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  • 10-K (Mar 23, 2005)

 
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HEARST TELEVISION INC. 10-K 2009

Table of Contents

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



FORM 10-K

(Mark One)    

þ

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: Not Applicable

Commission file number 1-14776

Hearst-Argyle Television, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  74-2717523
(I.R.S. Employer Identification No.)

300 West 57th Street
New York, NY 10019

(Address of principal executive offices)

 


(212) 887-6800
(Registrant's telephone number, including area code)

         SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class   Name of Each Exchange On Which Registered
Series A Common Stock, par value $.01 per share   New York Stock Exchange

         SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No þ

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No þ

         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 þ    No o

         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 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. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company. Yes o    No þ

         The aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates on June 30, 2008 based on the closing price for the registrant's Series A Common Stock on such date as reported on the New York Stock Exchange (the "NYSE"), was approximately $127,281,312.

         Shares of the registrant's Common Stock outstanding as of February 17, 2009: 93,672,572 shares (consisting of 52,373,924 shares of Series A Common Stock and 41,298,648 shares of Series B Common Stock).

         DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy Statement relating to the 2009 Annual Meeting of Stockholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14).


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FORWARD-LOOKING STATEMENTS

        This report includes or incorporates forward-looking statements. We base these forward-looking statements on our current expectations and projections about future events. These forward-looking statements generally can be identified by the use of statements that include phrases such as "anticipate", "will", "may", "likely", "plan", "believe", "expect", "intend", "project", "forecast" or other such similar words and/or phrases. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this report, concerning, among other things, trends and projections involving revenue, income, earnings, cash flow, liquidity, operating expenses, assets, liabilities, capital expenditures, dividends and capital structure, involve risks and uncertainties, and are subject to change based on various important factors. Those factors include the impact on our operations from

    Changes in national and regional economies;

    Changes in advertising trends and our advertisers' financial condition;

    Our ability to service and refinance our outstanding debt and meet our liquidity needs;

    Competition for audience, programming and advertisers in the broadcast television markets we serve;

    Pricing fluctuations in local and national advertising;

    Changes in Federal regulations that affect us, including changes in Federal communications laws or regulations;

    Local regulatory actions and conditions in the areas in which our stations operate;

    Our ability to obtain quality programming for our television stations;

    Successful integration of television stations we acquire;

    Volatility in programming costs, industry consolidation, technological developments, and major world events; and

    Potential adverse effects if we are required to recognize impairment charges or other accounting-related developments.

        For a discussion of additional risk factors that are particular to our business, please refer to Part I, Item 1A. "Risk Factors" beginning on page 18. These and other matters we discuss in this report, or in the documents we incorporate by reference into this report, may cause actual results to differ from those we describe. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2



HEARST-ARGYLE TELEVISION, INC.
2008 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

 
   
  Page

PART I

   

Item 1.

 

Business

 
4

Item 1A.

 

Risk Factors

  18

Item 1B.

 

Unresolved Staff Comments

  27

Item 2.

 

Properties

  27

Item 3.

 

Legal Proceedings

  29

Item 4.

 

Submission of Matters to a Vote of Security Holders

  29

PART II

   

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 
29

Item 6.

 

Selected Financial Data

  32

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

  34

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

  52

Item 8.

 

Financial Statements and Supplementary Data

  53

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  91

Item 9A.

 

Controls and Procedures

  91

Item 9B.

 

Other Information

  91

PART III

   

Item 10.

 

Directors, Executive Officers and Corporate Governance

 
91

Item 11.

 

Executive Compensation

  91

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  91

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  92

Item 14.

 

Principal Accountant Fees and Services

  92

PART IV

   

Item 15.

 

Exhibits and Financial Statement Schedules

 
92

3


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PART I

ITEM 1.    BUSINESS

General

        Hearst-Argyle Television, Inc. (the "Company" or "we") is one of the country's largest independent, or non-network-owned, television station groups. Headquartered in New York City, we own or manage 29 television stations reaching approximately 20.7 million television households in the United States, representing approximately 18.1% of all U.S. television households. Our 13 owned and managed ABC-affiliated television stations, which reach 8.9% of U.S. television households, represent the largest ABC affiliate group. Our 10 NBC-affiliated television stations, which reach 7.3% of U.S. television households, represent the second largest NBC affiliate group. We own two CBS-affiliated television stations, one CW station and one MyNetworkTV station, and we also manage one CW station and one independent station owned by The Hearst Corporation ("Hearst"). In four of our markets, Boston, Sacramento, Orlando and Kansas City, we operate duopolies, or two television stations in one market. Our primary objective is to maximize the profitability of our media properties by optimizing audience ratings and advertising revenues. We believe that local news leadership, the effective showcasing of network and syndicated programs, and serving our local communities, drive market-competitive ratings, revenue share and station and website profitability. We are a leader in the convergence of local broadcast television and the Internet. Our stations' websites, which are part of a nation-wide group of websites operated and hosted by Internet Broadcasting Systems, Inc., provide news, weather, community information, user-generated content and entertainment content to our audience. Our stations' websites attracted a combined average of approximately 18.6 million unique viewers per month and generated approximately 168 million average page views per month during 2008. We also have a companion mobile ("WAP") site for each of our markets in which our web offering is tuned for viewing over mobile devices. Further, as part of our ongoing initiative to explore additional uses of our digital spectrum, our stations broadcast additional channels on a multicast stream in addition to their main digital channel in 20 of our markets. We also manage two radio stations which are owned by Hearst.

        We provide, through our local television stations, a variety of programming to our local communities. Our programming includes three main components:

    programs produced by networks with which we are affiliated, such as ABC's Desperate Housewives, NBC's Law and Order and CBS' CSI: Crime Scene Investigation, and special event programs like The Academy Awards and the Olympics;

    programs that we produce at our stations, such as local news, weather, sports and entertainment; and

    first-run syndicated programs that we license, such as The Oprah Winfrey Show and Entertainment Tonight.

        In keeping with our commitment to serve the public interest of the local communities in which we operate, our television stations and websites also provide public service announcements and political coverage and sponsor community service projects and other public service initiatives.

        Our primary source of revenue is the sale of available inventory of our stations' air time and sponsorships on our websites to local and national advertisers. We seek to attract advertising customers and increase our advertiser base by delivering mass audiences in key demographics, as measured by Nielsen Media Research. We also seek to attract and grow our audience by providing compelling content on multiple media platforms. We provide leading local news programming and popular network and syndicated programs at each of our television stations, 20 of which are in the top 50 U.S. television markets. In addition, we seek to make our content available to our audience as they use additional

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content platforms, such as the Internet and portable devices, during their day. We stream a portion of our television programming, including our news and weather forecasts, and we publish community information and entertainment content on our stations' websites. We invite visitors to these sites to enter into the dialogue about newsworthy community events by encouraging them to comment on specific stories or to submit newsworthy photos or videos. We also have a companion mobile ("WAP") site for each of our markets in which our web offering is tuned for viewing over mobile devices. We believe that aligning our content offerings with audience media consumption patterns in this manner ultimately benefits our advertisers. Our advertisers benefit from a variety of marketing opportunities, including traditional spot campaigns, community events and sponsorships at our television stations, as well as on our stations' Internet and/or mobile websites, enabling them to reach our audience in multiple ways.

        We believe that excellence in news coverage is a key determinant to developing a loyal audience, which is crucial to a station's competitive, operational and financial success. We focus on the coverage of local and national issues, breaking news, accurate and timely forecasting of local weather conditions and the latest information at times of emergencies, as well as coverage of political issues, candidates, debates, and elections. Our stations typically rank either first or second (in total household ratings and by share of demographic audience, adults aged 25-54) in local morning and evening news programs. In addition, our television stations have been recognized with numerous local, state and national awards for outstanding news coverage. Our stations have received numerous honors in recent years, including consecutive Walter Cronkite Awards bestowed by the University of Southern California's Annenberg School for Communication, Edward R. Murrow Awards, George Foster Peabody Awards, Alfred I. duPont Columbia Awards, National Headliner Awards, the NAB Service to America Award, as well as numerous state and local Emmy and Associated Press honors.

        We believe that capitalizing on the opportunities afforded the television industry by digital media is important to our future success. Specifically we seek to expand the availability of our content to multiple platforms, such as on-air (through digital multicasting), on-line (through streaming on broadband and video-on-demand), and on mobile and other portable devices. We also seek to expand distribution of our local content through operating agreements with other content providers, such as CNN and YouTube. We devote substantial energy and resources to developing these internal digital media initiatives, and consider investment opportunities in companies which we believe are well-positioned for emerging trends in digital media, as well.

        For the year ended December 31, 2008, we had revenue of $720.5 million. We also had 3,327 employees and operated in 25 U.S. markets. Information about our financial results is discussed under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 34, and presented under Item 8 "Financial Statements and Supplementary Data" beginning on page 53.

        The Company is incorporated under the laws of the State of Delaware. Our principal executive offices are located at 300 West 57th Street, New York, New York 10019, and our main telephone number at that address is (212) 887-6800. Our Series A Common Stock is listed on the New York Stock Exchange under the ticker symbol "HTV".

Company Background

        Hearst-Argyle Television, Inc. was formed in August 1997 when Hearst combined its television broadcast group and related broadcast operations (the "Hearst Broadcast Group") with those of Argyle Television, Inc. ("Argyle").

        Founded by William Randolph Hearst in 1887, The Hearst Corporation entered the broadcasting business in 1928 with its acquisition of radio station WSOE in Milwaukee, Wisconsin. In 1948, Hearst launched its first television station, WBAL-TV, in Baltimore, Maryland, which was the nation's

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19th television station. That same year, WLWT(TV), in Cincinnati, Ohio, later to become an Argyle station, was launched as the nation's 20th television station and WDSU(TV), in New Orleans, Louisiana, later to be acquired by the Pulitzer Publishing Company, was launched as the nation's 48th television station. By 1997, when Hearst and Argyle combined their broadcast operations to form our company, the two companies had a combined total of 15 owned and managed television stations and two managed radio stations.

        Since that time, we have acquired additional television stations through asset purchase, asset exchange or merger transactions, including merger transactions in 1999 with Pulitzer Publishing Company, in which we acquired nine television stations and five radio stations, and with Kelly Broadcasting Company, in which we acquired our television stations in Sacramento, California, and a three-party asset exchange transaction in 2001 pursuant to which we sold three Phoenix, Arizona radio stations and acquired WMUR-TV, Manchester, New Hampshire. In 2004, we purchased an ABC affiliate, WMTW-TV, in Portland, Maine and in 2006, we purchased a CW affiliate, WKCF(TV), in Orlando, Florida.

        We also have a strategic equity investment in Internet Broadcasting Systems, Inc. ("Internet Broadcasting"). Each of our stations has a website for which certain services and content are produced and managed by Internet Broadcasting. Our stations' websites typically provide news, weather, community information, user-generated content and entertainment content. These websites are part of a nation-wide network of local websites that we and Internet Broadcasting have built with other television station groups. The Internet Broadcasting network provides local Internet coverage of 60 markets, reaching 63% of U.S. households. We also have a strategic equity investment in Ripe Digital Entertainment, Inc. ("RDE"), which produces advertising-supported free digital video-on-demand program services for distribution via multiple platforms, including digital cable, broadband, and portable devices.

        As of February 17, 2009, Hearst owned, through its wholly-owned subsidiaries, Hearst Holdings, Inc., a Delaware corporation ("Hearst Holdings"), and Hearst Broadcasting, Inc., a Delaware corporation ("Hearst Broadcasting"), 100% of the issued and outstanding shares of our Series B Common Stock, par value $.01 per share, (the "Series B Common Stock," and together with our Series A Common Stock, par value $.01 per share, the "Series A Common Stock," the "Common Stock") and approximately 67.3% of the issued and outstanding shares of our Series A Common Stock, representing in the aggregate approximately 81.6% of the outstanding voting power of our Common Stock (except with regard to the election of directors, which is discussed below). Because of Hearst's ownership, we are considered a "controlled company" under New York Stock Exchange rules, and, as of July 1, 2008, we file tax returns with Hearst on a consolidated basis.

        Hearst Broadcasting's ownership of our Series B Common Stock entitles it to elect as a class all but two members of our Board of Directors (the "Board"). The holders of our Series A Common Stock are entitled to elect the remaining two members of our Board. When Hearst combined the Hearst Broadcast Group with Argyle in August 1997, Hearst agreed that, for purposes of any vote to elect directors and for as long as it held any shares of our Series B Common Stock, it would vote any shares of Series A Common Stock that it owned only in the same proportion as the shares of Series A Common Stock not held by Hearst are voted in the election.

The Stations

        We own 26 television stations. In addition, we manage three television stations (WMOR-TV in Tampa, Florida, WPBF(TV) in West Palm Beach, Florida and KCWE(TV) in Kansas City, Missouri) and two radio stations (WBAL(AM) and WIYY(FM) in Baltimore, Maryland), all of which are owned by Hearst. In four of our markets, Boston, Sacramento, Orlando and Kansas City, we operate duopolies, or two television stations in one market. Of the 29 television stations we own or manage, 20

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are in the top 50 of the 210 generally recognized geographic designated market areas ("DMAs") according to Nielsen Media Research ("Nielsen") estimates for the 2008-2009 television broadcasting season.

        The following table sets forth certain information for each of our owned and managed television stations as of December 31, 2008:

Station
  Market   Market
Rank(1)
  Network
Affiliation(2)
  Analog
Channel
  Digital
Channel(3)
  Percentage
Of U.S.
Television
Households(4)
 

WCVB

  Boston, MA     7     ABC     5     20     2.105 %

WMUR

  Manchester, NH(5)     7     ABC     9     59      

WMOR

  Tampa, FL     13     IND     32     19     1.592 %

WESH

  Orlando, FL     19     NBC     2     11     1.281 %

WKCF

  Orlando, FL(6)     19     CW     18     17      

KCRA

  Sacramento, CA     20     NBC     3     35     1.223 %

KQCA

  Sacramento, CA(7)     20     MNT     58     46      

WTAE

  Pittsburgh, PA     23     ABC     4     51     1.010 %

WBAL

  Baltimore, MD     26     NBC     11     59     0.963 %

KMBC

  Kansas City, MO     31     ABC     9     7     0.819 %

KCWE

  Kansas City, MO(8)     31     CW     29     31      

WLWT

  Cincinnati, OH     34     NBC     5     35     0.800 %

WISN

  Milwaukee, WI     35     ABC     12     34     0.791 %

WYFF

  Greenville, SC     36     NBC     4     59     0.750 %

WPBF

  West Palm Beach, FL     38     ABC     25     16     0.681 %

WGAL

  Lancaster, PA     41     NBC     8     58     0.646 %

KOAT

  Albuquerque, NM     44     ABC     7     21     0.602 %

KOCO

  Oklahoma City, OK     45     ABC     5     7     0.600 %

WXII

  Greensboro, NC     46     NBC     12     31     0.599 %

WLKY

  Louisville, KY     50     CBS     32     26     0.583 %

WDSU

  New Orleans, LA     53     NBC     6     43     0.527 %

KCCI

  Des Moines, IA     71     CBS     8     31     0.378 %

KITV

  Honolulu, HI     72     ABC     (9)   40     0.376 %

KETV

  Omaha, NE     76     ABC     7     20     0.360 %

WMTW

  Portland-Auburn, ME     77     ABC     8     46     0.359 %

WAPT

  Jackson, MS     90     ABC     16     21     0.292 %

WPTZ/WNNE

  Plattsburgh, NY/     93     NBC     5/31 (10)   14/25     0.289 %

  Burlington, VT                                

KHBS/KHOG

  Fort Smith/     100     ABC     40/29     21/15     0.260 %

  Fayetteville, AR                                

KSBW

  Monterey-Salinas, CA     124     NBC     8     10     0.197 %
                                   

  TOTAL                             18.083 %
                                   

(1)
Television market rank is based on the relative size of the DMAs (defined by Nielsen as geographic markets for the sale of national "spot" and local advertising time) among the 210 generally recognized DMAs in the United States, based on Nielsen estimates for the 2008-2009 season.

(2)
ABC refers to the ABC Television Network; CBS refers to the CBS Television Network; IND refers to an independent station not affiliated with a network; NBC refers to the NBC Television

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    Network; CW refers to The CW Network, formed by the 2006 merger of the UPN and WB networks; MNT refers to MyNetworkTV, launched in 2006 by the Fox Broadcasting Company.

(3)
Our television stations are required to transition from analog television service to digital television. In February 2009, the deadline for the digital transition was extended from February 17, 2009 to June 12, 2009, and as explained below in footnotes 9 and 10, KITV, WPTZ, and WNNE have already transitioned. At the end of the transition, each station must operate with only one digital channel; however, this channel may be subdivided into several sub-channels containing different content. In 2005, each station was required to elect a channel for operation after the digital transition. The elected channel is either the station's analog channel, current digital channel, or it may be a new channel. The FCC has approved the preferred channel election for each of our stations. Notwithstanding a station's ultimate digital channel, during and after the digital transition, stations may maintain their local brand identification associated with their analog channel number through use of the Program and System Information Protocol ("PSIP"). In general and as required by the FCC, PSIP works in conjunction with digital receivers and associates a station's digital channel with the station's analog channel number. For example, WCVB, which operates on analog channel 5 and digital channel 20, uses channel 5 as its "major" PSIP channel, and viewers access the station's digital channel by tuning to channel 5 on their digital receivers. Due to PSIP, the fact that WCVB's digital station technically operates on channel 20 is not apparent to the viewer.

(4)
Based on Nielsen estimates for the 2008-2009 season.

(5)
Because WMUR and WCVB are in the same DMA, the FCC counts audience reach in this DMA only once for the two stations.

(6)
Because WESH and WKCF are in the same DMA, the FCC counts audience reach in this DMA only once for the two stations.

(7)
Because KQCA and KCRA are in the same DMA, the FCC counts audience reach in this DMA only once for the two stations.

(8)
Because KCWE and KMBC are in the same DMA, the FCC counts audience reach in this DMA only once for the two stations.

(9)
KITV (and its satellite stations KMAU and KHVO) transitioned to digital on January 15, 2009, as part of a market-wide effort designed to facilitate an early test of the transition.

(10)
WPTZ and WNNE terminated regular analog programming on February 17, 2009, but each will continue to broadcast an analog signal providing DTV transition and emergency information, as well as local news and public affairs programming until at least April 18, 2009.

        The following table sets forth certain information for each of our managed radio stations:

Station
  Market   Market
Rank(1)
  Format

WBAL(AM)

  Baltimore, MD(2)     21   News/Talk

WIYY(FM)

  Baltimore, MD(2)     21   Rock

(1)
Radio market rank is based on the relative size of the Metro Survey Area (defined by Arbitron as generally corresponding to the Metropolitan Statistical Areas, defined by the U.S. Office of Management and Budget) for Arbitron's Fall 2008 Radio Market Report. Arbitron market rankings may differ from Nielsen market rankings.

(2)
We manage WBAL(AM) and WIYY(FM) under a management agreement with Hearst.

        We have an option to acquire WMOR-TV and KCWE(TV) from Hearst, at their fair market value as determined by the parties, or by an independent third-party appraisal, subject to certain specified

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parameters (and we may withdraw any option exercise after we receive the third-party appraisal). However, if Hearst elects to sell either station during the option period, we will have a right of first refusal to acquire that station substantially on the terms agreed upon between Hearst and the potential buyer. We also have a right of first refusal to purchase WPBF(TV) if Hearst proposes to sell the station to a third party We will exercise any option or right of first refusal related to these properties by action of our independent directors. The option periods and the rights of first refusal expire on December 31, 2009.

Network Affiliations

        General.    Twenty-eight of our 29 owned or managed television stations are affiliated with one of the following networks pursuant to a network affiliation agreement: ABC (13 stations), NBC (10 stations), CBS (two stations), CW (two stations) and MyNetworkTV (one station). WMOR-TV in Tampa, Florida currently operates as an independent station.

        Each affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the network, which constitute approximately 14 hours of programming on a typical weekday on our ABC, NBC and CBS stations. In return, the network has the right to sell a significant portion of the advertising time during those broadcasts. The duration of a majority of our stations' affiliations with their networks has exceeded 40 years and, for certain stations, has continued for more than 50 years. Our two radio stations also have an affiliation agreement with a network that provides certain content (e.g., news and sports) for the stations. However, our radio stations are less dependent on their affiliation agreements for programming.

        Network Compensation.    Historically, broadcast television networks have paid compensation to their affiliates, primarily in exchange for the broadcasting of network programming. In recent years, network compensation has been reduced and in the future may be eliminated. Our affiliation agreements with NBC and CBS provide for compensation that is weighted toward the first part of the term and declines to zero by the end of the term. In addition, more recently established networks generally have paid little or no cash compensation for the clearance of network programming or have required payment from their affiliates.

        ABC.    The term of each affiliation agreement for our ABC-affiliated stations—WCVB, WMUR, WTAE, KMBC, WISN, WPBF, KOCO, KOAT, KITV, WMTW, KETV, WAPT and KHBS/KHOG—is for a period of five years, expiring December 31, 2009. We will negotiate renewal agreements during 2009, and renewal terms are not presently known.

        NBC.    The term of the affiliation agreement for our NBC-affiliated stations—KCRA, WESH, WBAL, WLWT, WYFF, WGAL, WDSU, WXII, WPTZ/WNNE and KSBW—is for a period of nine years, six months, expiring December 31, 2009. We will negotiate renewal agreements during 2009, and renewal terms are not presently known.

        CBS.    The term of each affiliation agreement for our CBS-affiliated stations—WLKY and KCCI—is for a period of ten years, expiring June 30, 2015.

        CW.    The term of each affiliation agreement for our CW-affiliated stations—WKCF and KCWE—is for a period of five years, expiring September 18, 2011.

        MyNetworkTV.    The initial term of KQCA's MyNetworkTV affiliation agreement was for a period of 2 years, expiring September 5, 2008. The Company renewed the affiliation agreement for the 2009/2010 programming season. On February 9, 2009, MyNetworkTV announced that it was moving to a "programming service model" for the fall 2009 programming season, which would effectively decrease their programming schedule from 12 hours per week to ten. We are currently evaluating alternatives with respect to our MyNetworkTV affiliation.

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Digital Media Initiatives

        Digital technology presents opportunities for the Company to deliver content on multiple platforms. In addition to our traditional television news broadcasts, we distribute content on-air through digital multicasting, on-line through streaming on broadband and video-on-demand on our and our content partners' websites, and on mobile and other portable devices. We continually seek to expand and enhance our multicasting, Internet and mobile content offerings to meet the changing needs of our audience and, ultimately, to attract advertisers.

        As part of our ongoing initiative to explore additional uses of our digital spectrum, our stations broadcast additional channels on a multicast stream in addition to their main digital channel in 20 of our markets. We broadcast a mix of locally branded, 24-hour weather channels and 24-hour, national entertainment program services.

        We and other television station groups have entered into operating agreements with Internet Broadcasting to operate a nation-wide network of local websites. The Internet Broadcasting network, which covers 60 markets and reaches 63% of U.S. households, attracted on the average approximately 53 million monthly unique viewers and generated approximately 5.9 billion total page views during 2008, according to WebTrends. Our stations' local websites are part of this national network, for which Internet Broadcasting provides content, production and management services on their technology platform. Our stations' websites provide news, weather, community information, user-generated content and entertainment content, including live video streams of breaking news events and access to on-demand video clip archives. Our stations' websites attracted a combined average of approximately 18.6 million monthly unique viewers and generated approximately 2.0 billion total page views during 2008, according to WebTrends. These figures represent 27% and 17% growth, respectively, from 2007.

        In addition to publishing our content on-line through our operating agreements with Internet Broadcasting, we deliver various forms of content optimized for wireless and portable devices in all of our markets. We have a companion mobile ("WAP") site for each of our markets in which our web offering is tuned for viewing over mobile devices. We are rolling out an iPhone-friendly version of these mobile sites and we have begun to post video clips to these sites for viewing on the mobile platform. We are also working with a coalition of two dozen broadcasting companies, called the Open Mobile Video Coalition, to propagate a new transmission standard which will be used to transmit TV signals directly to mobile and portable devices, and have announced plans to begin transmitting "mobile DTV" in our Orlando market by the end of 2009.

        In July 2005, we made an equity investment in Ripe Digital Entertainment, Inc. ("RDE"). RDE was formed in 2003 to create advertising-supported, free, digital video-on-demand program services, consisting primarily of short-form entertainment content. Since October 2005, RDE has launched RipeTV, OctaneTV and FlowTV, three program services that target men aged 18-34 and are available for distribution via multiple platforms, including digital cable, broadband, and portable devices. RDE's programs are currently carried on the video-on-demand tiers of both Comcast's and Time Warner's cable services.

        We have also expanded the distribution of our local content through operating agreements with other content providers. For example, CNN and our national network of Internet websites operated by Internet Broadcasting have signed a content-sharing agreement in which local content from Internet Broadcasting's national network, including our websites, is integrated into CNN.com. In addition, we and Google have an arrangement to distribute video news content from many of our stations on partner channels we have launched on YouTube. Content-sharing arrangements such as these enable us to reach new demographics and further expand distribution channels for our local news content.

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The Commercial Television Broadcasting Industry

        General.    Commercial television broadcasting began on a regular basis in the 1940s. Currently a limited number of channels are available for over-the-air broadcasting in any one geographic area, and a license to operate a television station must be granted by the FCC. All television stations in the country are grouped by Nielsen into 210 generally recognized television markets that are ranked in size based upon actual or potential audience. Each of these markets, called "Designated Market Areas" or "DMAs", is designated as an exclusive geographic area consisting of all counties whose largest viewing share is given to stations of that same market area. Nielsen regularly publishes data on estimated audiences for the television stations in each DMA, which data is a significant factor in determining our advertising rates.

        Revenue.    Television station revenue is derived primarily from local, regional and national advertising and, to a lesser extent, from retransmission revenue (consisting of fees paid to us by multi-channel, video program distributors ("MVPDs") as compensation for retransmitting our stations' signals), network compensation and other sources. Advertising rates are set based upon a variety of factors, including

    a program's popularity among the viewers an advertiser wishes to attract, as measured by a station's ratings and audience share among particular demographic groups;

    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.

Competition

        General.    Competition in the television industry takes place on three primary levels:

    competition for audience;

    competition for programming; and

    competition for advertisers.

        Competition for Audience.    We compete for audience on the basis of program popularity. Programming consists not only of our locally-produced news, public affairs and entertainment programming, but syndicated and network programming as well. The popularity of our programming has a significant effect on the rates we can charge our advertisers. In addition, although the commercial television broadcast industry historically has been dominated by the broadcast networks ABC, NBC, CBS and FOX, other broadcast and non-broadcast networks and programming originated to be distributed solely via MVPDs, such as cable and satellite systems, have become significant competitors for the broadcast television audience.

        In addition, while we stream a portion of our television programming, including our news and weather forecasts, and we publish community information, user-generated content and entertainment content, on our stations' websites, and have established a mobile presence in certain of our markets, we increasingly compete for audience with other content providers who operate on these platforms as well.

        Other sources of competition for audience include

    home entertainment and recording systems (including VCRs, DVDs, DVRs and playback systems);

    video-on-demand and pay-per-view;

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    television game devices;

    other sources of home entertainment.

        Competition for Programming.    Competition for non-network programming involves negotiating with national program distributors or syndicators that sell first-run and off-network packages of programming. Our stations predominantly carry first-run syndicated product and compete against other local broadcast stations for exclusive local access to the most popular programs (such as The Oprah Winfrey Show, which we carry in 18 of our markets). To a lesser extent, we compete for exclusive local access to off-network reruns (such as Two and a Half Men). MVPDs also compete with local stations for programming, and various national cable and satellite networks from time to time have acquired programs that otherwise would have been offered to local television stations. In addition, networks have begun to distribute their programming directly to the consumer via the Internet and portable digital devices such as video iPods and cell phones.

        Competition for Advertisers.    Broadcast television stations compete for advertising revenues with other broadcast television stations, as well as with a variety of other media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, the Internet and MVPDs serving the same market. A station's competitive advantage in attracting advertisers is in large part determined by the ratings success of its programming.

        Additional factors relevant to a television station's competitive position include signal strength and coverage within a geographic area and assigned frequency or channel position.

Seasonality, Cyclicality and Materiality of Automotive Advertising

        Our business has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences on people's viewing habits. The advertising revenue of our stations is generally highest in the second and fourth quarters of 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. Additionally, advertising revenue is cyclical, benefiting in even-numbered years from advertising placed by candidates for political offices and issue-oriented advertising, and demand for advertising time in Olympic broadcasts. While political and Olympic advertising cycles have been a normal pattern for our industry for decades, the variability has become more pronounced in recent years as these respective categories of revenue have grown significantly in size. The seasonality and cyclicality inherent in our business make it difficult to estimate future operating results based on the previous results of any specific quarter.

        In addition, the Company derives a material portion of its ad revenue from the automotive industry. An increase or decrease in revenue from this category therefore has a disproportionate impact on our operating results. Approximately 21% and 26% of the Company's total revenue came from the automotive category in 2008 and 2007, respectively. The automotive industry is particularly affected by the ongoing economic recession and tightness in the credit markets, which has adversely affected automotive sales and auto advertising budgets in turn. If the economic recession persists or worsens through 2009 and beyond, our advertising revenue from the auto category may continue to decline. Although such a decline would lessen the relative proportionate impact of the auto category, it nonetheless would represent a decrease in our total revenue and therefore a negative impact on our operating results.

Federal Regulation of Television Broadcasting

        General.    Broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act requires the FCC to regulate broadcasting so as to serve "the public interest, convenience and necessity." The Communications Act

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prohibits the operation of broadcast stations except pursuant to licenses issued by the FCC and empowers the FCC, among other things, to

    issue, renew, revoke and modify broadcasting licenses;

    assign frequency bands;

    determine stations' frequencies, locations and power; and

    regulate the equipment used by stations.

        The Communications Act prohibits the assignment of a license or the transfer of control of a license without the FCC's prior approval. The FCC also regulates matters such as television station ownership, network-affiliate relations, cable and DBS systems' carriage of television station signals, carriage of syndicated and network programming on distant stations, political advertising practices, and obscene and indecent programming. In recent years, the FCC and Congress have increased their regulatory focus on indecency, which may impact certain of our programming decisions. The FCC also regulates certain aspects of the operation of cable television systems, direct broadcast satellite ("DBS") systems and other electronic media that compete with broadcast stations.

        The following discussion summarizes the federal statutes and regulations material to our operations, but does not purport to be a complete summary of all the provisions of the Communications Act or of other current or proposed statutes, regulations, and policies affecting our business. The summaries which follow should be read in conjunction with the text of the statutes, rules, regulations, orders, and decisions described herein.

        License Renewals.    Under the Communications Act, the FCC generally may grant and renew broadcast licenses for terms of eight years, though licenses may be renewed for a shorter period under certain circumstances. The Communications Act requires the FCC to renew a broadcast license 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 Communications Act or the FCC's rules and regulations by the licensee; and (iii) there have been no other serious violations that taken together constitute a pattern of abuse. In making its determination, the FCC may consider petitions to deny but cannot consider whether the public interest would be better served by issuing the license to a person other than the renewal applicant. In addition, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for license renewal.

        The following table provides the expiration dates for the full power station licenses of our owned and managed television stations:

Station
  Market   Expiration of FCC License

WCVB

  Boston, MA   April 1, 2007*

WMUR

  Manchester, NH(1)   April 1, 2007*

WMOR

  Tampa, Fl   February 1, 2013

WESH

  Orlando, FL   February 1, 2013

WKCF

  Orlando, FL   February 1, 2013

KCRA

  Sacramento, CA   December 1, 2014

KQCA

  Sacramento, CA   December 1, 2014

WTAE

  Pittsburgh, PA   August 1, 2015

WBAL

  Baltimore, MD   October 1, 2012

KMBC

  Kansas City, MO   February 1, 2014

KCWE

  Kansas City, MO   February 1, 2014

WLWT

  Cincinnati, OH   October 1, 2013

WISN

  Milwaukee, WI   December 1, 2013

WYFF

  Greenville, SC   December 1, 2012

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Station
  Market   Expiration of FCC License

WPBF

  West Palm Beach, FL   February 1, 2013

WGAL

  Lancaster, PA   August 1, 2015

KOAT

  Albuquerque, NM   October 1, 2014

KOCT (satellite station of KOAT)**

  Carlsbad, NM   October 1, 2014

KOVT (satellite station of KOAT)**

  Silver City, NM   October 1, 2014

KOCO

  Oklahoma City, OK   June 1, 2014

WXII

  Greensboro, NC   December 1, 2012

WDSU

  New Orleans, LA   June 1, 2013

WLKY

  Louisville, KY   August 1, 2013

KITV

  Honolulu, HI   February 1, 2015

KHVO (satellite station of KITV)**

  Hilo, HI   February 1, 2015

KMAU (satellite station of KITV)**

  Wailuku, HI   February 1, 2015

KCCI

  Des Moines, IA   February 1, 2014

WMTW

  Portland-Auburn, ME   April 1, 2015

KETV

  Omaha, NE   June 1, 2014

WAPT

  Jackson, MS   June 1, 2013

WPTZ

  Plattsburgh, NY   June 1, 2015

WNNE (satellite station of WPTZ)**

  Burlington, VT   April 1, 2015

KHBS

  Fort Smith, AR   June 1, 2013

KHOG (satellite station of KHBS)**

  Fayetteville, AR   June 1, 2013

KSBW

  Monterey-Salinas, CA   December 1, 2014

(1)
Manchester, New Hampshire is determined by Nielsen to be a part of the Boston DMA.

*
We have filed for renewal of licenses for these stations, and those applications are pending. A station's authority to operate is automatically extended while a renewal application is on file and under review. We have no reason to believe that these licenses will not be renewed by the FCC.

**
Satellite stations generally retransmit the signal of a primary station, and offer some locally originated programming.

        Ownership Regulation.    The Communications Act and FCC rules limit the ability of individuals and entities to have ownership or other attributable interests in certain combinations of broadcast stations and other media. The FCC's currently effective ownership rules that are material to our operations are summarized below:

    Local Television Ownership.  Under the FCC's local television ownership (or "duopoly") rule, a party may own multiple television stations without regard to signal contour overlap provided they are located in separate Nielsen DMAs. In addition, the rules permit parties to own up to two TV stations in the same DMA so long as (1) at least one of the two stations is not among the top four-ranked stations in the market based on audience share at the time an application for approval of the acquisition is filed with the FCC, and (2) at least eight independently owned and operating full-power commercial and non-commercial television stations would remain in the market after the acquisition. In addition, without regard to the number of remaining or independently owned television stations, the FCC will permit television duopolies within the same DMA so long as the Grade B signal contours of the stations involved do not overlap. Stations designated by the FCC as "satellite" stations, which are full-power stations that typically rebroadcast the programming of a "parent" station, are exempt from the local television ownership rule. Also, the FCC may grant a waiver of the local television ownership rule if one of the two television stations is a "failed" or "failing" station or if the proposed transaction would result in the construction of a new television station. We are currently in compliance with the local television ownership rule.

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    National Television Ownership Cap.  The Communications Act, as amended in 2004, limits the number of television stations one entity may own nationally. Under the rule, no entity may have an attributable interest in television stations that reach, in the aggregate, more than 39% of all U.S. television households.

      The FCC currently discounts the audience reach of a UHF station by 50% when computing the national television ownership cap. Further, for entities that have attributable interests in two stations in the same market, the FCC counts the audience reach of the stations in that market only once in computing the national ownership cap. The propriety of the UHF discount, particularly when the national transition to digital television is complete, may be the subject of further administrative proceedings, but the discount currently remains in effect.

    Dual Network Rule.  The dual network rule prohibits a merger between or among any of the four major broadcast television networks—ABC, CBS, FOX and NBC.

    Media Cross-Ownership.  The FCC revised its newspaper/broadcast cross-ownership rule in December 2007; however, the revised rule is now subject to appellate court review. The FCC historically has prohibited the licensee of a radio or TV station from directly or indirectly owning, operating, or controlling a daily newspaper if the station's specified service contour encompasses the entire community where the newspaper is published. Under the revised rule, newspaper/broadcast cross-ownership would nonetheless be permissible if (i) the market at issue is one of the 20 largest DMAs; (ii) the transaction involves the combination of only one major daily newspaper and only one television or radio station; (iii) where the transaction involves a television station, at least eight independently owned and operating major media voices (major newspapers and full-power television stations) would remain in the DMA following the transaction and (iv) where the transaction involves a television station, that station is not among the top four-ranked stations in the DMA. For all other proposed newspaper/broadcast transactions, the FCC's historic prohibition generally would remain in place.

      The cross-ownership rules also permit cross ownership of radio and television stations under a graduated test based on the number of independently owned media voices in the local market. In large markets (markets with at least 20 independently owned media voices), a single entity can own up to one television station and seven radio stations or, if permissible under the local television ownership rule (if eight full-power television stations would remain in the market post transaction), two television stations and six radio stations. Our television and radio stations in Baltimore, Maryland, are permanently grandfathered under this rule.

    Attribution of Ownership.  Under the FCC's attribution policies, the following relationships and interests generally are attributable for purposes of the FCC's broadcast ownership restrictions:

    holders of 5% or more of the licensee's voting stock, unless the holder is a qualified passive investor, in which case the threshold is a 20% or greater voting stock interest;

    all officers and directors of a licensee and its direct or indirect parent(s);

    any equity interest in a limited partnership or limited liability company, unless properly "insulated" from management activities; and

    equity and/or debt interests which in the aggregate exceed 33% of a licensee's total assets (or, where the entity in which the interest is held is an "eligible entity", either 50% of combined equity and debt or 80% of the total debt when the debt holder holds no equity interest), if the interest holder supplies more than 15% of the station's total weekly programming, or is a same-market broadcast company, cable operator or newspaper (the "equity/debt plus" standard).

        All non-conforming interests acquired before November 7, 1996 are permanently grandfathered and thus do not constitute attributable ownership interests.

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        Under the single majority shareholder exception to the FCC's attribution policies, otherwise attributable interests under 50% are not attributable if a corporate licensee is controlled by a single majority shareholder and the minority interest holder is not otherwise attributable under the "equity/debt plus" standard. Thus, in our case, where Hearst is the single majority shareholder, ownership of minority stock interests of up to 33% are not attributable absent other factors. The FCC is reviewing the single majority shareholder exception, but the exception currently remains in effect.

        Digital Television Service.    The Communications Act and the FCC require television stations to transition from analog television service to digital television service. In February 2009 the deadline for the digital transition was extended from February 17, 2009 to June 12, 2009. Despite the extension, some stations have already transitioned or will transition to digital in advance of June 12, 2009. Our Company's stations in Hawaii transitioned to digital on January 15, 2009, as part of a market-wide effort designed to facilitate an early test of the transition and this effort was done in coordination with the FCC. Also, together with the other stations in the Burlington-Plattsburgh market, WPTZ and WNNE terminated regular analog programming on February 17, 2009, but each will continue to broadcast an analog signal providing DTV transition and emergency information, as well as local news and public affairs programming until at least April 18, 2009. Until the end of the transition, in general, stations are required to operate both analog and digital facilities and broadcast public service announcements and other messages to educate the public about the transition to digital television.

        Cable and Satellite Carriage of Local Television Signals.    Pursuant to the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") and the FCC's "must carry" regulations, cable operators are generally required to carry the primary signals of local commercial television stations. The 1992 Cable Act also prohibits cable operators and other MVPDs from retransmitting a broadcast signal without obtaining the station's consent. On a cable system-by-cable system basis, a local television broadcast station must make a choice once every three years whether to proceed under the "must carry" rules or to waive the right to mandatory, but uncompensated, carriage and, instead, to 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. In 2008, we made cable carriage elections for the three-year period January 1, 2009 to December 31, 2011. We opted to negotiate retransmission consent with most of the cable systems that carry our stations, and have concluded agreements with the majority of our cable systems (as measured by subscriber base) as of December 31, 2008.

        The Satellite Home Viewer Improvement Act of 1999 ("SHVIA") established a compulsory copyright licensing system for the distribution of local television station signals by direct broadcast satellite systems to viewers in each DMA. Under SHVIA's "carry-one, carry all" provision, a direct broadcast satellite system generally is required to retransmit the primary signal of all local television stations in a DMA if the system chooses to retransmit the primary signal of any local television station in that DMA. Television stations located in markets in which satellite carriage of local stations is offered may elect mandatory carriage or retransmission consent once every three years. In 2008, we made satellite carriage elections for the three-year period January 1, 2009 to December 31, 2011. We opted to negotiate retransmission consent for all satellite systems that carry our stations, and we already have existing agreements in place with the satellite systems.

        In 2007, the FCC ruled that cable systems must ensure that all cable subscribers—including those with analog television sets—continue to be able to view all must-carry broadcast stations after the digital transition date. After the transition, cable systems may either (i) carry digital television signals in analog format (in addition to carrying the signals in digital format) or (ii) carry the signals only in digital format provided that subscribers are provided the necessary equipment to view the digital signals. In March 2008, the FCC ruled that after the digital transition, satellite systems are required to carry a station's digital broadcast signal. During the digital transition period, cable operators and satellite systems are not required to carry a station's digital signal in addition to the analog signal. Both

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during and after the digital transition, cable operators and satellite carriers are not required to carry multicast programming streams that we may create using our digital spectrum. Nonetheless, we have retransmission consent agreements with a number of cable operators and satellite carriers that require carriage of the analog and, in certain cases, digital programming streams of our stations.

        Indecency Regulation.    Federal law and the FCC's rules prohibit the broadcast of obscene material at any time, and the broadcast of indecent or profane material during the period from 6 a.m. through 10 p.m. In recent years, the FCC and its indecency prohibition have received much attention. In 2006, legislation was enacted that raised the maximum monetary penalty for the broadcast of obscene, indecent, or profane language to $325,000 for each "violation," with a cap of $3 million for any "single act."

        The FCC's indecency regulation has been the subject of court review. In November 2008, the U.S. Supreme Court heard oral argument in connection with its review of a decision by the U.S. Court of Appeals for the Second Circuit which held that the FCC's policy concerning "fleeting expletives" was legally flawed. In July 2008, the U.S. Court of Appeals for the Third Circuit overturned the FCC's 2006 decision to fine CBS owned and operated stations $550,000 for the Janet Jackson "wardrobe malfunction" incident during the 2004 Super Bowl halftime show. In November 2008, the FCC asked the U.S. Supreme Court to review the Third Circuit's decision.

        On February 19, 2008, the FCC fined certain ABC stations, including four of our ABC-affiliated stations (KETV, KOCO, WAPT and WISN), each in the amount of $27,500 for the broadcast of allegedly indecent material during a 2003 episode of NYPD Blue. The ABC Network and its affiliate, including our affected stations, have appealed the FCC's decision to the U.S. Court of Appeals for the Second Circuit and oral argument was held on February 5, 2009. Over the past few years, the Company has responded to other FCC inquiries concerning alleged indecent programming on KCCI, WPTZ, KHBS, KHOG and WLWT. Those inquires remain pending.

Employees

        As of December 31, 2008, we had approximately 2,890 full-time employees and 437 part-time employees. A total of approximately 901 of our employees are represented by five unions (the American Federation of Television and Radio Artists, the International Brotherhood of Electrical Workers, the International Alliance of Theatrical Stage Employees, the Directors Guild of America, and the National Association of Broadcast Electrical Technicians). We have not experienced any significant labor problems, and believe that our relations with our employees are satisfactory.

Available Information

        We maintain an Internet site at www.hearstargyle.com. We make available, free of charge, on our Internet site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file those materials with, or furnish them to, the Securities and Exchange Commission ("SEC").

        Our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, our Audit Committee Charter and our Compensation Committee Charter are also posted to the corporate governance section of our Internet site. In addition, you may obtain a free copy of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, or our Board committee charters that we file on our Internet site by writing to us at Hearst-Argyle Television, Inc., 300 West 57th Street, New York, New York 10019, Attention: Corporate Secretary.

        We also make available on our Internet site additional information, including news releases, earnings releases, archived audio Web casts and forthcoming corporate events.

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ITEM 1A.    RISK FACTORS

        The following discussion of risk factors contains "forward-looking statements," as discussed on page 2 of this report. These risk factors may be important to understanding any statement in this report or elsewhere. The following information should be read in conjunction with Management's Discussion and Analysis (MD&A), and the consolidated financial statements and related notes in this report.

We Depend Upon Network Affiliation Agreements

        Each of the television stations we own or manage is a party to a network affiliation agreement giving such station the right to rebroadcast programs transmitted by the network, except WMOR-TV, in Tampa, Florida, which operates as an independent station. These affiliations are valuable to us because programs provided by the major networks are typically the most popular with audiences, which increases our ability to attract viewers to our programs, including our local newscasts. In exchange for giving us the right to rebroadcast their programs, the networks have the right to sell a substantial majority of the advertising time during such broadcasts. Thirteen of our stations are parties to affiliation agreements with ABC, 10 with NBC, two with CBS, two with CW and one with MyNetworkTV. In addition, because networks increasingly distribute their programming on other platforms, such as the Internet or portable devices, they may become less reliant upon their affiliates to distribute their programming, which could put us at a disadvantage in future contract negotiations. Our affiliation agreements with both NBC and ABC expire on December 31, 2009. If we fail to renew any of our network affiliation agreements, or if we renew them on less favorable programming terms than we presently have, the viewership of our stations could decline, which would adversely impact our ability to sell advertising, which could materially decrease our revenue and operating results.

We Depend Upon Networks for Programming

        Our viewership levels, and ultimately advertising revenues, for each station are materially dependent upon programming which is either supplied to us by the networks or purchased by us. First, programming which the networks provide to us may not achieve or maintain satisfactory viewership levels. Specifically, because 23 of our 29 owned or managed stations are ABC or NBC affiliates, if ABC or NBC network programming fails to generate satisfactory ratings, our revenues may be adversely affected. In addition, the future of newer networks such as CW and MyNetworkTV is uncertain; if these networks do not succeed, there is no assurance that we will be able to obtain successful programming for our two stations who are affiliated with these networks. Second, networks are increasingly distributing their programming on other platforms such as the Internet or portable devices, which could dilute the value of our programming line up. While our affiliation agreements currently provide us the right to air the first run of network programs (i.e., before it is distributed over other platforms), there can be no assurance that we will continue to have first run rights in the future.

        We also purchase syndicated programming to supplement the shows supplied to us by the networks. Generally, however, before we purchase syndicated programming for our stations, this programming must first be cleared in the largest television markets—New York, Los Angeles and Chicago. Network owned and operated stations in those markets typically determine which syndicated shows will be brought to market, and therefore dictate our options for syndicated programs. If those stations do not launch new shows for the national marketplace, or if the shows that they launch, and which in turn we acquire, fail to generate satisfactory ratings, our viewership levels may decrease and our revenues may be adversely affected.

Increased Programming Costs Could Adversely Affect Our Business and Operating Results

        Television programming is one of our most significant operating cost components. We may be exposed in the future to increased programming costs. Should such an increase in our programming expenses occur, it could have a material adverse effect on our operating results. In addition, television

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networks have been seeking arrangements with their affiliates to share the networks' programming costs and to change the structure of network compensation, including eliminating compensation to affiliates and seeking reverse compensation, or payment from affiliates in consideration for the network's programming. If we become party to an arrangement whereby we share our networks' programming costs, our programming expenses would increase further. In addition, we usually acquire syndicated programming rights two or three years in advance and acquiring those rights may require multi-year commitments, making it difficult to predict accurately how a program will perform. In some instances, we must replace programs before their costs have been fully amortized, resulting in write-offs that increase station operating costs. An increase in the cost of news programming and content or in the costs for on-air and creative talent may also increase our expenses, particularly during events requiring extended news coverage, and therefore adversely affect our business and operating results. Finally, cable distributors are increasingly competing with us or the networks with which we are affiliated for the rights to carry popular sports programming, which could increase our costs, or if we were to lose the rights to broadcast such sports programming, could adversely affect our audience share and operating results.

A Further Decline in Advertising Expenditures Could Adversely Affect Our Operating Results

        We rely substantially upon sales of advertising for our revenues. Our ability to generate advertising revenues is and will continue to be affected by changes in the national economy, as well as by regional economic conditions in each of the markets in which our stations operate. 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. Exclusive of political and Olympic advertising, our advertisers purchased less advertising time from us during 2008 due to the ongoing economic recession. If the recession were to persist or worsen through 2009 and beyond, our advertising revenues would further decline, which would negatively impact our financial results even more than has occurred to date, which could negatively impact our ability to maintain our existing debt covenants and/or to refinance our existing debt. In addition, a further decline in ad revenues and subsequent impact on our operating results could, among other things, negatively impact our stock price and/or jeopardize our listing on the New York Stock Exchange. Further, government efforts to stabilize the economy and stimulate consumer spending, and therefore presumably ad spending, are difficult to predict, making it difficult to estimate our future operating results.

        In addition, the occurrence of disasters, acts of terrorism, political uncertainty or hostilities could cause us to lose our ability to broadcast our television signals or, if we were able to broadcast, our broadcast operations may shift to around-the-clock news coverage, which would cause additional loss of advertising revenues due to the suspension of advertising-supported commercial programming.

Materiality of a Single Advertising Category Could Adversely Affect Our Business

        We derive a material portion of our ad revenue from the automotive industry. An increase or decrease in revenue from this category therefore has a disproportionate impact on our operating results. Approximately 21% and 26% of the Company's total revenue came from the automotive category in 2008 and 2007, respectively. The automotive industry is particularly affected by the ongoing economic recession and tightness in the credit markets, which has adversely affected automotive sales and auto advertising budgets in turn. If the recession persists or worsens through 2009 and beyond, our ad revenue from the auto category, and therefore our total revenue, is likely to continue to decline. The effects of government efforts to stabilize and/or revitalize the auto industry are difficult to predict, making it difficult to estimate our future operating results. Additionally, if revenue from another advertising category that constitutes a material portion of our stations' revenue in a particular period (such as retail, which comprised 6% of the Company's total revenue in 2008) were to decrease, our business and operating results could be adversely affected.

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We Compete With Other Media Platforms For Advertising Revenue

        Our stations compete for advertising revenues with other television stations in their respective markets. They also compete with other advertising media, such as the Internet, local cable and satellite system operators, portable devices, newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories and direct mail. Our stations are located in highly competitive markets. Accordingly, our operating results are and will continue to be dependent upon the ability of each of our stations to compete successfully with these other forms of advertising media for revenues in its respective market.

Increased Competition Due to Technological Innovation May Adversely Impact Our Business

        Technological innovation, and the resulting proliferation of programming alternatives such as cable, satellite television, video provided by telephone company fiber lines, satellite radio, video-on-demand, pay-per-view, the Internet, home video and entertainment systems, portable entertainment systems, and the availability of television programs on the Internet and portable digital devices have fragmented television viewing audiences and subjected television broadcast stations to new types of competition. Over the past decade, the aggregate viewership of non-network programming distributed via MVPDs such as cable television and satellite systems has increased, while the aggregate viewership of the major television networks has declined. Technologies that enable users to view content of their own choosing, in their own time, and to fast-forward or skip advertisements, such as DVRs, portable digital devices, and the Internet, may cause changes in consumer behavior or could hinder Nielsen's ability to accurately measure our audience, both of which could affect the attractiveness of our offerings to advertisers. If these things were to occur, our operating results could be adversely affected.

        Other advances in technology, such as increasing use of local-cable advertising "interconnects," which allow for easier insertion of advertising on local cable systems, have also increased competition for advertisers. In addition, video compression technologies permit greater numbers of channels to be carried within existing bandwidth on cable, satellite and other television distribution systems. These compression technologies, as well as other technological developments, are applicable to all video delivery systems, including digital over-the-air broadcasting, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming on cable, satellite and other television distribution systems. We expect this ability to reach very narrowly defined audiences to increase competition both for audience and for advertising revenue. In addition, the expansion of competition due to technological innovation has increased, and may continue to increase, competitive demand for programming. Such increased demand, together with rising production costs, may in the future increase our programming costs or impair our ability to acquire programming, which will in turn impair our ability to generate revenue from the advertisers with which we seek to do business. Conversely, in the current recession, the expansion of available inventory may reduce rate realization for units of inventory sold.

We May Lose Audience Share As a Result of the Transition to Digital Television

        The Communications Act and the FCC require television stations to transition from analog television service to digital television service. In February 2009 the deadline for the national digital transition was extended from February 17, 2009 to June 12, 2009. Despite the extension, some stations have already transitioned or will transition to digital in advance of June 12, 2009. Our Company's stations in Hawaii transitioned to digital on January 15, 2009, as part of a market-wide effort designed to facilitate an early test of the transition and this effort was done in coordination with the FCC. Also, together with the other stations in the Burlington-Plattsburgh market, WPTZ and WNNE terminated regular analog programming on February 17, 2009, but each will continue to broadcast an analog signal providing DTV transition and emergency information, as well as local news and public affairs programming until at least April 18, 2009.

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        After the end of the digital transition, our analog signals will no longer be available over-the-air. Estimates of the number of U.S. households that receive television exclusively by means of analog over-the-air transmissions and do not subscribe to cable or satellite services vary by source, but the FCC reported in January 2009 that all estimates indicate that less than 20 percent of all U.S. households rely exclusively on over-the-air broadcasts to receive television service. In addition to these households, many households that subscribe to cable or satellite services also have one or more television sets that rely on over-the-air transmissions.To continue to receive our stations' broadcasts after the conclusion of the digital television transition, households that rely on over-the-air transmissions will be required to purchase digital televisions, obtain digital to analog converter equipment, or subscribe to satellite or cable service. A significant percentage of households with analog over-the-air receivers may not desire or be able to afford to purchase digital televisions. The federal government has created a subsidy coupon program to help such households obtain digital converters; however, in January 2009 the subsidy program reached its funding ceiling and new applicants for the subsidy coupons are being placed on a waiting list pending the availability of additional funds for the program from either expired coupons or economic stimulus legislation. As such, the subsidy may not be available for all households with over-the-air receivers, and some households may not take advantage of the subsidy. As a result, the digital transition may cause some households to lose service from our stations. And, to the extent such households elect to subscribe to satellite or cable service, the additional channels available through those services may reduce our viewership from such households. Furthermore, while in many cases, a station's digital signal generally replicates the station's entire analog service area, in some circumstances, conversion to digital may reduce a station's geographical coverage area.

        We believe that digital television is important to our long-term viability and offers many advantages such as high definition video, multi-channel digital audio and multicast capability. However, we cannot predict the precise effect digital television might have on our stations' viewership and our operations.

Our Inability to Secure Carriage of Our Stations By Multi-Channel Video Programming Distributors May Adversely Affect Our Business

        Cable operators and direct broadcast satellite systems are generally required to carry the primary signal of local commercial television stations pursuant to the FCC's "must carry" or "carry-one, carry-all" rules. However, these MVPDs are prohibited from carrying a broadcast signal without obtaining the station's consent. For each distributor, a local television broadcaster must make a choice once every three years whether to proceed under the "must carry" or "carry-one, carry-all" rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the system to carry the station's signal, in most cases in exchange for some form of consideration from the system operator. In 2008, we elected retransmission consent for most of our stations for the three-year period commencing on January 1, 2009. At present, we have retransmission consent agreements with the majority of operators for the period January 1, 2009, to at least December 31, 2011. If our retransmission consent agreements are terminated or not renewed, or if our broadcast signal is distributed on less favorable terms, our ability to distribute our programming could be adversely affected. In many instances, the negotiation of these agreements involves the payment of compensation to us by the MVPDs as consideration. If we are unable to satisfactorily conclude those negotiations our ability to grow our retransmission consent revenue will be adversely affected.

        Prior to the end of the digital television transition, the FCC's "must carry" and "carry-one, carry-all" rules generally require carriage of only each local station's analog signal. At the end of the transition, cable operators and satellite systems generally will be required to retransmit a single programming stream transmitted by each local station's digital signal. Cable operators and satellite systems are not required to carry both a station's analog signal and digital signal during the transition period. At present, we have retransmission consent agreements with a number of cable systems

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operators and satellite providers that require carriage of the analog and certain digital signals of our stations.

Our Business Is Seasonal and Cyclical and Some Years and Quarters Therefore May Be Less Profitable Than Others

        Our business has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences on people's viewing habits. The advertising revenue of our stations is generally highest in the second and fourth quarters of 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. Additionally, advertising revenue is cyclical, benefiting in even-numbered years from advertising placed by candidates for political offices and issue-oriented advertising, and demand for advertising time in Olympic broadcasts. While political and Olympic advertising cycles have been a normal pattern for our industry for decades, the variability has become more pronounced in recent years as these respective categories of revenue have grown significantly in size. The seasonality and cyclicality inherent in our business make it difficult to estimate future operating results based on the previous results of any specific quarter.

The Television Industry Is Highly Competitive and Our Competitors May Have Greater Resources Than We Do

        The television broadcast industry is highly competitive. Some of our competitors are owned and operated by large national or regional companies that may have greater resources, including financial resources, than we have. Competition in the television industry takes place on several levels: competition for audience, competition for programming and competition for advertisers. Our stations may not be able to maintain or increase their current audience share or revenue share. To the extent that certain of our competitors have, or may in the future obtain, greater resources than we have, we may not be able to successfully compete with them.

We Have a Controlling Stockholder

        Hearst, through its beneficial ownership of our Series A and Series B Common Stock, has voting control of our company. Through its beneficial ownership of 100% of our Series B Common Stock, Hearst also is entitled to elect as a class all but two members of our Board of Directors (currently, 11 of our 13 Board seats). As a result, Hearst is able to control substantially all actions to be taken by our stockholders, and also is able to maintain control over our operations and business.

        Further, as of July 1, 2008, we and our consolidated subsidiaries became a member, for U.S. federal income tax purposes, of the affiliated group of corporations of which Hearst is the common parent. Consequently, we began filing federal and certain state tax returns on a consolidated basis with Hearst as of July 1, 2008.

        Hearst's control, as well as certain provisions of our Certificate of Incorporation and of Delaware law, may make us a less attractive target for a takeover than we otherwise might be, or render more difficult or discourage a merger proposal, tender offer or other transaction involving an actual or potential change of control. Hearst's voting control also prevents other stockholders from exercising significant influence over our business decisions. It is possible that Hearst's voting decisions may differ from other stockholders' desires.

The Interests and Assets of Our Controlling Stockholder May Adversely Impact Our Ability to Make Certain Acquisitions

        The interests of Hearst, which owns or has significant investments in other businesses, including cable television networks, newspapers, magazines and electronic media, may from time to time be competitive with, or otherwise diverge from, our interests, particularly with respect to new business opportunities and future acquisitions. We and Hearst have agreed that, without the prior written

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consent of the other, neither we nor they will make any acquisition or purchase any assets if such an acquisition or purchase by one party would require the other party to divest or otherwise dispose of any of its assets because of regulatory or other legal prohibitions.

        Given the newspaper and other media interests held by Hearst, we are precluded from acquiring television stations in various markets in the United States. While divestiture of a prohibited interest could permit such acquisitions, such a divestiture may not occur or may otherwise adversely impact potential acquisitions. Additionally, Hearst is not precluded from purchasing television stations, newspapers or other assets in other markets. If Hearst were to make such purchases, the FCC rules would preclude us from owning television stations in certain of those markets in the future.

We May Encounter Conflicts of Interest with Our Controlling Stockholder

        We and Hearst also have ongoing relationships that may create situations where the interests of the two parties could conflict. For example, we and Hearst are parties to a series of agreements with each other, including

    a Lease Agreement (whereby we lease one floor of the Hearst Tower in Manhattan for our corporate offices);

    a Management Agreement (whereby we provide certain management services, such as sales, news, programming and financial and accounting management services with respect to certain Hearst-owned or managed television and radio stations);

    an Option Agreement (whereby Hearst has granted us an option to acquire two television stations it owns (KCWE and WMOR), as well as a right of first refusal with respect to a prospective purchaser if Hearst proposes to sell WPBF);

    a Studio Lease Agreement (whereby Hearst leases space from us for Hearst's radio broadcast stations);

    a Name License Agreement (whereby Hearst permits us to use the Hearst name in connection with our name and operation of our business);

    a Tax Sharing Agreement (whereby the method of determining the amounts owed and timing of payments among other items resulting from the July 1, 2008 tax consolidation with Hearst is confirmed, as well as tax preparation and related services by Hearst to the Company); and

    a Services Agreement (whereby Hearst provides us certain administrative services, such as accounting, financial, legal, tax, insurance, data processing and employee benefits).

It is possible that we and Hearst may enter into additional related party transactions and/or agreements in the future. Because we and Hearst are affiliates, it is possible that our interests concerning these transactions and/or agreements may from time to time conflict and that more favorable terms than those we have negotiated with Hearst may be available from third parties.

Changes in FCC Regulations and Enforcement Policies May Adversely Affect Our Business

        As discussed more fully in Item 1 "Business; Federal Regulation of Television Broadcasting", our broadcast operations are subject to extensive regulation by the FCC under the Communications Act. If we do not comply with these regulations, in particular the specific regulations discussed below, or if the FCC adopts a rigorous enforcement policy concerning them, our business and operating results could be adversely affected.

        Ownership Rules.    We must comply with extensive FCC regulations and policies in the ownership of our broadcast stations, which restrict our ability to consummate future transactions and, in certain circumstances, could require us to divest some stations. In general, the FCC's ownership rules limit the number of television and radio stations that we can own in a market, the number of television stations

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we can own nationwide, and prohibit ownership of stations in markets where Hearst has interests in newspapers.

        Indecency Rules.    Federal law and the FCC's rules prohibit the broadcast of obscene material at any time, and the broadcast of indecent or profane material during the period from 6 a.m. through 10 p.m. In recent years, the FCC has vigorously enforced its indecency prohibition, and in 2006, legislation was enacted that raised the maximum monetary penalty for the broadcast of obscene, indecent, or profane language to $325,000 for each "violation," with a cap of $3 million for any "single act." The determination of whether content is indecent or profane is inherently subjective, creates uncertainty as to our ability to comply with the rules (in particular during live programming), and impacts our programming decisions. Violation of the indecency rules could lead to sanctions which may adversely affect our business and results of operations.

        Fines and Penalties.    In recent years, the FCC has also vigorously enforced a number of other rules, typically in connection with license renewals. For example, in recent years, the FCC has issued fines and sanctions for violations of its equal employment opportunity rules, public inspection file rules, children's programming rules, commercial time limits rules, sponsorship identification rules, closed captioning rules, station-conducted contest rules, and emergency alert system rules. On February 19, 2008, the FCC fined certain ABC stations, including four of our ABC-affiliated stations (KETV, KOCO, WAPT and WISN), each in the amount of $27,500 for the broadcast of allegedly indecent material during a 2003 episode of NYPD Blue. The ABC Network and its affiliate, including our affected stations, have appealed the FCC's decision to the U.S. Court of Appeals for the Second Circuit and oral argument was held on February 5, 2009. In June 2008, the FCC fined WMUR-TV $8,000 in connection with children's programming matters. Over the past few years, the Company has responded to other FCC inquiries concerning alleged rule violations. Those inquires remain pending.

Possible Acquisitions, Divestitures or Other Strategic Initiatives May Adversely Impact Our Business

        Our management is evaluating, and will continue to evaluate, the nature and scope of our operations and various short-term and long-term strategic considerations. These may include acquisitions or divestitures of, or strategic alliances, joint ventures, mergers or integration or consolidation with, television stations or other businesses, including digital media businesses, as well as discussions with third parties regarding any of these considerations. In the alternative, our management may decide from time to time that such initiatives are not appropriate.

        There are uncertainties and risks relating to each of these strategic initiatives. For example, acquisition opportunities have become more limited as a consequence of the consolidation of ownership in the television broadcast industry. Also, prospective competitors may have greater financial resources than we have. Future acquisitions may not be available on attractive terms, or at all. In addition, due to the tightening of the credit markets as a result of the ongoing economic recession, financing has become more difficult to obtain, which could limit our ability to make future acquisitions. Also, if we do make acquisitions, we may not be able to successfully integrate the acquired stations or businesses. With respect to divestitures, we may experience varying success in making such divestitures on favorable terms, if at all, or in reducing fixed costs or transferring liabilities previously associated with the divested television stations or businesses. In addition, any such acquisitions or divestitures may be subject to FCC approval and FCC rules and regulations. Finally, strategic minority investments we choose to make in digital media projects may ultimately prove unprofitable. Any of these efforts would require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits or synergies of such transactions, or, conversely, if we do not realize such benefits or synergies because we chose not to pursue any such transaction, there may be an adverse effect on our financial condition and operating results.

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We Could Suffer Losses Due to Asset Impairment Charges for Goodwill and FCC Licenses

        At December 31, 2008, approximately 82% of our total assets consisted of goodwill and intangible assets. We test our goodwill and intangible assets, including FCC licenses, for impairment during the fourth quarter of every year, and on an interim date should factors or indicators become apparent that would require an interim test, in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." If the fair value of a reporting unit or an intangible asset is revised downward below its net carrying value, an impairment under SFAS 142 could result and a non-cash charge could be required. This could materially affect our reported net earnings and our balance sheet. For the fiscal year ended December 31, 2008, we recorded an impairment of our intangible assets of $926.1 million.

        To estimate the fair value of our reporting unit, we utilize a discounted cash flow model. Other valuation methods, such as a market approach utilizing market multiples, are used to corroborate the discounted cash flow analysis performed at the reporting unit. We also consider our market capitalization when estimating the fair value of our reporting unit. During the fourth quarter of 2008, the Company experienced a decline in its market capitalization. As of December 31, 2008, our market capitalization was less than our book value and it remains less than book value as of the date of this filing. While we have concluded that our goodwill balance continues to be recoverable, there can be no assurance that we will not need to record impairments of our goodwill or additional impairments to our intangible assets in the future.

Limitations on Our Liquidity and Ability to Raise Capital May Adversely Affect Us

        Historically, our primary sources of liquidity have been cash on hand, cash flow from operations, our bank credit facilities, and issuances of unsecured debt instruments and equity securities in capital markets transactions. However, liquidity in the current capital markets has been severely constrained since the beginning of the recession and resulting credit crisis, increasing the cost and reducing the availability of new funds. Our $500 million revolving credit facility is scheduled to mature in April 2010. We expect that the terms of any new financing we obtain in this environment are likely to be more restrictive than previous financings and may require that we provide structural enhancements such as subsidiary guarantees and, in some cases, security such as liens or mortgages. Continued disruption in the global credit markets or further deterioration in those markets may have a material adverse effect on our ability to repay or refinance our borrowings. Although we expect our sources of capital should be sufficient to meet our near term liquidity needs, there can be no assurance that our liquidity requirements will be satisfied.

Covenants in Our Indebtedness Could Limit Our Flexibility and Adversely Affect Our Financial Condition

        Pursuant to our revolving credit facility and private placement debt agreements we must maintain specified interest coverage and leverage ratios and a minimum consolidated net worth. These covenants must be maintained throughout the term of the respective financings and, if breached, could result in an acceleration of our debt if a waiver or modification is not agreed upon with the requisite percentage of the unsecured lending group and the holders of our private placement debt. In addition, our publicly held debt securities also contain a covenant restricting secured indebtedness. If this covenant is breached, it could result in acceleration of our publicly held debt if a waiver or modification is not agreed upon with the requisite percentage of the holders.

        Each of our debt instruments contains cross-default provisions which would allow the holders and lenders thereof to declare an event of default and accelerate our indebtedness to them if we fail to pay amounts due in respect of our other indebtedness in excess of specified thresholds. In addition, our bank facilities and private placement debt agreements provide that the lenders and noteholders may declare an event of default and accelerate our indebtedness to them if there is a default under our other indebtedness in excess of specified thresholds and the holders of the other indebtedness are permitted to accelerate the other indebtedness. The indentures governing our public debt securities

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contain a cross-acceleration provision entitling the bondholders to accelerate their debt if other debt of ours meeting specified thresholds is accelerated.

        While we are currently in compliance with our covenants, there can be no assurance that we will be able to stay in compliance if our financial performance declines and our credit statistics (including our leverage ratio) deteriorate. In addition, further impairment charges could negatively impact our net worth covenant. In addition, we may be forced to take actions that will enable us to meet our covenants in the near term but may adversely affect our earnings in the longer term.

We Could Suffer Adverse Consequences If our Credit Ratings Were Downgraded

        Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. During December 2008, our unsecured corporate credit ratings were reaffirmed at an investment grade level by all three major national credit rating agencies; however, one of the agencies has indicated a negative outlook. In addition, all three agencies have expressed concerns about our sector in the current economic environment and indicated that further rating actions in the U.S. broadcasting industry are likely. Our credit statistics could worsen during 2009 as a result of the ongoing economic recession, putting us at risk of a ratings downgrade. This, together with the current dislocation in the capital markets in general, may increase our borrowing costs and limit our access to the capital markets in the future. If we were to be downgraded, the lenders under our existing bank credit facilities may not extend such credit facilities after their expiration and our access to the capital markets could be further limited. Such actions would likely further increase our borrowing costs and have an adverse impact on our financial statements.

The Loss of Key Personnel Could Disrupt Our Management or Operations and Adversely Affect Our Business

        Our business depends upon the continued efforts, abilities and expertise of our chief executive officer and other key employees. We believe that the rare combination of skills and years of media experience possessed by our executive officers would be difficult to replace, and that the loss of our executive officers could have a material adverse effect on our business. Additionally, our stations employ several on-air personnel, including anchors and reporters, with significant loyal audiences. Our failure to retain these personnel could adversely affect our operating results.

Strikes and Other Union Activity By Our Employees Could Adversely Affect Our Business

        Certain employees, such as on-air talent and engineers, at some of our stations are subject to collective bargaining agreements. If we are unable to renew expiring collective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages. Such actions, higher costs in connection with these agreements, or significant labor disputes could adversely affect our business by disrupting our ability to operate our affected stations.

Our Share Repurchase Program and Hearst's Share Purchase Program May Affect the Market Price of Our Series A Common Stock.

        We have a share repurchase program authorized by our Board of Directors, pursuant to which we may repurchase up to $300 million of our Series A Common Stock from time to time, in the open market or in private transactions, subject to market conditions. In addition, since March 1998 Hearst's Board of Directors has authorized various share purchase programs pursuant to which Hearst or its subsidiaries have purchased on the open market or through private transactions approximately 35.5 million shares of our Series A Common Stock. Such repurchases and purchases, or the absence thereof, may increase or decrease the market price of our Series A Common Stock.

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ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        Our principal executive offices are located at 300 West 57th Street, New York, New York 10019. The real property of each of our stations generally includes owned or leased offices, studios, transmitters and tower sites. Offices and main studios are typically located together, while transmitters and tower sites are often in separate locations that are more suitable for optimizing signal strength and coverage. Set forth below are our stations' principal facilities as of December 31, 2008. In addition to the property listed below, we and the stations also lease other property primarily for communications equipment.

Station
  Location   Use   Ownership   Approximate
Size
 

Corporate

  Washington D.C.   Washington D.C. Office   Leased     4,007 sq. ft.  

  New York, NY   New York Office(1)   Leased     19,866 sq. ft.  

WCVB

 

Boston, MA

 

Office and studio

 

Owned

   
90,002 sq. ft.
 

      Tower and transmitter   Leased     1,600 sq. ft.  

      Land   Owned     5.3 acres  

      Land   Leased     7,000 sq. ft.  

WMUR

 

Manchester, NH

 

Office and studio

 

Owned

   
67,440 sq. ft.
 

      Tower and transmitter   Owned     4.5 acres  

      Office   Leased     1,963 sq. ft.  

KCRA/KQCA

 

Sacramento, CA

 

Office, studio and tower

 

Owned

   
75,000 sq. ft.
 

      Tower and transmitter   Owned     2,400 sq. ft.  

      Tower and transmitter   Leased     2,400 sq. ft.  

      Office   Leased     3,085 sq. ft.  

WTAE

 

Pittsburgh, PA

 

Office and studio

 

Owned

   
68,033 sq. ft.
 

      Tower and transmitter   Owned     37 acres  

      Office   Leased     609 sq. ft.  

WESH/WKCF

 

Orlando, FL

 

Studio, transmitter, tower

 

Owned

   
61,300 sq. ft.
 

  Daytona Beach, FL   Studio and office   Leased     1,472 sq. ft.  

      Office   Leased     775 sq. ft.  

      Office   Leased     535 sq. ft.  

      Transmitter   Leased     2,025 sq. ft.  

      Tower   Partnership*     190 acres  

      Transmitter   Partnership*     8,050 sq. ft.  

WBAL

 

Baltimore, MD

 

Office and studio

 

Owned

   
63,000 sq. ft.
 

      Tower   Partnership*     0.2 acres  

KMBC

 

Kansas City, MO

 

Office and studio

 

Owned

   
52,500 sq. ft.
 

      Tower and transmitter   Owned     11.6 acres  

WLWT

 

Cincinnati, OH

 

Office and studio

 

Owned

   
52,000 sq. ft.
 

      Tower and transmitter   Owned     4.2 acres  

WISN

 

Milwaukee, WI

 

Office and studio

 

Owned

   
88,000 sq. ft.
 

      Tower and transmitter land   Leased     5.5 acres  

      Transmitter building   Owned     3,192 sq. ft.  

      Garage & Land   Owned     39,200 sq. ft.  

      Parking Lot   Owned     47,000 sq. ft.  

WYFF

 

Greenville, SC

 

Office and studio

 

Owned

   
57,500 sq. ft.
 

      Tower and transmitter   Owned     1.5 acres  

      Office   Leased     3,000 sq. ft.  

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Station
  Location   Use   Ownership   Approximate
Size
 

WDSU

 

New Orleans, LA

 

Office and studio

 

Owned

    50,525 sq. ft.  

      Transmitter   Owned     8.3 acres  

KOCO

 

Oklahoma City, OK

 

Office and studio

 

Owned

   
28,000 sq. ft.
 

      Tower and transmitter   Owned     85 acres  

WGAL

 

Lancaster, PA

 

Office, studio and tower

 

Owned

   
58,900 sq. ft.
 

      Office   Leased     2,380 sq. ft.  

WXII

 

Winston-Salem, NC

 

Office and studio

 

Owned

   
38,027 sq. ft.
 

      Tower and transmitter   Owned     223.6 acres  

WLKY

 

Louisville, KY

 

Office and studio

 

Owned

   
37,842 sq. ft.
 

      Tower and transmitter   Owned     40.0 acres  

      Transmitter   Leased     1,350 sq. ft.  

      Transmitter building   Owned     2,000 sq. ft.  

      Land   Owned     10.49 acres  

KOAT

 

Albuquerque, NM

 

Office and studio

 

Owned

   
37,315 sq. ft.
 

      Tower and transmitter   Owned     328.5 acres  

KCCI

 

Des Moines, IA

 

Office, studio and transmitter

 

Owned

   
52,000 sq. ft.
 

      Tower and transmitter   Owned     119.5 acres  

WMTW

 

Portland-Auburn, ME

 

Office and studio

 

Leased

   
11,703 sq. ft.
 

      Tower and transmitter   Owned     296 acres  

      Office and studio   Owned     16,300 sq. ft.  

      Transmitter building   Owned     5,120 sq. ft.  

      Office land   Owned     13.9 acres  

KITV

 

Honolulu, HI

 

Office and studio

 

Owned

   
35,000 sq. ft.
 

      Tower and transmitter   Leased     130 sq. ft.  

      Tower and transmitter   Leased     304 sq. ft.  

      Tower and transmitter   Leased     2.6 acres  

KETV

 

Omaha, NE

 

Office and studio

 

Owned

   
39,204 sq. ft.
 

      Tower and transmitter   Owned     23.3 acres  

      Transmitter building   Owned     30,492 sq. ft.  

      Office   Leased     597 sq. ft.  

      Parking Lot   Owned     17,424 sq. ft.  

WAPT

 

Jackson, MS

 

Office and studio

 

Owned

   
18,000 sq. ft.
 

      Tower and transmitter   Owned     24 acres  

WPTZ

 

Plattsburgh, NY

 

Office and studio

 

Owned

   
12,800 sq. ft.
 

      Office   Leased     5,441 sq. ft.  

      Tower and Transmitter   Owned     2,432 sq. ft.  

      Tower and transmitter   Owned     13.4 acres  

WNNE

 

White River Junction, VT

 

Office and studio

 

Leased

   
5,600 sq. ft.
 

KHBS/KHOG

 

Fort Smith/Fayetteville, AR

 

Office and studio

 

Owned

   
44,904 sq. ft.
 

      Land/Office/Parking   Owned     25 Acres  

      Office and studio   Leased     12,906 sq. ft.  

      Transmitter Building   Owned     2,100 sq. ft.  

      Tower and transmitter   Leased     2.5 acres  

      Tower and transmitter   Owned     26.7 acres  

KSBW

 

Monterey-Salinas, CA

 

Office and studio

 

Owned

   
44,000 sq. ft.
 

      Office   Leased     900 sq. ft.  

*
Owned by the Company in partnership with certain third parties.

(1)
We also sublease to third parties 21,789 square feet of space at 888 Seventh Avenue, New York, New York, the previous location of our corporate headquarters.

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ITEM 3.    LEGAL PROCEEDINGS

        From time to time, we become involved in various claims and lawsuits that are incidental to our business. In our opinion, there are no legal proceedings pending against us or any of our subsidiaries that are reasonably expected to have a material adverse effect on our consolidated financial condition or results of operations.

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

        Not applicable.


PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        (a)   Market Performance of Common Stock and Dividends on Common Stock.    Our Series A Common Stock is listed on the New York Stock Exchange ("NYSE") under the ticker symbol "HTV." All of the outstanding shares of our Series B Common Stock are currently held by Hearst Broadcasting, a wholly-owned subsidiary of Hearst Holdings, which is in turn a wholly-owned subsidiary of Hearst. Our Series B Common Stock is not publicly traded. The table below sets forth, for the calendar quarters indicated, the reported high and low sales prices of our Series A Common Stock on the NYSE and the dividends declared on our Series A and Series B Common Stock:

 
  High   Low   Dividend  

2008

                   

First Quarter

  $ 22.61   $ 19.86   $ 0.07  

Second Quarter

    21.91     19.18     0.07  

Third Quarter

    23.40     18.89     0.07  

Fourth Quarter

    21.80     4.91     0.07  

2007

                   

First Quarter

  $ 27.39   $ 25.05   $ 0.07  

Second Quarter

    27.87     23.69     0.07  

Third Quarter

    26.15     19.74     0.07  

Fourth Quarter

    25.83     17.85     0.07  

    On February 17, 2009, the closing price for our Series A Common Stock was $3.05.

        (b)   Holders.    On February 17, 2009 there were approximately 789 Series A Common Stock shareholders of record and Hearst Broadcasting was the sole holder of our Series B Common Stock.

        (c)   Dividends.    In December 2008, we declared a quarterly cash dividend of $0.07 per share on our Series A Common Stock and our Series B Common Stock, which we paid on January 15, 2009 to holders of record on January 5, 2009, for a total of $6.6 million. During 2008, we paid a total of $26.3 million in dividends. See Note 9 to the consolidated financial statements. On February 24, 2009, our Board of Directors suspended payment of our dividend. We do not currently know when, or if, dividends will be declared by our Board in the future.

        (d)   Performance Graph.    The following graph compares the annual cumulative total stockholder return on an investment of $100 in the Series A Common Stock on December 31, 2003, based on the market price of the Series A Common Stock and assuming reinvestment of dividends, with the cumulative total return of a similar investment in (i) companies on the Standard & Poor's 500 Stock Index and (ii) a group of peer companies selected by us on a line-of-business basis and weighted for market capitalization.

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CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 31, 2003
with dividends reinvested

GRAPHIC

 
  Dec-03   Dec-04   Dec-05   Dec-06   Dec-07   Dec-08  

Hearst-Argyle Television, Inc. 

  $ 100   $ 96   $ 88   $ 95   $ 84   $ 23  

S&P 500

  $ 100   $ 111   $ 116   $ 135   $ 142   $ 90  

Custom Composite

  $ 100   $ 85   $ 64   $ 59   $ 59   $ 9  

Copyright© 2009 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved.(www.researchdatagroup.com/S&P.htm)

        As of December 31, 2008, the Custom Composite Index of our peers consisted of Belo Corp., Sinclair Broadcast Group, Inc., Young Broadcasting, Inc., Lin TV Corp., Nexstar Broadcasting Corp., and Gray Television, Inc.

        (e)   Purchase of Equity Securities by the Issuer and Affiliated Purchasers.  The following table reflects purchases made during the three months ended December 31, 2008, of our Series A Common Stock by Hearst Broadcasting, an indirect wholly-owned subsidiary of Hearst:

Period
  Total Number of Shares Purchased   Average Price Paid Per Share   Total Number of Shares Purchased as Part of Publicly Announced Program   Maximum Number of Shares that May Yet Be Purchased Under the Program  

October 1 – October 31

    0   N/A     0        

November 1 – November 30

    0   N/A     0        

December 1 – December 31

    0   N/A     0     0(1 )

Total

    0   N/A     0        

(1)
As of August 6, 2008 Hearst reached the limit of the eight million share purchase authorization its Board of Directors approved on December 6, 2007 in order to increase its ownership percentage to approximately 82% to permit us to be consolidated with Hearst for federal income tax purposes. Previously, Hearst had authorized the purchase of up to 25 million shares of our Series A Common Stock.

        As of December 31, 2008, Hearst beneficially owned approximately 67.3% of the Company's outstanding Series A Common Stock and 100% of the Company's outstanding Series B Common Stock, representing in the aggregate approximately 81.6% of our outstanding common stock.

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        The following table reflects purchases made by the Company of its Series A Common Stock during the three months ended December 31, 2008:

Period
  Total Number of Shares Purchased   Average Price Paid Per Share   Total Number of Shares Purchased as Part of Publicly Announced Program   Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program  

October 1 – October 31

    0   N/A     0        

November 1 – November 30

    0   N/A     0        

December 1 – December 31

    0   N/A     0   $ 182,852,123  

Total

    0   N/A     0        

        In May 1998, the Company's Board of Directors authorized the repurchase of up to $300 million of its outstanding Series A Common Stock. Such purchases may be effected from time to time in the open market or in private transactions, subject to market conditions and management's discretion. Between May 1998 and December 31, 2008, the Company repurchased approximately 4.8 million shares of Series A Common Stock at a cost of approximately $117.1 million and an average price of $24.54. There can be no assurance that such repurchases will occur in the future or, if they do occur, what the terms of such repurchases will be.

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ITEM 6.    SELECTED FINANCIAL DATA

        The selected financial data should be read in conjunction with the historical financial statements and notes thereto included elsewhere herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations."


Hearst-Argyle Television, Inc.
(In thousands, except per share data)

 
  Years Ended December 31,  
 
  2008(a)   2007(a)   2006(a)   2005(b)   2004(b)  

Statement of operations data:

                               

Total revenue

  $ 720,491   $ 755,738   $ 785,402   $ 706,883   $ 779,879  

Station operating expenses:

                               
 

Salaries, benefits and other operating costs

    413,302     409,977     397,604     364,421     355,641  
 

Amortization of program rights

    76,296     75,891     68,601     60,912     63,843  
 

Depreciation and amortization

    56,130     55,262     59,161     51,728     50,376  
 

Insurance settlement

    (11,549 )                
 

Impairment loss(c)(d)

    926,071             29,235      

Corporate, general and administrative expenses

    35,363     38,427     31,261     23,149     25,268  
                       

Operating income (loss)

  $ (775,122 ) $ 176,181   $ 228,775   $ 177,438   $ 284,751  

Interest expense

    50,984     63,023     66,103     66,777     65,445  

Interest income

    (74 )   (2,043 )   (6,229 )   (3,402 )   (1,715 )

Interest expense, net—Capital Trust(e)

    8,586     9,750     9,750     9,750     18,675  

Other (income) expense, net(f)(g)(h)(i)

    3,731         2,501     2,500     3,700  
                       

Income (loss) before income taxes

  $ (838,349 ) $ 105,451   $ 156,650   $ 101,813   $ 198,646  

Income taxes (benefit)(j)

    (332,011 )   38,207     58,410     3,012     75,724  

Equity in (income) loss of affiliates, net(k)

    10,119     2,588     (483 )   (1,416 )   (1,020 )
                       

Net income (loss)

  $ (516,457 ) $ 64,656   $ 98,723   $ 100,217   $ 123,942  
                       

Income (loss) per common share—basic

  $ (5.52 ) $ 0.69   $ 1.06   $ 1.08   $ 1.32  
                       

Number of common shares used in the calculation

    93,559     93,490     92,745     92,826     92,928  
                       

Income (loss) per common share—diluted

  $ (5.52 ) $ 0.69   $ 1.06   $ 1.08   $ 1.30  
                       

Number of common shares used in the calculation

    93,559     94,299     93,353     93,214     101,406  
                       

Dividends declared per share(l)

  $ 0.28   $ 0.28   $ 0.28   $ 0.28   $ 0.25  
                       

Balance sheet data (at year-end):

                               

Cash and cash equivalents

  $ 7,044   $ 5,964   $ 18,610   $ 120,065   $ 92,208  

Total assets

  $ 2,913,714   $ 3,958,976   $ 3,958,088   $ 3,832,359   $ 3,842,140  

Long-term debt

  $ 701,110   $ 703,110   $ 777,122   $ 777,170   $ 882,221  

Note payable to Capital Trust

  $   $ 134,021   $ 134,021   $ 134,021   $ 134,021  

Stockholders' equity

  $ 1,373,623   $ 1,952,399   $ 1,882,807   $ 1,821,459   $ 1,753,837  

Other data:

                               

Net cash provided by operating activities

  $ 193,319   $ 135,744   $ 200,384   $ 128,730   $ 193,631  

Net cash used in investing activities

  $ (31,903 ) $ (58,433 ) $ (282,893 ) $ (41,008 ) $ (72,069 )

Net cash used in financing activities

  $ (160,336 ) $ (89,957 ) $ (18,946 ) $ (59,865 ) $ (100,883 )

Capital expenditures

  $ 35,422   $ 55,802   $ 60,439   $ 33,276   $ 36,380  

Program payments

  $ 73,479   $ 73,565   $ 67,817   $ 64,104   $ 62,247  

Dividends paid on common stock

  $ 26,289   $ 26,206   $ 25,954   $ 25,997   $ 22,301  

Series A Common Stock repurchases

  $ 1,091   $ 5,273   $ 2,780   $ 16,385   $ 10,920  

See accompanying notes.

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Notes to Selected Financial Data


(a)
Includes (i) the results of our 25 stations which were owned for the entire period presented and the management fees derived from three television stations (WMOR-TV, WPBF-TV and KCWE-TV) and two radio stations (WBAL-AM and WIYY-FM) managed by us for the entire period presented and (ii) the results of WKCF-TV, after its acquisition by us, from August 31, 2006 through December 31, 2008.

(b)
Includes (i) the results of our 24 stations which were owned for the entire period presented and the management fees derived from three television stations (WMOR-TV, WPBF-TV and KCWE-TV) and two radio stations (WBAL-AM and WIYY-FM) managed by us for the entire period presented and (ii) the results of WMTW-TV, after its acquisition by us, from July 1, 2004 through December 31, 2005.

(c)
In December 2008, we recorded an impairment charge of $926.1 million to write down certain of our FCC licenses resulting from testing required in accordance with SFAS No. 142, Goodwill and Intangible Assets.

(d)
In December 2005, we recorded an impairment charge of $29.2 million to write down WDSU's FCC license and goodwill as a result of Hurricane Katrina.

(e)
Represents interest expense on the note payable to our wholly-owned unconsolidated subsidiary trust, offset by our equity interest in the earnings of the trust. The 2008 and 2004 balances include $3.9 and $3.7 million, respectively, of premiums paid to redeem a portion of the debentures during those years, and there are no debentures currently outstanding. The trust was dissolved on January 5, 2009.

(f)
In July 2006, USDTV filed for Chapter 7 bankruptcy and as a result, the Company wrote off its investment of $2.5 million.

(g)
In the year ended December 31, 2005, we concluded our joint venture with NBC Universal and recorded a loss of $2.5 million. The investment had been accounted for using the equity method.

(h)
In 2004, ProAct Technologies Corporation sold substantially all of its operating assets to a third party as part of an overall plan of liquidation. The Company wrote down our investment in ProAct by $3.7 million during the year ended December 31, 2004.

(i)
In 2008, the Company wrote down our investment in the Arizona Diamondbacks by $3.7 million.

(j)
During the year ended December 31, 2005, $31.9 million in tax benefits were recorded as a result of the settlement of certain tax return examinations and $5.5 million in tax benefits were recorded as a result of a change in Ohio tax law.

(k)
Represents our equity interest in the operating results of: (i) Internet Broadcasting Systems, Inc. from December 2, 1999 through December 31, 2008; (ii) IBS/HATV LLC from September 1, 2002 through December 31, 2005; (iii) NBC/Hearst-Argyle Syndication, LLC from April 1, 2002 through December 31, 2005; and (iv) Ripe Digital Entertainment, Inc. from July 27, 2005 through December 31, 2008. In 2008 we wrote off our investment in Ripe Digital Entertainment, Inc.

(l)
During 2008, our Board of Directors declared quarterly cash dividends on our Series A and Series B Common Stock for a total amount of $26.3 million. Included in this amount was $21.1 million payable to Hearst. During 2007, our Board of Directors declared quarterly cash dividends on our Series A and Series B Common Stock for a total amount of $26.2 million. Included in this amount was $19.3 million payable to Hearst. During 2006, our Board of Directors declared quarterly cash dividends on our Series A and Series B Common Stock for a total amount of $26.0 million. Included in this amount was $19.0 million payable to Hearst. During 2005, our Board of Directors declared quarterly cash dividends on our Series A and Series B Common Stock for a total amount of $26.0 million. Included in this amount was $18.0 million payable to Hearst. During 2004, our Board of Directors declared quarterly cash dividends on our Series A and Series B Common Stock for a total amount of $23.2 million. Included in this amount was $15.4 million payable to Hearst.

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

Organization of Information

        Management's Discussion and Analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying consolidated financial statements. It includes the following sections:

    Forward-Looking Statements

    Executive Summary

    Critical Accounting Policies and Estimates

    Results of Operations

    Liquidity and Capital Resources

    Contractual Obligations

    Impact of Inflation

    Off-Balance Sheet Arrangements

    New Accounting Pronouncements

Forward-Looking Statements

        This report includes or incorporates forward-looking statements. We base these forward-looking statements on our current expectations and projections about future events. These forward-looking statements generally can be identified by the use of statements that include phrases such as "anticipate", "will", "may", "likely", "plan", "believe", "expect", "intend", "project", "forecast" or other such similar words and/or phrases. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this report, concerning, among other things, trends and projections involving revenue, income, earnings, cash flow, liquidity, operating expenses, assets, liabilities, capital expenditures, dividends and capital structure, involve risks and uncertainties, and are subject to change based on various important factors. Those factors include the impact on our operations from

    Changes in national and regional economies;

    Changes in advertising trends and our advertisers' financial condition;

    Our ability to service and refinance our outstanding debt and meet our liquidity needs;

    Competition for audience, programming and advertisers in the broadcast television markets we serve;

    Pricing fluctuations in local and national advertising;

    Changes in Federal regulations that affect us, including changes in Federal communications laws or regulations;

    Local regulatory actions and conditions in the areas in which our stations operate;

    Our ability to obtain quality programming for our television stations;

    Successful integration of television stations we acquire;

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    Volatility in programming costs, industry consolidation, technological developments, and major world events; and

    Potential adverse effects if we are required to recognize impairment charges or other accounting-related developments.

        For a discussion of additional risk factors that are particular to our business, please refer to Part I, Item 1A. "Risk Factors" beginning on page 18. These and other matters we discuss in this report, or in the documents we incorporate by reference into this report, may cause actual results to differ from those we describe. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

        Hearst-Argyle Television, Inc. and its subsidiaries (hereafter "we" or the "Company") own and operate 26 network-affiliated television stations. Additionally, we provide management services to two network-affiliated stations, one independent television station and two radio stations owned by The Hearst Corporation ("Hearst") in exchange for management fees. We seek to attract our television audience by providing compelling content on multiple media platforms. We provide leading local news programming and popular network and syndicated programs at each of our television stations, 20 of which are in the top 50 U.S. television markets. We also own 37 websites and currently multicast digital multicast channels in addition to their main digital channel in 20 of our markets, which feature 24-hour weather and entertainment programming. We stream a portion of our television programming, including our news and weather forecasts, and we publish community information, user-generated content and entertainment content on our stations' websites. We also have a companion mobile ("WAP") site for each of our markets in which our web offering is tuned for viewing over mobile devices. We believe that aligning our content offerings with audience media consumption patterns in this manner ultimately benefits our advertisers. Our advertisers benefit from a variety of marketing opportunities, including traditional spot campaigns, community events and sponsorships at our television stations, as well as on our stations' Internet and/or mobile websites, enabling them to reach our audience in multiple ways.

    Events and other factors that have influenced our 2008 results

    The United States and global economies are currently undergoing a period of economic uncertainty, and the related capital markets are experiencing significant disruption. In certain of the local markets in which our stations operate there has been a weakening in the economic climate due to the housing market slump, subprime mortgage issues and tightening of credit markets resulting in pressure on employment, retail sales and consumer confidence. The resulting economic recession has impacted the automotive industry, which historically has been our largest advertising category, particularly hard. In addition to the weakness in auto, the retail, telecommunications, restaurant, movies, health, financial services and furniture advertising categories were also impacted in 2008.

    During the fourth quarter the Company performed its annual impairment test on its indefinite-lived intangible assets. As a result of adverse economic conditions, we recorded a non-cash pre-tax impairment charge of $926.1 million to reduce the carrying value of our intangible assets from $3.3 billion to $2.4 billion. On an after-tax basis the impairment charge was $569.7 million. This non-cash charge had no impact on cash flows.

    The Company wrote down certain cost and equity method investments totaling $7.8 million and recorded severance-related charges associated with workforce reductions of $5.7 million during the fourth quarter of 2008.

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    Political advertising increases in even-numbered years, such as 2008, consistent with the increase in the number of candidates running for political office and the presidential election, as well as selected state and local elections. We operate leading stations in several key election states, including New Hampshire, New Mexico, Pennsylvania and California, and as such we generated significant revenues from political advertising during 2008.

    Revenue from Olympic advertising occurs exclusively in even-numbered years, such as 2008, with the alternating Winter and Summer Games occurring every two years. Our 10 NBC stations aired the 2008 Summer Olympics in August 2008. Net Olympic related ad revenue was not significantly incremental in 2008.

    During the first quarter of 2008, we reached a final settlement with our insurance carriers related to lost property, increased expenses and interrupted business at WDSU-TV in New Orleans, Louisiana, resulting from Hurricane Katrina in 2005. We received $11.5 million in the first quarter of 2008 bringing total recoveries to $16.5 million, net of deductibles, given the receipt of an advance payment of $5.0 million in the fourth quarter of 2006. The $11.5 million received in the first quarter of 2008 was recorded as an offset to Station Operating Expenses. The after-tax first quarter 2008 effect of the insurance settlement was a $9.3 million increase in net income.

    On June 23, 2008, we redeemed all of our outstanding 7.5% Series B Debentures using borrowings under our existing credit facility. As a result of the redemption, Notes payable to Capital Trust was reduced by $134.0 million and Investments was reduced by $4.0 million. In addition, we recognized a $3.9 million redemption premium, which was included in the Interest expense, net—Capital Trust in the Consolidated Statements of Operations. There are no debentures currently outstanding, and we have dissolved the Capital Trust.

    At December 31, 2008, total debt was $791.1 million, a decrease of $136.0 million from December 31, 2007, including the Notes payable to the Capital Trust.

    Economic and Industry Trends

    The duration of the economic recession is unknown at this time, as is the ongoing effect on certain local market economies. Our operating results may continue to be negatively impacted throughout the duration of the recession. Given the current economic environment, we will continue to monitor the need to test our intangibles for impairment as required by SFAS No. 142.

    Pursuant to the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") and the FCC's "must carry" regulations, cable operators are generally required to devote up to one-third of their activated channel capacity to the carriage of the analog signal of local commercial television stations. On a cable system-by-cable system basis, a local television broadcast station must choose once every three years whether to waive the right to mandatory, but uncompensated, carriage and, instead, to negotiate a grant of retransmission consent. For the period from January 1, 2009 to December 31, 2011, we have opted to negotiate retransmission consent with most of the cable systems that carry our stations. During 2008, we concluded retransmission consent agreements with a majority of our cable systems as measured by subscriber base. Executed agreements have led to an increase in retransmission revenues.

    The Satellite Home Viewer Improvement Act of 1999 ("SHVIA") established a compulsory copyright licensing system for the distribution of local television station signals by direct broadcast satellite systems to viewers in each DMA. Under SHVIA's "carry-one, carry-all" provision, a direct broadcast satellite system generally is required to retransmit the analog signal of all local television stations in a DMA if the system chooses to retransmit the analog signal of

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      any local television station in that DMA. Television stations located in markets in which satellite carriage of local stations is offered may elect mandatory carriage or retransmission consent once every three years. We have opted to negotiate retransmission consent for all of the satellite systems that carry our stations for the period from January 1, 2009 to December 31, 2011, and we already have existing agreements in place with the satellite systems.

    In 2006 Sprint Nextel Corporation ("Nextel") was granted the right from the FCC to claim from broadcasters in each market across the country the 1.9 GHz spectrum to use for an emergency communications system. In order to reclaim this signal, Nextel must replace all analog equipment currently using this spectrum with digital equipment. All broadcasters have agreed to use the digital substitute that Nextel will provide. The transition will be completed on a market-by-market basis. During the year ended December 31, 2008, we recorded $4.7 million of gains which primarily represents the difference between the fair market value of the equipment we received and the book value of the analog equipment we exchanged in seven of our markets. During the year ended December 31, 2007, we recorded $2.3 million of gains which primarily represents the difference between the fair market value of the equipment we received and the book value of the analog equipment we exchanged in one of our markets. The gain is reflected as an offset to Salaries, benefits and other operating costs. As the equipment is exchanged in our remaining markets, we expect to record additional gains.

    The Federal Communications Commission ("FCC") has permitted broadcast television station licensees to use their digital spectrum for a wide variety of services such as high-definition television programming, audio, data and other types of communication, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current analog channel. We currently have multicast channels broadcasting weather programs and an additional network affiliation and numerous other multicast opportunities are being reviewed. We have also affiliated with the Open Mobile Video Coalition, which contemplates launching a mobile video service using a portion of available digital spectrum. We continue to explore alternative uses of our digital spectrum.

    Legislation that guides the transition from analog to digital television broadcasting included a deadline of February 17, 2009 for completion of the transition to digital broadcasting and the return of the analog spectrum to the government. As a result, we accelerated the depreciation of certain equipment that may have a shorter useful life as a result of the digital conversion. The DTV deadline has been delayed to June 12, 2009.

    Compensation from networks to their affiliates in exchange for broadcasting of network programming has been sharply reduced in recent years and is expected be eliminated in the future. Our affiliation agreements with ABC and NBC expire on December 31, 2009. We will be negotiating renewal agreements during 2009, and renewal terms are not presently known.

Critical Accounting Policies and Estimates

        Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowances for doubtful accounts; program rights, barter and trade transactions; useful lives of property, plant and equipment; intangible assets; carrying value of investments; accrued liabilities; contingent liabilities; income taxes; pension benefits; and fair value of financial instruments and stock options. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable under the

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circumstances. Had we used different assumptions in determining our estimates, our reported results may have varied. The different types of estimates that are required to be made by us in the preparation of our consolidated financial statements vary significantly in the level of subjectivity involved in their determination. We have identified the estimates below as those which contain a relatively high level of subjectivity in their determination and, therefore, could have a more material effect upon our reported results if different assumptions were used.

        Impairment Testing of Intangible Assets—In performing our annual impairment testing of FCC licenses and goodwill, which are both considered to be intangible assets with indefinite useful lives, we must make a significant number of assumptions and estimates in determining the fair value. For purposes of impairment testing, FCC licenses are tested on a market by market basis, and goodwill is tested at the reporting unit level. We have determined that for goodwill testing, under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") and Emerging Issues Task Force ("EITF") Topic No. D-101: "Clarification of Reporting Unit Guidance in Paragraph 30 of FASB Statement No. 142" ("EITF Topic D-101"), we have a single reporting unit. To determine the fair value of the FCC licenses, we utilize a discounted cash flow model. To determine the fair value of our reporting unit, we also utilize a discounted cash flow model. Other valuation methods, such as a market approach utilizing market multiples are used to corroborate the discounted cash flow analysis performed at the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered potentially impaired. In determining fair value, management relies on and considers a number of factors, including but not limited to, future market revenue growth, operating profit margins, perpetual growth rates, market revenue share, weighted-average cost of capital, and market data and analysis, including market capitalization. Fair value determinations are sensitive to changes in the factors described above. There are inherent uncertainties related to these factors and judgments in applying them to the analysis of FCC and goodwill recoverability. For the year ended December 31, 2008, the book value of certain of our FCC licenses exceeded their fair value resulting in an impairment of $926.1 million on these assets. The fair value of the reporting unit exceeded the book value and as such, no goodwill impairment was indicated in 2008. See Note 4 for further detail.

        Pension Assumptions—In computing projected benefit obligations and the resulting pension expense, we are required to make a number of assumptions. To compute our projected benefit obligations as of the measurement date of December 31, 2008, we used a weighted average discount rate of 6.44% and an average rate of compensation increase of 3.43%. We used two methods to determine the weighted average discount rate as of the December 31, 2008 measurement date. For our largest three pension plans we constructed a portfolio of bonds to match the benefit payment stream that is projected to be paid from the Company's largest pension plan. The benefit payment stream is assumed to be funded from bond coupons and maturities as well as interest on the excess cash flows from the bond portfolio. This approach yielded a 6.5% discount rate for our largest three pension plans. For our smaller plans, we used a cash flow matching approach where the expected benefits payments under the plans are matched to published bond yield curves. The cash flow matching approach yielded a 6.25% discount rate on the smaller plans. To compute our pension expense in the year ended December 31, 2008, we assumed a discount rate of 6.5%, an expected long-term rate of return on plan assets of 7.75%, and an average rate of compensation increase of 4.0%. See Note 14 to the consolidated financial statements for further discussion on management's methodology for developing the expected long-term rate of return assumption. We consider the assumptions used in our determination of our projected benefit obligations and pension expense to be reasonable.

        The weighted-average assumptions used in computing our 2008 net pension expense of $11.4 million and projected benefit obligation as of December 31, 2008 of $211.1 million have a

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significant effect on the amounts reported. A one-percentage point change in each of the assumptions below would have the following effects upon net pension expense and projected benefit obligation, respectively, in the year ended and as of December 31, 2008:

 
  One Percentage Point Increase   One Percentage Point Decrease  
 
  Discount Rate   Expected long-
term rate of return
  Rate of compensation increase   Discount Rate   Expected long-
term rate of return
  Rate of compensation increase  
 
  (In thousands)
 

Net pension cost

    (3,529 )   (1,673 )   1,135     4,510     1,673     (1,223 )

Projected benefit obligation

    (28,808 )   N/A     4,949     33,156     N/A     (4,457 )

        Income Taxes—Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes ("SFAS 109"), which requires that deferred tax assets and liabilities be recognized for the differences in the book and tax basis of certain assets and liabilities using enacted tax rates. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion, or all of the deferred tax assets, will not be realized. Our estimates of income taxes and the significant items giving rise to deferred assets and liabilities are shown in Note 8 and reflect our assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to both timing and probability. Actual income taxes could vary from these estimates due to future changes in income tax law or reviews by federal and state tax authorities. We have considered these potential changes in accordance with SFAS 109 and Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), which requires the Company to record reserves for estimates of probable settlements of federal and state audits. Accordingly the Company has included $27.7 million in Other Liabilities (non-current) and $2.0 million in Accrued Liabilities (current) on our Consolidated Balance Sheet. The results of audits and negotiations with taxing authorities may affect the ultimate settlement of these issues and future income tax expense. Income tax benefit was $332.0 million or 39.6% of pre-tax loss in our Consolidated Statement of Operations for the year ended December 31, 2008. Deferred tax assets were approximately $4.7 million and deferred tax liabilities were approximately $470.2 million as of December 31, 2008.

        Investment Carrying Values—We have investments in unconsolidated affiliates, which are accounted for under the equity method if our equity interest is from 20% to 50%, and under the cost method if our equity interest is less than 20% and we do not exercise significant influence over operating and financial policies. We review the carrying value of investments on an ongoing basis and adjust them to reflect fair value, where necessary. See Note 3 to the consolidated financial statements. As part of our analysis and determination of the fair value of investments, we must make assumptions and estimates regarding expected future cash flows, which involve assessing the financial results, forecasts, and strategic direction of each company. During the year ended December 31, 2008, the Company wrote down its equity investment in Ripe Digital Entertainment, Inc. ("RDE") to zero, thus increasing its loss in equity earnings by $4.0 million. It also wrote down its $5.9 million cost investment in the Arizona Diamondbacks by $3.7 million to $2.25 million which it expects to realize during the first quarter of 2009 when a sale of its share is finalized. We consider the assumptions used in our determination of remaining investment carrying values to be reasonable.

Results of Operations

        Results of operations for the years ended December 31, 2008, 2007 and 2006 include (i) the results of our 25 television stations, which were owned for the entire period presented, and the management fees derived by the three television and two radio stations managed by us for the entire period presented; and (ii) the results of operations of WKCF-TV, after our acquisition of the station, on August 31, 2006.

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Year Ended December 31, 2008
Compared to Year Ended December 31, 2007

 
  For the years ended December 31,    
   
 
 
  2008   2007   $ Change   % Change  
 
  (In Thousands)
   
   
 

Total revenue

  $ 720,491   $ 755,738   $ (35,247 )   (4.7 )%

Station operating expenses:

                         

Salaries, benefits and other operating costs

    413,302     409,977     3,325     0.8 %

Amortization of program rights

    76,296     75,891     405     0.5 %

Depreciation and amortization

    56,130     55,262     868     1.6 %

Insurance settlement

    (11,549 )       (11,549 )   N/A  

Impairment Loss

    926,071         926,071     N/A  

Corporate, general and administrative expenses

    35,363     38,427     (3,064 )   (8.0 )%
                   

Operating income/(loss)

  $ (775,122 ) $ 176,181   $ (951,303 )   (540.0 )%

Interest expense

    50,984     63,023     (12,039 )   (19.1 )%

Interest income

    (74 )   (2,043 )   1,969     (96.4 )%

Interest expense, net—Capital Trust

    8,586     9,750     (1,164 )   (11.9 )%

Other expense

    3,731         3,731     N/A  
                   

Income/(loss) before income taxes and equity

  $ (838,349 ) $ 105,451   $ (943,800 )   (895.0 )%

Income tax expense/(benefit)

  $ (332,011 ) $ 38,207     (370,218 )   (969.0 )%

Equity in loss (income) of affiliates, net

    10,119     2,588     7,531     291.0 %
                   

Net income/(loss)

  $ (516,457 ) $ 64,656   $ (581,113 )   (898.8 )%
                   

        Total revenue includes:

    (i)
    cash advertising revenue, net of agency and national representatives' commissions;

    (ii)
    barter and trade revenue;

    (iii)
    retransmission consent revenue;

    (iv)
    net digital media revenue, which includes primarily Internet advertising revenue and, to a lesser extent, revenue from advertising on multicast channels;

    (v)
    network compensation; and

    (vi)
    other revenue, including management fees earned from Hearst.
 
  For the years ended December 31,    
   
 
 
  2008   2007   $ Change   % Change  
 
  (In thousands)
   
   
 

Net local & national ad revenue (excluding political)

  $ 533,995   $ 629,835   $ (95,840 )   (15.2 )%

Net political revenue

    93,002     32,054     60,948     190.1 %

Barter and trade revenue

    24,583     26,039     (1,456 )   (5.6 )%

Retransmission consent revenue

    26,907     21,634     5,273     24.4 %

Net digital media revenue

    20,864     20,871     (7 )   0.0 %

Network compensation

    8,158     9,312     (1,154 )   (12.4 )%

Other revenues

    12,982     15,993     (3,011 )   (18.8 )%
                   

Total revenue

  $ 720,491   $ 755,738   $ (35,247 )   (4.7 )%
                   

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        Total revenue in the year ended December 31, 2008 decreased $35.2 million or 4.7%. This decrease was primarily attributable to the following factors:

    (i)
    a $95.8 million decrease in net local & national ad revenues (excluding political) due to the current economic recession in many of our local markets, which resulted in declines in nearly all categories, led by the declines in the auto, retail, telecommunications, movies, restaurant, health services and furniture categories; partially offset by

    (ii)
    a $60.9 million increase in net political advertising revenue resulting from the normal, cyclical nature of the television broadcasting business, in which the demand for advertising by candidates running for political office significantly increases in even-numbered election years (such as 2008); and

    (iii)
    a $5.3 million increase in retransmission consent revenue due to increased fees for retransmission consent from a larger base of cable operators.

        Salaries, benefits and other operating costs were $413.3 million in the year ended December 31, 2008, as compared to $410.0 million in the year ended December 31, 2007, an increase of $3.3 million or 0.8%. This increase was primarily due to:

    (i)
    $5.7 million of severance costs associated with staff reductions; partially offset by

    (ii)
    $2.4 million increase in non-cash Nextel equipment gains which offset Salaries, benefits and other operating costs.

        Amortization of program rights was $76.3 million in the year ended December 31, 2008, as compared to $75.9 million in the year ended December 31, 2007, a slight increase over prior year.

        Depreciation and amortization was $56.1 million in the year ended December 31, 2008, as compared to $55.3 million in the year ended December 31, 2007, a slight increase of $0.8 million or 1.6%.

        Depreciation expense was $50.2 million in the year ended December 31, 2008, as compared to $48.6 million in the year ended December 31, 2007, an increase of $1.6 million or 3.3%. The increase in depreciation expense is primarily due the completion of some large projects in late 2007 and the addition of Nextel assets in 2008 that replaced fully depreciated analog equipment.

        Amortization was $6.0 and $6.7 million for the years ended December 31, 2008 and 2007, respectively.

        During the first quarter of 2008, the Company recognized an $11.5 million insurance settlement resulting from Hurricane Katrina as an offset to Station operating expenses.

        As noted above, the Company recorded an impairment charge on certain of its FCC licenses of $926.1 million in the fourth quarter of 2008.

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        Corporate, general and administrative expenses were $35.4 million in the year ended December 31, 2008, as compared to $38.4 million in the year ended December 31, 2007, a decrease of $3.1 million or 8.0%. In 2007, the Company incurred $3.9 million in legal and financial advisory expenses related to a tender offer by the Hearst Corporation. No similar costs were incurred in 2008.

        Operating loss was $775.1 million in the year ended December 31, 2008, as compared to operating income of $176.2 million in the year ended December 31, 2007, a decrease of $951.3 million. This change in operating income/(loss) was due to the items discussed above.

        Interest expense was $51.0 million in the year ended December 31, 2008, as compared to $63.0 million in the year ended December 31, 2007, a decrease of $12.0 million or 19.1%. This decrease was primarily due to:

    (i)
    the payments of $90.0 million principal amount on our private placement debt in each of December 2008 and December 2007;

    (ii)
    the repayment of our $125.0 million 7.0% senior notes on November 15, 2007; and

    (iii)
    a decrease in the underlying LIBOR interest rate on our line of credit; partially offset by

    (iv)
    an increase in interest expense due to net borrowings of $88 million on our credit facility in 2008.

        Interest income was $0.1 million in the year ended December 31, 2008, as compared to $2.0 million in the year ended December 31, 2006, a decrease of $1.9 million or 96.4%. This decrease is due to lower cash balances on average in 2008 as compared to the same period in 2007 and falling interest rates in 2008.

        Interest expense, net—Capital Trust was $8.6 million in the year ended December 31, 2008, as compared to $9.8 million in the year ended December 31, 2007, a decrease of $1.2 million, resulting from reduced interest in 2008 due to the redemption of the Series B Debentures on June 23, 2008, partially offset by the $3.9 million premium paid on the redemption.

        Other expense was $3.7 million for the year ended December 31, 2008. In December 2008, the Company recorded an impairment of $3.7 million in the value of our investment in the Arizona Diamondbacks.

        The income tax benefit was $332.0 million in the year ended December 31, 2008, as compared to an expense of $38.2 million in the year ended December 31, 2007, a decrease of $370.2 million. This decrease in income tax expense was primarily due to a reduction of $329.0 million in deferred tax liabilities as the result of the Company recording a non-cash impairment charge to write down intangible assets for the year ended December 31, 2008. Deferred tax assets were approximately $4.7 million and deferred tax liabilities were approximately $470.2 million as of December 31, 2008.

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        The effective tax rate benefit for the year ended December 31, 2008 was 39.6% as compared to a 36.2% effective tax rate expense for the year ended December 31, 2007. The Company's effective income tax rate difference was a result of the decrease in income/(loss) before income taxes due to the 2008 non-cash impairment charges, from an income of $105.4 million for the year ended December 31, 2007 to a loss of $838.4 million for the year ended December 31, 2008. The effective tax rate was also impacted by tax benefits recognized in the year ended December 31, 2008, due to the settlement of certain tax return examinations and a reduction in a capital loss valuation allowance as a result of the utilization of certain capital loss carryforwards. The Company's effective tax rate for the year ended December 31, 2008 without giving effect to the non-cash impairment charge would have been approximately 27.8%.

        The Company estimates its annual effective tax rate for the year ended December 31, 2009 to be approximately 38%.

        Equity in loss (income) of affiliates, net was a $10.1 million loss in the year ended December 31, 2008, as compared to a loss of $2.6 million in the year ended December 31, 2007, an increase in the loss of $7.5 million. See Note 3 to the consolidated financial statements. This increased loss represents our share of losses in Internet Broadcasting Systems, Inc. ("Internet Broadcasting") and in RDE, as well as the $4.0 million write off of our investment in RDE.

        Net loss was $516.5 million in the year ended December 31, 2008, as compared to income of $64.7 million in the year ended December 31, 2007, a change of $581.1 million. This change was due to the items discussed above.


Year Ended December 31, 2007
Compared to Year Ended December 31, 2006

 
  For the years ended December 31,    
   
 
 
  2007   2006   $ Change   % Change  
 
  (In Thousands)
   
   
 

Total revenue

  $ 755,738   $ 785,402   $ (29,664 )   (3.8 )%

Station operating expenses:

                         
 

Salaries, benefits and other operating costs

    409,977     397,604     12,373     3.1 %
 

Amortization of program rights

    75,891     68,601     7,290     10.6 %
 

Depreciation and amortization

    55,262     59,161     (3,899 )   (6.6 )%

Corporate, general and administrative expenses

    38,427     31,261     144,920     463.6 %
                   

Operating income

  $ 176,181   $ 228,775   $ (228,775 )   (100.0 )%

Interest expense

    63,023     66,103     (68,146 )   (103.1 )%

Interest income

    (2,043 )   (6,229 )   (15,979 )   256.5 %

Interest expense, net—Capital Trust

    9,750     9,750     9,750     100.0 %

Other expense

        2,501     102,950     4116.4 %
                   

Income before income taxes and equity

  $ 105,451   $ 156,650   $ (156,650 )   (100.0 )%

Income tax expense

    38,207     58,410     (55,822 )   (95.6 )%

Equity in income of affiliates, net

    2,588     (483 )   (483 )   100.0 %
                   

Net income

  $ 64,656   $ 98,723   $ (98,723 )   (100.0 )%
                   

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  For the years ended December 31,    
   
 
 
  2007   2006   $ Change   % Change  
 
  (In thousands)
   
   
 

Net local & national ad revenue (excluding political)

  $ 629,835   $ 614,257   $ 15,578     2.5 %

Net political revenue

    32,054     88,040     (55,986 )   (63.6 )%

Barter and trade revenue

    26,039     24,471     1,568     6.4 %

Retransmission consent revenue

    21,634     17,908     3,726     20.8 %

Net digital media revenue

    20,871     15,513     5,358     34.5 %

Network compensation

    9,312     9,810     (498 )   (5.1 )%

Other revenues

    15,993     15,403     590     3.8 %
                   

Total revenue

  $ 755,738   $ 785,402   $ (29,664 )   (3.8 )%
                   

        Total revenue in the year ended December 31, 2007 decreased $29.7 million or 3.8%. This decrease was primarily attributable to the following factors:

    (i)
    a $56.0 million decrease in net political advertising revenue resulting from the normal, cyclical nature of the television broadcasting business, in which the demand for advertising by candidates running for political office significantly decreases in odd-numbered election years (such as 2007);

    (ii)
    a decrease in the automotive, financial services and furniture, housewares and movies categories; partially offset by

    (iii)
    a $3.7 million increase in retransmission consent revenue; and

    (iv)
    a $5.4 million increase in net digital media revenue;

    (v)
    an increase in the pharmaceuticals, attractions, retail and telecommunications categories; and

    (vi)
    an increase in net ad revenue due to the inclusion of results of operations from WKCF-TV.

    Salaries, benefits and other operating costs.

        Salaries, benefits and other operating costs were $410.0 million in the year ended December 31, 2007, as compared to $397.6 million in the year ended December 31, 2006, an increase of $12.4 million or 3.1%. This increase was primarily due to:

    (i)
    a $5.2 million increase in compensation, pension and employee benefits expense primarily due to an increase in salaries and commissions;

    (ii)
    a $4.1 million increase in digital media expenses as a result of our continued focus on digital media;

    (iii)
    an increase in expenses due to the acquisition of WKCF-TV on August 31, 2006;

    (iv)
    a $1.3 million increase in bad debt expense resulting from the recession in the economy; partially offset by

    (v)
    a $2.3 million non-cash gain which primarily represents the difference between the fair market value of the digital equipment we received and the book value of the analog equipment exchanged by Nextel.

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        Amortization of program rights was $75.9 million in the year ended December 31, 2007, as compared to $68.6 million in the year ended December 31, 2006, an increase of $7.3 million or 10.6%. This increase was primarily due to:

    (i)
    renewal of popular shows at higher rates; and

    (ii)
    an increase in amortization due to the purchase of WKCF-TV. Programming expense is a more significant component of operating expense for WKCF-TV because the CW network provides fewer hours of programming than ABC, NBC or CBS.

        Depreciation and amortization was $55.3 million in the year ended December 31, 2007, as compared to $59.2 million in the year ended December 31, 2006, a decrease of $3.9 million or 6.6%. Depreciation expense was $48.6 million in the year ended December 31, 2007, as compared to $52.8 million in the year ended December 31, 2006, a decrease of $4.2 million or 8.0%. The decrease in depreciation expense is primarily due to depreciation in full of certain fixed assets, including our corporate office leasehold improvements, partially offset by additional depreciation from WKCF-TV, which we acquired on August 31, 2006.

        Amortization was $6.7 million and $6.3 million for the years ended December 31, 2007 and 2006, respectively.

        Corporate, general and administrative expenses were $38.4 million in the year ended December 31, 2007, as compared to $31.3 million in the year ended December 31, 2006, an increase of $7.2 million or 22.9%. The increase was primarily due to:

    (i)
    $3.9 million in legal and financial advisory expenses related to the Offer;

    (ii)
    a $2.5 million increase related to employee compensation, pension and benefit expense, a portion of which is related to our investment in our digital media initiatives;

    (iii)
    a $0.3 million increase in recruiting and relocation expenses; and

    (iv)
    a $0.4 million increase in digital operations expenses.

        Operating income was $176.2 million in the year ended December 31, 2007, as compared to $228.8 million in the year ended December 31, 2006, a decrease of $52.6 million or 23.0%. This net decrease in operating income was due to the items discussed above.

        Interest expense was $63.0 million in the year ended December 31, 2007, as compared to $66.1 million in the year ended December 31, 2006, a decrease of $3.1 million or 4.7%. This decrease was primarily due to:

    (i)
    the payments of $90.0 million principal amount on our private placement debt in each of December 2007 and December 2006; and

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    (ii)
    the repayment of our $125.0 million 7.0% senior notes on November 15, 2007; partially offset by

    (iii)
    an increase in interest expense due to the borrowing of $141 million on our credit facility in 2007.

        Interest income was $2.0 million in the year ended December 31, 2007, as compared to $6.2 million in the year ended December 31, 2006, a decrease of $4.2 million or 67.2%. This decrease is due to lower cash balances on average in 2007 as compared to the same period in 2006.

        Interest expense, net, to the Capital Trust, was $9.8 million for the years ended December 31, 2007 and 2006.

        Other expense was $2.5 million for the year ended December 31, 2006. In July 2006, USDTV filed for Chapter 7 bankruptcy and as a result, the Company wrote off its investment of $2.5 million.

        Income tax expense was $38.2 million in the year ended December 31, 2007, as compared to $58.4 million in the year ended December 31, 2006, a decrease of $20.2 million. This decrease in income tax expense was primarily due to a decrease in income before income taxes from $156.7 million for the year ended December 31, 2006 to $105.4 million for the year ended December 31, 2007.

        The effective tax rate for the year ended December 31, 2007 was 36.2% as compared to 37.3% for the year ended December 31, 2006. The Company's effective income tax rate decreased primarily due to the decrease in income before income taxes from $156.7 million for the year ended December 31, 2006 to $105.4 million for the year ended December 31, 2007.

        Equity in loss (income) of affiliates, net was a $2.6 million loss in the year ended December 31, 2007, as compared to income of $0.5 million in the year ended December 31, 2006, a decrease of $3.1 million. See Note 3 to the consolidated financial statements. For the year ended December 31, 2007, our share of income in Internet Broadcasting was more than offset by our share of losses RDE.

        Net income was $64.7 million in the year ended December 31, 2007, as compared to $98.7 million in the year ended December 31, 2006, a decrease of $34.1 million or 34.5%. This decrease was due to the items discussed above.

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Liquidity and Capital Resources

 
  For the years ended December 31,    
   
   
 
 
  2008 vs 2007
$ Change
  2008 vs 2007
% Change
  2007 vs 2006
% Change
 
(in thousands)
  2008   2007   2006  

Net cash provided by operating activities

  $ 193,319   $ 135,744   $ 200,384   $ 57,575     42 %   (32 )%

Net cash used in investing activities

  $ (31,903 ) $ (58,433 ) $ (282,893 ) $ 26,530     (45 )%   (79 )%

Net cash used in financing activities

  $ (160,336 ) $ (89,957 ) $ (18,946 ) $ (70,379 )   78 %   375 %

Cash and cash equivalents

 
$

7,044
 
$

5,964
 
$

18,610
 
$

1,080
   
18

%
 
(68

)%

Cash paid during the year for:

                                     

Capital Expenditures

  $ 35,422   $ 55,802   $ 60,439   $ (20,380 )   (37 )%   (8 )%

Program Payments

  $ 73,479   $ 73,565   $ 67,817   $ (86 )   0 %   8 %

Interest

  $ 50,237   $ 62,477   $ 65,144   $ (12,240 )   (20 )%   (4 )%

Interest on Note payable to Capital Trust

  $ 8,586   $ 9,750   $ 9,750   $ (1,164 )   (12 )%   0 %

Taxes, net of refunds

  $ 7,691   $ 36,955   $ 38,518   $ (29,264 )   (79 )%   (4 )%

Dividends paid on common stock

  $ 26,289   $ 26,206   $ 25,954   $ 83     0 %   1 %

Series A Common Stock repurchases

  $ 1,091   $ 5,273   $ 2,780   $ (4,182 )   (79 )%   90 %

        As of December 31, 2008, the Company's cash and cash equivalents balance was $7.0 million, as compared to $6.0 million as of December 31, 2007. The net increase in cash and cash equivalents of $1.0 million during 2008 was due to the factors described below under Operating Activities, Investing Activities, and Financing Activities.

        Net cash provided by operating activities was approximately $193.3 million and $135.7 million in the years ended December 31, 2008 and 2007, respectively. The increase in net cash provided by operating activities of $57.6 million in the year ended December 31, 2008 was primarily due to an increase in our political advertising in 2008, for which we receive cash in advance, lower tax and interest payments in 2008 and the $11.5 million insurance settlement received in 2008.

        Net cash used in investing activities was approximately $31.9 million and $58.4 million in the years ended December 31, 2008 and 2007, respectively. The decrease in net cash used in investing activities of $26.5 million in the year ended December 31, 2008 was primarily due to:

    (i)
    Cash proceeds of $4.0 million resulting from the redemption of the common securities issued by the Capital Trust;

    (ii)
    Cash proceeds from insurance of $2.9 million resulting from losses incurred during Hurricane Katrina; and

    (iii)
    a decrease in capital expenditures from $55.8 million in the year ended December 31, 2007 to $35.4 million during the same period in 2008.

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        Net cash used in financing activities was approximately $160.3 million and $90.0 million in the years ended December 31, 2008 and 2007, respectively. The change in cash used in financing activities of $70.4 million in the year ended December 31, 2008 was primarily due to:

    (i)
    Cash used in the redemption of the notes payable to the Capital Trust of $134.0 million in the year ended December 31, 2008;

    (ii)
    Net borrowings for $88.0 in the year ended December 31, 2008, compared to $141.0 million in the year ended December 31, 2007;

    (iii)
    Cash used to repay the senior notes and private placement of $125 million in the year ended December 31, 2007; and

    (iv)
    A reduction of $12.4 million in cash receipts from stock option exercises.

        The changes in debt in the years ended December 31, 2008 and 2007 were as follows (in thousands):

 
  Revolving Credit
Facility
  Senior Notes   Private Placement
Debt
  Capital Lease
Obligations
  Total   Capital Trust  

Balance at December 31, 2006

  $ 100,000   $ 407,110   $ 360,000   $ 60   $ 867,170   $ 134,021  

Payments

        (125,000 )   (90,000 )   (44 )   (215,044 )    

Borrowings

    141,000                 141,000      
                           

Balance at December 31, 2007

  $ 241,000   $ 282,110   $ 270,000   $ 16   $ 793,126   $ 134,021  
                           

Payments

    (337,000 )       (90,000 )   (16 )   (427,016 )   (134,021 )

Borrowings

    425,000                 425,000      
                           

Balance at December 31, 2008

  $ 329,000   $ 282,110   $ 180,000   $   $ 791,110   $  
                           

        Certain of our debt obligations contain financial and other covenants and restrictions on the Company. None of these covenants or restrictions includes any triggers explicitly tied to the Company's credit ratings or stock price. Pursuant to our revolving credit facility and private placement debt agreements we must maintain minimum interest coverage and a minimum consolidated net worth and cannot exceed a maximum leverage ratio. We are in compliance with all such covenants and restrictions as of December 31, 2008. However, there can be no assurance that we will be able to stay in compliance if our financial performance declines and our credit statistics (including our leverage ratio) deteriorate. In addition, further impairment charges could negatively impact our net worth covenant. The Company's ability to meet its covenants may also be affected by events beyond its control, including a deterioration of current economic and industry conditions. Events of default, if not waived or cured, could result in the acceleration of the maturity of the Company's debt. Because of the current volatility in U.S. credit markets, obtaining new financing arrangements or amending existing ones would likely result in significantly higher fees and ongoing interest costs as compared to those under the Company's current arrangements. In addition, we may be forced to take actions that will enable us to meet our covenants in the near term but may adversely affect our earnings in the longer term.

        All of our long-term debt obligations as of December 31, 2008, exclusive of capital lease obligations and the credit facility, bear interest at a fixed rate. Our credit ratings for long-term debt obligations, respectively, were BBB- by Standard & Poor's and Fitch Ratings, and Baa3 by Moody's Investors Service, as of December 31, 2008. Such credit ratings are considered to be investment grade. Our controlling stockholder, Hearst, owns 20% of Fitch Ratings.

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        In November 2006, we increased our five-year unsecured revolving credit facility to $500 million. The credit facility, which matures on April 15, 2010, can be used for general corporate purposes including working capital, investments, acquisitions, debt repayment and dividend payments. Outstanding principal balances under the credit facility will bear interest at our option at LIBOR or the alternate base rate ("ABR"), plus the applicable margin. The applicable margin for ABR loans is zero. The applicable margin for LIBOR loans varies between 0.50% and 1.00% depending on the ratio of our total debt to earnings before interest, taxes, depreciation and amortization as defined by the credit agreement (the "Leverage Ratio"). The ABR is the greater of (i) the prime rate or (ii) the Federal Funds Effective Rate in effect plus 0.5%. We are required to pay a commitment fee based on the unused portion of the credit facility. The commitment fee ranges from 0.15% to 0.25% depending on our Leverage Ratio. The credit facility is a general unsecured obligation of the Company. We have borrowed $329.0 million under the credit facility as of December 31, 2008.

        During 2008, our Board of Directors declared quarterly cash dividends of $0.07 per share on our Series A and Series B Common Stock for a total amount of $26.3 million. Included in this amount was $21.2 million payable to Hearst. During 2007, our Board of Directors declared quarterly cash dividends on our Series A and Series B Common Stock for a total amount of $26.2 million. Included in this amount was $19.3 million payable to Hearst. See Note 12 to the consolidated financial statements.

Contractual Obligations

        The following table summarizes our future cash obligations as of December 31, 2008 under existing debt repayment schedules, the note payable to Capital Trust, non-cancelable leases, future payments for program rights, employment and talent contracts, minimum pension contributions, expected payments on our unrecognized tax benefits and common stock dividends:

 
  2009   2010   2011   2012   2013   Thereafter  

Total debt(1)

  $ 90,000   $ 419,000   $   $   $   $ 282,110  

Net non-cancelable operating lease obligations

    7,017     4,548     2,682     2,412     2,399     7,521  

Program rights

    83,155     66,911     59,350     34,807     22,017     4,760  

Employee, talent and other contracts

    75,381     40,074     13,135     3,385     1,048     173  

Minimum pension contributions(2)

    10,600                      

Unrecognized tax benefits(3)

    2,000                      

Common stock dividend(4)

    6,585                      
                           

  $ 274,738   $ 530,533   $ 75,167   $ 40,604   $ 25,464   $ 294,564  
                           

(1)
Excludes interest.

(2)
Future minimum pension contributions in years subsequent to 2009 are not determinable at this time, but will be required.

(3)
The non-current portion of the unrecognized tax benefits is not included in future payment obligations for the next 5 years as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time.

(4)
Reflects dividend declared on December 11, 2008 and paid on January 15, 2009.

        The above table does not include cash requirements for the payment of any dividends that our Board of Directors may decide to declare in the future on our Series A and Series B Common Stock. See Note 9 to the consolidated financial statements.

        We anticipate that our primary sources of cash, which include current cash balances, cash provided by operating activities, and amounts available under our credit facility, will be sufficient to finance the

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operating and working capital requirements of our stations, as well as our debt service requirements, anticipated capital expenditures, and other obligations of the Company for the next 12 months. However, if volatility in the U.S. credit markets persists and/or economic and industry conditions continue to deteriorate or do not improve, there can be no assurance that such sources of cash will not be adversely affected. We are currently evaluating various financing alternatives available to the Company. Such alternatives may include accessing one or more capital markets, including bank credit facilities, public bond offerings, private placements or such other markets as may be deemed appropriate. The purpose of such financing, or financings, if completed, would be to provide liquidity to the Company, repay or refinance the $90 million payment on our private placement debt due December 2009, and to repay or refinance the current revolving credit facility which matures April 2010.

Impact of Inflation

        The impact of inflation on our operations has not been significant to date. There can be no assurance, however, that a high rate of inflation in the future would not have an adverse impact on our operating results.

Off-Balance Sheet Arrangements

        Other than contractual commitments and other legal contingencies incurred in the normal course of business, agreements for future barter and program rights not yet available for broadcast as of December 31, 2008, and employment contracts for key employees discussed above, the Company does not have any off-balance sheet financings or liabilities. The Company does not have any majority-owned subsidiaries that are not included in the consolidated financial statements, nor does the Company have any interests in, or relationships with, any special-purpose entities that are not reflected in the consolidated financial statements.

New Accounting Pronouncements

        In November 2008, the FASB ratified EITF No. 08-6, "Equity Method Investment Accounting Considerations" ("EITF 08-6"). EITF 08-6 clarifies that the initial carrying value of an equity method investment should be determined in accordance with SFAS No. 141(R). Other-than-temporary impairment of an equity method investment should be recognized in accordance with FSP No. APB 18-1, "Accounting by an Investor for Its Proportionate Share of Accumulated Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB Opinion No. 18 upon a Loss of Significant Influence." EITF 08-6 is effective on a prospective basis in fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years. The Company does not believe the adoption of EITF 08-6 will have a material impact on its financial position, cash flows or results of operations.

        In November 2008, the FASB ratified EITF 08-7, "Accounting for Defensive Intangible Assets," ("EITF 08-7"). EITF 08-7 applies to defensive assets which are acquired intangible assets which the acquirer does not intend to actively use, but intends to hold to prevent its competitors from obtaining access to the asset. EITF 08-7 clarifies that defensive intangible assets are separately identifiable and should be accounted for as a separate unit of accounting in accordance with SFAS No. 141(R) and SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). EITF 08-7 is effective for intangible assets acquired in fiscal years beginning on or after December 15, 2008. The Company will apply the guidance of the EITF to intangible assets acquired after January 1, 2009. The impact of adopting the EITF will be dependent on the circumstances of future transactions.

        In April 2008, the FASB issued FSP FAS No. 142-3, "Determination of the Useful Life of Intangible Assets." The FSP amends the factors an entity should consider in developing renewal or

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extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, "Goodwill and Other Intangible Assets" and requires additional disclosure regarding renewals. The Company will apply the guidance of the FSP to intangible assets acquired after January 1, 2009. The impact of adopting the FSP will be dependent on the circumstances of future transactions.

        In December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS 160"), which establishes new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. SFAS 160 requires that noncontrolling interests be reported as a component of equity in a company's consolidated financial statements and that losses will be allocated to these interests even when such allocation might result in a deficit balance. SFAS 160 is effective for all fiscal years beginning after December 15, 2008 and interim periods within those years. The Company does not believe the adoption of SFAS 160 will have a material impact on our financial position, cash flows or results of operations.

        In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS 141(R)"), to replace SFAS No. 141, Business Combinations. SFAS 141(R) requires use of the acquisition method of accounting, defines the acquirer, establishes the acquisition date and broadens the scope to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adopting SFAS 141(R) will be dependent on the future business combinations that we may pursue after its effective date.

        In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 became effective for the Company on January 1, 2008. The Company did not elect optional fair value measurement for any of its financial assets or liabilities. As such, the adoption of SFAS 159 did not have a material impact on the Company's financial position, cash flows or results of operations

        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"), which applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop the assumptions that market participants would use when pricing an asset or liability. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, FASB issued FSP FAS No. 157-2, which deferred the effective date of FAS No. 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS 157 for financial assets did not have a material impact on the Company's financial position, cash flows or results of operations. The Company is evaluating the impact of the adoption of SFAS 157 for nonfinancial assets and liabilities.

        In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active, ("FSP 157-3"), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value of financial assets in an inactive market. FSP 157-3 is effective immediately and applies to the Company's September 30, 2008 financial statements. The application of the provisions of FSP 157-3 did not have a material impact on the Company's financial position, cash flows or results of operations.

        In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans ("SFAS 158"), which requires employers to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare and other

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postretirement plans in their financial statements. SFAS 158 requires employers to recognize an asset or liability for a plan's overfunded or underfunded status, measure a plan's assets and obligations that determine its funded status as of the end of the employer's fiscal year and recognize in comprehensive income changes in the funded status of a defined benefit postretirement plan in the year in which changes occur. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective for fiscal years ending after December 15, 2006. The Company has adopted the requirement to recognize the funded status of a benefit plan as of December 31, 2006. As a result, Accumulated other comprehensive loss increased by $26.4 million, net of tax, as of December 31, 2006. Additionally, the requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year end is effective for all years ending after December 15, 2008. The Company plans to utilize the "15-month" method to change the measurement date from September 30 to December 31 in 2008. The Company recorded a decrease to Retained earnings of $1.8 million, net of taxes and an increase of $0.3 million, net of tax, in Accumulated other comprehensive loss due to the change.

ITEM 7A:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Our long-term debt obligations as of December 31, 2008 are at 1) fixed interest rates and therefore are not sensitive to fluctuations in interest rates and 2) variable rate debt at LIBOR or the alternative base rate plus the applicable margin. See Note 6 to the consolidated financial statements. The following table presents the fair value of long-term debt obligations (excluding capital lease obligations) as of December 31, 2008 and 2007 and the future cash flows by expected maturity dates, based upon outstanding principal balances as of December 31, 2008. See Note 15 to the consolidated financial statements.

 
  December 31, 2008  
 
  Expected Maturity    
 
 
  Fair
Value
 
 
  2009   2010   2011   2012   2013   Thereafter   Total  

Long-term debt:

                                                 

Fixed rate:

                                                 
 

Senior Notes

  $   $   $   $   $   $ 282,110   $ 282,110   $ 200,339  
 

Private Placement Debt

  $ 90,000   $ 90,000   $   $   $       $ 180,000   $ 175,700  

Variable rate debt:

                                                 
 

Revolving Credit Facility

      $ 329,000   $               $ 329,000   $ 329,000  

        The annualized weighted average interest rate for our fixed interest long-term debt outstanding is 7.2% in each of the years ended December 31, 2008, 2007 and 2006. The annualized weighted average interest rate for our variable interest long-term debt outstanding is 3.7% and 5.9% in the years ended December 31, 2008 and 2007, respectively. See Note 6 to the consolidated financial statements.

        Our debt obligations contain certain financial and other covenants and restrictions on the Company. Pursuant to our revolving credit facility and Private Placement debt agreements we must maintain minimum interest coverage and a minimum consolidated net worth and cannot exceed a maximum leverage ratio. Such covenants and restrictions do not include any triggers of default related to our overall credit rating or stock prices. As of December 31, 2008, we were in compliance with all such covenants and restrictions, but can give no assurance that the covenants will continue to be met.

        Our credit facility stipulates that an event of default exists at such time that Hearst's (and certain of its affiliates') equity ownership in us becomes less than 35% of the total equity which gives the banks the right to terminate commitments and declare outstanding loans due and payable.

        As of December 31, 2008, we are not involved in any derivative financial instruments. However, we may consider certain interest rate risk strategies in the future.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Hearst-Argyle Television, Inc.:

        We have audited the accompanying consolidated balance sheets of Hearst-Argyle Television, Inc. and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited the Company's internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements and the financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and the financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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        As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plan, and Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Hearst-Argyle Television, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/S/ DELOITTE & TOUCHE LLP

New York, New York
February 27, 2009

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HEARST-ARGYLE TELEVISION, INC.

Consolidated Balance Sheets

 
  December 31, 2008   December 31, 2007  
 
  (In thousands, except share data)
 

Assets

             

Current assets:

             
 

Cash and cash equivalents

  $ 7,044   $ 5,964  
 

Accounts receivable, net of allowance for doubtful accounts of $3,058 and $2,450 in 2008 and 2007, respectively

    121,746     164,764  
 

Program and barter rights

    63,492     65,097  
 

Deferred income tax asset

    4,707     4,794  
 

Other

    5,169     5,698  
           
   

Total current assets

  $ 202,158   $ 246,317  
           

Property, plant and equipment:

             
 

Land, building and improvements

  $ 183,396   $ 175,746  
 

Broadcasting equipment

    440,600     414,775  
 

Office furniture, equipment and other

    55,550     52,502  
 

Construction in progress

    2,398     13,325  
           

    681,944     656,348  
 

Less accumulated depreciation

    (385,474 )   (350,377 )
           

Property, plant and equipment, net

  $ 296,470   $ 305,971  
           

Intangible assets, net

    1,581,315     2,513,340  

Goodwill

    789,526     816,728  
           
   

Total intangible assets and goodwill, net

  $ 2,370,841   $ 3,330,068  
           

Other assets:

             
 

Deferred financing costs, net of accumulated amortization of $21,414 and $20,120 in 2008 and 2007, respectively

  $ 6,706   $ 8,000  
 

Investments

    26,974     41,948  
 

Program and barter rights

    8,367     8,399  
 

Pension and other assets

    2,198     18,273  
           
   

Total other assets

  $ 44,245   $ 76,620  
           
   

Total assets

  $ 2,913,714   $ 3,958,976  
           

Liabilities and Stockholders' Equity

             

Current liabilities:

             
 

Current portion of long-term debt

  $ 90,000   $ 90,016  
 

Accounts payable

    12,982     15,103  
 

Accrued liabilities

    48,072     48,376  
 

Program and barter rights payable

    64,743     64,687  
 

Payable to The Hearst Corporation

    9,483     5,747  
 

Other liabilities

    4,510     6,482  
           
   

Total current liabilities

  $ 229,790   $ 230,411  
           

Program and barter rights payable, noncurrent

    15,728     15,587  

Long-term debt

    701,110     703,110  

Note payable to Capital Trust

        134,021  

Deferred income tax liability

    470,158     856,790  

Pension and other liabilities

    123,305     66,658  
           
   

Total noncurrent liabilities

  $ 1,310,301   $ 1,776,166  
           

Commitments and contingencies

             

Stockholders' equity:

             
 

Preferred stock, par value $0.01 per share, 1,000,000 shares authorized

         
 

Series A common stock, par value $0.01 per share, 200,000,000 shares authorized at December 31, 2008 and 2007, and 57,127,725 and 57,273,075 shares issued and outstanding at December 31, 2008 and 2007, respectively

    571     573  
 

Series B common stock, par value $0.01 per share, 100,000,000 shares authorized at December 31, 2008 and 2007, and 41,298,648 shares issued and outstanding at December 31, 2008 and 2007

    413     413  

Additional paid-in capital

    1,347,833     1,336,786  

Retained earnings

    198,694     743,264  

Accumulated other comprehensive loss, net of tax benefit of $37,495 and $8,101 in 2008 and 2007, respectively

    (56,714 )   (12,580 )

Treasury stock, at cost, 4,773,029 and 4,724,029 shares of Series A common stock at December 31, 2008 and 2007, respectively

    (117,174 )   (116,057 )
           
   

Total stockholders' equity

  $ 1,373,623   $ 1,952,399  
           
   

Total liabilities and stockholders' equity

  $ 2,913,714   $ 3,958,976  
           

See notes to consolidated financial statements.

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HEARST-ARGYLE TELEVISION, INC.

Consolidated Statements of Operations

 
  Years Ended December 31,  
 
  2008   2007   2006  
 
  (In thousands, except per share data)
 

Total revenue

  $ 720,491   $ 755,738   $ 785,402  

Station operating expenses:

                   
 

Salaries, benefits and other operating costs

    413,302     409,977     397,604  
 

Amortization of program rights

    76,296     75,891     68,601  
 

Depreciation and amortization

    56,130     55,262     59,161  
 

Insurance settlement

    (11,549 )        
 

Impairment loss

    926,071          

Corporate, general and administrative expenses

    35,363     38,427     31,261  
               

Operating (loss) income

  $ (775,122 ) $ 176,181   $ 228,775  

Interest expense

    50,984     63,023     66,103  

Interest income

    (74 )   (2,043 )   (6,229 )

Interest expense, net—Capital Trust

    8,586     9,750     9,750  

Other expense

    3,731         2,501  
               

(Loss) Income before income taxes and equity earnings

  $ (838,349 ) $ 105,451   $ 156,650  

Income tax (benefit) expense

    (332,011 )   38,207     58,410  

Equity in loss (income) of affiliates, net

    10,119     2,588     (483 )
               

Net (loss) income

  $ (516,457 ) $ 64,656   $ 98,723  
               

(Loss) Income per common share—basic:

  $ (5.52 ) $ 0.69   $ 1.06  
               

Number of common shares used in the calculation

    93,559     93,490     92,745  
               

(Loss) Income per common share—diluted:

  $ (5.52 ) $ 0.69   $ 1.06  
               

Number of common shares used in the calculation

    93,559     94,299     93,353  
               

Dividends per common share—declared

  $ 0.28   $ 0.28   $ 0.28  
               

See notes to consolidated financial statements.

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HEARST-ARGYLE TELEVISION, INC.

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

(In thousands, except per share data)
  Series A   Series B   Additional Paid in Capital   Retained Earnings   Accumulated Other Comprehensive Loss   Treasury Stock   Total   Total Comprehensive (Loss) Income  

Balances—December 31, 2005

  $ 557   $ 413   $ 1,291,388   $ 643,414   $ (6,309 ) $ (108,004 ) $ 1,821,459        

Net income

                98,723             98,723   $ 98,723  

Additional minimum pension liability, net of tax benefit of $238

                    (360 )       (360 )   (360 )
                                                 

Change in funded status of pension and post-retirement benefit plans, net of income taxes of $17,519

                    (26,440 )       (26,440 ) $ 98,363  
                                                 

Dividends on common stock ($0.28 per share)

                (25,991 )           (25,991 )      

Employee stock purchase plan proceeds

    1         2,125                 2,126        

Stock options exercised

    5         7,705                 7,710        

Tax benefit from stock plans

            784                 784        

Stock based compensation expense

            7,576                 7,576        

Treasury stock purchased—Series A Common Stock (129,150 shares)

                            (2,780 )   (2,780 )
                                     

Balances—December 31, 2006

  $ 563   $ 413   $ 1,309,578   $ 716,146   $ (33,109 ) $ (110,784 ) $ 1,882,807        

Net income

                64,656             64,656   $ 64,656  

Change in funded status of pension and post-retirement benefit plans, net of income taxes of $13,573

                    20,529         20,529     20,529  
                                                 

Dividends on common stock ($0.28 per share)

                (26,252 )           (26,252 ) $ 85,185  
                                                 

Employee stock purchase plan proceeds

    1         2,150                 2,151        

Stock options exercised

    7         13,376                 13,383        

Restricted stock issuances

    2         (2 )                      

Tax benefit from stock plans

            1,530                 1,530        

Other tax adjustments

            1,967     (11,286 )           (9,319 )      

Stock based compensation expense

            8,187                 8,187        

Treasury stock purchased—Series A Common Stock (270,000 shares)