and cash equivalents of $5.6 million. Immediately following the acquisition of
Busse, the Company exercised its right to satisfy and discharge the Busse Senior
Notes, effectively prefunding the Busse Senior Notes at the October 15, 1998
call price of 106, plus accrued interest. The amount necessary to satisfy and
discharge the Busse Senior Notes was approximately $69.9 million.

         Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $72.6 million and estimated
deferred income taxes of approximately $28.3 million in connection with the
exchange of WALB. The Company funded the remaining costs of the acquisition of
Busse's capital stock through borrowings under the Company's Senior Credit
Facility.

         As a result of these transactions, the Company acquired the following
television stations: KOLN-TV ("KOLN"), the CBS affiliate serving the
Lincoln-Hastings-Kearney, Nebraska market; its satellite station KGIN-TV
("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and WEAU, an NBC
affiliate serving the La Crosse-Eau Claire, Wisconsin market. These transactions
also satisfied the FCC's requirement for the Company to divest itself of WALB.
These transactions are referred to as the "Busse-WALB Transactions."

WITN Acquisition

         In August 1997, the Company acquired substantially all of the assets of
WITN-TV ("WITN"), a NBC affiliate serving the Greenville-New Bern-Washington,
North Carolina market (the "WITN Acquisition"). The purchase price for the WITN
Acquisition was approximately $41.7 million, including fees, expenses, working
capital and other adjustments.

GulfLink Acquisition

         In April 1997, the Company acquired all of the issued and outstanding
common stock of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge,
Louisiana (the "GulfLink Acquisition"). The GulfLink operations included nine
transportable satellite uplink trucks. The purchase price for the GulfLink
Acquisition approximated $5.2 million, including fees, expenses, and certain
assumed


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liabilities. Subsequent to the GulfLink Acquisition, certain other satellite
uplink truck operations of the Company were combined with GulfLink and the
operating name was changed to Lynqx Communications.

The First American Acquisition

         In September 1996, the Company purchased from First American Media,
Inc. (the "First American Acquisition") substantially all of the assets of two
CBS-affiliated stations, WCTV-TV ("WCTV") serving Tallahassee,
Florida-Thomasville, Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, a
satellite uplink business and a paging business. The purchase price for the
First American Acquisition was approximately $183.9 million, including fees,
expenses, and working capital and other adjustments. Subsequent to the First
American Acquisition, the Company rebranded WKXT with the call letters WVLT
("WVLT').

Augusta Acquisition

         In January 1996, the Company acquired substantially all of the assets
of WRDW-TV ("WRDW"), a CBS affiliate serving Augusta, Georgia (the "Augusta
Acquisition"). The purchase price of the Augusta Acquisition was approximately
$37.2 million, including fees, expenses, and certain assumed liabilities.

KTVE Sale

         In August 1996, the Company sold the assets of KTVE Inc. ("KTVE"), its
NBC affiliate serving Monroe, Louisiana-El Dorado, Arkansas (the "KTVE Sale")
for approximately $9.5 million in cash plus the amount of accounts receivable on
the date of the closing. The Company recognized a pre-tax gain of approximately
$5.7 million and estimated income taxes of approximately $2.8 million.


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TELEVISION BROADCASTING

The Company's Stations and their Markets

      As used in the tables for each of the Company's stations and in this
section (i) "Total Market Revenues" represent gross advertising revenues,
excluding barter revenues, for all commercial television stations in the market,
as reported in Investing in Television 2000 Market Report, Fourth Edition
November 2000 Ratings published by BIA Publications, Inc. (the "BIA Guide"),
except for revenues in WYMT-TV's ("WYMT") 18-county trading area which is not
separately reported in the BIA Guide; (ii) "in-market share of households
viewing television" represents the percentage of the station's audience as a
percentage of all viewing by households in the market from 6 a.m. to 2 a.m.
Sunday through Saturday, including viewing of non-commercial stations, national
cable channels and out-of-market stations broadcast or carried by cable in the
market as reported by Nielsen for November 2000; (iii) "station rank in DMA" is
based on Nielsen estimates for November 2000 for the period from 6 a.m. to 2
a.m. Sunday through Saturday; (iv)"station news rank in DMA" is based on Nielsen
estimates for November 2000, (v) estimates of population, average household
income, effective buying income and retail business sales growth projections are
as reported in the BIA Guide; and (vi) television households are as reported by
Nielsen for November 2000. Designated Market Area is defined herein as "DMA."



                                                                        Station                       Total         In-Market
                                              Commercial    Station      News                         Market         Share of
                                     DMA      Stations in   Rank in     Rank in    Television      Revenues in      Households
 Station           Market          Rank(1)       DMA(2)       DMA         DMA     Households(3)    DMA for 2000     Viewing TV
 -------       -------------       --------   -----------   -------     -------   -------------    ------------     ----------
                                                                                                  (in thousands)
                                                                                            
WVLT           Knoxville, TN            63         6            2(4)        3        462,000         $77,700           23%
WKYT           Lexington, KY            66         6            1           1        424,000          61,500           35
WYMT(5)        Hazard, KY               66        N/A           1           1        170,000           5,500           28
KWTX/          Waco - Temple -
  KBTX (6)     Bryan, TX                94         6            1           1        287,000          29,600           40
KOLN/          Lincoln-Hastings
  KGIN (7)     -Kearney, NE            101         5            1           1        258,000          29,400           47
WITN           Greenville-
               New
               Bern-Washington,        106         6            2           1        242,000          33,800           31
               NC
WCTV           Tallahassee, FL-
               Thomasville, GA         110         5            1           1        232,000          26,200           57
WRDW           Augusta, GA             113         6            1(4)        1        230,000          34,500           34
WEAU           La Crosse-
               Eau Claire, WI          126         5            1           1        192,000          25,800           37
WJHG           Panama City, FL         158         4            1           1        124,000          12,700           46
KXII           Sherman, TX -
               Ada, OK                 161         2            1           1        114,000           8,500           72


(1)      Ranking of DMA served by a station among all DMAs is measured by the
         number of television households based within the DMA in the November
         2000 Nielsen estimates.

(2)      Includes independent broadcasting stations and excludes satellite
         stations such as KBTX and KGIN.

(3)      Based upon the approximate number of television households in the DMA
         as reported by Nielsen for November 2000.

(4)      Tied in market ranking.

(5)      The market area served by WYMT is an 18-county trading area, as defined
         by Nielsen, and is included in the Lexington, Kentucky DMA. WYMT's
         station rank is based upon its ratings position in the 18-county
         trading area.

(6)      KBTX is a VHF station located in Bryan, Texas and is operated primarily
         as a satellite station of KWTX, which is located in Waco, Texas.

(7)      KGIN is a VHF station located in Grand Island, Nebraska and is operated
         primarily as a satellite station of KOLN, which is located in Lincoln,
         Nebraska.


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         The percentage of the Company's total revenues contributed by the
Company's television broadcasting segment was approximately 70.5%, 67.4% and
70.6% for the years ended December 31, 2000, 1999 and 1998, respectively.

         In the following description of each of the Company's stations,
information set forth below concerning estimates of population, Total Market
Revenues, average household income, projected effective buying income and
projected retail business sales growth has been derived from the BIA Guide.
Estimates of television households are as reported by Nielsen for November 2000.

WVLT, the CBS affiliate in Knoxville, Tennessee

         WVLT, acquired by the Company in September 1996, began operations in
1988. Knoxville, Tennessee is the 63rd DMA in the United States, with
approximately 462,000 television households and a total population of
approximately 1.2 million. Total Market Revenues in the Knoxville DMA in 2000
were approximately $77.7 million. According to the BIA Guide, the average
household income in the Knoxville DMA in 1998 was $37,914, with effective buying
income projected to grow at an annual rate of 5.5% through 2003. Retail business
sales growth in the Knoxville DMA is projected by the BIA Guide to average 5.8%
annually during the same period. The Knoxville DMA has six licensed commercial
television stations, four of which are affiliated with major networks. The
Knoxville DMA also has two public broadcasting stations.

         Market Description. The Knoxville DMA, consisting of 22 counties in
eastern Tennessee and southeastern Kentucky, includes the cities of Knoxville,
Oak Ridge and Gatlinburg, Tennessee. The Knoxville area is a center for
education, manufacturing, healthcare and tourism. The University of Tennessee's
main campus with approximately 26,000 students is located within the city of
Knoxville. Leading manufacturing employers in the area include: Lockheed Martin
Energy Systems, Inc., DeRoyal Industries, Aluminum Company of North America,
Phillips Consumer Electronics North America Corp., Clayton Homes and Sea Ray
Boats, Inc.

WKYT, the CBS affiliate in Lexington, Kentucky

         WKYT, acquired by the Company in September 1994, began operations in
1957. Lexington, Kentucky is the 66th largest DMA in the United States, with
approximately 424,000 television households and a total population of
approximately 1.1 million. Total Market Revenues in the Lexington DMA in 2000
were approximately $61.5 million. According to the BIA Guide, the average
household income in the Lexington DMA in 1998 was $36,209, with effective buying
income projected to grow at an annual rate of 5.2% through 2003. Retail business
sales growth in the Lexington DMA is projected by the BIA Guide to average 5.2%
annually during the same period. The Lexington DMA has six licensed commercial
television stations, including WYMT, WKYT's sister station, five of which are
affiliated with major networks. The Lexington DMA also has one public television
station.

         Market Description. The Lexington DMA consists of 39 counties in
central and eastern Kentucky. The Lexington area is a regional hub for shopping,
business, healthcare, education, and cultural activities and has a comprehensive
transportation network and low commercial utility rates. Major employers in the
Lexington area include Toyota Motor Corp., Lexmark International, Inc., Verizon
Communications Inc., Square D Company, Ashland, Inc., the University of Kentucky
and International Business Machines Corporation. Eight hospitals and numerous
medical clinics are located in Lexington, reinforcing Lexington's position as a
regional medical center. The University of Kentucky's main campus with
approximately 25,000 students is also located in Lexington.


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WYMT, the CBS affiliate in Hazard, Kentucky

         WYMT, acquired by the Company in September 1994, began operations in
1985. WYMT has carved out a niche trading area comprising 18 counties in eastern
and southeastern Kentucky. This trading area is a separate marketing area of the
Lexington, Kentucky DMA with approximately 170,000 television households and a
total population of approximately 425,000. WYMT is the only commercial
television station in this 18-county trading area. Total Market Revenues in the
18-county trading area for the year ended December 31, 2000, were approximately
$5.5 million. WYMT is the sister station of WKYT and shares many resources and
simulcasts some local programming with WKYT.

         Market Description. The mountain region of eastern and southeastern
Kentucky where Hazard is located is on the outer edges of four separate markets:
Bristol-Kingsport-Johnson City, Charleston-Huntington, Knoxville and Lexington.
Prior to 1985, mountain residents relied primarily on satellite dishes and cable
television carrying distant signals for their television entertainment and news.
Established in 1985, WYMT is the only local broadcast station received in its
18-county trading area and is primarily delivered by 91 separate area cable
systems. The trading area's economy is primarily centered around coal and
related industries, such as natural gas and oil.

KWTX and KBTX, the CBS affiliates in Waco-Temple-Bryan, Texas

         KWTX and KBTX, acquired by the Company in October 1999, began
operations in 1955 and 1957, respectively. KWTX is a full power VHF television
station located in Waco, Texas. KBTX is a full power VHF television station
located in Bryan, Texas and, under FCC rules, is operated primarily as a
satellite station to KWTX in order to serve the entire broadcast market.
Waco-Temple-Bryan, Texas is the 94th largest DMA in the United States, with
approximately 287,000 television households and a total population of
approximately 817,000. Total Market Revenues in the Waco-Temple-Bryan DMA in
2000 were approximately $29.6 million. According to the BIA Guide, the average
household income in the Waco-Temple-Bryan DMA in 1998 was $37,557, with
effective buying income projected to grow at an annual rate of 5.2% through
2003. Retail business sales growth in the Waco-Temple-Bryan DMA is projected by
the BIA Guide to average 4.8% annually during the same period. The
Waco-Temple-Bryan DMA has six licensed commercial television stations (excluding
KBTX), five of which are affiliated with major networks. The Waco-Temple-Bryan
DMA also has three public television stations.

         Market Description. The Waco-Temple-Bryan DMA consists of 14 counties
covering a large portion of central Texas and the Brazos Valley. The cities of
Waco, Temple, Killeen, Bryan and College Station are the primary economic
centers of the region. College Station, Texas is the home of Texas A&M
University with approximately 45,000 students and Baylor University is located
in Waco, Texas with approximately 13,000 students. The Waco-Temple-Bryan economy
centers on education, medical services and U.S. military installations. Leading
employers in the area include: Texas A&M University, Raytheon, Baylor
University, St. Joseph's Regional Medical Center, Killeen ISD, Scott and White
Hospital and the U.S. Army base at Fort Hood Texas.

KOLN\KGIN, the CBS affiliates in Lincoln-Hastings-Kearney, Nebraska

         KOLN and KGIN, acquired by the Company in July 1998, began operations
in 1953 and 1961, respectively. KOLN is a full power VHF television station
located in Lincoln, Nebraska. KGIN is a full power VHF television station
located in Grand Island, Nebraska and, under FCC rules, is operated primarily as
a satellite station to KOLN in order to serve the western portion of the
Lincoln-Hastings-Kearney DMA. Lincoln-Hastings-Kearney, Nebraska is the 101st
largest DMA in the United States, with approximately 258,000 television
households and a total population of approximately 660,000. Total Market
Revenues in the Lincoln-Hastings-Kearney DMA in 2000 were approximately $29.4
million. According to the BIA Guide, the average household income in the
Lincoln-Hastings-Kearney DMA in


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1998 was $41,787, with effective buying income projected to grow at an annual
rate of 4.6% through 2003. Retail business sales growth in the
Lincoln-Hastings-Kearney DMA is projected by the BIA Guide to average 5.2%
annually during the same period. The Lincoln-Hastings-Kearney DMA has five
licensed commercial television stations, all of which are affiliated with major
networks. The Lincoln-Hastings-Kearney DMA also has one public television
station.

         Market Description. The Lincoln-Hastings-Kearney DMA consists of 50
counties covering a large portion of the western two thirds of Nebraska and the
northern tier of Kansas. The city of Lincoln is the primary economic center of
the region, the capital of Nebraska and home to the University of Nebraska with
approximately 23,000 students. The Lincoln-Hastings-Kearney economy centers
around state government, education, medical services and agriculture. Leading
employers in the area include: the State of Nebraska, the University of
Nebraska, Gallup Inc., the Lincoln Public School System and several area
hospitals.

WITN, the NBC affiliate in Greenville-New Bern-Washington, North Carolina

         WITN, acquired by the Company in August 1997, began operations in 1955.
Greenville-New Bern-Washington, North Carolina is the 106th largest DMA in the
United States, with approximately 242,000 television households and a total
population of approximately 687,000. Total Market Revenues in the Greenville-New
Bern-Washington DMA in 2000 were approximately $33.8 million. According to the
BIA Guide, the average household income in the Greenville-New Bern-Washington
DMA in 1998 was $39,018, with effective buying income projected to grow at an
annual rate of 5.6% through 2003. Retail business sales growth in the
Greenville-New Bern-Washington DMA is projected by the BIA Guide to average 6.1%
annually during the same period. The Greenville-New Bern-Washington DMA has six
licensed commercial television stations, four of which are affiliated with major
networks. The Greenville-New Bern-Washington DMA also has two public television
stations.

         Market Description. The Greenville-New Bern-Washington DMA consists of
15 counties in eastern North Carolina. Greenville, North Carolina (located 100
miles east of Raleigh) is the primary economic center of the region and home to
East Carolina University with approximately 18,000 students. The Greenville-New
Bern-Washington economy centers around education, manufacturing and agriculture.
Leading employers in the area include: Pitt County Memorial Hospital, NADEP
(Naval Rework Facility), East Carolina University, Catalytica Pharmaceuticals,
Inc., PCS Phosphate, Rubber Maid Cleaning Products, Inc. and Weyerhaeuser Co.

WCTV, the CBS affiliate in Tallahassee, Florida-Thomasville, Georgia

         WCTV, acquired by the Company in September 1996, began operations in
1955. Tallahassee, Florida-Thomasville, Georgia is the 110th largest DMA in the
United States, with approximately 232,000 television households and a total
population of approximately 645,000. Total Market Revenues in the
Tallahassee-Thomasville DMA in 2000 were approximately $26.2 million. According
to the BIA Guide, the average household income in the Tallahassee,
Florida-Thomasville, Georgia DMA in 1998 was $37,489, with effective buying
income projected to grow at an annual rate of 5.1% through 2003. Retail business
sales growth in the Tallahassee, Florida-Thomasville, Georgia DMA is projected
by the BIA Guide to average 5.0% annually during the same period. The
Tallahassee-Thomasville DMA has five licensed commercial television stations,
four of which are affiliated with major networks. The Tallahassee-Thomasville
DMA also has one public television station.

         Market Description. The Tallahassee-Thomasville DMA, consisting of 18
counties in the panhandle of Florida and southwest Georgia, includes
Tallahassee, the capital of Florida, and Thomasville, Valdosta and Bainbridge,
Georgia. The Tallahassee-Thomasville economy centers around state and local
government as well as state and local universities which include Florida State
University with


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approximately 33,000 students, Florida A&M University with approximately 12,000
students, Tallahassee Community College, Thomas College and Valdosta State
University. Florida State University and Florida A&M University each have their
main campus located within the city of Tallahassee.

WRDW, the CBS affiliate in Augusta, Georgia

         WRDW, acquired by the Company in January 1997, began operations in
1954. Augusta, Georgia is the 113th largest DMA in the United States, with
approximately 230,000 television households and a total population of
approximately 639,000. Total Market Revenues in the Augusta DMA in 2000 were
approximately $34.5 million. According to the BIA Guide, the average household
income in the Augusta DMA in 1998 was $35,341, with effective buying income
projected to grow at an annual rate of 3.7% through 2003. Retail business sales
growth in the Augusta DMA is projected by the BIA Guide to average 3.8% annually
during the same period. The Augusta DMA has six licensed commercial television
stations, four of which are affiliated with a major network. The Augusta DMA
also has two public television stations.

         Market Description. The Augusta DMA consists of 19 counties in eastern
Georgia and western South Carolina, including the cities of Augusta, Georgia and
North Augusta and Aiken, South Carolina. The Augusta, Georgia area is one of
Georgia's major metropolitan/regional centers, with a particular emphasis on
health services, manufacturing and the military. The federal government employs
military and civilian personnel at the Department of Energy's Savannah River
Site, a nuclear processing plant, and Fort Gordon, a U.S. Army military
installation. Augusta has eight large hospitals, which collectively employ
approximately 20,000 and reinforce Augusta's status as a regional healthcare
center. Augusta is also home to the Masters Golf Tournament, which has been
broadcast by CBS for 45 years.

WEAU, the NBC affiliate in La Crosse-Eau Claire, Wisconsin

         WEAU, acquired by the Company in July 1998, began operations in 1953.
La Crosse-Eau Claire, Wisconsin is the 126th largest DMA in the United States,
with approximately 192,000 television households and a total population of
approximately 516,000. Total Market Revenues in the La Crosse-Eau Claire,
Wisconsin DMA in 2000 were approximately $25.8 million. According to the BIA
Guide, the average household income in the La Crosse-Eau Claire, Wisconsin DMA
in 1998 was $36,348, with effective buying income projected to grow at an annual
rate of 3.8% through 2003. Retail business sales growth in the La Crosse-Eau
Claire, Wisconsin DMA is projected by the BIA Guide to average 5.0% annually
during the same period. The La Crosse-Eau Claire, Wisconsin DMA has five
licensed commercial television stations, four of which are affiliated with major
networks. The La Crosse-Eau Claire, Wisconsin DMA also has one public television
station.

         Market Description. The La Crosse-Eau Claire, Wisconsin DMA, consists
of 11 counties in west central Wisconsin and two counties in eastern Minnesota.
The La Crosse and Eau Claire, Wisconsin economy centers around skilled industry,
medical services, agriculture, education and retail businesses. The University
of Wisconsin maintains a 10,000 student campus in Eau Claire. Leading employers
include Hutchinson Technologies, the University of Wisconsin at Eau Claire and
several area hospitals.

WJHG, the NBC affiliate in Panama City, Florida

         WJHG, acquired by the Company in 1960, began operations in 1953. Panama
City, Florida is the 158th largest DMA in the United States, with approximately
124,000 television households and a total population of approximately 334,000.
Total Market Revenues in the Panama City DMA in 2000 were approximately $12.7
million. According to the BIA Guide, the average household income in the Panama
City DMA in 1998 was $35,858, with effective buying income projected to grow at
an annual rate of


                                       10
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5.9% through 2003. Retail business sales growth in the Panama City DMA is
projected by the BIA Guide to average 6.1% annually during the same period. The
Panama City DMA has four licensed commercial television stations, three of which
are affiliated with major networks. In addition, a station in Dothan, Alabama,
an adjacent DMA, provides a CBS signal. The Panama City DMA also has one public
television station.

         Market Description. The Panama City DMA consists of nine counties in
northwest Florida. The Panama City market stretches north from Florida's Gulf
Coast to Alabama's southern border. The Panama City economy centers around
tourism, military bases, manufacturing, education and financial services. Panama
City is the county seat and principal city of Bay County. Leading employers in
the area include: Tyndall Air Force Base, the U.S. Navy Coastal Systems Station,
Sallie Mae Servicing Corp., Stone Container Corporation, Arizona Chemical
Corporation and Gulf Coast Community College.

KXII, the CBS affiliate in Sherman, Texas - Ada, Oklahoma

         KXII, acquired by the Company in October 1999, began operations in
1956. Sherman, Texas-Ada, Oklahoma is the 161st largest DMA in the United
States, with approximately 114,000 television households and a total population
of approximately 299,000. Total Market Revenues in the Sherman, Texas-Ada,
Oklahoma DMA in 2000 were approximately $8.5 million. According to the BIA
Guide, the average household income in the Sherman, Texas-Ada, Oklahoma DMA in
1998 was $33,692, with effective buying income projected to grow at an annual
rate of 5.2% through 2003. Retail business sales growth in the Sherman,
Texas-Ada, Oklahoma DMA is projected by the BIA Guide to average 4.9% annually
during the same period. The Sherman, Texas-Ada, Oklahoma DMA has two licensed
commercial television stations, both of which are affiliated with major
networks.

         Market Description. The Sherman, Texas-Ada, Oklahoma DMA, consists of
one county in north central Texas and 10 counties in south central Oklahoma. The
Sherman, Texas-Ada, Oklahoma economy centers around medical services,
manufacturing and distribution services. Leading employers include Michelin,
MEMC Southwest, Globitech, Raytheon, CIGNA, Johnson & Johnson and Texas
Instruments.

Satellite Transmission and Production Services

         The Company's satellite transmission and production services business,
Lynqx Communications, operates C-band and Ku-band transportable satellite uplink
units and provides production management services. Clients include NBC, CBS, ABC
and other broadcast and cable services. Currently Lynqx operates 15 mobile
satellite uplink units, which is one of the largest fleets in service in the
United States.

Industry Background

         There are currently a limited number of channels available for
broadcasting in any one geographic area, and the license to operate a television
station is granted by the FCC. Television stations which broadcast over the very
high frequency ("VHF") band (channels 2-13) of the spectrum generally have some
competitive advantage over television stations which broadcast over the
ultra-high frequency ("UHF") band (channels above 13) of the spectrum, because
the former usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the VHF signal advantage.

         Television station revenues are primarily derived from local, regional
and national advertising and, to a much lesser extent, from network compensation
and revenues from studio and tower space rental and commercial production
activities. Advertising rates are based upon a variety of factors, including a
program's popularity among the viewers an advertiser wishes to attract, the
number of advertisers


                                       11
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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. Rates are also determined by a station's overall ratings and
in-market share, as well as the station's ratings and share among particular
demographic groups, which an advertiser may be targeting. Because broadcast
stations rely on advertising revenues, they are sensitive to cyclical changes in
the economy. The size of advertisers' budgets, which are affected by broad
economic trends, affect the broadcast industry in general and the revenues of
individual broadcast television stations.

         All television stations in the country are grouped by Nielsen, a
national audience measuring service, into approximately 210 generally recognized
television markets that are ranked in size according to various formulae based
upon actual or potential audience. Each DMA is an exclusive geographic area
consisting of all counties in which the home-market commercial stations receive
the greatest percentage of total viewing hours. Nielsen periodically publishes
data on estimated audiences for the television stations in the various
television markets throughout the country.

         Four major broadcast networks, ABC, NBC, CBS and FOX dominate broadcast
television. Additionally, United Paramount Network ("UPN") and Warner Brothers
Network ("WB") have been launched as additional television networks. An
affiliate of FOX, UPN or WB receives a smaller portion of each day's programming
from its network compared to an affiliate of ABC, NBC or CBS.

         The affiliation of a station with ABC, NBC or CBS has a significant
impact on the composition of the station's programming, revenues, expenses and
operations. A typical affiliate of these networks receives the majority of each
day's programming from the network. This programming, along with cash payments
("network compensation"), is provided to the affiliate by the network in
exchange for a substantial majority of the advertising time available for sale
during the airing of network programs. The network then sells this advertising
time and retains the revenues. The affiliate retains the revenues from time sold
during breaks in and between network programs and programs the affiliate
produces or purchases from non-network sources. In acquiring programming to
supplement programming supplied by the affiliated network, the affiliates
compete primarily with other affiliates and independent stations in their
markets. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. In addition, a television station may acquire programming through
barter arrangements. Under barter arrangements, which are becoming increasingly
popular with both network affiliates and independents, a national program
distributor may receive advertising time in exchange for the programming it
supplies, with the station paying a reduced or no fee for such programming. Most
successful commercial television stations obtain their brand identity from
locally produced news programs.

         In contrast to a station affiliated with a network, a fully independent
station purchases or produces all of the programming that it broadcasts,
resulting in generally higher programming costs. An independent station,
however, retains its entire inventory of advertising time and all the revenues
obtained therefrom. As a result of the smaller amount of programming provided by
its network, an affiliate of FOX, UPN or WB must purchase or produce a greater
amount of programming, resulting in generally higher programming costs. These
affiliate stations, however, retain a larger portion of the inventory of
advertising time and the revenues obtained therefrom compared to stations
affiliated with the major networks.

         Cable-originated programming has emerged as a significant competitor
for viewers of broadcast television programming, although no single cable,
programming network regularly attains audience levels amounting to more than a
small fraction of any single major broadcast network. The advertising share of
cable networks has increased as a result of the growth in cable penetration (the
percentage of television households which are connected to a cable system).
Notwithstanding such increases in cable viewership


                                       12
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and advertising, over-the-air broadcasting remains the dominant distribution
system for mass-market television advertising.

Network Affiliation of the Stations

         Each of the Company's stations is affiliated with a major network
pursuant to an affiliation agreement. Each affiliation agreement provides the
affiliated station with the right to broadcast all programs transmitted by the
network with which the station is affiliated. In return, the network has the
right to sell a substantial majority of the advertising time during such
broadcasts. In exchange for every hour that a station elects to broadcast
network programming, the network pays the station a specific network
compensation fee, which varies with the time of day. Typically, prime-time
programming generates the highest hourly network compensation payments. Such
payments are subject to increase or decrease by the network during the term of
an affiliation agreement with provisions for advance notices and right of
termination by the station in the event of a reduction in such payments. The NBC
affiliation agreement for WJHG expires on January 1, 2002 and NBC has provided
notice to the Company of its intent to renegotiate the agreement. The NBC
affiliation agreements with WITN and WEAU expire on June 30, 2006 and December
31, 2005, respectively and the WEAU agreement renews automatically every five
years unless either party notifies the other of its intention to terminate the
agreement. The CBS affiliation agreements expire as follows: (i) WVLT, WKYT,
WYMT and WCTV, on December 31, 2004, (ii) WRDW on March 31, 2005 and (iii) KWTX,
KBTX, KOLN, KGIN and KXII on December 31, 2005. The CBS affiliation agreements
for KWTX, KBTX and KXII were renegotiated during the fourth quarter of 2000 and
the agreements were extended through December 31, 2005. For the year ended
December 31, 2000, combined network compensation for KWTX, KBTX and KXII was
$2.9 million. As a result of these negotiations, network compensation for KWTX,
KBTX and KXII will be phased out over the next few years. Although network
affiliation agreements have historically been renewed by the Company and the
respective networks, the Company can not guarantee that any agreements will be
renewed in the future under their current terms.

NEWSPAPER PUBLISHING

         At December 31, 2000, the Company owned and operated five publications
comprising four daily newspapers and an advertising shopper, located in the
Southeast and Midwest. The percentage of total Company revenues contributed by
the newspaper publishing segment was approximately 24.2%, 26.3% and 22.8% for
each of the years ended December 31, 2000, 1999 and 1998, respectively.

The Albany Herald

         The Albany Herald Publishing Company, Inc. ("The Albany Herald"),
located in Albany, Georgia, publishes The Albany Herald, which is a
seven-day-a-week newspaper that serves southwest Georgia. The Albany Herald's
circulation approximates 33,000 Sunday subscribers and 30,000 daily. The Albany
Herald also produces a weekly advertising shopper and other niche publications.

The Rockdale Citizen and the Gwinnett Daily Post

         The Rockdale Citizen and the Gwinnett Daily Post are newspapers that
serve communities in the metro Atlanta area with complete local news, sports and
lifestyles coverage together with national stories that directly impact their
local communities.

         The Rockdale Citizen/Newton Citizen is published seven days per week
with a circulation of approximately 17,000 subscribers. In 2000, the Company
began publication of The Newton Citizen for distribution into neighboring Newton
County. The Rockdale Citizen is located in Conyers, Georgia, the county seat of
Rockdale County, which is 19 miles east of downtown Atlanta. Rockdale County and


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Newton County's combined population is estimated to be approximately 131,000.
The Sunday edition of the papers commenced in February 2000.

         The Gwinnett Daily Post is published Tuesday through Sunday and has a
circulation of approximately 67,000 subscribers. The Gwinnett Daily Post, which
was purchased by the Company in January 1995, is located north of Atlanta in
Gwinnett County, one of the fastest growing areas in the nation with an
estimated population of 699,000. According to Woods and Poole 2000 MSA Profile,
Gwinnett County's population is projected to grow by 25% between 1999 and 2004.
Since the purchase of the Gwinnett Daily Post, the frequency of publication has
increased from three to six days per week.

The Goshen News

         The Company acquired The Goshen News on March 1, 1999. It is an 18,000
circulation newspaper published Monday through Sunday and serves Goshen, Indiana
and surrounding areas. The Goshen News also produces a weekly advertising
shopper. Since the Company acquired The Goshen News, it has added a Sunday
edition and converted the Saturday edition to morning delivery.

Industry Background

         Newspaper publishing is the oldest segment of the media industry and,
as a result of the focus on local news, newspapers in general, remain an
important media for local advertising. Newspaper advertising revenues are
cyclical and have generally been affected by changes in national and regional
economic conditions. Financial instability in the retail industry, including
bankruptcies of larger retailers and consolidations among large retail chains
can result in reduced retail advertising expenditures. Classified advertising,
which makes up approximately one-third of newspaper advertising expenditures,
can be affected by an economic slowdown and its effect on employment, real
estate transactions and automotive sales. However, growth in housing starts and
automotive sales, although cyclical in nature, generally provide continued
growth in newspaper advertising expenditures.

PAGERS AND PAGING SERVICES

The Paging Business

         The paging business, acquired by the Company in September 1996, is
based in Tallahassee, Florida and operates in Columbus, Macon, Albany,
Thomasville, and Valdosta, Georgia, in Dothan, Alabama, in Tallahassee,
Gainesville, Orlando and Panama City, Florida and in certain contiguous areas.
In 2000, the Company's paging operations had approximately 90,000 units in
service compared to approximately 88,000 units in service in 1999. The
percentage of total Company revenues contributed by the paging segment was
approximately 5.3%, 6.3% and 6.6% for the years ended December 31, 2000, 1999
and 1998, respectively.

         The Company's paging system operates by connecting a telephone call
placed to a local telephone number with a local paging switch. The paging switch
processes a caller's information and sends the information to a link transmitter
which relays the processed information to paging transmitters, which in turn
alert an individual pager by means of a coded radio signal. This process
provides service to a "local coverage area." To enhance coverage further to its
customer base, all of the Company's local coverage areas are interconnected or
networked, providing for "wide area coverage" or "network coverage." A pager's
coverage area is programmable and can be customized to include or exclude any
particular paging switch and its respective geographic coverage area, thereby
allowing the Company's paging customers a choice of coverage areas. In addition,
the Company is able to network with other paging companies which share the
Company's paging frequencies in other markets, by means of an industry standard
network paging protocol, in order to increase the geographic coverage area in
which the Company's


                                       14

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customers can receive paging service. During 1999, the Company introduced
services which allow its paging customers to receive electronic mail on their
pagers. In addition, the Company expanded its capability so that individuals may
send text messages via the Internet to the Company's paging customers by
accessing the paging businesses web page.

         A subscriber to the Company's paging services either owns a pager,
thereby paying solely for the use of the Company's paging services, or leases a
pager, thereby paying a periodic charge for both the pager and the paging
services. Of the Company's pagers currently in service, approximately 70% are
customer owned and maintained ("COAM") with the remainder being leased. In
recent years, prices for pagers have fallen considerably, and thus there has
been a trend toward subscriber ownership of pagers, allowing the Company to
maintain lower inventory and fixed asset levels. COAM customers historically
stay on service longer, thus enhancing the stability of the subscriber base and
earnings. The Company is focusing its marketing efforts on increasing its base
of COAM users.

Industry Background

         Three tiers of carriers have emerged in the paging industry: (i) large
nationwide providers serving multiple markets throughout the United States; (ii)
regional carriers, like the Company's paging business, which operate in regional
markets such as several contiguous states in one geographic region of the United
States; and (iii) small, single market operators.

         The paging industry has traditionally marketed its services through
direct distribution by sales representatives. In recent years, additional
channels of distribution have evolved, including: (i) carrier-operated retail
stores; (ii) resellers, who purchase paging services on a wholesale basis from
carriers and resell those services on a retail basis to their own customers; and
(iii) sales agents who solicit customers and are compensated on a salary and
commission basis.

ADDITIONAL INFORMATION ON BUSINESS SEGMENTS

         Reference is made to Note J of notes to consolidated financial
statements of the Company for additional information regarding business
segments.

COMPETITION

Television Industry

         Competition in the television industry exists on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency.

         Audience. Stations compete for audience based on program popularity,
which has a direct effect on advertising rates. A substantial portion of the
daily programming on each of the Company's stations is supplied by the network
affiliate. During those periods, the stations are totally dependent upon the
performance of the network programs to attract viewers. There can be no
assurance that such programming will achieve or maintain satisfactory viewership
levels in the future. Non-network time periods are programmed by the station
with a combination of self-produced news, public affairs and other entertainment
programming, including news and syndicated programs purchased for cash, cash and
barter, or barter only.

         In addition, the development of methods of television transmission of
video programming other than over-the-air broadcasting, and in particular, cable
television, has significantly altered competition for audience in the television
industry. These other transmission methods can increase competition for a


                                       15

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broadcasting station by bringing into its market distant broadcasting signals
not otherwise available to the station's audience and also by serving as a
distribution system for non-broadcast programming. Historically, cable operators
have not sought to compete with broadcast stations for a share of the local news
audience. Recently, however, certain cable operators do compete for such
audiences and the increased competition could have an adverse effect on the
Company's advertising revenues.

         Other sources of competition include home entertainment systems,
"wireless cable" services, satellite master antenna television systems, low
power television stations, television translator stations, direct broadcast
satellite ("DBS") video distribution services and the internet.

         Programming. Competition for programming involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. Each station competes against the broadcast station
competitors in its market for exclusive access to off-network reruns (such as
Seinfeld) and first-run product (such as Entertainment Tonight). Cable systems
generally do not compete with local stations for programming, although various
national cable networks from time to time have acquired programs that would have
otherwise been offered to local television stations. Competition exists for
exclusive news stories and features as well.

         Advertising. Advertising rates are based upon the size of the market in
which the station operates, a station's overall ratings, a program's popularity
among the viewers that an advertiser wishes to attract, the number of
advertisers competing for the available time, the demographic makeup of the
market served by the station, the availability of alternative advertising media
in the market area, aggressive and knowledgeable sales forces and the
development of projects, features and programs that tie advertiser messages to
programming. Advertising revenues comprise the primary source of revenues for
the Company's stations. The Company's stations compete for such advertising
revenues with other television stations and other media in their respective
markets. The stations also compete for advertising revenue with other media,
such as newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for advertising dollars in the broadcasting industry occurs
primarily within individual markets.

Newspaper Industry

         The Company's newspapers compete for advertisers with a number of other
media outlets, including magazines, radio, television and the internet, as well
as other newspapers, which also compete for readers with the Company's
publications. One of the Company's newspaper competitors is significantly larger
than the Company and operates in two of its newspaper markets. The Company
differentiates its publications from the other newspaper by focusing on local
news and local sports coverage in order to compete with its larger competitor.
The Company also seeks to establish its publications as the local newspaper by
sponsoring special events of particular community interest.

Paging Industry

         The paging industry is highly competitive. Companies in the industry
compete on the basis of price, coverage area offered to subscribers, available
services offered in addition to basic numeric or tone paging, transmission
quality, system reliability and customer service. The Company competes by
maintaining competitive pricing of its product and service offerings, by
providing quality, reliable transmission networks and by furnishing subscribers
a superior level of customer service.

         The Company's primary competitors include those paging companies that
provide wireless service in the same geographic areas in which the Company
operates. The Company experiences competition from one or more competitors in
all locations in which it operates. Some of the Company's competitors have
greater financial and other resources than the Company.


                                       16

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         The Company's paging services also compete with other wireless
communications services such as cellular service. The typical customer uses
paging as a low cost wireless communications alternative either on a stand-alone
basis or in conjunction with cellular services. However, future technological
developments in the wireless communications industry and enhancements of current
technology could create new products and services, such as personal
communications services and mobile satellite services, which are competitive
with the paging services currently offered by the Company. Recent and proposed
regulatory changes by the FCC are aimed at encouraging such technological
developments and new services and promoting competition. There can be no
assurance that the Company's paging business would not be adversely affected by
such technological developments or regulatory changes.

FEDERAL REGULATION OF THE COMPANY'S BUSINESS

Television Broadcasting

         Existing Regulation. Television broadcasting is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Communications Act") and the Telecommunications Act of 1996 (the
"Telecommunications Act"). The Communications Act prohibits the operation of
television broadcasting stations except under a license issued by the FCC and
empowers the FCC, among other things, to issue, revoke and modify broadcasting
licenses, determine the locations of stations, regulate the equipment used by
stations, adopt regulations to carry out the provisions of the Communications
Act and the Telecommunications Act and impose penalties for violation of such
regulations. The Communications Act prohibits the assignment of a license or the
transfer of control of a licensee without prior approval of the FCC.

         License Grant and Renewal. Television broadcasting licenses generally
are granted or renewed for a period of eight years but may be renewed for a
shorter period upon a finding by the FCC that the "public interest, convenience,
and necessity" would be served thereby. The broadcast licenses for each station
are effective through the following dates: WVLT - August 1, 2005; WKYT - August
1, 2005; WYMT- August 1, 2005; KOLN and KGIN - June 1, 2006; WITN - December 1,
2004; WRDW - April 1, 2005; WCTV - April 1, 2005; WEAU - December 1, 2005, WJHG
- - February 1, 2005, KBTX and KWTX - August 1, 2006, and KXII - August 1, 2006.
The Telecommunications Act requires a broadcast license to be renewed if the FCC
finds that: (i) the station has served the public interest, convenience and
necessity; (ii) there have been no serious violations of either the
Telecommunications Act or the FCC's rules and regulations by the licensee; and
(iii) there have been no other violations, which taken together would constitute
a pattern of abuse. At the time an application is made for renewal of a
television license, parties in interest may file petitions to deny, and such
parties, including members of the public, may comment upon the service the
station has provided during the preceding license term and urge denial of the
application. If the FCC finds that the licensee has failed to meet the
above-mentioned requirements, it could deny the renewal application or grant a
conditional approval, including renewal for a lesser term. The FCC will not
consider competing applications contemporaneously with a renewal application.
Only after denying a renewal application can the FCC accept and consider
competing applications for the license. Although in substantially all cases
broadcast licenses are renewed by the FCC even when petitions to deny or
competing applications are filed against broadcast license renewal applications,
there can be no assurance that the Company's stations' licenses will be renewed.
The Company is not aware of any facts or circumstances that could prevent the
renewal of the licenses for its stations at the end of their respective license
terms.

         Multiple Ownership Restrictions. Currently, the FCC has rules that
limit the ability of individuals and entities to own or have an ownership
interest above a certain level (an "attributable" interest, as defined more
fully below) in broadcast stations, as well as other mass media entities. The
current rules limit the number of radio and television stations that may be
owned both on a national and a local basis.


                                       17

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On a national basis, the rules preclude any individual or entity from having an
attributable interest in co-owned television stations whose aggregate audience
reach exceeds 35% of all United States households. Owners of television stations
that have an attributable interest in another TV station in the same Nielsen
Designated Market Area ("DMA"), or that operate a satellite station in the same
market, do not have to include those additional same-market outlets in
calculating its 35% aggregate television audience reach cap. A station owner
with an attributable interest in a station in a separate market (including
time-brokered local marketing agreements ("LMAs") and satellite stations) must
count that additional audience as part of its national aggregate audience.

         On a local basis, the FCC recently revised its local market television
ownership rules, permitting station owners to realize the efficiencies of
certain types of common ownership. The FCC currently allows the common ownership
of two television stations without regard to broadcast signal contour overlap if
the stations are in separate DMAs. The FCC continues to allow common ownership
of two stations in the same DMA if their Grade B contours do not overlap.
Entities are permitted to own two television stations with the same DMA if eight
full-power independently owned television stations (commercial and
noncommercial) will remain post-merger, and one of the co-owned stations is not
among the top four-ranked stations in the market based on audience share. The
common ownership of two television stations in the same market with an
overlapping contour is permitted where the same-market licensee is the only
reasonably available buyer and the station purchased is a "failed station"
(either off the air for at least four months prior to the waiver application or
involved in involuntary bankruptcy or insolvency proceedings) or a "failing"
station (having a low audience share and financially struggling during the
previous several years). A waiver of the FCC's ownership restrictions is
possible if the applicants for waiver can show that the combination will result
in the construction of a previously unbuilt station.

         The FCC also substantially modified its rules implementing TV-radio
cross-ownership restrictions (the so-called "one-to-a-market" rule). Depending
upon the particular circumstances an entity may own up to two television
stations and six radio stations or one television station and seven radio
stations in a market.

         In addition, the Telecommunications Act prohibits common ownership
arrangements among the four largest networks (NBC, CBS, ABC and FOX) or between
them and UPN and WB. The Telecommunications Act also directs the FCC to revise
its rules to permit cross-ownership interests between a broadcast network and
cable system. The Telecommunications Act further authorizes the FCC to consider
revising its rules to permit common ownership of co-located broadcast stations
and cable systems.

         Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Any relaxation of the FCC's ownership
rules may increase the level of competition in one or more of the markets in
which the Company's stations are located, particularly to the extent that the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.

         Under the FCC's ownership rules, a direct or indirect purchaser of
certain types of securities of the Company could violate FCC regulations if that
purchaser owned or acquired an "attributable" or "meaningful" interest in other
media properties in the same areas as stations owned by the Company or in a
manner otherwise prohibited by the FCC. All officers and directors of a
licensee, as well as general partners, uninsulated limited partners and
stockholders who own 5% or more of the voting power of the outstanding common
stock of a licensee (either directly or indirectly), generally will be deemed to
have an "attributable" interest in the licensee. Certain institutional
investors, which exert no control or influence over a licensee, may own up to
20% of the voting power of the outstanding common stock before attribution
occurs.


                                       18
   19

         The FCC has recently revised its broadcast ownership attribution rules.
The attribution rules define what constitutes a "cognizable interest" for
purposes of applying the ownership rules. The FCC's new attribution rule
includes a new "equity/debt plus" attribution rule that functions in addition to
the current attribution rules. Under the new rule, a holder of a financial
interest, whether equity or debt or both of 33% of licensee's total assets will
have an attributable interest in that licensee if it is either a major program
supplier to that licensee (supplying more than 15% of a station's total weekly
broadcast programming hours) or if it is a same media market entity (including
broadcasters, cable operators and newspapers). All stock, including common and
preferred, voting and nonvoting stock, will be counted toward the 33% threshold.
Time brokerage of another television station in the same market (including
LMAs), for more than 15% of the brokered station's broadcast hours per week will
result in the attribution of the time brokerage arrangement. Except for LMAs,
any interest acquired on or after November 7, 1996, is subject to the FCC's
revised ownership and attribution rules. To the best of the Company's knowledge,
no officer, director or 5% stockholder of the Company currently holds an
attributable interest in another television station, radio station, cable
television system or daily newspaper that is inconsistent with the FCC's
ownership rules and policies or with ownership by the Company of its stations.

         Alien Ownership Restrictions. The Communications Act restricts the
ability of foreign entities or individuals to own or hold interests in broadcast
licenses. Foreign governments, representatives of foreign governments,
non-citizens, representatives of non-citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-citizens, collectively, may directly or indirectly own or vote up
to 20% of the capital stock of a licensee. In addition, a broadcast license may
not be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation more than one-fourth of whose capital stock
is owned or voted by non-citizens or their representatives or by foreign
governments or their representatives, or by non-U.S. corporations if the FCC
finds that the public interest will be served by the refusal or revocation of
such license. The Company has been advised that the FCC staff has interpreted
this provision of the Communications Act to require an affirmative public
interest finding before a broadcast license may be granted to or held by any
such corporation and the FCC has made such an affirmative finding only in
limited circumstances. The Company, which serves as a holding company for
wholly-owned subsidiaries that are licensees for its stations, therefore may be
restricted from having more than one-fourth of its stock owned or voted directly
or indirectly by non-citizens, foreign governments, representatives of
non-citizens or foreign governments, or foreign corporations.

         Recent Developments. Congress has recently enacted legislation and the
FCC currently has under consideration or is implementing new regulations and
policies regarding a wide variety of matters that could affect, directly or
indirectly, the operation and ownership of the Company's broadcast properties.
In addition to the proposed changes noted above, such matters include, for
example, the license renewal process (particularly the weight to be given to the
expectancy of renewal for an incumbent broadcast licensee and the criteria to be
applied in deciding contested renewal applications), spectrum use fees,
political advertising rates, potential advertising restrictions on the
advertising of certain products (such as hard liquor), the rules and policies to
be applied in enforcing the FCC's equal employment opportunity regulations,
cable carriage of digital television signals, viewing of distant network signals
by direct broadcast satellite services, and the standards to govern evaluation
of television programming directed toward children and violent and indecent
programming (including the possible requirement of what is commonly referred to
as the "v-chip," which permits parents to program television sets so that
certain programming would not be accessible by children). Other matters that
could affect the Company's broadcast properties include technological
innovations and developments generally affecting competition in the mass
communications industry, such as the recent initiation of direct broadcast
satellite service, and the continued establishment of wireless cable systems and
low power television stations.


                                       19
   20

         In response to a recent decision of the U. S. Court of Appeals, the FCC
has suspended its requirement that licensees widely disseminate information
about job openings to all segments of the community to ensure that all qualified
applicants, including minorities and women, have sufficient opportunities to
compete for jobs in the broadcast industry. It is unknown whether the FCC will
reverse these rules at a future date.

         Distribution of Video Services by Telephone Companies. Recent actions
by the FCC, Congress and the courts all presage significant future involvement
in the provision of video services by telephone companies. The Company cannot
predict either the timing or the extent of such involvement or its effect on the
Company.

         The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). The FCC implemented the requirements of the 1992 Cable Act. Certain
statutory provisions, such as signal carriage, retransmission consent and equal
employment opportunity requirements, have a direct effect on television
broadcasting. Other provisions are focused exclusively on the regulation of
cable television but can still be expected to have an indirect effect on the
Company because of the competition between over-the-air television stations and
cable systems.

         The signal carriage, or "must carry," provisions of the 1992 Cable Act
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with 12 or fewer usable activated channels and more than 300 subscribers
must carry the signals of at least three local commercial television stations. A
cable system with more than 12 usable activated channels, regardless of the
number of subscribers, must carry the signals of all local commercial television
stations, up to one-third of the aggregate number of usable activated channels
of such system. The 1992 Cable Act also includes a retransmission consent
provision that prohibits cable operators and other multi-channel video
programming distributors from carrying broadcast stations without obtaining
their consent in certain circumstances. The "must carry" and retransmission
consent provisions are related in that a local television broadcaster, on a
cable system-by-cable-system basis, must make a choice once every three years
whether to proceed under the "must carry" rules or to waive that right to
mandatory but uncompensated carriage and negotiate a grant of retransmission
consent to permit the cable system to carry the station's signal, in most cases
in exchange for some form of consideration from the cable operator. Cable
systems must obtain retransmission consent to carry all distant commercial
stations other than certain "super stations" delivered via satellite. Under
rules adopted to implement these "must carry" and retransmission consent
provisions, local television stations are required to make an election of "must
carry" or retransmission consent at three year intervals. Stations that fail to
elect are deemed to have elected carriage under the "must carry" provisions.
Other issues addressed in the FCC rules are market designations, the scope of
retransmission consent and procedural requirements for implementing the signal
carriage provisions. Each of the Company's stations has elected "must carry"
status on certain cable systems in its DMA. On other cable systems the Company's
stations have entered into retransmission consent agreements. This election
entitles the Company's stations to carriage on those systems until at least
December 31, 2002.

         Digital Television Service. In December 1996, the FCC formally approved
technical standards for digital advanced television ("DTV"). DTV is a flexible
system that will permit broadcasters to utilize a single digital channel in
various ways, including providing one channel of high-definition television
programming with greatly enhanced image and sound quality or several channels of
lower-definition television programming ("multicasting"), and is capable of
accommodating subscription video and data services. Broadcasters may offer a
combination of services, so long as they transmit at least one stream of free
video programming on the DTV channel. The FCC has assigned to each existing full
power television station (including each station owned by the Company) a second
channel to implement DTV while present television operations are continued on
that station's existing analog channel. Although in


                                       20
   21

some cases a station's DTV channel may only permit operation over a smaller
geographic service area than that available using its existing channel, the
FCC's stated goal in assigning channels was to provide stations with DTV service
areas that will replicate their existing service areas. Recently, the FCC
required all stations broadcasting digital signals to replicate their analog
service areas by December 31, 2004, or lose interference protection in the areas
not replicated. The FCC's DTV rules also permit stations to request new channel
assignments and other modifications to their assigned DTV facilities, allowing
them to expand their DTV service areas if certain interference criteria are met.
Under FCC rules and the Balanced Budget Act of 1997, station owners may be
required to surrender one channel in 2006 and thereafter provide service solely
in the DTV format. Generally, under current FCC rules each of the Company's
stations must construct DTV facilities and commence operations by May 2002. The
Company completed its DTV implementation at WRDW, its Augusta, Georgia station,
in early 2000. As of February 21, 2001, the Company has commenced such DTV
construction at KWTX and WEAU, its Waco, Texas and Eau Claire, Wisconsin
stations, respectively. The Company currently intends to complete the necessary
DTV construction at all of its stations by the FCC deadline.

         In November 1998, the FCC issued a decision to implement the
requirement of the Telecommunications Act that it charge broadcasters a fee for
offering subscription services on the DTV channel. The FCC decision was to
impose a fee of 5% of the gross revenues generated by such services. The FCC
also is considering whether and how to extend cable systems' obligations for
mandatory carriage of broadcast stations' DTV channels. Finally, the FCC is
considering additional public interest obligations on broadcasters' digital
operations. The FCC has asked for comment on four general categories of issues:
(1) the application of television stations' public interest obligations to the
new flexibility and capabilities of digital television, such as multiple channel
transmission; (2) how television stations could best serve their communities in
terms of providing their viewers information on their public interest
activities, and using digital technology to provide emergency information in new
ways; (3) how DTV broadcasters could increase access to television programming
by people with disabilities, and further the longstanding legislative and
regulatory goals of diversity; and (4) whether broadcasters could enhance the
quality of political discourse through uses of the airwaves for political issues
and debate.

         Direct Broadcasting Satellite Systems. The FCC has authorized DBS, a
service which provides video programming via satellite directly to home
subscribers. Congress has enacted the Satellite Home Viewer Improvement Act
("SHVIA") that gives satellite companies the option of providing local broadcast
stations to subscribers living in the station's local market area. This is
referred to as "local-into-local." SHVIA makes the provision of local channels a
choice, not a requirement, for the satellite company. "Local-into-local" means
that if a satellite customer lives in an area where the satellite company has
decided to provide the service, the customer can receive local television
station broadcasts. If the satellite company decides that it will not provide
local broadcast stations in an area, the consumer may still receive local
broadcast stations by using an antenna or basic cable service. SHVIA defines the
"local market" as the DMA. The Company cannot predict the impact of this new
service upon the Company's business.

Paging and SMR

         Federal Regulation. The Company's paging and special mobile radio
("SMR") operations, acquired by the Company in September 1996, are subject to
regulation by the FCC under the Communications Act. The FCC has granted the
Company licenses to use the radio frequencies necessary to conduct its paging
and SMR operations.

         License Grant and Renewal. The FCC paging and SMR licenses granted to
the Company are for varying terms of up to 10 years, at the end of which renewal
applications must be approved by the FCC. The Company holds various FCC radio
licenses which are used in connection with its paging and SMR operations. The
SMR license expiration dates for these licenses are staggered with only a
portion of the licenses expiring in any particular calendar year. Paging
licenses will expire during calendar year 2009.


                                       21
   22

Licensees in the paging and SMR services normally enjoy a license renewal
expectancy and the vast majority of license renewal applications are granted in
the normal course. Although the Company is unaware of any circumstances which
could prevent the grant of renewal applications, no assurance can be given that
any of the Company's licenses will be free of competing applications or will be
renewed by the FCC. Furthermore, the FCC has the authority to restrict the
operations of licensed facilities or to revoke or modify licenses. None of the
Company's licenses have ever been revoked or modified involuntarily, and such
proceedings by the FCC are rarely undertaken.

         Pursuant to Congressional mandate, the FCC has adopted rules regarding
the award of license authorizations by competitive bidding. Pursuant to those
rules, the FCC may award licenses for new or existing services by auction, as
done with the 800 MHz and 900 MHz SMR bands. The FCC began awarding geographic
area and paging licenses by auction in February 2000. There can be no assurance
that the Company will be able to procure additional spectrum, or expand its
existing paging and SMR networks into new service areas.

         The winner of the geographic area license has the right to use a
certain frequency or block of frequencies throughout the licensed service area,
may construct and operate its transmitters in its authorized service area
without prior FCC approval, provided that the construction of the transmitter
would not constitute a major environmental action under the FCC rules. The
market area licensee is required, however, to protect incumbent licensees from
the potential for harmful co-channel interference. The FCC has completed
auctions to license various radio services on a market area basis including the
800 MHz trunked SMR auction, which concluded in December 1997. In these
auctions, successful bidders have made significant auction payments in order to
obtain spectrum. The Company was a successful bidder for a portion of the
spectrum licenses for the Tallahassee, Florida; Albany and Columbus, Georgia and
Auburn, Alabama Economic Area Markets. The Company received FCC grants of these
market area licenses and subsequently sold such interests to Nextel South
Corporation ("Nextel'). The Company also entered into an option agreement with
Nextel for the purchase and sale of all of its other 800 MHz geographic licenses
covering certain markets in south Georgia and north Florida. If Nextel exercises
its option, prior FCC consent to the proposed transaction is required before the
Company may consummate the sale to Nextel. In such instance, the Company
anticipates that it will obtain the FCC's consent to the transaction in the
normal course, although it is possible a competitor could file a protest against
the transaction. In the event a protest is filed, any grant of the FCC's consent
would be delayed, or could possibly be withheld.

EMPLOYEES

         As of March 1, 2001, the Company had 1,284 full-time employees, of
which 863 were employees of the Company's television stations, 349 were
employees of the Company's publications, 57 were employees of the Company's
paging operations and 15 were corporate and administrative personnel. None of
the Company's employees are represented by unions. The Company believes that its
relations with its employees are satisfactory.


                                       22
   23

ITEM 2. PROPERTIES

         The Company's principal executive offices are located at 4370 Peachtree
Road, NE, Atlanta, Georgia, 30319.

         The types of properties required to support television stations include
offices, studios, transmitter sites and antenna sites. A station's studios are
generally housed with its offices in business districts. The transmitter sites
and antenna are generally located in elevated areas to provide optimal signal
strength and coverage. The types of properties required to support newspaper
publishing include offices, facilities for printing presses and production and
storage. Paging properties include leased retail, office and tower space.

         The following table sets forth certain information regarding the
Company's significant properties.

TELEVISION BROADCASTING



        Station/                                  Owned or                            Expiration of Lease
   Property Location              Use              Leased       Approximate Size
   -----------------              ---             --------      ----------------      -------------------

                                                                          
WVLT
    Knoxville, TN      Office and studio          Owned       18,000 sq. ft.                   --
                                                              building

                       Transmission tower site    Leased      Tower space                Month to Month

WKYT
    Lexington, KY      Office, studio and         Owned       34,500 sq. ft.                   --
                       transmission tower site                building on 20 acres

WYMT
    Hazard, KY         Office and studio          Owned       21,200 sq. ft.                   --
                                                              building on 2 acres

    Hazard, KY         Transmission tower site    Leased                --                 June 2005

    Hazard, KY         Transmitter building and
                       improvements               Owned       1,248 sq. ft. building           --

KWTX
    Waco, TX           Office and studio          Owned       34,000 sq. ft.                   --
                                                              building on 4 acres

    Moody, TX          Transmission tower site    Owned       27.9 acres                       --

KBTX
    Bryan, TX          Office and studio          Owned       7,000 sq. ft. building           --
                                                              on 23.4 acres

    Grimes County, TX  Transmission tower site    Owned       1,300 sq. ft. building
                                                  Leased      on 560 acres                 March 2023



                                       23
   24



        Station/                                         Owned or                              Expiration of
   Property Location                   Use               Leased       Approximate Size             Lease
   -----------------                   ---               --------     ----------------         -------------
                                                                                   

    Calvert, TX              Transmission tower site     Owned      80 sq. ft. building              __
                                                                    and 96 sq. ft.
                                                                    building on 3.1 acres

    Falls County, TX         Transmission tower site     Owned      128 sq. ft. building            ___
                                                                    on 2 acres

KOLN
    Beaver Crossing, NE      Transmission tower site     Owned      120 acres                        --

    Lincoln, NE              Office and studio           Owned      28,044 sq. ft.                   --
                                                                    building on 5 acres

    Bradshaw, NE             Transmission tower site     Owned      8 acres                          --

 KGIN
    Heartwell, NE            Transmission tower site     Owned      71 acres                         --

    Grand Island, NE         Office and studio           Leased     5,153 sq. ft.                Dec. 2003

WITN
    Washington, NC           Office and studio           Owned      19,600 sq. ft. building          --

    Grifton, NC              Transmitter building        Owned      4,190 sq. ft. building           --

    Grifton, NC              Transmission tower site     Leased     9 acres                      Jan. 2029

WCTV
    Tallahassee, FL          Office and studio           Owned      20,000 sq. ft.                   --
                                                                    building on
                                                         Leased     37 acres                     Dec. 2014

    Metcalf, GA              Transmission tower site     Owned      182 acres                        --

WRDW
    North Augusta, SC        Office and studio           Owned      17,000 sq. ft. building          --

                             Transmission tower site     Owned      143 acres                        --

WEAU
    Eau Claire, WI           Office and studio           Owned      16,116 sq. ft. of                --
                                                                    buildings on 2 acres

    Township of Fairchild,   Transmitter building &    Owned with   2,304 sq. ft. building           --
     WI                      Transmission tower site    easement    on 6 acres



                                       24
   25



          Station/                                            Owned or                              Expiration of
     Property Location                    Use                  Leased        Approximate Size            Lease
     -----------------                    ---                 --------       ----------------       -------------
                                                                                        
WJHG
    Panama City, FL          Office and studio                 Owned      14,000 sq. ft.                   --
                                                                          building on 4 acres

    Youngstown, FL           Transmission tower site           Owned      17 acres                         --

KXII
    Sherman, TX              Office and studio                 Owned      12,813 sq. ft.                   --
                                                                          building on 3 acres

    Madill, OK               Transmission tower site           Owned      1,200 sq. ft. building           --
                                                                          on 97 acres

    Ardmore,OK               Studio and offices                Owned      3,000 sq. ft. building           --
                                                                          on 1.5 acres

    Paris, TX                Translator tower site             Owned      65 sq. ft. building on           --
                                                                          4.1 acres

Lynqx Communications
    Baton Rouge, LA          Office and repair site            Leased     3,400 sq. ft.                Jan. 2003

    Tallahassee, FL          Office                            Owned      1,000 sq. ft.                    --


PUBLISHING



       Newspaper/                                        Owned or                         Expiration of
   Property Location                    Use               Leased     Approximate Size         Lease
   -----------------                    ---              --------    ----------------     -------------

                                                                              
The Albany Herald
    Publishing Company,
    Inc.,
    Albany, GA               Offices and production         Owned      83,000 sq. ft.            --
                             facility for The Albany                   building
                             Herald

Post Citizen Media, Inc.
    Conyers, GA              Offices for The Rockdale       Owned      20,000 sq. ft.
                             Citizen/The Newton Citizen                building



                                       25
   26



         Newspaper/                                         Owned or                           Expiration of Lease
     Property Location                   Use                 Leased       Approximate Size
     -----------------                   ---                --------      ----------------     -------------------

                                                                                   
Post Citizen Media, Inc.
(Continued)
    Conyers, GA             Offices and production           Leased    20,000 sq. ft.                May 2002
                            facility for The Rockdale                  building
                            Citizen/The Newton Citizen
                            and the Gwinnett Daily  Post

    Lawrenceville, GA       Offices for the Gwinnett         Leased    11,000 sq. ft.              Month to Month
                            Daily Post                                 building

    Goshen, IN              Offices and production           Owned     21,000 sq. ft.                   --
                            facility for The Goshen News               building on 0.6 acres


PAGING



                                                  Owned or                            Expiration of
     Property Location              Use            Leased     Approximate Size            Lease
     -----------------              ---           --------    ----------------        -------------

                                                                          
Albany, GA                     Sales Office        Leased       1,500 sq. ft.            Apr. 2001

Columbus, GA                   Sales Office        Leased       2,200 sq. ft.            Dec. 2002
    Lumpkin Road               Sales Office        Leased       2,800 sq. ft.            May 2002

Dothan, AL                     Sales Office        Leased       800 sq. ft.              Feb. 2002

Macon, GA                      Sales Office        Leased       1,260 sq. ft.            Nov. 2001

Tallahassee, FL                Sales Office        Leased       1,800 sq. ft.            Aug. 2002

Tallahassee, FL           Gen. and Admin. Office   Leased       2,400 sq. ft.            Mar. 2002

Thomasville, GA                Sales Office        Leased       300 sq. ft.              June 2002

Valdosta, GA                   Sales Office        Leased       800 sq. ft.           Month to Month

Panama City, FL                Sales Office        Leased       1,050 sq. ft.         Month to Month

Gainesville, FL                Sales Office        Leased       1,100 sq. ft.         Month to Month

Orlando, FL                    Sales Office        Leased       2,000 sq. ft.            Apr. 2001


         The paging operations also lease space on various towers in Florida,
Georgia and Alabama. These tower lease terms range from month-to-month to
expiration dates through 2005.


                                       26
   27

ITEM 3. LEGAL PROCEEDINGS

         The Company is not a party to any legal proceedings in which an adverse
outcome would have a material adverse effect, either individually or in the
aggregate, upon the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered.

EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below is certain information with respect to the executive
officers of the Company as of February 28, 2001:

         J. MACK ROBINSON, age 77, has been the Company's President and Chief
Executive Officer since 1996. Mr. Robinson has served as Chairman of the Board
of Bull Run Corporation, a principal stockholder of the Company, since 1994,
Chairman of the Board and President of Delta Life Insurance Company and Delta
Fire and Casualty Insurance Company since 1958, President of Atlantic American
Corporation, an insurance holding company, from 1988 until 1995 and Chairman of
the Board of Atlantic American Corporation since 1974. He serves as a director
of the following companies: Bankers Fidelity Life Insurance Company, American
Independent Life Insurance Company, Georgia Casualty & Surety Company, American
Southern Insurance Company and American Safety Insurance Company. He is director
emeritus of Wachovia Corporation. He is the Chairman of the Executive Committee
and a member of the Management Personnel Committee of the Company's Board of
Directors. Mr. Robinson is the husband of Harriett J. Robinson and the
father-in-law of Hilton H. Howell, Jr.

         ROBERT S. PRATHER, JR., age 56, has been Executive Vice
President-Acquisitions of the Company since 1996. He has served as President and
Chief Executive Officer and a director of Bull Run Corporation, a principal
stockholder of the Company, since 1992. He serves as a director of Rawlings
Sporting Goods Company, Inc. and The Morgan Group, Inc. He is a member of the
Executive Committee and Management Personnel Committee of the Company's Board of
Directors.

         HILTON H. HOWELL, JR., age 39, has been the Company's Executive Vice
President since September 2000. He has served as President and Chief Executive
Officer of Atlantic American Corporation, an insurance holding company, since
1995 and Executive Vice President from 1992 to 1995. He has been Executive Vice
President and General Counsel of Delta Life Insurance Company and Delta Fire and
Casualty Insurance Company since 1991, and Vice Chairman of Bankers Fidelity
Life Insurance Company and Georgia Casualty & Surety Company since 1992. He has
been a director, Vice President and Secretary of Bull Run Corporation, a
principal stockholder of the Company, since 1994. Mr. Howell also serves as a
director of the following companies: Atlantic American Corporation, Bankers
Fidelity Life Insurance Company, Delta Life Insurance Company, Delta Fire and
Casualty Insurance Company, Georgia Casualty & Surety Company, American Southern
Insurance Company, American Safety Insurance Company, Association Casualty
Insurance Company and Association Risk Management General Agency. He is the
son-in-law of J. Mack Robinson and Harriett J. Robinson.

         ROBERT A. BEIZER, age 61, has served as Vice President for Law and
Development and Secretary of the Company since 1996. From June 1994 to February
1996 he was of counsel to Venable, Baetjer, Howard & Civiletti, a law firm, in
its regulatory and legislative practice group. From 1990 to 1994, Mr. Beizer was
a partner in the law firm of Sidley & Austin and was head of their
communications practice group in Washington, D.C. He is a past president of the
Federal Communications Bar Association and has served as a member of the ABA
House of Delegates.


                                       27
   28

         JAMES C. RYAN, age 40, has served as the Company's Vice President and
Chief Financial Officer since October 1998. He was the Chief Financial Officer
of Busse Broadcasting Corporation from 1987 until its acquisition by the Company
in 1998.

         THOMAS J. STULTZ, age 49, has served as Vice President of the Company
and President of the Company's Publishing Division since 1996. Prior to joining
the Company, he served as Vice President of Multimedia Newspaper Company, a
division of Multimedia, Inc. from 1988 to 1995, having responsibility for
developing and coordinating Multimedia's newspaper marketing initiatives and
directly supervising several Multimedia daily and non-daily publications.

         RAY M. DEAVER, age 60, has served as the Company's Regional Vice
President-Texas since October 1999. He was the President and General Manager of
KWTX Broadcasting Company and President of Brazos Broadcasting Company from
November 1997 until their acquisition by the Company in October 1999. Since
prior to 1995, he was Vice President of KWTX Broadcasting Company and Brazos
Broadcasting Company. He has approximately 39 years of experience in the
broadcast industry. Mr. Deaver is currently the Chairman of the CBS Television
Network Affiliates Advisory Board.

         FRANK J. JONAS, age 54, has served as the Company's Regional Vice
President-Midwest since June 2000. He was the President and General Manager of
KOLN/KGIN-TV, Lincoln and Grand Island, Nebraska, since 1985. The Company
acquired KOLN/KGIN-TV in 1998. Mr. Jonas has approximately 28 years of
experience in the broadcast industry.

         WAYNE M. MARTIN, age 54, has served as the Company's Regional Vice
President-Television since 1998. In 1998, he was also appointed President of
WVLT-TV, the Company's subsidiary in Knoxville, Tennessee. Since 1993, Mr.
Martin has served as President of Gray Kentucky Television, Inc., a subsidiary
of the Company, which operates WKYT-TV, in Lexington, Kentucky and WYMT-TV, in
Hazard, Kentucky. Mr. Martin has approximately 15 years of experience in the
broadcast industry.


                                       28
   29

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Since June 30, 1995, the Company's Class A Common Stock, no par value,
(the "Class A Common Stock') has been listed and traded on The New York Stock
Exchange (the "NYSE") under the symbol "GCS." Since September 24, 1996, the date
of its initial issuance, the Company's Class B Common Stock, no par value, (the
"Class B Common Stock") has also been listed and traded on the NYSE under the
symbol "GCS.B." The following table sets forth the high and low sale prices of
the Class A Common Stock and Class B Common Stock as well as the cash dividend
declared for the periods indicated. The high and low sales prices of the Class A
Common Stock and the Class B Common Stock are as reported by the NYSE.



                              CLASS A COMMON STOCK                 CLASS B COMMON STOCK
                        --------------------------------     -------------------------------
                                                  CASH                                CASH
                                               DIVIDENDS                           DIVIDENDS
                                                DECLARED                            DECLARED
                          HIGH        LOW      PER SHARE      HIGH        LOW      PER SHARE
                        --------    --------    --------    --------    --------   ---------

                                                                 
2000
    First Quarter       $  18.13    $  11.75    $   0.02    $  13.69    $  10.75    $   0.02
    Second Quarter         12.38        9.75        0.02       11.75        9.50        0.02
    Third Quarter          11.50        9.94        0.02       11.13        9.50        0.02
    Fourth Quarter         16.25       11.00        0.02       15.50       10.38        0.02

1999
    First Quarter       $  19.38    $  16.63    $   0.02    $  14.81    $  13.13    $   0.02
    Second Quarter         20.00       15.13        0.02       14.13       12.25        0.02
    Third Quarter          20.13       16.69        0.02       15.38       13.25        0.02
    Fourth Quarter         18.75       16.94        0.02       14.75       11.63        0.02


         As of March 1, 2001, the Company had 6,848,467 outstanding shares of
Class A Common Stock held by approximately 673 stockholders and 8,746,741
outstanding shares of Class B Common Stock held by approximately 754
stockholders. The number of stockholders includes stockholders of record and
individual participants in security position listings as furnished to the
Company pursuant to Rule 17Ad-8 under the Exchange Act.

         The Company has paid a dividend on its Class A Common Stock since 1967
and its Class B Common Stock since its initial offering in 1996. In 1996, the
Company amended its Articles of Incorporation to provide that each share of
Class A Common Stock is entitled to 10 votes and each share of Class B Common
Stock is entitled to one vote. The Articles of Incorporation, as amended,
require that the Class A Common Stock and the Class B Common Stock receive
dividends on a pari passu basis. There can be no assurance of the Company's
ability to continue to pay any dividends on either class of Common Stock.

         The Senior Credit Facility and the Company's Senior Subordinated Notes
due 2006 (the "Notes") each contain covenants that restrict the ability of the
Company to pay dividends on its capital stock. However, the Company does not
believe that such convenants currently limit its ability to pay dividends at the
recent quarterly rate of $0.02 per share. In addition to the foregoing, the
declaration and payment of dividends on the Class A Common Stock and the Class B
Common Stock are subject to the discretion of the Board of Directors. Any future
payments of dividends will depend on the earnings and financial position of the
Company and such other factors as the Board of Directors deems relevant.


                                       29
   30

ITEM 6. SELECTED FINANCIAL DATA

         Set forth below is certain selected historical consolidated financial
data of the Company. This information should be read in conjunction with the
Company's audited consolidated financial statements and related notes thereto
appearing elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."



                                                                             YEAR ENDED DECEMBER 31,
                                                      ------------------------------------------------------------------
                                                         2000        1999(1)        1998(2)       1997(3)      1996(4)
                                                      ----------    ----------    ----------    ----------    ----------
                                                                     (IN THOUSANDS EXCEPT PER SHARE DATA)

                                                                                               
STATEMENTS OF OPERATIONS DATA
Revenues                                              $  171,213    $  143,953    $  128,890    $  103,548    $   79,305
Operating income(5)                                       31,098        22,060        24,927        20,730        16,079
Net income (loss)
    before extraordinary charge                           (6,212)       (6,315)       41,659        (1,402)        5,678
Net income (loss) before extraordinary
    charge available to common stockholders               (7,224)       (7,325)       40,342        (2,812)        5,302
Net income (loss) before extraordinary
    charge available to common stockholders
    per common share(6):
          Basic                                            (0.47)        (0.57)         3.38         (0.24)         0.65
          Diluted                                          (0.47)        (0.57)         3.25         (0.24)         0.62
Cash dividends per common share(6)                    $     0.08    $     0.08    $     0.06    $     0.05    $     0.05

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets                                          $  636,772    $  658,157    $  468,974    $  345,051    $  298,664
Long-term debt (including current portion)               374,887       381,702       270,655       227,076       173,368
Total stockholders' equity                            $  155,961    $  168,188    $  126,703    $   92,295    $   95,226


(1)      Reflects the operating results of the Texas Acquisitions, completed
         October 1, 1999 and the Goshen Acquisition, completed on March 1, 1999,
         as of their respective acquisition dates. See Note B to the Company's
         audited consolidated financial statements included elsewhere herein.

(2)      Reflects the operating results of the Busse-WALB Transactions as of
         July 31, 1998, the closing date of the respective transactions. See
         Note B to the Company's audited consolidated financial statements
         included elsewhere herein.

(3)      Reflects the operating results of the WITN Acquisition and the GulfLink
         Acquisition, as of their respective acquisition dates, August 1, 1997
         and April 24, 1997, respectively.

(4)      In 1996, the Company completed the First American Acquisition, the
         Augusta Acquisition and the KTVE Sale. Reflects the operating results
         of the properties acquired, as well as the sale of KTVE as of their
         respective acquisition, or disposition dates. The Company also incurred
         an extraordinary charge of $3,158,960 in connection with an early
         extinguishment of debt.

(5)      Operating income excludes gain on disposition of television stations of
         $72.6 million recognized for the exchange of WALB in 1998 and $5.7
         million recognized for the sale of KTVE-TV in 1996. Operating income
         also excludes charges relating to valuation adjustments of goodwill and
         other assets of $2.1 million for the year ended December 31, 1998.


                                       30
   31

(6)      On August 20, 1998, the Company's Board of Directors declared a 50%
         stock dividend, payable on September 30, 1998, to stockholders of
         record of the Class A Common Stock and Class B Common Stock on
         September 16, 1998. This stock dividend effected a three for two stock
         split. All applicable share and per share data have been adjusted to
         give effect to the stock split.


                                       31
   32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


RESULTS OF OPERATIONS OF THE COMPANY

Introduction

         The following analysis of the financial condition and results of
operations of Gray Communications Systems, Inc. (the "Company") should be read
in conjunction with the Company's audited consolidated financial statements and
notes thereto included elsewhere herein.

         As discussed below, the Company has acquired several television
stations and a newspaper since January 1, 1998. The Company's acquisitions have
been accounted for under the purchase method of accounting. Under the purchase
method of accounting, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements as of their
respective acquisition dates. The assets and liabilities of acquired businesses
are included based on an allocation of the purchase price.

1999 Acquisitions

         On October 1, 1999, the Company completed its acquisition of all the
outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting
Company, as well as the assets of KXII Broadcasters Ltd. The Company acquired
the capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company
in merger transactions with the shareholders of KWTX Broadcasting Company and
Brazos Broadcasting Company receiving a combination of cash and the Company's
Class B Common Stock for their shares. The Company acquired the assets of KXII
Broadcasters Ltd. in an all cash transaction. These transactions are referred to
herein as the "Texas Acquisitions."

         Aggregate consideration (net of cash acquired) paid in the Company's
Class B Common Stock and cash was approximately $146.4 million which included a
base purchase price of $139.0 million, transaction expenses of $2.8 million and
certain net working capital adjustments (excluding cash) of $4.6 million. In
addition to the amount paid, the Company assumed approximately $600,000 in
liabilities in connection with the asset purchase of KXII Broadcasters Ltd. The
Company funded the acquisitions by issuing 3,435,774 shares of the Company's
Class B Common Stock (valued at $49.5 million) to the sellers, borrowing an
additional $94.4 million under its $300.0 million senior bank loan agreement
(the "Senior Credit Facility") and using cash on hand of approximately $2.5
million.

         With the Texas Acquisition the Company added the following television
stations to its broadcast segment: KWTX-TV the CBS affiliate located in Waco,
Texas; KBTX-TV the CBS affiliate located in Bryan, Texas, each serving the
Waco-Temple-Bryan, Texas television market and KXII-TV the CBS affiliate serving
Sherman, Texas and Ada, Oklahoma. Under Federal Communications Commission (the
"FCC") regulations, KBTX-TV is operated as a satellite station of KWTX-TV. The
stations are collectively referred to herein as the "Texas Stations."

         On March 1, 1999, the Company acquired substantially all of the assets
of The Goshen News from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement (the "Goshen Acquisition"). Based on the allocation of the
purchase price, the excess of the purchase price over the fair value of the net
tangible assets was approximately $14.1 million. The Goshen News is currently an
18,000-circulation newspaper published Monday through Sunday and serves Goshen,
Indiana and surrounding areas. The Company financed the acquisition through
borrowings under its Senior Credit Facility.


                                       32
   33

         On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was approximately $126.6 million, less the accreted value of
Busse's 11 5/8 % Senior Secured Notes due 2000 (the "Busse Senior Notes"). The
purchase price of the capital stock consisted of the contractual purchase price
of $112.0 million, associated transaction costs of $3.9 million, acquisition
costs associated with the Busse Senior Notes of $5.1 million and Busse's cash
and cash equivalents of $5.6 million. Immediately following the acquisition of
Busse, the Company exercised its right to satisfy and discharge the Busse Senior
Notes, effectively prefunding the Busse Senior Notes at the October 15, 1998
call price of 106 plus accrued interest. The amount necessary to satisfy and
discharge the Busse Senior Notes was approximately $69.9 million. Based on the
final allocation of the purchase price, the excess of the purchase price over
the fair value of net tangible assets acquired was approximately $121.6 million.

         Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $72.6 million and estimated
deferred income taxes of approximately $28.3 million in connection with the
exchange of WALB. The Company funded the remaining costs of the acquisition of
Busse's capital stock through borrowings under the Company's Senior Credit
Facility.

         As a result of these transactions, the Company acquired the following
television stations: KOLN-TV ("KOLN"), the CBS affiliate serving the
Lincoln-Hastings-Kearney, Nebraska market; its satellite station KGIN-TV
("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and WEAU, an NBC
affiliate serving the La Crosse-Eau Claire, Wisconsin market. These transactions
also satisfied the FCC's requirement for the Company to divest itself of WALB.
The transactions described above are referred to as the "Busse-WALB
Transactions." WEAU, KOLN and KGIN are referred to collectively as the "Busse
Stations."

General

         The Company derives its revenues from its television broadcasting,
publishing and paging operations. The operating revenues of the Company's
television stations are derived from broadcast advertising revenues and, to a
much lesser extent, from compensation paid by the networks to the stations for
broadcasting network programming. The operating revenues of the Company's
publishing operations are derived from advertising, circulation and classified
revenue. Paging revenue is derived primarily from the leasing and sale of
pagers. Certain information concerning the relative contributions of the
Company's television broadcasting, publishing and paging operations is provided
in Note J of the Notes to the audited consolidated financial statements included
elsewhere herein.

         In the Company's broadcasting operations, broadcast advertising is sold
for placement either 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, as
measured by Nielsen Media Research ("Nielsen"). 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 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.


                                       33
   34

         Most broadcast advertising contracts are short-term, and generally run
only for a few weeks. Approximately 53% of the gross revenues of the Company's
television stations for the year ended December 31, 2000, were generated from
local advertising, which is sold primarily by a station's sales staff directly
to local accounts, and the remainder represented primarily by national
advertising, which is sold by a station's national advertising sales
representative. The stations generally pay commissions to advertising agencies
on local, regional and national advertising and the stations also pay
commissions to the national sales representative on national advertising.

         Broadcast advertising revenues are generally highest in the second and
fourth quarters each year, due in part to increases in consumer advertising in
the spring and retail advertising in the period leading up to and including the
holiday season. In addition, broadcast advertising revenues are generally higher
during even numbered election years due to spending by political candidates,
which spending typically is heaviest during the fourth quarter.

         The Company's publishing operations' advertising contracts are
generally entered into annually and provide for a commitment as to the volume of
advertising to be purchased by an advertiser during the year. The publishing
operations' advertising revenues are primarily generated from local advertising.
As with the broadcasting operations, the publishing operations' revenues are
generally highest in the second and fourth quarters of each year.

         The Company's paging subscribers either own pagers, thereby paying
solely for the use of the Company's paging services, or lease pagers, thereby
paying a periodic charge for both the pagers and the paging services. The terms
of the lease contracts are month-to-month, three months, six months or twelve
months in duration. Paging revenues are generally equally distributed throughout
the year.

         The broadcasting operations' primary operating expenses are employee
compensation, related benefits and programming costs. The publishing operations'
primary operating expenses are employee compensation, related benefits and
newsprint costs. The paging operations' primary operating expenses are employee
compensation and other communications costs. In addition, the broadcasting,
publishing and paging operations incur overhead expenses, such as maintenance,
supplies, insurance, rent and utilities. A large portion of the operating
expenses of the broadcasting, publishing and paging operations is fixed,
although the Company has experienced significant variability in its newsprint
costs in recent years.

Broadcasting, Publishing and Paging Revenues

         Set forth below are the principal types of broadcasting, publishing and
paging revenues earned by the Company's broadcasting, publishing and paging
operations for the periods indicated and the percentage contribution of each of
the Company's total broadcasting, publishing and paging revenues, respectively
(dollars in thousands):


                                       34
   35



                                                               YEAR ENDED DECEMBER 31,
                                            --------------------------------------------------------------
                                                   2000                  1999                  1998
                                            ------------------    ------------------    ------------------
                                             AMOUNT        %       AMOUNT        %       AMOUNT        %
                                            --------    ------    --------    ------    --------    ------
                                                                                  
BROADCASTING
Net Revenues:
    Local                                   $ 65,152      38.1%   $ 57,078      39.7%   $ 47,258      36.7%
    National                                  31,043      18.1%     26,742      18.6%     23,824      18.5%
    Network compensation                       8,311       4.9%      6,480       4.5%      5,549       4.3%
    Political                                  9,021       5.3%        622       0.4%      7,876       6.1%
    Production and other                       7,113       4.1%      6,093       4.2%      6,500       5.0%
                                            --------    ------    --------    ------    --------    ------
                                            $120,640      70.5%   $ 97,015      67.4%   $ 91,007      70.6%
                                            ========    ======    ========    ======    ========    ======

PUBLISHING
Revenues:
    Retail                                  $ 19,569      11.4%   $ 17,760      12.3%   $ 14,159      11.0%
    Classifieds                               13,031       7.6%     12,039       8.4%      9,106       7.1%
    Circulation                                7,659       4.5%      6,791       4.7%      5,315       4.1%
    Other                                      1,240       0.7%      1,218       0.9%        750       0.6%
                                            --------    ------    --------    ------    --------    ------
                                            $ 41,499      24.2%   $ 37,808      26.3%   $ 29,330      22.8%
                                            ========    ======    ========    ======    ========    ======

PAGING
Revenues:
    Paging lease, sales and service         $  9,074       5.3%   $  9,130       6.3%   $  8,553       6.6%
                                            ========    ======    ========    ======    ========    ======

TOTAL                                       $171,213     100.0%   $143,953     100.0%   $128,890     100.0%
                                            ========    ======    ========    ======    ========    ======


YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999

         Revenues. Total revenues for the year ended December 31, 2000 increased
$27.2 million, or 18.9%, over the prior year, to $171.2 million from $144.0
million. This increase was primarily attributable to the effect of (i) increased
revenues resulting from the acquisition of the Texas Stations and The Goshen
News, (ii) increased political broadcast revenue and (iii) increased publishing
revenues from existing publishing operations. The current year results include
12 months of operations for the Texas Stations and The Goshen News as compared
to three months and ten months, respectively, in the prior year.

         Broadcasting revenues increased $23.6 million, or 24.4%, over the prior
year, to $120.6 million from $97.0 million. Revenue from the Texas Stations,
which were acquired on October 1, 1999, increased broadcasting revenues by $17.9
million over that of the prior year. Revenues from the Company's existing
broadcasting operations continuously owned since January 1, 1999, increased $5.7
million, or 6.3%, over the prior year, to $96.5 million from $90.8 million. This
$5.7 million increase was due primarily to increased political advertising
revenue of $7.9 million and increased production and other revenues of $783,000
offset, in part, by decreased local revenues of $2.5 million, decreased national
revenues of $156,000 and decreased network compensation of $267,000. For all
locations, political advertising revenue was $9.0 million for the year ended
December 31, 2000, compared to $622,000 for the prior year.

         Publishing revenues increased $3.7 million, or 9.8%, over the same
period of the prior year, to $41.5 million from $37.8 million. The increase in
publishing revenues was due primarily to increased revenues from the Company's
existing publishing operations and from the revenues generated by The Goshen
News, which was acquired on March 1, 1999. Revenues from the Company's existing
publishing operations continuously owned since January 1, 1999 increased $3.0
million, or 9.0%, over the same


                                       35
   36

period of the prior year, to $35.8 million from $32.8 million. The primary
components of the $3.0 million increase in revenues from existing operations
were increases in retail advertising, classified advertising and circulation
revenue of $1.4 million, $920,000 and $651,000, respectively. Revenue from The
Goshen News increased publishing revenues by $724,000 over that of the prior
year.

         Paging revenue remained at $9.1 million for 2000 and 1999. The Company
had approximately 90,000 pagers and 88,000 pagers in service at December 31,
2000 and 1999, respectively.

         Operating expenses. Operating expenses for the year ended December 31,
2000 increased $18.2 million, or 14.9%, over the prior year, to $140.1 million
from $121.9 million. The increase resulted primarily from the Company's
acquisitions in 1999.

         Broadcasting expenses increased $9.1 million or 15.5%, over the year
ended December 31, 2000, to $67.8 million from $58.7 million. The expenses of
the Texas Stations accounted for an increase in broadcasting expenses of $9.0
million. Operating expenses of the stations continuously owned since January 1,
1999, had increases in payroll and general operating expenses that were largely
offset by decreases in syndicated film expense. The increase in payroll expenses
of the stations continuously owned since January 1, 1999 was limited to 0.7% as
a result of a cost reduction plan instituted by the Company in 2000.

         Publishing expenses for the year ended December 31, 2000 increased $2.6
million, or 9.1%, from the same period of the prior year, to $31.4 million from
$28.8 million. The increase in publishing expenses was due primarily to
increased expenses from the Company's existing publishing operations and from
the expenses of The Goshen News, which was acquired on March 1, 1999. Expenses
of the Company's publishing operations owned since January 1, 1999 increased
$2.3 million, or 9.0%, over the same period of the prior year, to $27.6 million
from $25.3 million. The increase in expenses at the Company's existing
publishing operations was due primarily to increased payroll of $715,000,
increased newsprint expense of $637,000 and increased other operating expenses
of $933,000.

         Paging expenses decreased $415,000, or 6.3%, over the same period of
the prior year, to $6.1 million from $6.6 million. The decrease in paging
expenses reflected an expense reduction plan instituted by the Company in the
current year.

         Corporate and administrative expenses increased $146,000 or 4.2%, over
the prior year, to $3.6 million from $3.4 million. This increase was primarily
attributable to increased payroll expense.

         Depreciation of property and equipment and amortization of intangible
assets was $31.2 million for the year ended December 31, 2000, as compared to
$24.5 million for the prior year, an increase of $6.7 million, or 27.6%. This
increase was primarily the result of higher depreciation and amortization costs
resulting from the Texas Acquisitions and the Goshen Acquisition in 1999.

         Miscellaneous income (expense), net. Miscellaneous income increased
$445,000, or 132.4%, to $781,000 for the year ended December 31, 2000 from
$336,000 for the year ended December 31, 1999. The change in miscellaneous
income (expense) of $445,000 was due primarily to the gain of $522,000
recognized upon the sale of a real estate investment in December 2000.

         Interest expense. Interest expense increased $9.0 million, or 28.8%, to
$40.0 million for the year ended December 31, 2000 from $31.0 million for the
year ended December 31, 1999. This increase was attributable primarily to
increased levels of debt resulting from the financing of the Texas Acquisitions


                                       36
   37

and the Goshen Acquisition in 1999 and higher interest rates on the Company's
floating rate debt that is not subject to an interest rate swap agreement.

         Income tax expense (benefit). Income tax benefit for the year ended
December 31, 2000 and 1999 was $1.9 million and $2.3 million, respectively.

         Net loss available to common stockholders. Net loss available to common
stockholders of the Company for the year ended December 31, 2000 and 1999 was
$7.2 million and $7.3 million, respectively.

YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998

         Revenues. Total revenues for the year ended December 31, 1999 increased
$15.1 million, or 11.7%, over the prior year, to $144.0 million from $128.9
million. This increase was primarily attributable to the net effect of (i)
increased revenues resulting from the acquisition of the Texas Stations, The
Goshen News and the Busse Stations, (ii) increased publishing revenues from
existing publishing operations and (iii) increased paging revenues. These
increases were partially offset by decreased revenues resulting from the
disposition of WALB and decreased political advertising revenue.

         Broadcasting revenues increased $6.0 million, or 6.6%, over the prior
year, to $97.0 million from $91.0 million. The revenue from the Texas Stations
increased broadcasting revenues by $6.2 million. The revenue from the Busse
Stations increased broadcasting revenues by $9.7 million. These increases were
partially offset by a decrease of $6.8 million in revenues resulting from the
sale of WALB and by a decrease in political advertising revenue in 1999.

         On a pro forma basis, assuming the Texas Acquisitions and the
Busse-WALB Transactions had been effective January 1, 1998, broadcasting
revenues for the year ended December 31, 1999 decreased $4.5 million, or 3.8%,
over the prior year, to $114.4 million from $118.9 million. The pro forma
decrease in broadcasting revenue reflects a decrease in political advertising
revenues of $8.3 million offset in part by an increase in local advertising of
$4.2 million.

         On a pro forma basis, assuming the acquisition of the Texas Stations
had been effective on January 1, 1998, broadcasting revenues for the Texas
Stations for the year ended December 31, 1999 increased $531,000, or 2.3%, when
compared to the prior year to $23.6 million from $23.1 million. The pro forma
increase in revenue for the Texas Stations reflects an increase in local revenue
of $2.1 million offset in part by a decrease in political advertising revenue of
$1.1 million and national revenue of $474,000, respectively.

         On a pro forma basis, assuming the acquisition of the Busse Stations
had been effective on January 1, 1998, broadcasting revenues for the Busse
Stations for the year ended December 31, 1999 decreased $1.8 million, or 8.6%,
when compared to the same period of the prior year to $19.1 million from $20.9
million. The decrease in revenue on a pro forma basis for the Busse Stations was
due primarily to a decrease in political advertising revenue of $1.6 million in
1999.

         Broadcasting revenues from operations continuously owned since January
1, 1998 decreased $3.2 million, or 4.3%, over the same period of the prior year,
to $71.7 million from $74.9 million. This decrease was due primarily to a
decrease in political advertising revenue of $5.5 million offset in part by
increased local revenue of $2.3 million.

         Publishing revenues increased $8.5 million, or 28.9%, over the same
period of the prior year, to $37.8 million from $29.3 million. The increase in
publishing revenues was due primarily to increased revenues from the Company's
existing publishing operations and from the revenues generated by The


                                       37
   38

Goshen News, which was acquired on March 1, 1999. Revenues from the Company's
existing publishing operations continuously owned since January 1, 1998
increased $3.5 million, or 11.9%, over the same period of the prior year, to
$32.8 million from $29.3 million. The primary components of the $3.5 million
increase in revenues from existing operations were increases in retail
advertising, classified advertising and circulation revenue of $1.3 million,
$1.6 million and $349,000, respectively. The Goshen News provided revenues of
$5.0 million from the date of its purchase through December 31, 1999. On a pro
forma basis, assuming that the Goshen Acquisition had been completed on January
1, 1998, revenue for The Goshen News increased $887,000, or 18.6%, to $5.7
million from $4.8 million, as compared to the same period of the prior year.

         Paging revenue increased $577,000, or 6.7%, over the same period of the
prior year, to $9.1 million from $8.6 million. The increase was attributable
primarily to an increase in the number of pagers in service. The Company had
approximately 88,000 pagers and 86,000 pagers in service at December 31, 1999
and 1998, respectively.

         Operating expenses. Operating expenses for the year ended December 31,
1999 increased $17.9 million, or 17.2%, over the same period of the prior year,
to $121.9 million from $104.0 million. The increase resulted primarily from the
Company's acquisitions in 1999 and 1998, net of the 1998 disposition of WALB.

         Broadcasting expenses increased $5.7 million or 10.7%, over the year
ended December 31, 1999, to $58.7 million from $53.0 million. The expenses from
the Texas Stations and Busse Stations accounted for an increase in broadcasting
expenses of $3.2 million and $5.4 million respectively. This increase was
partially offset by a decrease in expenses of $2.9 million resulting from the
disposition of WALB.

         On a pro forma basis, assuming the Texas Acquisitions and the
Busse-WALB Transactions had been effective January 1, 1998, broadcasting
expenses for the year ended December 31, 1999 increased $1 million, or 1.4%,
over the same period of the prior year, to $68.6 million from $67.6 million.
This change reflects increases in syndicated film and other costs offset in part
by decreased payroll costs.

         On a pro forma basis, assuming the Texas Acquisitions had been
effective on January 1, 1998, broadcasting expenses for the Texas Stations for
the year ended December 31, 1999 increased $843,000, or 6.9%, to $13.1 million
from $12.2 million. On a pro forma basis, assuming the acquisition of the Busse
Stations had been effective on January 1, 1998, broadcasting expenses for the
Busse Stations for the year ended December 31, 1999 increased $125,000, or 1.3%,
to $9.6 million from $9.5 million.

         Broadcasting expenses from operations continuously owned since January
1, 1998 were essentially unchanged between 1999 and 1998 at $45.8 million per
year. During 1999, decreases in payroll and other expenses of $110,000 and
$600,000, respectively, offset an increase in syndicated film costs of $704,000.

         Publishing expenses for the year ended December 31, 1999 increased $4.6
million, or 18.9%, from the same period of the prior year, to $28.8 million from
$24.2 million. The increase in publishing expenses was due primarily to
increased expenses from the Company's existing publishing operations and from
the expenses of The Goshen News. Expenses from the Company's publishing
operations owned since January 1, 1998 increased $1.1 million, or 4.5%, over the
same period of the prior year, to $25.3 million from $24.2 million. The increase
in expenses at the Company's existing publishing operations was due primarily to
payroll and transportation costs associated with increased circulation at one of
the Company's daily newspapers. The Goshen News recorded expenses of $3.5
million for the year ended December 31, 1999. On a pro forma basis, assuming
that the Goshen Acquisition had been completed on January 1, 1998, expenses for
The Goshen News increased $426,000, or 11.6%, to $4.1 million from $3.7 million,
as compared to the same period of the prior year reflecting in part the
commencement of a Sunday edition as of August 1, 1999.


                                       38
   39
         Paging expenses increased $932,000 or 16.6%, over the same period of
the prior year, to $6.6 million from $5.6 million. The increase was attributable
primarily to an increase in payroll and other costs associated with an increase
in the number of pagers in service.

         Corporate and administrative expenses increased $385,000 or 12.6%, over
the same period of the prior year, to $3.4 million from $3.1 million. This
increase was primarily attributable to increased payroll expense.

         Depreciation of property and equipment and amortization of intangible
assets was $24.5 million for the year ended December 31, 1999, as compared to
$18.1 million for the prior year, an increase of $6.4 million, or 35.0%. This
increase was primarily the result of higher depreciation and amortization costs
resulting from the Texas Acquisitions and the Goshen Acquisition in 1999 and the
acquisition of the Busse Stations in 1998.

         Gain on exchange of television station. In 1998, the Company recognized
a pre-tax gain of approximately $72.6 million and estimated deferred income
taxes of approximately $28.3 million in connection with the exchange of WALB. No
similar transaction occurred in 1999.

         Valuation adjustments of goodwill and other assets. In 1998, the
Company recognized an expense of $2.1 million for a decrease in the value of
certain assets for the year ended December 31, 1999. No comparable expense was
incurred in 1999.

         Miscellaneous income (expense), net. Miscellaneous income for the year
ended December 31, 1999 was $336,000 and miscellaneous expense for the year
ended December 31, 1998 was $242,000. The change in miscellaneous income
(expense) of $578,000 was due primarily to the gain of $450,000 recognized upon
the sale of a portion of the Southwest Georgia Shopper, Inc. in February 1999.

         Interest expense. Interest expense increased $5.5 million, or 21.9%, to
$31.0 million for the year ended December 31, 1999 from $25.5 million for the
year ended December 31, 1998. This increase was attributable primarily to
increased levels of debt resulting from the financing of the Texas Acquisitions
and the Goshen Acquisition in 1999 and the financing of the acquisition of the
Busse Stations in 1998.

         Income tax expense (benefit). Income tax benefit for the year ended
December 31, 1999 was $2.3 million and income tax expense for the year ended
December 31, 1998 was $28.1 million. The decrease in income tax expense of $30.4
million was due primarily to the recognition of a net loss before tax in the
current year as compared to the effect of a $72.6 million gain on exchange of a
television station in connection with the disposition of WALB in 1998.

         Net income (loss) available to common stockholders. Net loss available
to common stockholders of the Company was $7.3 million for the year ended
December 31, 1999 as compared to net income available to common stockholders of
the Company of $40.3 million for the year ended December 31, 1998, a decrease of
$47.6 million. The primary reason for the decrease was due to the net gain of
$44.3 million recorded for the disposition of WALB in 1998.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's net working capital was $13.2 million and $10.3 million
at December 31, 2000, and 1999, respectively. The Company's cash provided from
operations was $22.8 million, $20.8 million and $20.1 million in 2000, 1999 and
1998, respectively. Management believes that current cash balances, cash flows
from operations and available funds under its Senior Credit Facility will be
adequate to


                                       39
   40

provide for the Company's capital expenditures, debt service, cash dividends and
working capital requirements.

         On October 1, 1999 and in connection with the Texas Acquisitions, the
Senior Credit Facility was amended to provide borrowings up to $300.0 million.
Prior to the amendment, the Senior Credit Facility consisted of a $100.0 million
revolving commitment (the "Revolving Commitment") and a $100.0 million term loan
commitment ("Term Loan A Commitment"). The increase in committed available
credit was effected by the addition of a second $100.0 million term loan
commitment ("Term Loan B Commitment").

         Under the Senior Credit Facility, the Company, at its option, can
borrow funds at an interest rate equal to the London Interbank Offered Rate
("LIBOR") plus a premium or at an interest rate equal to the lender's prime rate
("Prime") plus a premium. As a result of the 1999 amendment, the interest rates
payable by the Company for funds borrowed under the Revolving Commitment and
Term Loan A Commitment increased as follows: the premium over Prime increased
from a range of 0.0% to 0.5% to a range of 0.0% to 1.75% and the premium over
LIBOR increased from a range of 0.75% to 2.25% to a range of 1.25% to 3.0%.
Under the new Term Loan B Commitment, funds can be borrowed at Prime plus 1.75%
to 2.0% and/or LIBOR plus 3.0% to 3.25%. The premium above Prime and/or LIBOR
payable by the Company will be determined by the Company's operating leverage
ratio that is calculated quarterly.

         The amount borrowed by the Company and the amount available to the
Company under the Senior Credit Facility at December 31, 2000, was $214.5
million and $63.0 million, respectively. The effective interest rate on such
borrowings at December 31, 2000 approximated 9.7%.

         The Senior Credit Facility contains restrictive provisions which, among
other things, limit the Company's ability to incur indebtedness, limit capital
expenditures in 2000, 2001 and 2002 to not more than $15.5 million per year and
require the Company to meet certain financial ratios. The Company's 10 5/8%
Senior Subordinated Notes due 2006 contain restrictive provisions similar to the
provisions of the Senior Credit Facility.

         The Company's net cash used in investing activities was $8.3 million,
$126.8 million and $55.3 million in 2000, 1999 and 1998, respectively. The
amount of cash used in 2000 resulted primarily from equipment purchases. The
amount of cash used in 1999 resulted primarily from the Texas Acquisitions and
the Goshen Acquisition. The amount of cash used in 1998 resulted primarily from
the acquisition of Busse partially offset by the exchange of WALB.

         The Company used $14.1 million in cash financing activities in 2000 and
provided $105.8 million and $34.7 million in cash by financing activities in
1999 and 1998, respectively. In 2000, cash used in financing activities resulted
primarily from a net long-term debt payment of $6.8 million, dividend payments
of $2.1 million and a preferred stock redemption of $5.0 million. In 1999, the
net cash provided by financing activities resulted primarily from borrowing
under the Senior Credit Facility to finance the Texas Acquisitions and the
Goshen Acquisition. In 1998, net cash provided by financing activities resulted
primarily from borrowings on long-term debt (net of repayments) of $43.5 million
partially offset by redemptions of preferred stock of $7.6 million.

         During 2000, 1999 and 1998, the Company purchased 11,361 shares of its
Class B Common Stock, 20,000 shares of its Class B Common Stock and 30,750
shares of its Class A Common Stock, respectively, at the then prevailing market
prices for such shares.

         Subject to certain limitations, holders of the Series A Preferred Stock
are entitled to receive, when, as and if declared by the Board of Directors, out
of funds of the Company legally available for payment, cumulative cash dividends
at an annual rate of $800 per share. Subject to certain limitations, holders of


                                       40
   41

the Series B Preferred Stock are entitled to receive, when, as and if declared
by the Board of Directors, out of the funds of the Company legally available for
payment, cumulative dividends at an annual rate of $600 per share, except that
the Company at its option may pay such dividends in cash or in additional shares
of Series B Preferred Stock valued, for the purpose of determining the number of
shares (or fraction thereof) of such Series B Preferred Stock to be issued, at
$10,000 per share.

         The Company regularly enters into program contracts for the right to
broadcast television programs produced by others and program commitments for the
right to broadcast programs in the future. Such programming commitments are
generally made to replace expiring or canceled program rights. Payments under
such contracts are made in cash or the concession of advertising spots for the
program provider to resell, or a combination of both. At December 31, 2000,
payments on program license liabilities due in 2001, which will be paid with
cash from operations, were approximately $5.5 million. The Company paid $5.6
million for program broadcast rights in 2000.

         In 2000, the Company made $9.4 million of capital expenditures,
relating primarily to the broadcasting and publishing operations. Of this
amount, $5.7 million was paid in 2000. The remaining $3.7 million was accrued at
December 31, 2000 and is payable in January 2002. In 2000, the Company allocated
$5.4 million of its total capital expenditures toward implementing digital
television ("DTV") broadcast operations at several of the Company's television
stations. Generally, under current FCC rules each of the Company's stations must
construct DTV facilities and commence operations by May 2002. The Company
completed its DTV implementation at WRDW, its Augusta, Georgia station, in early
2000. As of February 21, 2001, the Company has commenced such DTV construction
at KWTX and WEAU, its Waco, Texas and Eau Claire, Wisconsin stations,
respectively. The Company currently intends to complete the necessary DTV
construction at all of its stations by the FCC deadline. At present, the Company
anticipates incurring approximately $12.5 million of DTV capital expenditures
during 2001 and $10 million in 2002 including a capital lease of approximately
$2.3 million for tower facilities at WVLT, its Knoxville, Tennessee station.
Total capital expenditures, including DTV capital expenditures, for 2001 are
anticipated to be approximately $15.0 million.

         Each of the Company's television stations is affiliated with a major
network pursuant to an affiliation agreement. The CBS affiliation agreements for
KWTX-TV, KBTX-TV and KXII-TV were renegotiated and extended through December 31,
2005. As a result of these renewal negotiations, network compensation for these
three television stations will be phased out over the next few years. For the
year ended December 31, 2000, combined network compensation for KWTX-TV, KBTX-TV
and KXII-TV was $2.9 million. Of the remaining ten television stations, the
current agreements are subject to renewal in 2002, 2004, 2005 and 2006.

         The Company and its subsidiaries file a consolidated federal income tax
return and such state or local tax returns as are required. As of December 31,
2000, the Company anticipates, for federal and certain state income taxes, that
it will generate taxable operating losses for the foreseeable future.

         Management does not believe that inflation in past years has had a
significant impact on the Company's results of operations nor is inflation
expected to have a significant effect upon the Company's business in the near
future.

OPTION TO ACQUIRE EQUITY INVESTMENT IN SARKES TARZIAN, INC.

         On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
shareholder of the Company, acquired 301,119 shares of the outstanding common
stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of Mary Tarzian (the
"Estate") for $10.0 million. The acquired shares (the "Tarzian Shares")
represent 33.5% of the total outstanding common stock of Tarzian (both in terms
of the number of shares of common stock outstanding and in terms of voting
rights), but such investment represents 73% of the


                                       41
   42

equity of Tarzian for purposes of dividends as well as distributions in the
event of any liquidation, dissolution or other termination of Tarzian. A single
shareholder controls a majority of the voting rights of the Tarzian common
stock.

         The Company has an agreement with Bull Run, whereby the Company has the
option of acquiring the Tarzian Shares from Bull Run for $10.0 million plus
related costs. These related costs include but are not limited to Bull Run's
investment charges on the incremental debt used to acquire the investment less
the aggregate amount of certain payments the Company has paid Bull Run to extend
the option period. The Company has the ability to extend the option period in
30-day increments at a fee of $66,700 per extension and has extended this option
period through December 31, 2001. Total fees capitalized relating to this option
are $3,452,000 and $742,000 as of December 31, 2000 and 1999, respectively. In
connection with the option agreement, the Company granted warrants to Bull Run
to purchase up to 100,000 shares of the Company's Class B Common Stock at
$13.625 per share. The warrants vest immediately upon the Company's exercise of
its option to purchase the Tarzian Shares. The warrants expire 10 years
following the date at which the Company exercises its option. The Company can
not control when or if it would receive any cash distributions from Tarzian
including dividends or other distributions on capital stock.

         Tarzian owns and operates two television stations and four radio
stations: WRCB-TV Channel 3 in Chattanooga, Tennessee, an NBC affiliate; KTVN-TV
Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM and WTTS-FM in Bloomington,
Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana. The Chattanooga and
Reno markets are the 86th and the 109th largest television markets in the United
States, respectively, as ranked by Nielsen.

         On February 12, 1999, Tarzian filed a complaint against Bull Run and
U.S. Trust Company of Florida Savings Bank as Personal Representative of the
Estate in the United States District Court for the Southern District of Indiana.
Tarzian claims that it had a binding and enforceable contract to purchase the
Tarzian Shares from the Estate prior to Bull Run's purchase of the shares, and
requested judgment providing that the contract be enforced. On May 3, 1999, the
action was dismissed without prejudice against Bull Run, leaving the Estate as
the sole defendant. The litigation between the Estate and Tarzian is ongoing and
the Company can not predict when a final resolution of the litigation will
occur.

CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT

         This annual report on Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this annual report, the words "believes," "expects," "anticipates,"
"estimates" and similar words and expressions are generally intended to identify
forward-looking statements. Statements that describe the Company's future
strategic plans, goals, or objectives are also forward-looking statements.
Readers of this annual report are cautioned that any forward-looking statements,
including those regarding the intent, belief or current expectations of the
Company or management, are not guarantees of future performance, results or
events and involve risks and uncertainties, and that actual results and events
may differ materially from those in the forward-looking statements as a result
of various factors including, but not limited to, (i) general economic
conditions in the markets in which the Company operates, (ii) competitive
pressures in the markets in which the Company operates, (iii) the effect of
future legislation or regulatory changes on the Company's operations, (iv) high
debt levels and (v) other factors described from time to time in the Company's
filings with the Securities and Exchange Commission. The forward-looking
statements included in this annual report are made only as of the date hereof.
The Company undertakes no obligation to update such forward-looking statements
to reflect subsequent events or circumstances.


                                       42
   43

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Based on the Company's floating rate debt outstanding at December 31,
2000, a 100 basis point increase in market interest rates would increase the
Company's interest expense and the Company's loss before income taxes for the
year by approximately $1.7 million.

         The fair market value of long-term fixed interest rate debt is also
subject to interest rate risk. Generally, the fair market value of fixed
interest rate debt will increase as interest rates fall and decrease as interest
rates rise. The estimated fair value of the Company's total long-term fixed rate
debt at December 31, 2000 was approximately $155.6 million, which was
approximately $4.4 million less than its carrying value. A hypothetical 100
basis point decrease in the prevailing interest rates at December 31, 2000 would
result in an increase in fair value of total long-term debt by approximately
$8.5 million. Fair market values are determined from quoted market prices where
available or based on estimates made by investment bankers.


                                       43
   44

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                                                                                           PAGE
                                                                                                           ----
                                                                                                        
Audited Consolidated Financial Statements of Gray Communications Systems, Inc.

      Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .     45

      Consolidated Balance Sheets at December 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . .     46

      Consolidated Statements of Operations for the years ended December 31, 2000,
           1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .     48

      Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
         1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .     49

      Consolidated Statements of Cash Flows for the years ended December 31, 2000,
         1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .     50

      Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .. . . . . . . . . . . .     51



                                       44
   45

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Stockholders
Gray Communications Systems, Inc.

         We have audited the accompanying consolidated balance sheets of Gray
Communications Systems, Inc., as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gray
Communications Systems, Inc., at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.



                                    Ernst & Young LLP

Atlanta, Georgia
January 29, 2001


                                       45
   46

                        GRAY COMMUNICATIONS SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                                                      DECEMBER 31,
                                                                          ---------------------------------
                                                                               2000               1999
                                                                          -------------       -------------
                                                                                        
ASSETS
Current assets:
     Cash and cash equivalents                                            $   2,214,838       $   1,787,446
     Trade accounts receivable, less allowance for doubtful accounts
         of $845,000 and $1,008,000, respectively                            30,321,372          30,338,425
     Recoverable income taxes                                                 1,196,408           2,053,025
     Inventories                                                              1,472,377           1,051,960
     Current portion of program broadcast rights, net                         3,723,988           3,538,441
     Other current assets                                                       670,718             803,410
                                                                          -------------       -------------
Total current assets                                                         39,599,701          39,572,707

Property and equipment:
     Land                                                                     4,905,121           4,983,221
     Buildings and improvements                                              16,639,424          16,066,082
     Equipment                                                              106,783,692          98,771,472
                                                                          -------------       -------------
                                                                            128,328,237         119,820,775
     Allowance for depreciation                                             (55,730,599)        (39,443,291)
                                                                          -------------       -------------
                                                                             72,597,638          80,377,484

Other assets:
     Deferred loan costs, net                                                 8,203,055           9,656,586
     Goodwill and other intangibles, net:
        Licenses and network affiliation agreements                         436,255,773         448,346,122
        Goodwill                                                             73,978,230          76,218,410
        Consulting and noncompete agreements                                  1,381,545           1,869,368
    Other                                                                     4,755,793           2,115,847
                                                                          -------------       -------------
                                                                            524,574,396         538,206,333
                                                                          -------------       -------------
                                                                          $ 636,771,735       $ 658,156,524
                                                                          =============       =============



                                       46
   47

                        GRAY COMMUNICATIONS SYSTEMS, INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)



                                                                                         DECEMBER 31,
                                                                              ---------------------------------
                                                                                    2000               1999
                                                                              -------------       -------------
                                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Trade accounts payable (includes $200,000 and $-0- payable
         to Bull Run Corporation, respectively)                               $   4,452,911       $   4,275,411
     Employee compensation and benefits                                           6,630,078           5,163,973
     Accrued expenses                                                             1,631,490           3,161,581
     Accrued interest                                                             6,875,294           9,233,909
     Current portion of program broadcast obligations                             3,605,960           3,870,893
     Deferred revenue                                                             3,015,044           3,212,814
     Current portion of long-term debt                                              200,000             316,000
                                                                              -------------       -------------
Total current liabilities                                                        26,410,777          29,234,581

Long-term debt                                                                  374,687,052         381,385,942

Other long-term liabilities:
     Program broadcast obligations, less current portion                            303,308             428,867
     Supplemental employee benefits                                                 525,151             921,832
     Deferred income taxes                                                       72,935,799          75,389,829
     Other deferred liabilities                                                   3,650,115                 -0-
     Acquisition related liabilities                                              2,298,734           2,607,492
                                                                              -------------       -------------
                                                                                 79,713,107          79,348,020
Commitments and contingencies

Stockholders' equity
     Serial Preferred Stock, no par value; authorized 20,000,000 shares;
       issued and outstanding 861 and 1,350 shares, respectively
       ($8,605,788 and $13,500,000 aggregate liquidation value,
       respectively)                                                              8,605,788          13,500,000
     Class A Common Stock, no par value; authorized 15,000,000
       shares; issued 7,961,574 shares, respectively                             10,683,709          10,683,709
     Class B Common Stock, no par value; authorized 15,000,000
       shares; issued 8,708,820 shares, respectively                            116,486,600         116,379,482
     Retained earnings                                                           28,793,364          37,373,183
                                                                              -------------       -------------
                                                                                164,569,461         177,936,374
    Treasury Stock at cost, Class A Common, 1,113,107 and 1,127,282
       shares, respectively                                                      (8,338,718)         (8,546,285)
    Treasury Stock at cost, Class B Common, 24,257 and 110,365
       shares, respectively                                                        (269,944)         (1,202,108)
                                                                              -------------       -------------
                                                                                155,960,799         168,187,981
                                                                              -------------       -------------
                                                                              $ 636,771,735       $ 658,156,524
                                                                              =============       =============


See accompanying notes.


                                       47
   48

                        GRAY COMMUNICATIONS SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                             YEAR ENDED DECEMBER 31,
                                                                     -----------------------------------------------------
                                                                          2000                1999                1998
                                                                     -------------       -------------       -------------
                                                                                                    
Operating revenues:
     Broadcasting (less agency commissions)                          $ 120,639,853       $  97,014,737       $  91,006,506
     Publishing                                                         41,499,521          37,808,328          29,330,080
     Paging                                                              9,073,629           9,129,702           8,552,936
                                                                     -------------       -------------       -------------
                                                                       171,213,003         143,952,767         128,889,522
Expenses:
     Broadcasting                                                       67,770,063          58,660,663          52,967,142
     Publishing                                                         31,408,235          28,781,501          24,197,169
     Paging                                                              6,136,157           6,550,529           5,618,421
     Corporate and administrative                                        3,594,113           3,448,203           3,062,995
     Depreciation                                                       16,889,172          12,855,449           9,690,757
     Amortization of intangible assets                                  14,317,733          11,595,919           8,425,821
                                                                     -------------       -------------       -------------
                                                                       140,115,473         121,892,264         103,962,305
                                                                     -------------       -------------       -------------
                                                                        31,097,530          22,060,503          24,927,217
Gain on exchange of television station (net of $780,000 paid
    to Bull Run Corporation in 1998)                                           -0-                 -0-          72,646,041
Valuation adjustments of goodwill and other assets                             -0-                 -0-          (2,073,913)
Miscellaneous income and (expense), net                                    781,251             335,871            (241,522)
                                                                     -------------       -------------       -------------
                                                                        31,878,781          22,396,374          95,257,823
Interest expense                                                        39,957,362          31,021,039          25,454,476
                                                                     -------------       -------------       -------------

                              INCOME (LOSS) BEFORE INCOME TAXES         (8,078,581)         (8,624,665)         69,803,347
Federal and state income taxes (benefit)                                (1,866,767)         (2,309,966)         28,143,981
                                                                     -------------       -------------       -------------
                                              NET INCOME (LOSS)         (6,211,814)         (6,314,699)         41,659,366
Preferred dividends                                                      1,012,374           1,010,000           1,317,830
                                                                     -------------       -------------       -------------
                                 NET INCOME (LOSS) AVAILABLE TO
                                            COMMON STOCKHOLDERS      $  (7,224,188)      $  (7,324,699)      $  40,341,536
                                                                     =============       =============       =============

Weighted average outstanding common shares-basic                        15,496,847          12,837,912          11,922,852
Stock compensation awards                                                      -0-                 -0-             481,443
                                                                     -------------       -------------       -------------
Weighted average outstanding common shares-diluted                      15,496,847          12,837,912          12,404,295
                                                                     =============       =============       =============

Income (loss) per share available to common stockholders:
    Basic                                                            $       (0.47)      $       (0.57)      $        3.38
    Diluted                                                          $       (0.47)      $       (0.57)      $        3.25


See accompanying notes.


                                       48
   49

                        GRAY COMMUNICATIONS SYSTEMS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                                                      CLASS A                    CLASS B
                                         PREFERRED STOCK            COMMON STOCK               COMMON STOCK
                                     -----------------------  -------------------------  -------------------------     RETAINED
                                      SHARES       AMOUNT       SHARES        AMOUNT       SHARES        AMOUNT        EARNINGS
                                     -------    ------------  ----------   ------------  ----------   ------------   ------------
                                                                                                
Balance at December 31, 1997           2,060    $ 20,600,000   7,961,574   $ 10,358,031   5,273,046   $ 66,397,804   $  6,603,191
Net income                               -0-             -0-         -0-            -0-         -0-            -0-     41,659,366
Common Stock cash dividends
     ($0.06) per share                   -0-             -0-         -0-            -0-         -0-            -0-       (715,209)
Preferred Stock dividends                -0-             -0-         -0-            -0-         -0-            -0-     (1,317,830)
Issuance of Treasury Stock:
     401(k) plan                         -0-             -0-         -0-            -0-         -0-        180,821            -0-
     Directors' stock plan               -0-             -0-         -0-            -0-         -0-         30,652            -0-
     Non-qualified stock plan            -0-             -0-         -0-            -0-         -0-          9,597       (491,917)
Purchase of Class A Common Stock         -0-             -0-         -0-            -0-         -0-            -0-            -0-
Issuance of Series B Preferred Stock      51         509,384         -0-            -0-         -0-            -0-            -0-
Purchase of Series B Preferred Stock    (761)     (7,609,384)        -0-            -0-         -0-            -0-            -0-
Income tax benefits relating to
    stock plans                          -0-             -0-         -0-        325,678         -0-        173,511            -0-
                                     -------    ------------  ----------   ------------  ----------   ------------   ------------
Balance at December 31, 1998           1,350      13,500,000   7,961,574     10,683,709   5,273,046     66,792,385     45,737,601
Net loss                                 -0-             -0-         -0-            -0-         -0-            -0-     (6,314,699)
Common Stock cash dividends
     ($0.08) per share                   -0-             -0-         -0-            -0-         -0-            -0-     (1,027,322)
Preferred Stock dividends                -0-             -0-         -0-            -0-         -0-            -0-     (1,010,000)
Issuance of Treasury Stock:
     401(k) plan                         -0-             -0-         -0-            -0-         -0-        126,944            -0-
     Non-qualified stock plan            -0-             -0-         -0-            -0-         -0-            -0-        (12,397)
Issuance of Class B Common Stock         -0-             -0-         -0-            -0-   3,435,774     49,452,053            -0-
Purchase of Class B Common Stock         -0-             -0-         -0-            -0-         -0-            -0-            -0-
Income tax benefits relating to
    stock plans                          -0-             -0-         -0-            -0-         -0-          8,100            -0-
                                     -------    ------------  ----------   ------------  ----------   ------------   ------------
Balance at December 31, 1999           1,350      13,500,000   7,961,574     10,683,709   8,708,820    116,379,482     37,373,183
Net loss                                 -0-             -0-         -0-            -0-         -0-            -0-     (6,211,814)
Common Stock cash dividends
     ($0.08) per share                   -0-             -0-         -0-            -0-         -0-            -0-     (1,239,921)
Preferred Stock dividends                -0-             -0-         -0-            -0-         -0-            -0-     (1,012,374)
Issuance of Treasury Stock:
     401(k) plan                         -0-             -0-         -0-            -0-         -0-         53,071        (34,143)
     Non-qualified stock plan            -0-             -0-         -0-            -0-         -0-         54,047        (81,567)
Purchase of Class B Common
     Stock                               -0-             -0-         -0-            -0-         -0-            -0-            -0-
Issuance of Series B Preferred
     Stock                                11         105,788         -0-            -0-         -0-            -0-            -0-
Purchase of Series A Preferred
     Stock                              (500)     (5,000,000)        -0-            -0-         -0-            -0-            -0-
                                     -------    ------------  ----------   ------------  ----------   ------------   ------------
Balance at December 31, 2000             861    $  8,605,788   7,961,574   $ 10,683,709   8,708,820   $116,486,600   $ 28,793,364
                                     =======    ============  ==========   ============  ==========   ============   ============


See accompanying notes.



                                                    CLASS A                           CLASS B
                                                 TREASURY STOCK                    TREASURY STOCK
                                          ----------------------------       --------------------------
                                             SHARES           AMOUNT            SHARES        AMOUNT              TOTAL
                                          -----------      -----------       -----------    -----------       -------------
                                                                                               
Balance at December 31, 1997               (1,172,882)     $(9,011,369)         (250,185)   $(2,652,509)      $  92,295,148
Net income                                        -0-              -0-               -0-            -0-          41,659,366
Common Stock cash dividends
     ($0.06) per share                            -0-              -0-               -0-            -0-            (715,209)
Preferred Stock dividends                         -0-              -0-               -0-            -0-          (1,317,830)
Issuance of Treasury Stock:
     401(k) plan                                  -0-              -0-            29,305        310,703             491,524
     Directors' stock plan                        -0-              -0-            84,300        893,763             924,415
     Non-qualified stock plan                  74,100        1,015,254             1,500         15,900             548,834
Purchase of Class A Common Stock              (30,750)        (582,567)              -0-            -0-            (582,567)
Issuance of Series B Preferred Stock              -0-              -0-               -0-            -0-             509,384
Purchase of Series B Preferred Stock              -0-              -0-               -0-            -0-          (7,609,384)
Income tax benefits relating to
    stock plans                                   -0-              -0-               -0-            -0-             499,189
                                          -----------      -----------       -----------    -----------       -------------
Balance at December 31, 1998               (1,129,532)      (8,578,682)         (135,080)    (1,432,143)        126,702,870
Net loss                                          -0-              -0-               -0-            -0-          (6,314,699)
Common Stock cash dividends
     ($0.08) per share                            -0-              -0-               -0-            -0-          (1,027,322)
Preferred Stock dividends                         -0-              -0-               -0-            -0-          (1,010,000)
Issuance of Treasury Stock:
     401(k) plan                                  -0-              -0-            44,715        487,039             613,983
     Non-qualified stock plan                   2,250           32,397               -0-            -0-              20,000
Issuance of Class B Common Stock                  -0-              -0-               -0-            -0-          49,452,053
Purchase of Class B Common Stock                  -0-              -0-           (20,000)      (257,004)           (257,004)
Income tax benefits relating to
     stock plans                                  -0-              -0-               -0-            -0-               8,100
                                          -----------      -----------       -----------    -----------       -------------
Balance at December 31, 1999               (1,127,282)      (8,546,285)         (110,365)    (1,202,108)        168,187,981
Net loss                                          -0-              -0-               -0-            -0-          (6,211,814)
Common Stock cash dividends
     ($0.08) per share                            -0-              -0-               -0-            -0-          (1,239,921)
Preferred Stock dividends                         -0-              -0-               -0-            -0-          (1,012,374)
Issuance of Treasury Stock:
     401(k) plan                                  -0-              -0-            59,969        666,295             685,223
     Non-qualified stock plan                  14,175          207,567            37,500        408,453             588,500
Purchase of Class B Common Stock                  -0-              -0-           (11,361)      (142,584)           (142,584)
Issuance of Series B Preferred Stock              -0-              -0-               -0-            -0-             105,788
Purchase of Series A Preferred Stock              -0-              -0-               -0-            -0-          (5,000,000)
                                          -----------      -----------       -----------    -----------       -------------
Balance at December 31, 2000               (1,113,107)     $(8,338,718)          (24,257)   $  (269,944)      $ 155,960,799
                                          ===========      ===========       ===========    ===========       =============


See accompanying notes.

   50

                        GRAY COMMUNICATIONS SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                YEAR ENDED DECEMBER 31,
                                                                 ----------------------------------------------------
                                                                     2000                1999                1998
                                                                 ------------       -------------       -------------
                                                                                               
OPERATING ACTIVITIES
     Net income (loss)                                           $ (6,211,814)      $  (6,314,699)      $  41,659,366
     Adjustments to reconcile net income (loss) to net cash
        provided by operating activities:
        Depreciation                                               16,889,172          12,855,449           9,690,757
        Amortization of intangible assets                          14,317,733          11,595,919           8,425,821
        Amortization of deferred loan costs                         1,537,047           1,253,277           1,097,952
        Amortization of program broadcast rights                    5,306,672           5,340,187           4,250,714
        Gain on disposition of television station                         -0-                 -0-         (72,646,041)
        Valuation adjustments of goodwill and other assets                -0-                 -0-           2,073,913
        Payments for program broadcast rights                      (5,614,129)         (4,953,672)         (4,209,811)
        Supplemental employee benefits                               (242,662)           (206,372)           (252,611)
        Common Stock contributed to 401(K) Plan                       685,223             613,983             491,524
        Deferred income taxes                                      (2,454,030)         (2,738,500)         26,792,795
        (Gain) loss on asset sales                                   (391,549)           (114,063)            332,042
       Changes in operating assets and liabilities:
           Trade accounts receivable                                   17,053          (2,865,849)           (302,905)
           Recoverable income taxes                                   856,617            (327,490)            406,749
           Inventories                                               (139,437)            255,897            (344,393)
           Other current assets                                       139,392             106,829             342,674
           Trade accounts payable                                     185,677           1,734,641            (797,447)
           Employee compensation and benefits                       1,361,105            (260,827)          1,283,150
           Accrued expenses                                          (921,133)          1,147,105              79,644
           Accrued interest                                        (2,358,615)          3,625,775           1,074,768
           Deferred revenue                                          (197,770)             94,328             625,149
                                                                 ------------       -------------       -------------
Net cash provided by operating activities                          22,764,552          20,841,918          20,073,810

INVESTING ACTIVITIES
     Acquisition of television businesses                                 -0-         (97,079,854)       (122,455,774)
     Acquisition of newspaper business                                    -0-         (16,869,140)                -0-
     Disposition of television business                                   -0-                 -0-          76,440,419
     Purchases of property and equipment                           (5,702,494)        (11,711,893)         (9,270,623)
     Proceeds from asset sales                                        634,832           1,722,932             318,697
     Payments on purchase liabilities                                (592,570)           (900,688)           (551,917)
     Other                                                         (2,615,431)         (1,941,081)            220,390
                                                                 ------------       -------------       -------------
Net cash used in investing activities                              (8,275,663)       (126,779,724)        (55,298,808)

FINANCING ACTIVITIES
     Proceeds from borrowings on long-term debt                    49,700,000         164,200,000          90,070,000
     Repayments of  borrowings on long-term debt                  (56,514,890)        (53,153,313)        (46,609,122)
     Deferred loan costs                                              (83,516)         (2,674,431)           (854,235)
     Dividends paid                                                (2,146,507)         (2,304,823)         (1,642,709)
     Income tax benefit relating to stock plans                           -0-               8,100             499,189
     Proceeds from sale of treasury shares                            126,000              20,000           1,473,249
     Purchase of Common Stock                                        (142,584)           (257,004)           (582,567)
     Redemption of Preferred Stock                                 (5,000,000)                -0-          (7,609,384)
                                                                 ------------       -------------       -------------
Net cash provided by (used in) financing activities               (14,061,497)        105,838,529          34,744,421
                                                                 ------------       -------------       -------------
Increase (decrease) in cash and cash equivalents                      427,392             (99,277)           (480,577)
Cash and cash equivalents at beginning of year                      1,787,446           1,886,723           2,367,300
                                                                 ------------       -------------       -------------
Cash and cash equivalents at end of year                         $  2,214,838       $   1,787,446       $   1,886,723
                                                                 ============       =============       =============


See accompanying notes.


                                       50
   51

                        GRAY COMMUNICATIONS SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

         The Company's operations, which are located in thirteen southern,
southwestern and midwestern states, include thirteen television stations, four
daily newspapers, a weekly advertising only publication, paging operations and a
transportable satellite uplink business.

Principles of Consolidation

         The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Revenue Recognition

         The Company recognizes revenue from three industries: broadcasting,
publishing and paging. Broadcasting revenue is generated primarily from the sale
of television advertising time. Publishing revenue is generated primarily from
circulation and advertising revenue. Paging revenue results primarily from the
sale of pagers and paging services. Advertising revenue is billed to the
customer and recognized when the advertisement is aired or published. Gray bills
its customers in advance for newspaper subscriptions and paging services and the
related revenues are recognized over the period the service is provided on the
straight-line basis. Revenue from the sale of pagers is recognized at the time
of sale.

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

         Cash and cash equivalents include cash on deposit with banks. Deposits
with banks are generally insured in limited amounts.

Inventories

         Inventories, principally newsprint and supplies, are stated at the
lower of cost or market. The Company uses the first-in, first-out method of
determining costs for substantially all of its inventories.

Program Broadcast Rights

         Rights to programs available for broadcast under program license
agreements are initially recorded at the beginning of the license period for the
amounts of total license fees payable under the license agreements and are
charged to operating expense as each episode is broadcast. The cost of each
episode is determined by dividing the total cost of the program license
agreement by the number of episodes per the agreement. 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 the license fees payable under the
program license agreements is classified as current or long-term, in accordance
with the payment terms of the various license agreements. The capitalized costs
of the rights are recorded at the lower of unamortized costs or estimated net
realizable value.


                                       51
   52

A.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

         Property and equipment are carried at cost. Depreciation is computed
principally by the straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes. Buildings, improvements and
equipment are depreciated over estimated useful lives of approximately 35 years,
10 years and 5 years, respectively.

Deferred Loan Costs

         Loan acquisition costs are amortized over the life of the applicable
indebtedness. As of December 31, 2000, loan acquisition costs for the $300.0
million senior bank loan agreement (the "Senior Credit Facility") and the Senior
Subordinated Notes Due 2006 (the "Senior Subordinated Notes") are amortized over
lives of 6 years and 10 years, respectively. The final maturity dates of the
Senior Credit Facility and the Senior Subordinated Notes are December 2005 and
September 2006, respectively.

Intangible Assets

         Intangible assets are stated at cost and are amortized using the
straight-line method. Goodwill, licenses and network affiliation agreements are
amortized over 40 years. Non-compete agreements are amortized over the life of
the specific agreement. Accumulated amortization of intangible assets resulting
from business acquisitions was $44.6 million and $31.6 million as of December
31, 2000 and 1999, respectively.

         If facts and circumstances indicate that the goodwill, property and
equipment or other assets may be impaired, an evaluation of continuing value
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with these assets would be compared to their
carrying amount to determine if a write down to fair market value or discounted
cash flow value is required.

Income Taxes

         Deferred income taxes are provided on the differences between the
financial statement and income tax basis of assets and liabilities. The Company
and its subsidiaries file a consolidated federal income tax return. Consolidated
state income tax returns are filed when appropriate and separate state tax
returns are filed when consolidation is not available. Local tax returns are
filed separately.

Capital Stock

         On August 20, 1998, the Board of Directors declared a 50% stock
dividend, payable on September 30, 1998, to stockholders of record of the Class
A Common Stock and Class B Common Stock on September 16, 1998. This stock
dividend effected a three for two stock split. All applicable share and per
share data have been adjusted to give effect to the stock split.

Stock Based Compensation

         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, if the
exercise price of the stock options granted by the Company equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.


                                       52
   53

A.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting for Hedging Activities

         In June of 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and for Hedging Activities"
("SFAS No. 133"). SFAS 133 was originally effective for fiscal years beginning
after June 15, 1999. However, in May 1999, the FASB voted to delay the effective
date for one year, to fiscal years beginning after June 15, 2000 by issuing SFAS
137. SFAS No. 133, which is effective for fiscal years beginning after June 15,
2000, will provide a comprehensive standard for the recognition and measurement
of derivatives and hedging activities. SFAS No. 133, as amended, requires all
derivatives to be recorded on the balance sheet at fair value and establishes
"special accounting" for the different types of hedges. Though the accounting
treatment and criteria for each type of hedge is unique, they all result in
recognizing offsetting changes in value or cash flows of both the hedge and the
hedged item in earnings in the same period. Changes in the fair value of
derivatives that do not meet the hedged criteria are included in earnings in the
same period of the change. The Company plans to adopt SFAS No. 133 in the fiscal
year ending December 31, 2001 and it does not believe that the implementation of
SFAS No. 133 will have a significant impact on its consolidated financial
statements.

Concentration of Credit Risk

         The Company provides print advertising and advertising air time to
national, regional and local advertisers within the geographic areas in which
the Company operates. Credit is extended based on an evaluation of the
customer's financial condition, and generally advance payment is not required.
Credit losses are provided for in the financial statements and consistently have
been within management's expectations.

Fair Value of Financial Instruments

         The estimated fair value of the Company's long-term debt at December
31, 2000 and 1999 was $370.5 million and $387.3 million, respectively. The fair
value of the Preferred Stock at December 31, 1999 and 1998 approximates its
carrying value at that date. Currently, the Company does not anticipate
settlement of long-term debt or preferred stock at other than book value.

         The fair value of other financial instruments classified as current
assets or liabilities approximates their carrying values due to the short-term
maturities of these instruments.

Reclassifications

         Certain amounts in the accompanying consolidated financial statements
have been reclassified to conform to the 2000 presentation.

B.       BUSINESS ACQUISITIONS AND DISPOSITIONS

         The Company's acquisitions have been accounted for under the purchase
method of accounting. Under the purchase method of accounting, the results of
operations of the acquired businesses are included in the accompanying
consolidated financial statements as of their respective acquisition dates. The
assets and liabilities of acquired businesses are included based on an
allocation of the purchase price.

Option to Acquire Equity Investment in Sarkes Tarzian, Inc.

         On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
shareholder of the Company, acquired 301,119 shares of the outstanding common
stock of Sarkes Tarzian, Inc. ("Tarzian") from the


                                       53
   54

B.       BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)

Option to Acquire Equity Investment in Sarkes Tarzian, Inc. (Continued)

Estate of Mary Tarzian (the "Estate") for $10.0 million. The acquired shares
(the "Tarzian Shares") represent 33.5% of the total outstanding common stock of
Tarzian (both in terms of the number of shares of common stock outstanding and
in terms of voting rights), but such investment represents 73% of the equity of
Tarzian for purposes of dividends as well as distributions in the event of any
liquidation, dissolution or other termination of Tarzian.

         The Company has an agreement with Bull Run, whereby the Company has the
option of acquiring the Tarzian Shares from Bull Run for $10.0 million plus
related costs. These related costs include but are not limited to Bull Run's
investment charges on the incremental debt used to acquire the investment less
the aggregate amount of certain payments the Company has paid Bull Run to extend
the option period. The Company has the ability to extend the option period in 30
day increments at a fee of $66,700 per extension and has extended this option
period through December 31, 2001. Total fees capitalized relating to this option
are $3,452,000 and $742,000 as of December 31, 2000 and 1999, respectively. In
connection with the option agreement, the Company granted warrants to Bull Run
to purchase up to 100,000 shares of the Company's Class B Common Stock at
$13.625 per share. The warrants vest immediately upon the Company's exercise of
its option to purchase the Tarzian Shares. The warrants expire 10 years
following the date at which the Company exercises its option.

         Tarzian owns and operates two television stations and four radio
stations: WRCB-TV Channel 3 in Chattanooga, Tennessee, an NBC affiliate; KTVN-TV
Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM and WTTS-FM in Bloomington,
Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana. The Chattanooga and
Reno markets are the 86th and the 109th largest television markets in the United
States, respectively, as ranked by Nielsen Media Research.

         On February 12, 1999, Tarzian filed a complaint against Bull Run and
U.S. Trust Company of Florida Savings Bank as Personal Representative of the
Estate in the United States District Court for the Southern District of Indiana.
Tarzian claims that it had a binding and enforceable contract to purchase the
Tarzian Shares from the Estate prior to Bull Run's purchase of the shares, and
requested judgment providing that the contract be enforced. On May 3, 1999, the
action was dismissed without prejudice against Bull Run, leaving the Estate as
the sole defendant. The litigation between the Estate and Tarzian is ongoing and
the Company cannot predict when the final resolution of the litigation will
occur.

1999 Acquisitions

         On October 1, 1999, the Company completed its acquisition of all the
outstanding capital stock of KWTX Broadcasting Company ("KWTX") and Brazos
Broadcasting Company ("Brazos"), as well as the assets of KXII Broadcasters Ltd.
("KXII"). The Company acquired the capital stock of KWTX and Brazos in merger
transactions with the shareholders of KWTX and Brazos receiving a combination of
cash and the Company's Class B Common Stock for their shares. The Company
acquired the assets of KXII in an all cash transaction. These transactions are
referred to herein as the "Texas Acquisitions."

         KWTX operates CBS affiliate KWTX-TV located in Waco, Texas and Brazos
operates KBTX-TV, a satellite station of KWTX-TV located in Bryan, Texas, each
serving the Waco-Temple-Bryan, Texas television market. KXII operates KXII-TV,
which is the CBS affiliate serving Sherman, Texas and Ada, Oklahoma.

         Aggregate consideration (net of cash acquired) paid in the Company's
Class B Common Stock and cash was approximately $146.4 million which included a
base purchase price of $139.0 million,


                                       54
   55

B.       BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)

1999 Acquisitions (Continued)

transaction expenses of $2.8 million and certain net working capital adjustments
(excluding cash) of $4.6 million. In addition to the amount paid, the Company
assumed approximately $600,000 in liabilities in connection with the asset
purchase of KXII. The Company funded the acquisitions by issuing 3,435,774
shares of the Company's Class B Common Stock (valued at $49.5 million) to the
sellers, borrowing an additional $94.4 million under its Senior Credit Facility
and using cash on hand of approximately $2.5 million. Based on the allocation of
the purchase price, the excess of the purchase price over the fair value of the
net tangible assets was approximately $148.9 million. The Company paid Bull Run
a fee of $1.39 million for advisory services performed for the Company in
connection with the Texas Acquisitions (excluding a $300,000 advisory fee in
connection with the Company's Senior Credit Facility agreement detailed in Note
C). This fee was paid in full as of the acquisition date and included in the fee
portion of the aggregate consideration for the Texas Acquisitions described
above.

         On March 1, 1999, the Company acquired substantially all of the assets
of The Goshen News from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement (the "Goshen Acquisition"). Based on the allocation of the
purchase price, the excess of the purchase price over the fair value of the net
tangible assets was approximately $14.1 million. The Goshen News is currently an
18,000 circulation newspaper published Monday through Sunday and serves Goshen,
Indiana and surrounding areas. The Company paid Bull Run a fee of $167,000 for
services rendered in connection with the Goshen Acquisition. The Company
financed the acquisition through borrowings under its Senior Credit Facility.

         Unaudited pro forma operating data for the years ended December 31 ,
1999 and 1998 are presented below and assumes that the Texas Acquisitions, the
Goshen Acquisition and the Busse-WALB Transactions (as defined in 1998
Acquisitions and Disposition) were completed on January 1, 1998. The above
described unaudited pro forma operating data excludes a pre-tax gain of
approximately $72.6 million and estimated deferred income taxes of approximately
$28.3 million in connection with the disposition of WALB.

         This unaudited pro forma operating data does not purport to represent
the Company's actual results of operations had the Texas Acquisitions, the
Goshen Acquisition and the Busse-WALB Transactions been completed on January 1,
1998, and should not serve as a forecast of the Company's operating results for
any future periods. The pro forma adjustments are based solely upon certain
assumptions that management believes are reasonable under the circumstances at
this time. Unaudited pro forma operating data for the years ended December 31,
1999 and 1998, are as follows (in thousands, except per common share data):



                                                                          YEAR ENDED DECEMBER 31,
                                                                         -------------------------
                                                                            1999            1998
                                                                         ---------       ---------
                                                                                (UNAUDITED)
                                                                                   
Revenues, net                                                            $ 162,038       $ 161,544
                                                                         =========       =========

Net loss available to common stockholders                                $ (11,454)      $ (11,458)
                                                                         =========       =========

 Loss per share available to common stockholders:
    Basic and diluted                                                    $   (0.74)      $   (0.75)
                                                                         =========       =========


         The pro forma results presented above include adjustments to reflect
(i) the incurrence of interest expense to fund the respective acquisitions, (ii)
depreciation and amortization of assets acquired, (iii) the


                                       55
   56

B.       BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)

1999 Acquisitions (Continued)

elimination of the corporate expense allocation net of additional accounting and
administrative expenses and (iv) the income tax effect of such pro forma
adjustments. Average outstanding shares used to calculate pro forma earnings per
share data for 1999 and 1998 include the 3,435,774 shares of Class B Common
Stock issued in connection with the Texas Acquisitions.

1998 Acquisitions and Disposition

         On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was approximately $126.6 million, less the accreted value of
Busse's 11 5/8% Senior Secured Notes due 2000 (the "Busse Senior Notes"). The
purchase price of the capital stock consisted of the contractual purchase price
of $112.0 million, associated transaction costs of $3.9 million, acquisition
costs associated with the Busse Senior Notes of $5.1 million and Busse's cash
and cash equivalents of $5.6 million. Immediately following the acquisition of
Busse, the Company exercised its right to satisfy and discharge the Busse Senior
Notes, effectively prefunding the Busse Senior Notes at the October 15, 1998
call price of 106 plus accrued interest. The amount necessary to satisfy and
discharge the Busse Senior Notes was approximately $69.9 million. Based on the
final allocation of the purchase price, the excess of the purchase price over
the fair value of net tangible assets acquired was approximately $121.6 million.

         Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $72.6 million and estimated
deferred income taxes of approximately $28.3 million in connection with the
exchange of WALB. The Company funded the remaining costs of the acquisition of
Busse's capital stock through borrowings under the Company's Senior Credit
Facility.

         As a result of these transactions, the Company added the following
television stations to its broadcast group: KOLN-TV ("KOLN"), the CBS affiliate
serving the Lincoln-Hastings-Kearney, Nebraska market; its satellite station
KGIN-TV ("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and WEAU, an
NBC affiliate serving the La Crosse-Eau Claire, Wisconsin market. These
transactions also satisfied the Federal Communication Commission's (the "FCC")
requirement for the Company to divest itself of WALB. The transactions described
above are referred to herein as the "Busse-WALB Transactions."

         The Company paid Bull Run a fee of approximately $2.0 million for
services performed in connection with the Busse-WALB Transactions.

         Unaudited pro forma operating data for the year ended December 31 ,
1998 is presented below and assumes that the Busse-WALB Transactions were
completed on January 1, 1998. The above described unaudited pro forma operating
data excludes a pre-tax gain of approximately $72.6 million and estimated
deferred income taxes of approximately $28.3 million in connection with the
disposition of WALB.

         This unaudited pro forma operating data does not purport to represent
the Company's actual results of operations had the Busse-WALB Transactions been
completed on January 1, 1998, and should not serve as a forecast of the
Company's operating results for any future periods. The pro forma adjustments
are based solely upon certain assumptions that management believes are
reasonable under the


                                       56
   57

B.       BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)

1998 Acquisitions and Disposition (Continued)

circumstances at this time. Unaudited pro forma operating data for the years
ended December 31, 1998, is as follows (in thousands, except per common share
data):



                                                                                 YEAR ENDED
                                                                              DECEMBER 31, 1998
                                                                              -----------------
                                                                                 (UNAUDITED)
                                                                           
Revenues, net                                                                     $ 133,661
                                                                                  =========

Net loss available to common stockholders                                         $  (4,562)
                                                                                  =========

 Loss per share available to common stockholders:
    Basic and diluted                                                             $   (0.38)
                                                                                  =========


         The pro forma results presented above include adjustments to reflect
(i) the incurrence of interest expense to fund the respective acquisitions, (ii)
depreciation and amortization of assets acquired, (iii) the elimination of the
corporate expense allocation net of additional accounting and administrative
expenses and (iv) the income tax effect of such pro forma adjustments.

C.       LONG-TERM DEBT

         Long-term debt consists of the following (in thousands):



                                                                                          DECEMBER 31,
                                                                                 -----------------------------
                                                                                    2000               1999
                                                                                 ---------           ---------
                                                                                               
Senior Credit Facility                                                           $ 214,500           $ 221,000
10 5/8% Senior Subordinated Notes due 2006                                         160,000             160,000
Other                                                                                  387                 702
                                                                                 ---------           ---------
                                                                                   374,887             381,702
Less current portion                                                                  (200)               (316)
                                                                                 ---------           ---------
                                                                                 $ 374,687           $ 381,386
                                                                                 =========           =========


         On October 1, 1999 and in connection with the Texas Acquisitions, the
Senior Credit Facility was amended to provide borrowings up to $300.0 million.
Prior to the amendment, the Senior Credit Facility consisted of a $100.0 million
revolving commitment (the "Revolving Commitment") and a $100.0 million term loan
commitment ("Term Loan A Commitment"). The increase in committed available
credit was effected by the addition of a second $100.0 million term loan
commitment ("Term Loan B Commitment").

         Under the Senior Credit Facility, the Company, at its option, can
borrow funds at an interest rate equal to the London Interbank Offered Rate
("LIBOR") plus a premium or at an interest rate equal to the lender's prime rate
("Prime") plus a premium. As a result of the amendment, the interest rates
payable by the Company for funds borrowed under the Revolving Commitment and
Term Loan A Commitment increased as follows: the premium over Prime increased
from a range of 0.0% to 0.5% to a range of 0.0% to 1.75% and the premium over
LIBOR increased from a range of 0.75% to 2.25% to a range of 1.25% to 3.0%.
Under the new Term Loan B Commitment, funds can be borrowed at Prime plus 1.75%
to 2.0%


                                       57
   58

C.       LONG-TERM DEBT (CONTINUED)

and/or LIBOR plus 3.0% to 3.25%. The premium above Prime and/or LIBOR payable by
the Company will be determined by the Company's operating leverage ratio that is
calculated quarterly.

         In connection with the amendment to the Senior Credit Facility, the
Company paid approximately $2.6 million in additional financing costs. Included
in these financing costs is a $300,000 fee that the Company paid to Bull Run for
advisory services performed in connection with arranging the $100.0 million Term
Loan B Commitment.

         At December 31, 2000, the Company had approximately $214.5 million
borrowed under the Senior Credit Facility with approximately $63.0 million
available under the agreement. Also as of December 31, 2000, the Company was
incurring interest at a rate of Prime plus 1.125% and/or LIBOR plus 2.375% for
funds borrowed under the Revolving Commitment and the Term Loan A Commitment.
For funds borrowed under the Term Loan B Commitment, the Company was incurring
interest at Prime plus 2.0% and/or LIBOR plus 3.25%. The effective interest rate
on the Senior Credit Facility at December 31, 2000 and 1999 was 9.7% and 8.9%,
respectively. The Company is charged a commitment fee on the excess of the
aggregate average daily available credit limit less the amount outstanding. At
December 31, 2000, the commitment fee was 0.50% per annum.

         The maturity schedule for the Revolving Commitment and the Term Loan A
Commitment did not change as a result of the amendment to the Senior Credit
Facility. As of December 31, 2000, the Company had $27.0 million borrowed under
the Revolving Commitment and the $100.0 million credit limit has or will
automatically reduce as follows: 10% in 2000, 15% in 2001, 15% in 2002, 20% in
2003, 25% in 2004 and 15% in 2005. As of December 31, 2000, the Company had
$87.5 million borrowed under the Term Loan A Commitment. The principal amount
outstanding under the Term Loan A Commitment became fixed, and no further
borrowings can be made thereunder, on December 30, 1999 and has or will be paid
as follows: $10.0 million in 2000, $10.0 million in 2001, $17.5 million in 2002,
$17.5 million in 2003, $21.2 million in 2004 and $21.3 million in 2005. The
principal amount outstanding under the Term Loan B Commitment will become fixed,
and no further borrowings can be made thereunder, on March 30, 2001 and must be
paid as follows: 1.0% in 2001, 1.0% in 2002, 1.0% in 2003, 1.0% in 2004 and
96.0% in 2005.

         The agreement pursuant to which the Senior Credit Facility was issued
contains certain restrictive provisions, which, among other things, limit
additional indebtedness and require minimum levels of cash flows. The Senior
Subordinated Notes also contain similar restrictive provisions as well as
limitations on restricted payments which include but are not limited to
purchases or redemptions of the Company's capital stock.

         On September 20, 1996, the Company sold $160.0 million principal amount
of the Company's Senior Subordinated Notes. Interest on the Senior Subordinated
Notes is payable semi-annually on April 1 and October 1, commencing April 1,
1997. The Senior Subordinated Notes mature on October 1, 2006 and are
redeemable, in whole or in part, at the Company's option after October 1, 2001.
If the Senior Subordinated Notes are redeemed during the twelve-month period
beginning on October 1 of the years indicated below, they will be redeemed at
the redemption prices set forth below, plus accrued and unpaid interest to the
date fixed for redemption.


                                       58
   59

C. LONG-TERM DEBT (CONTINUED)



                                             PERCENTAGE OF THE PRINCIPAL
                         YEAR                    AMOUNT OUTSTANDING
                  -------------------        ---------------------------

                                          
                  2001                               105.3125%
                  2002                               103.5410%
                  2003                               101.7710%
                  2004 and thereafter                100.0000%


         The Senior Subordinated Notes are jointly and severally guaranteed (the
"Subsidiary Guarantees") by all of the Company's subsidiaries (the "Subsidiary
Guarantors"). The obligations of the Subsidiary Guarantors under the Subsidiary
Guarantees is subordinated, to the same extent as the obligations of the Company
in respect of the Senior Subordinated Notes, to the prior payment in full of all
existing and future senior debt of the Subsidiary Guarantors (which will include
any guarantee issued by such Subsidiary Guarantors of any senior debt).

         The Company is a holding company with no material independent assets or
operations, other than its investment in its subsidiaries. The aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis. The Subsidiary Guarantors are, directly or indirectly,
wholly owned subsidiaries of the Company and the Subsidiary Guarantees are full,
unconditional and joint and several. All of the current and future direct and
indirect subsidiaries of the Company will be guarantors of the Senior
Subordinated Notes. Accordingly, separate financial statements and other
disclosures of each of the Subsidiary Guarantors are not presented because
management has determined that they are not material to investors. The Senior
Credit Facility is secured by substantially all of the Company's existing and
hereafter acquired assets.

         In 1999, the Company entered into an interest rate swap agreement to
modify the interest characteristics of a portion of its outstanding debt. The
agreement involves the exchange of an amount based on a variable interest rate
for an amount based on a fixed interest rate over the life of the agreement
without an exchange of the notional amount upon which the payments are based.
The Company specifically designates this interest rate swap as a hedge of debt
instruments and recognizes interest differentials as adjustments to interest
expense in the period they occur. The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment of interest
expense related to the debt (the accrual accounting method). The related amount
payable to, or receivable from, counter-parties is included in other liabilities
or assets. The fair value of the swap agreements is not recognized in the
financial statements. If, in the future, an interest rate swap agreement were
terminated, any resulting gain or loss would be deferred and amortized to
interest expense over the remaining life of the hedged debt instrument. In the
event of early extinguishment of a designated debt obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment.

         The interest rate swap agreement converts $40.0 million of the
Company's floating rate debt under the Senior Credit Facility to a fixed rate
basis at a rate of 6.155%. The interest rate swap agreement was effective on
October 6, 1999 and will terminate on October 6, 2001. However, the bank
providing the interest rate swap agreement may at its option extend the
termination date to October 6, 2002.


                                       59
   60

C. LONG-TERM DEBT (CONTINUED)

         Aggregate minimum principal maturities on long-term debt as of December
31, 2000, were as follows (in thousands):



                    YEAR                MINIMUM PRINCIPAL MATURITIES
                  ----------            ----------------------------
                                     
                    2001                          $     200
                    2002                                 64
                    2003                             35,067
                    2004                             47,305
                    2005                            132,251
                  Thereafter                        160,000
                                                  ---------
                                                  $ 374,887
                                                  =========


         The Company made interest payments of approximately $40.8 million,
$26.1 million, and $22.9 million during 2000, 1999 and 1998, respectively.

D. SUPPLEMENTAL EMPLOYEE BENEFITS AND OTHER AGREEMENTS

         The Company has entered into supplemental retirement benefit and other
agreements with certain key employees. These benefits are to be paid primarily
in equal monthly amounts over the employees' life for a period not to exceed 15
years after retirement. The Company charges against operations amounts
sufficient to fund the present value of the estimated lifetime supplemental
benefit over each employee's anticipated remaining period of employment.

         The following summarizes activity relative to certain officers'
agreements and the supplemental employee benefits (in thousands):



                                 YEAR ENDED DECEMBER 31,
                             --------------------------------
                               2000        1999        1998
                             --------    --------    --------
                                            
Beginning liability          $  1,401    $  1,443    $  1,526
Net expense (income)              (95)        136         119
Payments                         (627)       (178)       (202)
                             --------    --------    --------
Ending liability                  679       1,401       1,443
Less current portion             (154)       (480)       (315)
                             --------    --------    --------
                             $    525    $    921    $  1,128
                             ========    ========    ========


E. STOCKHOLDERS' EQUITY

         The Company is authorized to issue 50,000,000 shares of all classes of
stock, of which, 15,000,000 shares are designated Class A Common Stock,
15,000,000 shares are designated Class B Common Stock, and 20,000,000 shares are
designated "blank check" preferred stock for which the Board of Directors has
the authority to determine the rights, powers, limitations and restrictions. The
rights of the Company's Class A and Class B Common Stock are identical, except
that the Class A Common Stock has 10 votes per share and the Class B Common
Stock has one vote per share. The Class A and Class B Common Stock receive cash
dividends on an equal per share basis.

         The Series A Preferred Stock includes detachable warrants issued to
Bull Run to purchase 731,250 shares of Class A Common Stock for $11.92 per
share. Of these warrants 450,000 vested upon issuance, with the remaining
warrants vesting in five equal annual installments commencing January 3, 1997,
providing the Series A Preferred Stock remains outstanding. The Series A
Preferred Stock is issued to


                                       60
   61

E. STOCKHOLDERS' EQUITY (CONTINUED)

Bull Run. The holder of the Series A Preferred Stock will receive cash dividends
at an annual rate of $800 per share. During 2000, the Company redeemed 500
shares of Series A Preferred Stock at a cost of $5.0 million. The liquidation or
redemption price of the Series A Preferred Stock is $10,000 per share.

         The Series B Preferred Stock includes warrants to purchase an aggregate
of 750,000 shares of Class A Common Stock at an exercise price of $16.00 per
share. Of these warrants 450,000 vested upon issuance, with the remaining
warrants vesting in five equal annual installments commencing on September 24,
1997. The shares of Series B Preferred Stock were issued to Bull Run and to J.
Mack Robinson, Chairman of the Board of Bull Run and President and Chief
Executive Officer of the Company, and certain of his affiliates. The Company
obtained a written opinion from an investment banker as to the fairness of the
terms of the sale of such Series B Preferred Stock with warrants. The holders of
the Series B Preferred Stock will receive dividends at an annual rate of $600
per share, except the Company at its option may pay these dividends in cash or
in additional shares. The liquidation or redemption price of the Series B
Preferred Stock is $10,000 per share. In August 1998 and September 1997, the
Company issued 50.9 shares and 60.0 shares of Series B Preferred Stock,
respectively, as payment of dividends to the holders of its then outstanding
Series B Preferred Stock. During 1998, the Company redeemed 760.9 shares of
Series B Preferred Stock at a cost of $7.6 million. During 1999, the Company did
not issue any shares of Series B Preferred Stock as dividends nor did it redeem
any of the shares of Series B Preferred Stock. During 2000, the Company issued
11 shares of Series B Preferred Stock as payment of dividends to the holders of
its then outstanding Series B Preferred Stock. The liquidation or redemption
price of the Series B Preferred Stock is $10,000 per share.

         The Company is authorized by its Board of Directors to purchase up to
two million shares of the Company's Class A or Class B Common Stock to either be
retired or reissued in connection with the Company's benefit plans, including
the Capital Accumulation Plan and the Incentive Plan. During 2000, 1999 and
1998, the Company purchased 11,361 shares of its Class B Common Stock, 20,000
shares of its Class B Common Stock and 30,750 shares of its Class A Common
Stock, respectively, under this authorization. The 2000, 1999 and 1998 treasury
shares were purchased at prevailing market prices with an average effective
price of $12.55, $12.85 and $18.95 per share, respectively, and were funded from
the Company's operating cash flow.

F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN

         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.

         The Company has a long-term incentive plan (the "Incentive Plan") that
was amended by the Company's shareholders during 1999. The amendment increased
the aggregate number of shares of the Company's common stock subject to awards
under the Incentive Plan to 1.9 million from 900,000. As a result of this
amendment, the Incentive Plan has 300,000 shares of the Company's Class A Common
Stock and 1.6 million shares of the Company's Class B Common Stock reserved for
grants to key personnel for (i) incentive stock options, (ii) non-qualified
stock options, (iii) stock appreciation rights, (iv) restricted stock and (v)
performance awards, as defined by the Incentive Plan. Shares of Common Stock
underlying outstanding options or performance awards are counted against the
Incentive Plan's maximum shares while such options or awards are outstanding.
Under the Incentive Plan, the options


                                       61
   62

F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)

granted typically vest after a two year period and expire three years after full
vesting. However, options will vest immediately upon a "change in control" of
the Company as such term is defined in the Incentive Plan. Options granted
through December 31, 2000, have been granted at a price which approximates fair
market value on the date of the grant. On December 11, 1998, the Company
repriced certain Class B Common Stock grants made under the Incentive Plan, at a
price which approximated the market price of the Class B Common Stock on that
day.

         The Company also has a Stock Purchase Plan, which grants non-employee
directors up to 7,500 shares of the Company's Class B Common Stock. Under this
Stock Purchase Plan, the options granted vest at the beginning of the upcoming
calendar year and expire at the end of January following that calendar year.

         Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS No. 123. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
6.55%, 6.04% and 4.57%; dividend yields of 0.78%, 0.63% and 0.55%; volatility
factors of the expected market price of the Company's Class A or Class B Common
Stock of 0.27, 0.27 and 0.28; and a weighted-average expected life of the
options of 4.9, 4.0 and 4.0 years.

         For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per common share data):



                                                                        YEAR ENDED DECEMBER 31,
                                                                --------------------------------------
                                                                   2000          1999          1998
                                                                ----------    ----------    ----------

                                                                                   
Pro forma income (loss) available to common stockholders        $   (8,245)   $   (8,329)   $   39,523
Pro forma income (loss) per common share:
     Basic                                                      $    (0.53)   $    (0.65)   $     3.31
     Diluted                                                    $    (0.53)   $    (0.65)   $     3.20



                                       62
   63

F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)

         A summary of the Company's stock option activity for Class A Common
Stock, and related information for the years ended December 31, 2000, 1999, and
1998 is as follows (in thousands, except weighted average data):



                                                                     YEAR ENDED DECEMBER 31,
                                                 ---------------------------------------------------------------
                                                        2000                   1999                  1998
                                                 -------------------   -------------------   -------------------
                                                            WEIGHTED              WEIGHTED              WEIGHTED
                                                             AVERAGE               AVERAGE               AVERAGE
                                                            EXERCISE              EXERCISE              EXERCISE
                                                 OPTIONS     PRICE     OPTIONS     PRICE     OPTIONS     PRICE
                                                 -------    --------   -------    --------   -------    --------

                                                                                      
Stock options outstanding -                         34       $14.04       36       $13.71       92       $ 7.43
     beginning of year
     Options granted                               -0-                   -0-                    19        17.81
     Options exercised                             (15)        8.89       (2)        8.89      (74)        7.08
     Options forfeited                             -0-                   -0-                    (1)        8.89
                                                   ---                   ---                   ---
Stock options outstanding - end of year             19       $17.81       34       $14.04       36       $13.71
                                                   ===                   ===                   ===
Exercisable at end of year                          19       $17.81       14       $ 8.89       16       $ 8.89

Weighted-average fair value of
     options granted during the year                                                                     $ 5.59


         The exercise price for Class A Common Stock options outstanding as of
December 31, 2000, is $17.81 for the Incentive Plan. The weighted-average
remaining contractual life of the Class A Common Stock options outstanding for
the Incentive Plan is 2.9 years.

         A summary of the Company's stock option activity for Class B Common
Stock, and related information for the years ended December 31, 2000, 1999, and
1998 is as follows (in thousands, except weighted average data):



                                                                       YEAR ENDED DECEMBER 31,
                                                  ----------------------------------------------------------------
                                                          2000                   1999                  1998
                                                  --------------------   -------------------    ------------------
                                                              WEIGHTED              WEIGHTED              WEIGHTED
                                                              AVERAGE               AVERAGE               AVERAGE
                                                              EXERCISE              EXERCISE              EXERCISE
                                                  OPTIONS      PRICE     OPTIONS     PRICE      OPTIONS    PRICE
                                                  -------     --------   -------    --------    ------    --------

                                                                                        
Stock options outstanding -                           820      $13.78       659      $14.36       630      $15.80
     beginning of year
     Options granted                                  965       10.37       241       12.85       589       14.43
     Options exercised                                -0-                   -0-                   (86)      11.05
     Options forfeited                                (36)      12.52       (18)      14.41      (474)      16.95
     Options expired                                  (52)      14.00       (62)      16.13       -0-
                                                   ------                  ----                  ----
Stock options outstanding - end of year             1,697      $11.86       820      $13.78       659      $14.36
                                                   ======                  ====                  ====

Exercisable at end of year                            569      $14.05       449      $14.20        84      $14.65

Weighted-average fair value of
     options granted during the year                           $ 3.40                $ 3.67                $ 3.95



                                       63
   64
F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)

         Exercise prices for Class B Common Stock options outstanding as of
December 31, 2000, ranged from $10.13 to $14.50 for the Incentive Plan and
$12.75 to $13.00 for the Stock Purchase Plan. The weighted-average remaining
contractual life of the Class B Common Stock options outstanding for the
Incentive Plan and Stock Purchase Plan is 3.6 and 0.5 years, respectively.

G. INCOME TAXES

         The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

         Federal and state income tax expense (benefit) included in the
consolidated financial statements are summarized as follows (in thousands):



                                              YEAR ENDED DECEMBER 31,
                                       -------------------------------------
                                          2000          1999          1998
                                       ---------      --------      --------
                                                           
Current
    Federal                                   -0-     $      6      $    414
    State and local                          587           423           937
Deferred                                  (2,454)       (2,739)       26,793
                                       ---------      --------      --------
                                       $  (1,867)     $ (2,310)     $ 28,144
                                       =========      ========      ========


         The total provision for income taxes for 1998 included a deferred tax
charge of $28.3 million which related to the exchange of WALB's assets for the
assets of WEAU. For income tax purposes, the gain on the exchange of WALB
qualified for deferred capital gains treatment under the "like-kind exchange"
provision of Section 1031 of the Internal Revenue Code of 1986.

         Significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):



                                                                       DECEMBER 31,
                                                                 ----------------------
                                                                   2000          1999
                                                                 --------      --------
                                                                         
Deferred tax liabilities:
     Net book value of property and equipment                    $ 11,272      $ 13,036
     Goodwill and other intangibles                                78,456        75,487
     Other                                                            122           122
                                                                 --------      --------
            Total deferred tax liabilities                         89,850        88,645

Deferred tax assets:
     Liability under supplemental retirement plan                   (257)           517
     Allowance for doubtful accounts                                  322           383
     Difference in basis of assets held for sale                      -0-         1,106
     Federal operating loss carryforwards                          13,163         9,251
     State and local operating loss carryforwards                   3,319         2,959
     Other                                                            707           242
                                                                 --------      --------
            Total deferred tax assets                              17,254        14,458
     Valuation allowance for deferred tax assets                     (340)       (1,203)
                                                                 --------      --------
            Net deferred tax assets                                16,914        13,255
                                                                 --------      --------

Deferred tax liabilities, net                                    $ 72,936      $ 75,390
                                                                 ========      ========



                                       64
   65

G. INCOME TAXES (CONTINUED)

         Approximately $46.8 million in federal operating loss carryforwards
will expire by the year ended December 31, 2020. Additionally, the Company has
approximately $100.2 million in state operating loss carryforwards.

         A reconciliation of income tax expense at the statutory federal income
tax rate and income taxes as reflected in the consolidated financial statements
is as follows (in thousands):



                                                                                 YEAR ENDED DECEMBER 31,
                                                                       --------------------------------------
                                                                         2000            1999          1998
                                                                       --------        --------      --------
                                                                                            
         Statutory rate applied to income (loss)                       $ (2,746)       $ (2,932)     $ 24,431
         State and local taxes, net of federal tax benefits                 368             296         3,472
         Other items, net                                                   511             326           241
                                                                       --------        --------      --------
                                                                       $ (1,867)       $ (2,310)     $ 28,144
                                                                       ========        ========      ========


         The Company received income tax refunds (net of payments) of $269,000
in 2000 and the Company made income tax payments (net of refunds) of
approximately $800,000 and $1.5 million during 1999 and 1998, respectively. At
December 31, 2000 and 1999, the Company had current recoverable income taxes of
approximately $1.2 million and $2.1 million, respectively.

         The Internal Revenue Service (the "IRS") is auditing the Company's
federal tax return for the year ended December 31, 1996. In conjunction with
this examination, the Company extended the time period that the IRS has to audit
the Company's federal tax returns for the 1996 and 1997 tax years until December
31, 2001. The Company can not predict when the IRS will conclude such audit or
if the IRS will propose any adjustments to the Company's tax return.


H. RETIREMENT PLANS

Pension Plan

         The Company has a retirement plan covering substantially all full-time
employees. Retirement benefits are based on years of service and the employees'
highest average compensation for five consecutive years during the last ten
years of employment. The Company's funding policy is to contribute annually the
minimum amount deductible for federal income tax purposes.


                                       65
   66

H. RETIREMENT PLANS (CONTINUED)

         The following summarizes the plan's funded status and related
assumptions (dollars in thousands):



                                                                               DECEMBER 31,
                                                                       -------------------------
                                                                         2000             1999
                                                                       --------          -------
                                                                                   
        CHANGE IN BENEFIT OBLIGATION:
            Benefit obligation at beginning of year                    $  8,951          $ 8,322
            Service cost                                                    931              750
            Interest cost                                                   598              529
            Actuarial (gains) losses                                        141             (203)
            Benefits paid                                                  (413)            (447)
                                                                       --------          -------
            Benefit obligation at end of year                          $ 10,208          $ 8,951
                                                                       ========          =======

        CHANGE IN PLAN ASSETS:
            Fair value of plan assets at beginning of year             $  8,059          $ 7,407
            Actual return on plan assets                                    334              516
            Company contributions                                           223              583
            Benefits paid                                                  (413)            (447)
                                                                       --------          -------
            Fair value of plan assets at end of year                   $  8,203          $ 8,059
                                                                       ========          =======

        COMPONENTS OF ACCRUED BENEFIT COSTS:
            Underfunded status of the plan                             $ (2,005)         $  (891)
            Unrecognized net actuarial loss                                 456               94
            Unrecognized net transition amount                              (81)            (134)
            Unrecognized prior service cost                                  (1)              (3)
                                                                       --------          -------
            Accrued benefit cost                                       $ (1,631)         $  (934)
                                                                       ========          =======

        WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
            Discount rate                                                   6.8%             6.8%
            Expected long-term rate of return on plan assets                7.0%             6.8%
            Estimated rate of increase in compensation levels               5.0%             5.0%


The net periodic pension cost includes the following components (in thousands):



                                                                            YEAR ENDED DECEMBER 31,
                                                                    ------------------------------------
                                                                     2000           1999           1998
                                                                    ------         ------         ------
                                                                                         
        COMPONENTS OF NET PERIODIC PENSION COST:
            Service cost                                            $  931         $  750         $  616
            Interest cost                                              598            529            496
            Expected return on plan assets                            (553)          (516)          (475)
            Amortization of prior service cost                          (1)            (1)            (1)
            Amortization of transition (asset) or obligation           (54)           (54)           (54)
                                                                    ------         ------         ------
            Pension cost                                            $  921         $  708         $  582
                                                                    ======         ======         ======




                                       66
   67

H. RETIREMENT PLANS (CONTINUED)

Capital Accumulation Plan

         The Gray Communications Systems, Inc. Capital Accumulation Plan (the
"Capital Accumulation Plan") provides additional retirement benefits for
substantially all employees. The Capital Accumulation Plan is intended to meet
the requirements of section 401(k) of the Internal Revenue Code of 1986.

         The Capital Accumulation Plan allows an investment option in the
Company's Class B Common Stock and allows for the Company's percentage match to
be made by a contribution of the Company's Class B Common Stock. The Company
reserved 300,000 shares of the Company's Class B Common Stock for issuance under
the Capital Accumulation Plan.

         Employee contributions to the Capital Accumulation Plan, not to exceed
6% of the employees' gross pay, are matched by Company contributions. Since
1997, the Company's percentage match has been made by a contribution of the
Company's Class B Common Stock. The Company's percentage match amount is
declared by the Company's Board of Directors before the beginning of each plan
year. The Company's percentage match was 50% for the three years ended December
31, 2000. The Company contributions vest, based upon each employee's number of
years of service, over a period not to exceed five years.

         Company matching contributions aggregating $685,223, $613,983 and
$491,524 were charged to expense for 2000, 1999 and 1998, respectively, for the
issuance of 59,969, 44,715 and 29,305 shares of Class B Common Stock,
respectively.

I. COMMITMENTS AND CONTINGENCIES

         The Company has various operating lease commitments for equipment, land
and office space. The Company also has commitments for various television film
exhibition rights and for digital television ("DTV") equipment. The license
periods for the film exhibition rights had not yet commenced nor had the DTV
equipment been delivered as of December 31, 2000. Rent expense resulting from
operating leases for the years ended December 31, 2000, 1999 and 1998 were $1.5
million, $1.8 million and $1.8 million, respectively. Future minimum payments
under operating leases with initial or remaining noncancelable lease terms in
excess of one year, obligations under film exhibition rights for which the
license period had not yet commenced and commitments for DTV equipment are as
follows (in thousands):



                                           DTV
            YEAR                        EQUIPMENT        LEASE         FILM          TOTAL
         ----------                     ---------       -------      --------      --------
                                                                       
            2001                         $   -0-        $ 1,111      $  1,846      $  2,957
            2002                           2,298            724         4,097         7,119
            2003                             -0-            502         2,667         3,169
            2004                             -0-            218         2,565         2,783
            2005                             -0-            134         1,665         1,799
         Thereafter                          -0-          1,317            33         1,350
                                         -------        -------      --------      --------
                                         $ 2,298        $ 4,006      $ 12,873      $ 19,177
                                         =======        =======      ========      ========


         The Company has also acquired certain collegiate broadcast rights for
sporting events through a five-year marketing agreement commencing April 1,
2000. The Company's annual obligation will be determined, in part, by the number
of events broadcast under the agreement; however, the Company's obligation will
not exceed $2.2 million annually.


                                       67
   68

I. COMMITMENTS AND CONTINGENCIES (CONTINUED)

         The Company is subject to legal proceedings and claims which arise in
the normal course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the Company's financial position.

J. INFORMATION ON BUSINESS SEGMENTS

         The Company operates in three business segments: broadcasting,
publishing and paging. The broadcasting segment operates thirteen television
stations located in the southern, southwestern and midwestern United States. The
publishing segment operates four daily newspapers in four different markets
located in Georgia and Indiana, and an area weekly advertising only publication
in Georgia. The paging operations are located in Florida, Georgia, and Alabama.
The following tables present certain financial information concerning the
Company's three operating segments (in thousands):



                                                                                    YEAR ENDED DECEMBER 31,
                                                                    ---------------------------------------------------
                                                                        2000               1999                 1998
                                                                    -----------         -----------         -----------
                                                                                        (IN THOUSANDS)
                                                                                                   
        Operating revenues:
             Broadcasting                                           $   120,640         $    97,015         $    91,007
             Publishing                                                  41,499              37,808              29,330
             Paging                                                       9,074               9,130               8,553
                                                                    -----------         -----------         -----------
                                                                    $   171,213         $   143,953         $   128,890
                                                                    ===========         ===========         ===========

        Operating income:
              Broadcasting(1)                                       $    23,719         $    15,763         $    21,113
              Publishing                                                  6,726               5,792               2,867
              Paging                                                        653                 505                 947
                                                                    -----------         -----------         -----------
        Total operating income(1)                                        31,098              22,060              24,927
        Gain on exchange of television station                              -0-                 -0-              72,646
        Valuation adjustment of goodwill and other assets                   -0-                 -0-              (2,074)
        Miscellaneous income and (expense), net                             781                 336                (242)
        Interest expense                                                (39,957)            (31,021)            (25,454)
                                                                    -----------         -----------         -----------
        Income (loss) before income taxes                           $    (8,078)        $    (8,625)        $    69,803
                                                                    ===========         ===========         ===========




                                       68
   69



J. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)

         Operating income is total operating revenue less operating expenses,
excluding gain on exchange of television station, valuation adjustment of
goodwill and other assets, miscellaneous income and expense (net) and interest.
Corporate and administrative expenses are allocated to operating income based on
net segment revenues.



                                                                                    YEAR ENDED DECEMBER 31,
                                                                        ---------------------------------------------
                                                                          2000              1999              1998
                                                                        ---------         ---------         ---------
                                                                                         (IN THOUSANDS)
                                                                                                   
        Depreciation and amortization expense:
             Broadcasting                                               $  26,490         $  20,199         $  14,713
             Publishing                                                     2,451             2,302             1,554
             Paging                                                         2,083             1,848             1,773
                                                                        ---------         ---------         ---------
                                                                           31,024            24,349            18,040
             Corporate                                                        183               102                77
                                                                        ---------         ---------         ---------
        Total depreciation and amortization expense                     $  31,207         $  24,451         $  18,117
                                                                        =========         =========         =========

        Media cash flow:
             Broadcasting                                               $  53,053         $  39,207         $  38,446
             Publishing                                                    10,227             9,130             5,214
             Paging                                                         2,967             2,607             2,964
                                                                        ---------         ---------         ---------
                                                                        $  66,247         $  50,944         $  46,624
                                                                        =========         =========         =========

        Media cash flow reconciliation:
             Operating income(1)                                        $  31,098         $  22,060         $  24,927
             Add:
             Amortization of program license rights                         5,307             5,340             4,251
             Depreciation and amortization                                 31,207            24,451            18,117
             Corporate overhead                                             3,594             3,448             3,063
             Non-cash compensation and contribution to 401(k)
                  Plan, paid in Common Stock                                  655               599               476
             Less:
             Payments for program license liabilities                      (5,614)           (4,954)           (4,210)
                                                                        ---------         ---------         ---------
                                                                        $  66,247         $  50,944         $  46,624
                                                                        =========         =========         =========

        Capital expenditures:
             Broadcasting                                               $   7,632         $   9,152         $   6,718
             Publishing                                                       625               967               934
             Paging                                                           902             1,029             1,461
                                                                        ---------         ---------         ---------
                                                                            9,159            11,148             9,113
             Corporate                                                        194               564               158
                                                                        ---------         ---------         ---------
        Total capital expenditures                                      $   9,353         $  11,712         $   9,271
                                                                        =========         =========         =========



                                       69
   70


J. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)



                                                                                    DECEMBER 31,
                                                                    -------------------------------------------
                                                                       2000            1999             1998
                                                                    ---------        ---------        ---------
                                                                                  (IN THOUSANDS)
                                                                                             
        Identifiable assets:
             Broadcasting                                           $ 564,323        $ 584,694        $ 410,039
             Publishing                                                33,260           34,584           17,196
             Paging                                                    22,404           23,822           25,563
                                                                    ---------        ---------        ---------
                                                                      619,987          643,100          452,798
             Corporate                                                 16,785           15,057           16,176
                                                                    ---------        ---------        ---------
        Total identifiable assets                                   $ 636,772        $ 658,157        $ 468,974
                                                                    =========        =========        =========


(1)      Operating income excludes gain on exchange of television station of
         $72.6 million recognized for the exchange of WALB and valuation
         adjustments of goodwill and other assets of $2.1 million in 1998.

K. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



                                                                       FISCAL QUARTERS
                                                 -----------------------------------------------------------
                                                  FIRST            SECOND           THIRD            FOURTH
                                                 --------         --------         --------         --------
                                                          (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
                                                                                        
YEAR ENDED DECEMBER 31, 2000:
Operating revenues                               $ 38,888         $ 43,408         $ 41,610         $ 47,307
Operating income                                    4,101            8,481            8,562            9,954
Net income (loss)                                  (3,849)          (1,370)          (1,134)             141
Net loss available to common stockholders          (4,101)          (1,623)          (1,387)            (113)
Basic and diluted loss per share                 $  (0.27)        $  (0.10)        $  (0.09)        $  (0.01)

YEAR ENDED DECEMBER 31, 1999:
Operating revenues                               $ 31,392         $ 35,029         $ 33,530         $ 44,002
Operating income                                    4,333            5,661            4,290            7,776
Net loss                                           (1,560)          (1,080)          (1,968)          (1,707)
Net loss available to common stockholders          (1,813)          (1,333)          (2,220)          (1,959)
Basic and diluted loss per share                 $  (0.15)        $  (0.11)        $  (0.19)        $  (0.13)



         Because of the method used in calculating per share data, the quarterly
per share data will not necessarily add to the per share data as computed for
the year.

         The Company completed the Goshen Acquisition and the Texas Acquisitions
in the first and fourth quarters, respectively, of 1999. See Note B for further
discussion of these transactions.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None



                                       70
   71

                                    PART III


         The information called for by Part III of Form 10-K is incorporated by
reference to the Company's Definitive Proxy Statement relating to its annual
meeting of shareholders to be held June 28, 2001, which will be filed by the
Registrant with the Securities and Exchange Commission no later than 120 days
after the close of the fiscal year.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

         (A)   (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
               SCHEDULES.

         (1)   FINANCIAL STATEMENTS.

         The following consolidated financial statements of Gray Communications
Systems, Inc. are included in Item 8:

         Report of Independent Auditors

         Consolidated Balance Sheets at December 31, 2000 and 1999

         Consolidated Statements of Operations for the years ended December 31,
         2000, 1999 and 1998

         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 2000, 1999 and 1998

         Consolidated Statements of Cash Flows for the years ended December 31,
         2000, 1999 and 1998

         Notes to Consolidated Financial Statements

         (2)   FINANCIAL STATEMENT SCHEDULES.

         The following financial statement schedule of Gray Communications
Systems, Inc. and subsidiaries is included in Item 14(d):

         Schedule II - Valuation and qualifying accounts.

         All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.

         (B)   REPORTS ON FORM 8-K.

         None.



                                       71
   72

      (C)    EXHIBITS.



EXHIBIT
  NO.                                  DESCRIPTION
- -------       ------------------------------------------------------------------
           
  3.1         Restated Articles of Incorporation of Gray Communications
               Systems, Inc., (incorporated by reference to Exhibit 3.1 to the
               Company's Form 10-K for the fiscal year ended December 31, 1996)

  3.2         By-Laws of Gray Communications Systems, Inc. as amended
               (incorporated by reference to Exhibit 3.2 to the Company's Form
               10-K for the year ended December 31, 1996)

  3.3         Amendment of the Bylaws of Gray Communications Systems, Inc.,
               January 6, 1999 (incorporated by reference to Exhibit 3.3 to the
               Company's Form 10-K for the year ended December 31, 1998)

  4.1         Indenture for the Company's 105/8% Senior Subordinated Notes due
               2006 (incorporated by reference to Exhibit 4.1 to the Company's
               registration statement on Form S-1 (Registration No. 333-4338)
               (the "Form S-1"))

  4.2         Amended and Restated Loan Agreement by and among Gray
               Communications Systems, Inc. as Borrower, NationsBank, NA as
               Syndication Agent and Administrative Agent, Key Corporate Capital
               Inc., as Documentation Agent and The Financial Institutions
               Listed Herein as of July 31, 1998 with NationsBanc Montgomery
               Securities LLC, as Lead Arranger. (incorporated by reference to
               Exhibit 10.5 to the Company's Form 10-Q for the quarter ended
               June 30, 1998)

  4.3         Amended and Restated Borrower Security Agreement dated July 31,
               1998 by and between Gray Communications Systems, Inc. and
               NationsBank N.A. as Administrative Agent (incorporated by
               reference to Exhibit 4.3 to the Company's Form 10-K for the year
               ended December 31, 1998)

  4.4         Subsidiary Security Agreement dated September 30, 1996 between
               Gray Communications Systems, Inc., its subsidiaries and KeyBank
               National Association (incorporated by reference to Exhibit 4(iii)
               to the Company's Form 8-K, filed October 15, 1996)

  4.5         Amended and Restated Borrower Pledge Agreement dated July 31,
               1998 between Gray Communications Systems, Inc. and NationsBank
               N.A. as Administrative Agent (incorporated by reference to
               Exhibit 4.5 to the Company's Form 10-K for the year ended
               December 31, 1998)

  4.6         Subsidiary Pledge Agreement dated September 30, 1996 by and among
               WRDW-TV, Inc., WJHG-TV, Inc., Gray Kentucky Television, Inc. and
               KeyBank National Association (incorporated by reference to
               Exhibit 4(v) to the Company's Form 8-K, filed October 15, 1996)

  4.7         Subsidiary Guarantee dated September 30, 1996 between Gray
               Communications Systems, Inc., its subsidiaries and KeyBank
               National Association (incorporated by reference to Exhibit 4(vi)
               to the Company's Form 8-K, filed October 15, 1996)




                                       72
   73




EXHIBIT
  NO.                                  DESCRIPTION
- -------       ------------------------------------------------------------------
           

  4.8         First Amendment to Amended and Restated Loan Agreement dated as
               of the 13th day of November, 1998, by and among Gray
               Communications Systems, Inc., as Borrower, the Banks (as defined
               in the loan agreement) and NationsBank, N.A., as administrative
               agent (the "Administrative Agent') on behalf of the Banks
               (incorporated by reference to Exhibit 4.8 to the Company's Form
               10-K for the year ended December 31, 1998)

  4.9         Second Amendment to Amended and Restated Loan Agreement dated as
               of the 3rd day of March, 1999, by and among Gray Communications
               Systems, Inc., as Borrower, the Banks (as defined in the loan
               agreement) and NationsBank, N.A., as administrative agent on
               behalf of the Banks (incorporated by reference to Exhibit 4.9 to
               the Company's Form 10-K for the year ended December 31, 1998)

 4.10         Consent Agreement entered into as of the 26th day of February,
               1999 by and among Gray Communications Systems, Inc., as Borrower,
               the Banks (as defined in the Loan Agreement) and NationsBank N.A.
               as administrative agent on behalf of the Banks (incorporated by
               reference to Exhibit 4.10 to the Company's Form 10-K for the year
               ended December 31, 1998)

 4.11         Second Amended and Restated Loan Agreement dated as of October 1,
               1999 by and among Gray Communications Systems, Inc., as Borrower;
               The Financial Institutions Signatory Hereto, as Lenders; and Bank
               of America, N.A., as Administrative Agent for the Lenders with
               Banc of America Securities LLC as Lead Arranger and Book Manager;
               Key Corporate Capital, Inc., as documentation agent and First
               Union National Bank, as Syndication Agent (incorporated by
               reference to Exhibit 99.1 to the Company's Form 8-K dated October
               15, 1999)

 10.1         Supplemental pension plan (incorporated by reference to Exhibit
               10(a) to the Company's Form 10 filed October 7, 1991, as amended
               January 29, 1992 and March 2, 1992)

 10.2         Long-Term Incentive Plan (incorporated by reference to Exhibit
               10(e) to the Company's Form 10-K for the fiscal year ended June
               30, 1993)

 10.3         Warrant, dated January 4, 1996, to purchase 487,500 shares of
               Class A Common Stock (incorporated by reference to the Form S-1)

 10.4         Employment Agreement, dated February 12, 1996 between the Company
               and Robert A. Beizer (incorporated by reference to the Form S-1)

 10.5         Form of Preferred Stock Exchange and Purchase Agreement between
               the Company and Bull Run Corporation (incorporated by reference
               to the Form S-1)

 10.6         Form of Warrant to purchase 500,000 shares of Class A Common
               Stock (incorporated by reference to the Form S-1)

 10.7         Form of amendment to employment agreement between the Company and
               Robert A. Beizer, dated December 12, 1996 (incorporated by
               reference to Exhibit 10.19 to the Company's Form 10-K for the
               year ended December 31, 1996)




                                       73
   74



EXHIBIT
  NO.                                  DESCRIPTION
- -------       ------------------------------------------------------------------
           

 10.8         Amendment to the Company's Long-Term Incentive Plan (incorporated
               by reference to Exhibit 10.19 to the Company's Form 10-K for the
               year ended December 31, 1996)

 10.9         Asset Purchase Agreement by and among Gray Communications
               Systems, Inc., Gray Communications of Indiana, Inc., News
               Printing Company, Inc., Jane Gemmer and John Gemmer dated as of
               February 28, 1999 (incorporated by reference to Exhibit 10.16 to
               the Company's Form 10-K for the year ended December 31, 1998)

10.10         Agreement and Plan of Merger by and among Gray Communications
               Systems, Inc., Gray Communications of Texas, Inc. and KWTX
               Broadcasting Company dated as of April 13, 1999 (incorporated by
               reference to Exhibit 10.1 to the Company's Form 10-Q for the
               quarter ended March 31, 1999)

10.11         Agreement and Plan of Merger by and among Gray Communications
               Systems, Inc., Gray Communications of Texas, Inc. and Brazos
               Broadcasting Company dated as of April 13, 1999 (incorporated by
               reference to Exhibit 10.2 to the Company's Form 10-Q for the
               quarter ended March 31, 1999)

10.12         Asset Purchase Agreement by and among Gray Communications
               Systems, Inc., Gray Communications of Texas-Sherman, Inc., KXII
               Licensee Corp., KXII Television, Ltd., K-Twelve, Ltd., KBI 1,
               Inc., KBI 2 Inc., KXII Properties, Inc. and the Shareholders of
               KXII Properties, Inc. dated as of April 26, 1999 (incorporated by
               reference to Exhibit 10.3 to the Company's Form 10-Q for the
               quarter ended March 31, 1999)

21            List of Subsidiaries

23            Consent of Ernst & Young LLP



(D) FINANCIAL STATEMENT SCHEDULES - The response to this section is submitted as
a part of (a)(1) and (2).



                                       74
   75



SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                           GRAY COMMUNICATIONS SYSTEMS, INC.


Date:   March 9, 2001               By:           /s/ J. MACK ROBINSON
                                       ----------------------------------------
                                                   J. Mack Robinson,
                                         President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Date:   March 9, 2001               By:        /s/ WILLIAM E. MAYHER, III
                                       ----------------------------------------
                                                William E. Mayher, III,
                                                 Chairman of the Board


Date:   March 9, 2001               By:          /s/ J. MACK ROBINSON
                                       ----------------------------------------
                                               J. Mack Robinson, Director


Date:   March 9, 2001               By:          /s/ RICHARD L. BOGER
                                       ----------------------------------------
                                               Richard L. Boger, Director


Date:   March 9, 2001               By:        /s/ HILTON H. HOWELL, JR.
                                       ----------------------------------------
                                             Hilton H. Howell, Jr., Director


Date:   March 9, 2001               By:          /s/ HOWELL W. NEWTON
                                       ----------------------------------------
                                               Howell W. Newton, Director


Date:   March 9, 2001               By:             /s/ HUGH NORTON
                                       ----------------------------------------
                                                 Hugh Norton, Director


Date:   March 9, 2001               By:       /s/ ROBERT S. PRATHER, JR.
                                       ----------------------------------------
                                           Robert S. Prather, Jr., Director


Date:   March 9, 2001               By:        /s/ HARRIETT J. ROBINSON
                                       ----------------------------------------
                                             Harriett J. Robinson, Director


Date:   March 9, 2001               By:            /s/ JAMES C. RYAN
                                       ----------------------------------------
                                                    James C. Ryan,
                                                   Vice President &
                                                Chief Financial Officer


Date:   March 9, 2001               By:        /s/ JACKSON S. COWART, IV
                                       ----------------------------------------
                                                 Jackson S. Cowart, IV,
                                                Chief Accounting Officer


                                       75
   76

                         REPORT OF INDEPENDENT AUDITORS

               We have audited the consolidated financial statements of Gray
Communications Systems, Inc. as of December 31, 2000 and 1999, and for each of
the three years in the period ended December 31, 2000, and have issued our
report thereon dated January 29, 2001. Our audits also included the financial
statement schedule listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits.

               In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

                                                  Ernst & Young LLP

Atlanta, Georgia
January 29, 2001


                                       76
   77

                        GRAY COMMUNICATIONS SYSTEMS, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



           COL. A                             COL. B                  COL. C                  COL. D          COL. E
- ------------------------------             -----------      ---------------------------   --------------    ----------
                                                                    ADDITIONS
                                                            ---------------------------
                                            BALANCE AT      CHARGED TO      CHARGED TO                      BALANCE AT
                                            BEGINNING        COSTS AND       OTHER                            END OF
DESCRIPTION                                 OF PERIOD        EXPENSES       ACCOUNTS(2)   DEDUCTIONS(1)      PERIOD
- -----------                                -----------      ----------      -----------   -------------     ----------
                                                                                             
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts             $1,008,000       $577,000             -0-       $  740,000      $  845,000

YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts             $1,212,000       $629,000        $220,000       $1,053,000      $1,008,000

YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts             $1,253,000       $831,000        $ 61,000       $  933,000      $1,212,000


- ---------------------

(1)  Deductions are write-offs of amounts not considered collectible.

(2)  Represents amounts recorded in connection with acquisitions.



                                       77