Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

 

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

 

**FOR THEQUARTERLY PERIOD ENDED SEPTEMBER 30, 2008**

 

**or**

 

**o****  ****TRANSITION REPORT PURSUANT TO SECTION 13OR 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 ofRegistrant as Specified in Its Charter)

 

| **Delaware**                                                      | ** ** | **74-2717523**                                             |
|-------------------------------------------------------------------|------------|------------------------------------------------------------|
| (State  or Other Jurisdiction of

Incorporation  or Organization) |       | (I.R.S. Employer  Identification No.)            |
| ** **                                                        | ** ** | ** **                                                 |
| **300 West  57****th**** St**

**New York,  NY 10019**       | ** ** | **(212)  887-6800**                                        |
| (Address  of Principal Executive Offices)                         |       | (Registrant’s  Telephone Number, Including Area Code) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes  x     No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes  o No x

 

Shares of the registrant’scommon stock outstanding as of October 27, 2008: 93,951,083 shares(consisting of 52,652,435 shares of Series A Common Stock and 41,298,648shares of Series B Common Stock).

 

 

 

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**HEARST-ARGYLETELEVISION, INC.**

 

**Index**

** **
| ** **        | *** ***                                                                                                                                         | **Page   No.** |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|
| **Part I**   | **Financial**Information**                                                                                                                           |                |
|              |                                                                                                                                                 |                |
| **Item 1.**  | **Financial Statements**                                                                                                                             |                |
|              | Condensed Consolidated Balance Sheets as of September 30,  2008 (unaudited)  and December 31, 2007 | 1                   |
|              | Condensed Consolidated  Statements of Income for the Three and Nine Months Ended  September 30, 2008 and 2007 (unaudited)                  | 2                   |
|              | Condensed Consolidated  Statements of Cash Flows for the Nine Months Ended  September 30, 2008 and 2007 (unaudited)                        | 3                   |
|              | Notes to  Condensed Consolidated Financial Statements                                                                                                | 5                   |
|              |                                                                                                                                                 |                |
| **Item 2.**  | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                      | 15                  |
|              |                                                                                                                                                 |                |
| **Item 3.**  | **Quantitative  and Qualitative Disclosures about Market Risk**                                                                                      | 23                  |
|              |                                                                                                                                                 |                |
| **Item 4.**  | **Controls and  Procedures**                                                                                                                         | 23                  |
|              |                                                                                                                                                 |                |
| **Part II**  | **Other Information**                                                                                                                                |                |
|              |                                                                                                                                                 |                |
| **Item 1A.** | **Risk Factors**                                                                                                                                     | 24                  |
|              |                                                                                                                                                 |                |
| **Item 2.**  | **Unregistered  Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity  Securities**                                             | 25                  |
|              |                                                                                                                                                 |                |
| **Item 5.**       | **Other Information**                                                                                                                                | 26                  |
|              |                                                                                                                                                 |                |
| **Item 6.**  | **Exhibits**                                                                                                                                         | 26                  |
|              |                                                                                                                                                 |                |
| **Signatures**    |                                                                                                                                                 | 27                  |

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**HEARST-ARGYLETELEVISION, INC.**

**CondensedConsolidated Balance Sheets**

 
| ** **                                       | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **(Unaudited)**                  | ** ** |
| ** **                                       | ** ** | **(In thousands)**          | ** ** |
| **Assets**                                       |       |                             |       |                            |       |
| Current assets:                                  |       |                             |       |                            |       |
| Cash and cash  equivalents                       |       | $                                | 11,757     |                            | $          | 5,964 |   |
| Accounts  receivable, net                        |       | 131,267                          |       | 164,764                         |       |
| Program and  barter rights                       |       | 89,227                           |       | 65,097                          |       |
| Deferred income  tax asset                       |       | 4,794                            |       | 4,794                           |       |
| Other                                            |       | 5,067                            |       | 5,698                           |       |
| Total current  assets                            |       | 242,112                          |       | 246,317                         |       |
| Property, plant  and equipment, net              |       | 300,374                          |       | 305,971                         |       |
| Intangible  assets, net                          |       | 2,508,874                        |       | 2,513,340                       |       |
| Goodwill                                         |       | 816,728                          |       | 816,728                         |       |
| Other assets:                                    |       |                             |       |                            |       |
| Deferred  financing costs, net                   |       | 7,344                            |       | 8,000                           |       |
| Investments                                      |       | 34,433                           |       | 41,948                          |       |
| Program and  barter rights, noncurrent           |       | 10,100                           |       | 8,399                           |       |
| Other assets                                     |       | 13,021                           |       | 18,273                          |       |
| Total other  assets                              |       | 64,898                           |       | 76,620                          |       |
| Total assets                                     |       | $                                | 3,932,986  |                            | $          | 3,958,976 |   |
| **Liabilities  and Stockholders’ Equity**   |       |                             |       |                            |       |
| Current  liabilities:                            |       |                             |       |                            |       |
| Current portion  of long-term debt               |       | $                                | 90,000     |                            | $          | 90,016 |   |
| Accounts payable                                 |       | 7,090                            |       | 15,103                          |       |
| Accrued  liabilities                             |       | 45,540                           |       | 48,376                          |       |
| Program and  barter rights payable               |       | 90,586                           |       | 64,687                          |       |
| Payable to  Hearst Corporation, net              |       | 5,549                            |       | 5,747                           |       |
| Other                                            |       | 11,114                           |       | 6,482                           |       |
| Total current  liabilities                       |       | 249,879                          |       | 230,411                         |       |
| Program and  barter rights payable, noncurrent   |       | 17,805                           |       | 15,587                          |       |
| Long-term debt                                   |       | 757,110                          |       | 703,110                         |       |
| Note payable to  Capital Trust                   |       | —                           |       | 134,021                         |       |
| Deferred income  tax liability                   |       | 873,344                          |       | 856,790                         |       |
| Other  liabilities                               |       | 58,672                           |       | 66,658                          |       |
| Total noncurrent  liabilities                    |       | 1,706,931                        |       | 1,776,166                       |       |
| Commitments and  contingencies                   |       |                             |       |                            |       |
| Stockholders’  equity:                      |       |                             |       |                            |       |
| Series A  common stock                      |       | 571                              |       | 573                             |       |
| Series B  common stock                      |       | 413                              |       | 413                             |       |
| Additional  paid-in capital                      |       | 1,345,683                        |       | 1,336,786                       |       |
| Retained  earnings                               |       | 759,237                          |       | 743,264                         |       |
| Accumulated  other comprehensive loss, net       |       | (12,580                          | )          | (12,580                         | )          |
| Treasury stock,  at cost                         |       | (117,148                         | )          | (116,057                        | )          |
| Total  stockholders’ equity                 |       | 1,976,176                        |       | 1,952,399                       |       |
| Total  liabilities and stockholders’ equity |       | $                                | 3,932,986  |                            | $          | 3,958,976 |   |

 

See notes to condensed consolidated financialstatements.

 

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**HEARST-ARGYLETELEVISION, INC.**

 

**CondensedConsolidated Statements of Income**

** **
| ** **                                       | ** ** | **Three Months Ended September 30,**           | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                                           | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                       | ** ** | **(Unaudited)**                                                    | ** ** |
| ** **                                       | ** ** | **(In thousands, except per share data)** | ** ** |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Total revenue                                    |       | $                                                                  | 176,212    |                                                    | $          | 176,775 |   | $ | 523,387 |   | $ | 539,177 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Station  operating expenses:                     |       |                                                               |       |                                                    |       |   |   |   |   |
| Salaries,  benefits and other operating costs    |       | 101,841                                                            |       | 101,831                                                 |       | 307,915 |   | 305,073 |   |
| Amortization of  program rights                  |       | 20,280                                                             |       | 18,679                                                  |       | 57,598 |   | 57,329 |   |
| Depreciation and  amortization                   |       | 13,480                                                             |       | 13,310                                                  |       | 41,799 |   | 42,492 |   |
| Insurance  Settlement                            |       | —                                                             |       | —                                                  |       | (11,549 | ) | — |   |
| Corporate,  general and administrative expenses  |       | 9,151                                                              |       | 12,534                                                  |       | 27,343 |   | 29,201 |   |
| Operating income                                 |       | 31,460                                                             |       | 30,421                                                  |       | 100,281 |   | 105,082 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Interest expense                                 |       | 12,840                                                             |       | 15,926                                                  |       | 38,017 |   | 47,846 |   |
| Interest income                                  |       | (38                                                                | )          | (555                                                    | )          | (66 | ) | (1,309 | ) |
| Interest  expense, net – Capital Trust      |       | —                                                             |       | 2,438                                                   |       | 8,585 |   | 7,313 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Income before  income taxes and equity earnings  |       | 18,658                                                             |       | 12,612                                                  |       | 53,745 |   | 51,232 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Income tax  expense                              |       | 4,976                                                              |       | 2,138                                                   |       | 12,709 |   | 18,656 |   |
| Equity in loss  of affiliates, net of tax        |       | 2,124                                                              |       | 733                                                     |       | 5,344 |   | 1,564 |   |
| Net income                                       |       | $                                                                  | 11,558     |                                                    | $          | 9,741 |   | $ | 35,692 |   | $ | 31,012 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Income per net  share – basic               |       | $                                                                  | 0.12       |                                                    | $          | 0.10 |   | $ | 0.38 |   | $ | 0.33 |   |
| Number of common  shares used in the calculation |       | 93,572                                                             |       | 93,643                                                  |       | 93,542 |   | 93,459 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Income per net  share – diluted             |       | $                                                                  | 0.12       |                                                    | $          | 0.10 |   | $ | 0.38 |   | $ | 0.33 |   |
| Number of common  shares used in the calculation |       | 93,753                                                             |       | 94,172                                                  |       | 93,705 |   | 94,152 |   |
|                                             |       |                                                               |       |                                                    |       |   |   |   |   |
| Dividends per  common share declared             |       | $                                                                  | 0.07       |                                                    | $          | 0.07 |   | $ | 0.21 |   | $ | 0.21 |   |

 

See notes to condensed consolidated financialstatements.

 

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**HEARST-ARGYLETELEVISION, INC.**

 

**CondensedConsolidated Statements of Cash Flows**

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                                         | ** ** |
| ** **                                                                         | ** ** | **(In thousands)**                                 | ** ** |
| **Operating  Activities**                                                          |       |                                                    |       |   |   |
| Net income                                                                         |       | $                                                       | 35,692     |   | $ | 31,012 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                                    |       |   |   |
| Depreciation                                                                       |       | 37,334                                                  |       | 37,282 |   |
| Amortization of  intangible assets                                                 |       | 4,465                                                   |       | 5,210 |   |
| Amortization of  deferred financing costs                                          |       | 656                                                     |       | 1,345 |   |
| Amortization of  program rights                                                    |       | 57,598                                                  |       | 57,329 |   |
| Deferred income  taxes                                                             |       | 17,203                                                  |       | 9,653 |   |
| Equity in loss  of affiliates, net                                                 |       | 5,344                                                   |       | 1,564 |   |
| Provision for  doubtful accounts                                                   |       | 1,348                                                   |       | 1,081 |   |
| Stock-based  compensation expense                                                  |       | 6,186                                                   |       | 6,180 |   |
| Insurance  settlement                                                              |       | (11,549                                                 | )          | — |   |
| Business  interruption insurance proceeds                                          |       | 8,659                                                   |       | — |   |
| Non-cash gain on  Nextel equipment exchange                                        |       | (3,549                                                  | )          | — |   |
| Program payments                                                                   |       | (54,330                                                 | )          | (55,044 | ) |
| Changes in  operating assets and liabilities:                                      |       |                                                    |       |   |   |
| Decrease (increase)  in Accounts receivable                                        |       | 32,149                                                  |       | 6,718 |   |
| Decrease  (increase) in Other assets                                               |       | 6,019                                                   |       | 5 |   |
| (Decrease)  increase in Accounts payable and accrued liabilities                   |       | (12,469                                                 | )          | (28,851 | ) |
| (Decrease)  increase in Other liabilities                                          |       | (4,537                                                  | )          | 13,248 |   |
| Net cash  provided by operating activities                                         |       | 126,219                                                 |       | 86,732 |   |
| ** **                                                                         | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| **Investing  Activities**                                                          |       |                                                    |       |   |   |
| Purchases of  property, plant and equipment, net                                   |       | (26,705                                                 | )          | (42,103 | ) |
| Proceeds from  redemption of Capital Trust                                         |       | 4,021                                                   |       | — |   |
| Cash proceeds  from insurance recoveries                                           |       | 2,890                                                   |       | 1,000 |   |
| Investment in  affiliates and other, net                                           |       | (2,500                                                  | )          | (1,874 | ) |
| Net cash used in  investing activities                                             |       | (22,294                                                 | )          | (42,977 | ) |
|                                                                               |       |                                                    |       |   |   |
| **Financing  Activities**                                                          |       |                                                    |       |   |   |
| Dividends paid  on common stock                                                    |       | (19,713                                                 | )          | (19,640 | ) |
| Redemption of  Notes Payable to Capital Trust                                      |       | (134,021                                                | )          | — |   |
| Borrowings on  credit facility                                                     |       | 300,000                                                 |       | — |   |
| Payments on  credit facility                                                       |       | (246,000                                                | )          | — |   |
| Series A  Common Stock repurchases                                            |       | (1,091                                                  | )          | (2,270 | ) |
| Principal  payments on capital lease obligations                                   |       | (16                                                     | )          | (12 | ) |
| Proceeds from  employee stock purchase plan and stock option exercises             |       | 2,709                                                   |       | 15,125 |   |
| Net cash used in  financing activities                                             |       | (98,132                                                 | )          | (6,797 | ) |
|                                                                               |       |                                                    |       |   |   |
| Increase in cash  and cash equivalents                                             |       | 5,793                                                   |       | 36,958 |   |
| Cash and cash  equivalents at beginning of period                                  |       | 5,964                                                   |       | 18,610 |   |
| Cash and cash  equivalents at end of period                                        |       | $                                                       | 11,757     |   | $ | 55,568 |   |

 

See notes tocondensed consolidated financial statements.

 

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**HEARST-ARGYLETELEVISION, INC.**

 

**CondensedConsolidated Statements of Cash Flows**

**(continued)**

 
| ** **                                              | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| ** **                                              | ** ** | **(Unaudited)**                                         | ** ** |
| ** **                                              | ** ** | **(In thousands)**                                 | ** ** |
| **Supplemental  Cash Flow Information:**                |       |                                                    |       |   |   |
| **Cash  paid during the period for:**                   |       |                                                    |       |   |   |
| Interest                                                |       | $                                                       | 33,491     |   | $ | 37,911 |   |
| Interest on Note  payable to Capital Trust              |       | $                                                       | 8,586      |   | $ | 4,875 |   |
| Taxes, net of  refunds                                  |       | $                                                       | 7,401      |   | $ | 34,963 |   |
| **Non-cash  investing and financing activities:**       |       |                                                    |       |   |   |
| Accrued  property, plant & equipment purchases |       | $                                                       | 1,620      |   | $ | 337 |   |

 

See notes to condensed consolidated financialstatements.

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed Consolidated FinancialStatements**

**Tabular amounts in thousands, except per sharedata**

 

**1.    Basis of Presentation**

 

The condensedconsolidated financial statements include the accounts of Hearst-ArgyleTelevision, Inc. and its wholly-owned subsidiaries (the “Company” or “we”or “us” or “our”), except for the Company’s wholly-owned subsidiary trust (the “CapitalTrust”), which cannot be consolidated under the Financial Accounting StandardsBoard (“FASB”) Interpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities* (“FIN 46(R)”).  With the exception of the unconsolidatedsubsidiary trust, all significant intercompany accounts have been eliminated inconsolidation.

 

The accompanyingunaudited condensed consolidated financial statements do not include all of theinformation and notes required by accounting principles generally accepted inthe United States of America for complete financial statements and should beread in conjunction with the Company’s consolidated financial statementsincluded in the Annual Report on our Form 10-K for the year ended December 31,2007 (the “2007 10-K”).  In the opinionof management, all adjustments considered necessary for a fair presentationhave been included and are normal and recurring in nature.  Operating results for the three and ninemonths ended September 30, 2008 are not necessarily indicative of theresults that may be expected for the full year.

 

**2.    Recent Developments**

 

As of July 1,2008, the Company became a member, for U.S. federal income taxpurposes, of the affiliated group of corporations of which Hearst Holdings, Inc.(“Holdings”), a wholly owned subsidiary of The Hearst Corporation (“Hearst”),is the common parent, as a result of Hearst’s ownership of at least 80% of theoutstanding voting power of the Company’s Common Stock.  Consequently, theCompany will no longer file federal and certain state tax returns, butwill be included within Holdings’ consolidated returns commencing July 1,2008.  The Company will continue to file separate income tax returns in stateswhere a consolidated return is not permitted. The provision for income taxes in the Company’s consolidated financialstatements will be determined on a separate return basis, as if we were filingas a stand alone entity.

 

On June 23, 2008,the Company redeemed all $134.0 million of its 7.5% Series B ConvertibleJunior Subordinated Debentures (the “Series B Debentures”), which wereclassified as Notes payable to Capital Trust. This redemption in turn triggered a simultaneous redemption by theCapital Trust of all $130.0 million of its 7.5% Series B ConvertiblePreferred Securities (the “Convertible Preferred Securities”), which wereconvertible into 5.1 million shares of the Company’s Series A CommonStock, and the Company’s $4.0 million investment in the Capital Trust.  As a result of the redemption, Notes payableto Capital Trust was reduced by $134.0 million and Investments was reduced by$4.0 million.  In addition, as a resultof the redemption of the 7.5% Series B Convertible Preferred Securities,the Company paid a redemption premium of $3.9 million, which was included inthe Interest expense, net - Capital Trust. The redemption was funded by an advance under the Company’s creditfacility.

 

During the first quarterof 2008, the Company reached a final settlement with its insurance carriersrelated to lost property, increased expenses and interrupted business atWDSU-TV in New Orleans, Louisiana, resulting from Hurricane Katrina in2005.  The Company received $11.5 millionin the first quarter of 2008 to bring the total recoveries to $16.5 million,net of deductibles, including an advance payment of $5.0 million in the fourthquarter of 2006.  The $11.5 millionreceived in the first quarter of 2008 was recorded as an offset to Stationoperating expenses.

 

In 2006, Sprint NextelCorporation (“Nextel”) was granted the right from the Federal CommunicationsCommission (the “FCC”) to reclaim from broadcasters in each market across thecountry the 1.9 GHz spectrum to use for an emergency communications system.  In order to reclaim this signal, Nextel mustreplace all analog equipment currently using this spectrum with digitalequipment.  All broadcasters have agreed to use the digital substitutethat Nextel will provide.  The transition will be completed on amarket-by-market basis.  As the equipment is exchanged and put intoservice in each of its markets, the Company records gains to the extent thatthe fair market value of the equipment the Company receives exceeds the bookvalue of the analog equipment it exchanges.  During the three and ninemonths ended September 30, 2008, the Company recognized a gain ofapproximately $3.0 million and $3.5 million, respectively, resulting from thetransition to digital equipment in certain of its markets, which was recordedas on offset to Salaries, benefits and other operating costs.

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

**3.    AccountingPronouncements**

 

In April 2008, theFASB issued FSP FAS No. 142-3, “Determination of the Useful Life ofIntangible Assets.” The FSP amends the factors an entity should consider indeveloping renewal or extension assumptions used in determining the useful lifeof recognized intangible assets under SFAS No. 142, “Goodwill and OtherIntangible Assets” and requires additional disclosure regarding renewals.   The Company will apply the guidance of theFSP to intangible assets acquired after January 1, 2009.  The impact of adopting the FSP will bedependent on the circumstances of future transactions.

 

In March 2008, theFASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, “*Disclosures about Derivative Instruments and Hedging Activities—anamendment of FASB Statement No. 133*” (“SFAS 161”).  SFAS161 requires entities that utilize derivative instruments to providequalitative disclosures about their objectives and strategies for using suchinstruments, as well as any details of credit-risk-related contingent featurescontained within derivatives.   SFAS 161 also requires entities todisclose additional information about the amounts and location of derivativeslocated within the financial statements, how the provisions of SFAS 133 havebeen applied, and the impact that hedges have on an entity’s financialposition, financial performance, and cash flows.  SFAS 161 iseffective for fiscal years and interim periods beginning after November 15,2008, with early application encouraged. The Company does not believe the adoption of SFAS 161 will have amaterial impact on its financial position, cash flows or results of operations.

 

In December 2007,the FASB issued SFAS No. 160, *Non-Controlling Interests inConsolidated Financial Statements,**an amendment of ARB No. 51*(“SFAS160”), which establishes new standards that will governthe accounting for and reporting of non-controlling interests in partiallyowned consolidated subsidiaries and the loss of control of subsidiaries.  SFAS 160 requires that non-controllinginterests be reported as a component of equity in a Company’s consolidatedfinancial statements and that losses will be allocated to these interests evenwhen such allocation might result in a deficit balance.  SFAS 160 is effective for all fiscal yearsbeginning after December 15, 2008 and interim periods within thoseyears.  The Company does not believe theadoption of SFAS 160 will have a material impact on its financial position,cash flows or results of operations.

 

In December 2007,the FASB issued SFAS No. 141(R), *BusinessCombinations* (“SFAS 141(R)”), to replace SFAS No. 141, *Business Combinations*.  SFAS 141(R) requiresuse of the acquisition method of accounting, defines the acquirer, establishesthe acquisition date and broadens the scope to all transactions and otherevents in which one entity obtains control over one or more other businesses.SFAS 141(R) is effective for business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The impact of adoptingSFAS 141(R) will be dependent on business combinations that theCompany may pursue after its effective date.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”), whichpermits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value. SFAS 159 became effective for the Company on January 1,2008.  The Company did not elect optionalfair value measurement.  As such, theadoption of SFAS 159 did not have a material impact on the Company’s financialposition, 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) assetsor liabilities to be measured at fair value. SFAS 157 establishes a fair value hierarchy that prioritizes theinformation used to develop the assumptions that market participants would usewhen pricing an asset or liability.  SFAS157 is effective for fiscal years beginning after November 15, 2007 andinterim periods within those fiscal years. In February 2008, FASB issued FASB Staff Position (“FSP”) FASNo. 157-2, which deferred the effective date of FAS No. 157 to fiscalyears beginning after November 15, 2008 for nonfinancial assets andnonfinancial liabilities, except those that are recognized or disclosed at fairvalue in the financial statements on a recurring basis (at least annually)until fiscal years beginning after November 15, 2008 and interim periodswithin those 

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

years.  The adoption of SFAS 157 for financial assetsdoes not have a material impact on the Company’s financial position, cash flowsor results of operations.  The Company isevaluating the impact of the adoption of SFAS 157 for nonfinancial assets andliabilities.

 

In October 2008, theFASB issued FSP SFAS No. 157-3, *Determiningthe Fair Value of a Financial Asset When The Market for That Asset Is NotActive,*(“FSP 157-3”), to clarify the application of theprovisions of SFAS 157 in an inactive market and how an entity woulddetermine fair value of financial assets in an inactive market. FSP 157-3is effective immediately and applies to the Company’s September 30, 2008financial statements. The application of the provisions of FSP 157-3 didnot have a material impact on the Company’s financial position, cash flows orresults of operations.

 

In September 2006,the FASB issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans* (“SFAS158”), which requires employers to fully recognize the obligationsassociated with single-employer defined benefit pension, retiree healthcare andother postretirement plans in their financial statements.  SFAS 158 requires employers to recognizean asset or liability for a plan’s overfunded or underfunded status, measure aplan’s assets and obligations that determine its funded status as of the end ofthe employer’s fiscal year and recognize in comprehensive income changes in thefunded status of a defined benefit postretirement plan in the year in whichchanges occur.  The requirement to recognize the funded status of abenefit plan and the disclosure requirements are effective for fiscalyears ending after December 15, 2006.  The Company has adopted therequirement to recognize the funded status of a benefit plan as of December 31,2006.  As a result, Accumulated othercomprehensive loss increased by $26.4 million, net of tax, as of December 31,2006.  Additionally, the requirementto measure plan assets and benefit obligations as of the date ofthe 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 31in 2008. As such, in the fourth quarter of 2008, the Company will record adecrease to Retained earnings of $2.9 million and an increase of $0.3 million,net of tax, in Accumulated other comprehensive income due to the change.

 

In June 2006, theFASB issued Financial Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (“FIN 48”).  FIN 48 clarifies the accounting for uncertaintax positions by prescribing a minimum recognition threshold for recognition oftax benefits in the financial statements.  The adoption of FIN 48on January 1, 2007 resulted in a decrease to Retained earnings of $11.3million, a decrease in Deferred income tax liability of $15.8 million and anincrease to Other liabilities of $27.1 million.

 

**4.    Stock-Based Compensation**

 

Stock-based compensation expense for thethree and nine months ended September 30, 2008 and 2007 was $2.1 millionand $6.2 million, respectively.  Thetotal deferred tax benefit related thereto was $0.8 million and $2.4million for the three and ninemonths ended September 30, 2008 and 2007, respectively.  As of September 30, 2008, there was $8.9million of total unrecognized compensation cost related to unvested share-basedcompensation awards granted under the equity compensation plans, which does notinclude the effect of future grants of equity compensation, if any.  Of the total $8.9 million, the Companyexpects to recognize approximately 20% in the remaining interim periods of2008, 54% in 2009, 25% in 2010 and 1% in 2011.

 

7

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Tableof Contents

 

**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

**5.    Long-Term Debt**

 

Long-term debt as of September 30, 2008and December 31, 2007 consisted of the following:

 
| ** **                 | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
| Revolving credit  facility |       | $                                | 295,000    |                            | $          | 241,000 |   |
| Senior notes               |       | 282,110                          |       | 282,110                         |       |
| Private  placement debt    |       | 270,000                          |       | 270,000                         |       |
| Capital lease  obligations |       | —                           |       | 16                              |       |
| Total debt                 |       | 847,110                          |       | 793,126                         |       |
| Less: Current  maturities  |       | (90,000                          | )          | (90,016                         | )          |
|                       |       |                             |       |                            |       |
| Total long-term  debt      |       | $                                | 757,110    |                            | $          | 703,110 |   |

 

**6.    EarningsPer Share**

 

The calculation of basic earnings per share (“EPS”) for each period isbased on the weighted average number of common shares outstanding during theperiod.  The calculation of diluted EPSfor each period is based on the weighted average number of common sharesoutstanding during the period, including restricted stock issued to date, plusthe effect, if any, from the assumed exercise of stock options and conversionof preferred securities.  The followingtable sets forth a reconciliation between basic EPS and diluted EPS, inaccordance with SFAS No. 128, *EarningsPer Share*:

 
| ** **                                                 | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                 | ** ** | **(Unaudited)**                                          | ** ** |
| Net income  (Basic and Diluted)                            |       | $                                                        | 11,558     |                                                    | $          | 9,741 |   | $ | 35,692 |   | $ | 31,012 |   |
|                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic shares                                               |       | 93,572                                                   |       | 93,643                                                  |       | 93,542 |   | 93,459 |   |
| Basic EPS                                                  |       | $                                                        | 0.12       |                                                    | $          | 0.10 |   | $ | 0.38 |   | $ | 0.33 |   |
|                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Diluted shares                                             |       | 93,753                                                   |       | 94,172                                                  |       | 93,705 |   | 94,152 |   |
| Diluted EPS                                                |       | $                                                        | 0.12       |                                                    | $          | 0.10 |   | $ | 0.38 |   | $ | 0.33 |   |
|                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic shares                                               |       | 93,572                                                   |       | 93,643                                                  |       | 93,542 |   | 93,459 |   |
| Add: Shares  issued upon assumed exercise of stock options |       | 181                                                      |       | 529                                                     |       | 163 |   | 693 |   |
| Diluted shares                                             |       | 93,753                                                   |       | 94,172                                                  |       | 93,705 |   | 94,152 |   |

 

For the three and nine month periods ended September 30, 2007, theCompany was required to perform a dilution test on the Convertible PreferredSecurities issued by the Capital Trust which were outstanding as of September 30,2007.  The test considered only the totalnumber of shares that could be issued if converted and did not consider eitherthe conversion price or the share price of the underlying common shares. Forthe three and nine months ended September 30, 2007, 5,127,881 shares of Series ACommon Stock to be issued upon the conversion of 2,600,000 shares ofConvertible Preferred Securities were not included in the number of commonshares used in the calculation of diluted EPS because to do so would have beenanti-dilutive. When the securities related to the Capital Trust were dilutive,the interest, net of tax, related to the Capital Trust was added back to Incomeapplicable to common stockholders for purposes of the diluted EPS calculation.

 

Options to purchase 6,303,389 and 5,595,522 shares of Series ACommon Stock (before application of the treasury stock method), for the threemonths ended September 30, 2008 and 2007, respectively, were not includedin the computation of diluted EPS because the exercise price was greater thanthe average market price of $20.39 and $23.34, respectively.

 

8

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Tableof Contents

 

**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

Options to purchase 6,401,159 and 3,422,872 shares of Series ACommon Stock (before application of the treasury stock method), for the ninemonths ended September 30, 2008 and 2007, respectively, were not includedin the computation of diluted EPS because the exercise price was greater thanthe average market price of $20.76 and $25.18, respectively.

 

**7.    Goodwilland Intangible Assets**

 
| ** **                                                         | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
| Total intangible  assets subject to amortization, net              |       | $                                | 95,617     |                            | $          | 100,083 |   |
| Intangible  assets not subject to amortization – FCC licenses |       | 2,413,257                        |       | 2,413,257                       |       |
| Total intangible  assets, net                                      |       | $                                | 2,508,874  |                            | $          | 2,513,340 |   |
|                                                               |       |                             |       |                            |       |
| Goodwill                                                           |       | $                                | 816,728    |                            | $          | 816,728 |   |

 

Summarized below are thecarrying values of intangible assets subject to amortization as of September 30,2008 and December 31, 2007:

 
| ** **                                       | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Gross**                        | ** ** | ** **                      | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                                       | ** ** | **Carrying**                     | ** ** | **Accumulated**                 | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                                       | ** ** | **Value**                        | ** ** | **Amortization**                | ** ** | **Value** | ** ** | **Value** | ** ** | **Amortization** | ** ** | **Value** | ** ** |
| Intangible  assets subject to amortization:      |       |                             |       |                            |       |   |   |   |   |   |   |   |   |
| Advertiser  client base                          |       | $                                | 124,035    |                            | $          | 80,905 |   | $ | 43,130 |   | $ | 124,035 |   | $ | 78,246 |   | $ | 45,789 |   |
| Network  affiliations                            |       | 95,493                           |       | 43,061                          |       | 52,432 |   | 95,493 |   | 41,270 |   | 54,223 |   |
| Other                                            |       | 743                              |       | 688                             |       | 55 |   | 743 |   | 672 |   | 71 |   |
| Total intangible  assets subject to amortization |       | $                                | 220,271    |                            | $          | 124,654 |   | $ | 95,617 |   | $ | 220,271 |   | $ | 120,188 |   | $ | 100,083 |   |

 

The Company’s amortization expense for intangible assets wasapproximately $1.5 million and $4.5 million for the three and nine months endedSeptember 30, 2008, respectively, and $1.7 million and $5.2 million forthe three and nine months ended September 30, 2007, respectively.  Annual intangible asset amortization expenseis estimated to be approximately $6.0 million in each of the next five years.

 

**8.    Income Taxes**

 

The income tax expensefor the three and nine months ended September 30, 2008 was $5.0 millionand $12.7 million, respectively, as compared to $2.1 million and $18.7million for the three and nine months ended September 30, 2007,respectively.

 

The effective tax ratefor the three and nine months ended September 30, 2008 was 26.7% and23.6%, respectively, as compared to 17.0% and 36.4% for the three and ninemonths ended September 30, 2007, respectively. The effective tax rate forthe three months ended September 2007 was affected by the reduction in theliability for uncertain tax positions due to the expiration of statutes oflimitations in certain state and local jurisdictions in 2007. The effective taxrate for the nine months ended September 30, 2008 was favorably impactedby (i) the recognition of $4.6 million of net tax benefits and associatedinterest recorded during the second quarter as a result of the settlement ofcertain tax return examinations; (ii) the $2.5 million reduction incapital loss valuation allowance as a result of the utilization of the Company’scapital loss carry forwards to offset a portion of the insurance settlementgain recorded 

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

during the first quarter;and (iii) $3.2 million in net tax benefits due to the expiration ofstatute of limitations in certain state and local jurisdictions in 2008.

 

At December 31,2007, we had $38.1 million in unrecognized tax benefits and associated interestand penalties recorded in our balance sheets, as compared to $29.6 million asof September 30, 2008, after reflecting the impact of the settlementdescribed above.  At December 31,2007, we had valuation allowances associated with capital loss carry forwards(tax affected) of $4.5 million, expiring in 2009. In the first nine months of2008, we utilized $2.5 million (tax effected) of the capital loss carryforwards which would have expired in 2009.

 

**9.    Common Stock**

 

**Common Stock Repurchase**

 

In May 1998, the Company’s Board of Directors authorized therepurchase of up to $300 million of its outstanding Series A CommonStock.  Such repurchases may be effectedfrom time to time in the open market or in private transactions, subject tomarket conditions and management’s discretion. During the nine months ended September 30,2008, the Company repurchased 49,000 shares of its outstanding Series ACommon Stock for $1.1 million at an average price of $22.26. Between May 1998and September 30, 2008, the Company repurchased approximately 4.8 millionshares of Series A Common Stock at a cost of approximately $117.1 millionand an average price of $24.54, leaving $182.9 million under the Boardauthorization.  There can be no assurancethat such repurchases will occur in the future or, if they do occur, what theterms of such repurchases will be.

 

During the quarter ended September 30,2008, Hearst and its indirect wholly-owned subsidiary, Hearst Broadcasting, Inc.(“Hearst Broadcasting”), completed its current authorization to purchase up toeight million shares of our Series A Common Stock.  Hearst authorized these purchases in December 2007in order to increase its ownership percentage to approximately 82% to permit usto be consolidated with Hearst for federal income tax purposes, and reached thelimit of this authorization as of August 6, 2008.  Previously, Hearst had authorized thepurchase of up to 25 million shares of our Series A Common Stock.  During the three and nine months ended September 30,2008, Hearst Broadcasting purchased 1.9 million and 7.6 million shares,respectively, of Series A Common Stock. Between May 1998 (the date of Hearst’s first purchase authorization) andSeptember 30, 2008, under these purchase authorizations Hearst purchasedapproximately 31.1 million shares of the Company’s Series A Common Stock.

 

As of September 30, 2008 and December 31, 2007, Hearst owned81.8% and 73.7%, respectively, of the Company’s outstanding common stock.

 

**Common Stock Dividends**

 

During the nine months ended September 30, 2008, the Company’sBoard of Directors declared a cash dividend on shares of our Series A and Series BCommon Stock as follows:

 
| **Dividend Amount** | ** ** | **Declaration Date** | ** **              | **Record Date** | ** **           | **Payment Date** | ** **            | **Total Dividend** | ** ** | **Hearst Portion** | ** ** |
|--------------------------|------------|---------------------------|-------------------------|----------------------|----------------------|-----------------------|-----------------------|-------------------------|------------|-------------------------|------------|
| $                        | 0.07       |                      | March 27, 2008     |                 | April 5, 2008   |                  | April 15, 2008   |                    | $          | 6,571                   |       | $ | 4,992 |   |
| $                        | 0.07       |                      | May 6, 2008        |                 | July 5, 2008    |                  | July 15, 2008    |                    | $          | 6,573                   |       | $ | 5,241 |   |
| $                        | 0.07       |                      | September 22, 2008 |                 | October 5, 2008 |                  | October 15, 2008 |                    | $          | 6,576                   |       | $ | 5,376 |   |

 

**10.    Preferred Stock**

 

Under the Company’s Certificate of Incorporation, the Company has onemillion authorized shares of Preferred Stock, par value $.01 per share.  At each of September 30, 2008 and 2007,there was no Preferred Stock outstanding.

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

**11.    Related Party Transactions**

 

*Hearst*.    As of September 30, 2008, Hearst owned approximately67.4% of our Series A Common Stock and 100% of our Series B CommonStock, representing in the aggregate approximately 81.8% of both the economicinterest and outstanding voting power of our common stock, except with regardto the election of directors.  Withregard to the election of directors, Hearst’s ownership of our Series BCommon Stock entitles Hearst to elect 11 of 13 directorships of the Company’sBoard of Directors. During the three and nine months ended September 30,2008 and 2007, the Company was engaged in the following transactions withHearst or parties related to Hearst:

 

·      *Tax SharingAgreement.*  On October 30,2008, the Company entered into a Tax Sharing Agreement withHearst Holdings, Inc. as a result of the July 1, 2008 tax consolidation.  The agreement specifies the method ofdetermining the amounts owed and timing of payments resulting from theconsolidation, as well as providing for tax preparation and related services byHearst to the Company.  For the threemonths ended September 30, 2008, no monies were due and payable to Hearstunder the Tax Sharing Agreement.

 

·      *Hearst TowerLease.  *On May 5, 2006the Company entered into a Lease Agreement with Hearst to lease one floor ofthe newly constructed Hearst Tower in Manhattan for its corporate offices.  For the three and nine months ended September 30,2008, the Company recorded $0.4 million and $1.2 million in rent expense, netof a portion of the $1.9 million tenant improvement allowance, which theCompany is amortizing over the lease term.

 

·      *Management Services Agreement*.  The Companyrecorded revenue of approximately $0.8 million and $3.1 million in the threeand nine months ended September 30, 2008, respectively, and $1.1 millionand $4.3 million in the three and nine months ended September 30, 2007,respectively, relating to a management agreement with Hearst (the “ManagementAgreement”). Pursuant to the Management Agreement, the Company provides certainsales, news, programming, legal, financial, engineering and accountingmanagement services for certain Hearst-owned television and radiostations.  Certain employees of thesemanaged stations are also participants in the Company’s equity compensationplans.  The Company believes the terms ofthe Management Agreement are reasonable to both parties; however, there can beno assurance that more favorable terms would not be available from thirdparties.

 

·      *Intercompany Services Agreement*.    TheCompany incurred expenses of approximately $1.7 million and $5.1 million in thethree and nine months ended September 30, 2008, respectively, and $1.6million and $5.0 million in the three and nine months ended September 30,2007, respectively, relating to a services agreement with Hearst (the “ServicesAgreement”). Pursuant to the Services Agreement, Hearst provides the Companycertain administrative services such as accounting, auditing, financial, legal,insurance, data processing, and employee benefits administration. The Companybelieves the terms of the Services Agreement are reasonable to both parties;however, there can be no assurance that more favorable terms would not beavailable from third parties.

 

·      *Interest Expense, Net – Capital Trust.*  TheCompany incurred interest expense, net, related to the Series BDebentures issued to its wholly-owned unconsolidated subsidiary, the CapitalTrust, of $8.6 million for the nine months ended September 30, 2008 (whichincluded a $3.9 million premium in the second quarter to redeem the Series BDebentures in full), and $2.4 million and $7.3 million for the three and ninemonths ended September 30, 2007, respectively.  The Capital Trust then paid comparableamounts to its Convertible Preferred Securities holders, including Hearst,which received $1.7 million in interest payments during the nine months ended September 30,2008.  The Company redeemed the Series BDebentures and the Capital Trust redeemed the Convertible Preferred Securitieson June 23, 2008.  Hearst, whoseConvertible Preferred Securities were redeemed on the same terms as the otherholders, received $26.2 million in the redemption.

 

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Tableof Contents

 

**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

·      *Dividends on Common Stock.*    During thenine months ended September 30, 2008 and 2007, we paid the followingdividends to Hearst:

 
| **Dividend Amount** | ** ** | **Payment Date** | ** **            | **Total Dividend** | ** ** | **Hearst Portion** | ** ** |
|--------------------------|------------|-----------------------|-----------------------|-------------------------|------------|-------------------------|------------|
| $                        | 0.07       |                  | July 15, 2008    |                    | $          | 6,573                   |       | $ | 5,241 |   |
| $                        | 0.07       |                  | April 15, 2008   |                    | $          | 6,571                   |       | $ | 4,992 |   |
| $                        | 0.07       |                  | January 15, 2008 |                    | $          | 6,569                   |       | $ | 4,846 |   |
| $                        | 0.07       |                  | July 15, 2007    |                    | $          | 6,570                   |       | $ | 4,816 |   |
| $                        | 0.07       |                  | April 15, 2007   |                    | $          | 6,546                   |       | $ | 4,816 |   |
| $                        | 0.07       |                  | January 15, 2007 |                    | $          | 6,523                   |       | $ | 4,816 |   |

 

·      *Radio Facilities Lease.*    Pursuant to alease agreement, Hearst paid us approximately $0.2 million and $0.6 million foreach of the three and nine months ended September 30, 2008 and 2007. Underthis agreement, Hearst leases from the Company premises for WBAL-AM andWIYY-FM, Hearst’s Baltimore, Maryland radio stations.

 

·      *LifetimeEntertainment Services*.    The Company hasagreements with Lifetime Entertainment Services (“Lifetime”), an entity owned50% by an affiliate of Hearst and 50% by The Walt Disney Company, whereby forcertain periods of time (i) the Company has assisted Lifetime in securingdistribution and subscribers for the Lifetime Television, Lifetime MovieNetwork and/or Lifetime Real Women programming services; and (ii) Lifetimehas acted as the Company’s agent with respect to the negotiation of certain ofits agreements with cable, satellite and certain other multi-channel videoprogramming distributors.  Amountspayable to the Company by Lifetime depend on the specific terms of theseagreements and may be fixed or variable. The Company recorded revenue from the agreements of $5.8 million and$17.2 million in the three and nine months ended September 30, 2008,respectively, and $5.3 million and $15.6 million in the three and nine monthsended September 30, 2007, respectively.

 

·      *Wide Orbit, Inc. *In November 2004, the Company enteredinto an agreement to license from Wide Orbit, Inc. (“Wide Orbit”) trafficsales and billing solutions software. Hearst owns approximately 7.3% of Wide Orbit.  The Company paid Wide Orbit $0.5 million and$1.3 million in the three and nine months ended September 30, 2008,respectively, and $0.4 million and $1.2 million in the three and nine monthsended September 30, 2007, respectively, under the agreement.

 

·      *N*ew*England Cable News*. The Company’s President and Chief Executive Officer, David J. Barrettserves as Hearst’s representative on the management board of New England CableNews, a regional cable channel, jointly owned by Hearst Cable News, Inc.,an indirect wholly-owned subsidiary of Hearst, and Comcast MO Cable News, Inc.(“NECN”). During the quarter, Hearst paid $6,000 to the Company as compensationfor his service.  In addition, two of theCompany’s television stations, WPTZ/WNNE and WMTW, provide office space tocertain of NECN’s reporters in exchange for news gathering services.

 

·      *Other Transactions with Hearst*.    Inthe three and nine months ended September 30, 2008 and 2007, the Companyrecorded immaterial net revenue relating to advertising sales from Hearst.

 

*Internet Broadcasting Systems, Inc.*    Asof September 30, 2008, the Company owned 37.6% of Internet BroadcastingSystems, Inc. (“Internet Broadcasting”) on a fully diluted basis.  The Company also has various agreementspursuant to which it has paid Internet Broadcasting $3.9 million and $8.6million during the three and nine months ended September 30, 2008,respectively, and $3.5 million and $8.7 million during the three and ninemonths ended September 30, 2007, respectively.  In addition, Internet Broadcasting hosts theCompany’s corporate Website for a nominal amount.  Harry T. Hawks, the Company’s Executive VicePresident and Chief Financial Officer, and Roger B. Keating, the Company’sSenior Vice President, Digital Media, serve on the Board of Directors ofInternet Broadcasting, for which they do not receive compensation.

 

*Small Business Television*.   The Company utilizes services of SmallBusiness Television and related companies (“SBTV”) to provide televisionstations with additional revenue through the marketing and sale of commercialtime to smaller businesses that do not traditionally use television advertisingdue to cost concerns. In the three and nine month periods ended September 30,2008, these sales generated revenue of approximately $0.3 million 

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

and $0.8 million, respectively, of which approximately $0.1 million and$0.3 million, respectively, was distributed to SBTV. In the three and ninemonth period ended September 30, 2007, these sales generated revenue ofapproximately $0.3 million and $1.0 million, respectively, of which approximately$0.1 million and $0.5 million, respectively, was distributed to SBTV. DeanConomikes, the owner of SBTV, is the son of John G. Conomikes, a member of theCompany’s Board of Directors.

 

*RipeDigital Entertainment.* During the second quarter of 2008, the Companyinvested an additional $2.5 million in Ripe Digital Entertainment, Inc. (“RDE”)in the form of a Convertible Promissory Note. As of September 30, 2008, the Company owned 23.4% of RDE on a fullydiluted basis.  The Company’s ExecutiveVice President and Chief Financial Officer, Harry T. Hawks, serves on the Boardof Directors of RDE, for which he does not receive compensation.

 

*Other*.    In the ordinary course of business, theCompany enters into transactions with related parties, none of which weresignificant to our financial results in the nine months ended September 30,2008 and 2007.

 

**12.    RetirementPlans and Other Post-Retirement Benefits**

 

***Overview***

 

The Company maintains sevendefined benefit pension plans (the “Pension Plans”) and other post-retirementbenefit plans consisting of medical and life insurance (“Post RetirementBenefit Plans”), for active, retired and former employees.  In addition, the Company maintains 11employee savings plans and participates in three multi-employer union pensionplans that provide retirement benefits to certain union employees.

 

***Pension Plans and OtherPost-Retirement Benefits***

 

Benefits under the Pension Plans are generally based on years ofcredited service, age at retirement and average of the highest five consecutiveyears’ compensation. The service cost of the Pension Plans is computed on thebasis of the Project Unit Credit Actuarial Cost Method.  Prior service cost is amortized over theemployees’ expected future service periods.

 

*Net Periodic Pension andPost-Retirement Benefit Cost*

 

The following schedule presents net periodic pension cost for theCompany’s Pension Plans in the three and nine months ended September 30,2008 and 2007:

 
| ** **                          | ** ** | **Pension Benefits**                                | ** ** | **Pension Benefits**                               | ** ** |
|-------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **                          | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                          | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                         | ** ** |
| Service cost                        |       | $                                                        | 2,598      |                                                    | $          | 2,645 |   | $ | 7,794 |   | $ | 7,935 |   |
| Interest cost                       |       | 2,972                                                    |       | 2,700                                                   |       | 8,916 |   | 8,100 |   |
| Expected return on  plan assets     |       | (3,248                                                   | )          | (2,911                                                  | )          | (9,744 | ) | (8,733 | ) |
| Amortization of  prior service cost |       | 106                                                      |       | 108                                                     |       | 318 |   | 324 |   |
| Amortization of  net loss           |       | 419                                                      |       | 924                                                     |       | 1,257 |   | 2,772 |   |
| Net periodic  pension cost          |       | $                                                        | 2,847      |                                                    | $          | 3,466 |   | $ | 8,541 |   | $ | 10,398 |   |

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts in thousands,except per share data**

 

The following schedulepresents net periodic benefit cost for the Company’s other Post-RetirementBenefit Plans in the three and nine months ended September 30, 2008 and2007:

 
| ** **                              | ** ** | **Post-Retirement Benefits**                        | ** ** | **Post-Retirement Benefits**                       | ** ** |
|-----------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                              | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **                              | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                              | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                         | ** ** |
| Service cost                            |       | $                                                        | 21         |                                                    | $          | 41 |   | $ | 63 |   | $ | 123 |   |
| Interest cost                           |       | 98                                                       |       | 175                                                     |       | 294 |   | 525 |   |
| Amortization of  prior service cost     |       | (23                                                      | )          | 10                                                      |       | (69 | ) | 30 |   |
| Amortization of  initial net obligation |       | —                                                   |       | 10                                                      |       | — |   | 30 |   |
| Amortization of  net loss               |       | 44                                                       |       | 9                                                       |       | 132 |   | 27 |   |
| Net periodic  benefit cost              |       | $                                                        | 140        |                                                    | $          | 245 |   | $ | 420 |   | $ | 735 |   |

 

*Contributions*

 

For the year ending December 31, 2008, the Company expects tocontribute $2.7 million to the Pension Plans and expects to contributeapproximately $0.4 million to the Post-Retirement Benefit Plans.  As of September 30, 2008 the Company hascontributed $2.7 million to our Pension Plan and $0.3 million to ourPost-Retirement Benefit Plans.

 

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**Item 2.**      **Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

**Organization of Information**

 

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

 

·      Forward-Looking Statements

·      Executive Summary

·      Results of Operations

·      Liquidity and Capital Resources

 

**Forward-Looking Statements**

 

This report****includes****orincorporates forward-looking statements. We base these forward-looking statements on our current expectations andprojections about future events.  Theseforward-looking statements generally can be identified by the use of statementsthat include phrases such as “anticipate”, “will”, “may”, “likely”, “plan”, “believe”,“expect”, “intend”, “project”, “forecast” or other such similar words and/orphrases. For these statements, the Company claims the protection of the safeharbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995.  Theforward-looking statements contained in this report, concerning, among otherthings, 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 aresubject to change based on various important factors.  Those factors include the impact on ouroperations from

 

·      Changes in national and regional economies;

·      Changes in advertising trends and ouradvertisers’ financial condition;

·      Competition in the broadcast televisionmarkets we serve;

·      Pricing fluctuations in local and nationaladvertising;

·      Changes in Federal regulations that affectus, including changes in Federal communications laws or regulations;

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

·      Our ability to obtain quality programming forour television stations;

·      Successful integration of television stationswe acquire;

·      Our ability to service and refinance ouroutstanding debt;

·      Volatility in programming costs, industryconsolidation, technological developments, and major world events; and

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

 

Fora discussion of additional risk factors that are particular to our business,please refer to Part I,“Item 1A. Risk Factors” of the2007 10-K, as amended by “Item 1A. Risk Factors” in the Quarterly Report forthe fiscal period ended June 30, 2008, and to Part II, “Item 1A. RiskFactors” of this report.  These and othermatters we discuss in this report, or in the documents we incorporate byreference into this report, may cause actual results to differ from those wedescribe.  We undertake no obligation toupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise.

 

**Executive Summary**

 

Hearst-Argyle Television, Inc. and its subsidiaries (hereafter “we”or the “Company”) own and operate 26 network-affiliated televisionstations.  Additionally, we providemanagement services to two network-affiliated stations, one independenttelevision station and two radio stations owned by The Hearst Corporation (“Hearst”)in exchange for management fees.  We seekto attract our television audience by providing compelling content on multiplemedia platforms.   We provide leadinglocal news programming and popular network and syndicated programs at each ofour television stations, 20 of which are in the top 50 U.S. televisionmarkets.  We also own 30 Websites andcurrently multicast 19 digital multicast channels operating weather broadcastsand an additional network affiliation. Other multicast options are currently under review.  We stream a portion of our televisionprogramming, including our news 

 

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andweather forecasts, and we publish community information, user-generated contentand entertainment content on our stations’ Websites.  In many of our markets, we have alsoestablished a mobile presence for our stations’ Websites.  We believe that aligning our contentofferings with audience media consumption patterns in this manner ultimatelybenefits our advertisers.  Ouradvertisers benefit from a variety of marketing opportunities, includingtraditional spot campaigns, community events and sponsorships at our televisionstations, as well as on our stations’ Internet and/or mobile Websites, enablingthem to reach our audience in multiple ways.

 

*Factors Influencing Results*

 

·      The UnitedStates and global economies are currently undergoing a period of economicuncertainty, and the related capital markets are experiencing significantdisruption.   In certain of the localmarkets in which our stations operate there has been a weakening in theeconomic climate due to the housing market slump, subprime mortgage issues andtightening of credit markets resulting in pressure on employment, retail salesand consumer confidence.  The resultingeconomic downturn has impacted the automotive industry, which historically hasbeen our largest advertising category, particularly hard.  In addition to the weakness in auto, the retail, telecommunications, restaurant,movies, paid programming and furniture advertising categories were alsoimpacted in the third quarter of 2008.

 

·      Political advertising increases ineven-numbered years, such as 2008, consistent with the increase in the numberof candidates running for political office and the presidential election, aswell as selected state and local elections. We operate leading stations in several key election states, includingNew Hampshire, New Mexico, Pennsylvania and California, and as such havegenerated significant revenues from political advertising in the third quarterof 2008.

 

·      Revenuefrom Olympic advertising occurs exclusively in even-numbered years, such as2008, with the alternating Winter and Summer Games occurring every two years. Our 10 NBC stations aired the 2008Summer Olympics in August 2008.

 

·      During the first quarter of 2008, we reacheda 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 millionin the first quarter of 2008 bringing total recoveries to $16.5 million, net ofdeductibles, given the receipt of an advance payment of $5.0 million in thefourth quarter of 2006. The $11.5 million received in the first quarter of 2008has been recorded as an offset to Station Operating Expenses.  The after-tax first quarter 2008 effect ofthe insurance settlement was a $9.3 million increase in net income.

 

·      On June 23, 2008, we redeemed all of ouroutstanding 7.5% Series B Debentures using borrowings under our existingcredit facility.  As a result of theredemption, Notes payable to Capital Trust was reduced by $134.0 million andInvestments was reduced by $4.0 million. In addition, we recognized a $3.9 million redemption premium, which wasincluded in the Interest expense, net - Capital Trust in the ConsolidatedStatements of Income.

 

*Economic and Industry Trends*

 

·      The duration of the economic downturn isunknown at this time, as is the ongoing effect on certain local marketeconomies.  Our operating results maycontinue to be negatively impacted throughout the duration of the downturn.  During the fourth quarter of 2008, we willperform our annual impairment test for our goodwill and intangible assets,including FCC licenses, which represented approximately 85% of our total assetsas of September 30, 2008.  Duringthis process, we estimate the fair value of our intangible assets individuallyfor each station using a discounted cash flow approach. Since our stationsoperating results are largely influenced by local economic trends, our fairvalue assumptions vary from market to market. Accordingly, the fair value ofcertain of our intangible assets may be more sensitive to the current economicdownturn than others.  If the fair valueof any of our intangible assets is below its net carrying value, a non-cashimpairment charge could be required, which could materially affect our reportednet income and our balance sheet.

 

·      The Federal Communications Commission (“FCC”)has permitted broadcast television station licensees to use their digitalspectrum for a wide variety of services such as high-definition televisionprogramming, audio, data and other types of communication, subject to therequirement that each broadcaster provide at least one free 

 

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video channel equal inquality to the current analog channel. We currently have multicast channels broadcasting weather programs andan additional network affiliation and numerous other multicast opportunitiesare being reviewed.  We have alsoaffiliated with the Open Mobile Video Coalition, which contemplates launching amobile video service using a portion of available digital spectrum. We continueto explore alternative uses of our digital spectrum.

 

·      Pursuant to the Cable Television ConsumerProtection and Competition Act of 1992 (“1992 Cable Act”) and the FCC’s “mustcarry” regulations, cable operators are generally required to devote up toone-third of their activated channel capacity to the carriage of the analogsignal of local commercial television stations. On a cable system-by-cable system basis, a local television broadcaststation must choose once every three years whether to waive the right tomandatory, but uncompensated, carriage and, instead, to negotiate a grant ofretransmission consent.  For the periodfrom January 1, 2009 to December 31, 2011, we opted to negotiateretransmission consent with most of the cable systems that carry ourstations.  During 2008, we begannegotiating numerous retransmission consent agreements. Executed agreementshave led to an increase in retransmission revenues.

 

·      The SatelliteHome Viewer Improvement Act of 1999 (“SHVIA”) established a compulsorycopyright licensing system forthe distribution of local television station signals by direct broadcastsatellite systems to viewers in each DMA. Under SHVIA’s “carry-one, carry-all” provision, a direct broadcastsatellite system generally is required to retransmit the analog signal of alllocal television stations in a DMA if the system chooses to retransmit theanalog signal of any local television station in that DMA.  Television stations located in markets inwhich satellite carriage of local stations is offered may elect mandatorycarriage or retransmission consent once every three years.  Weopted to negotiate retransmission consent for all of the satellite systems thatcarry our stations for the period from January 1, 2009 to December 31,2011.

 

·      Legislation that guides the transition fromanalog to digital television broadcasting includes a deadline of February 17,2009 for completion of the transition to digital broadcasting and the return ofthe analog spectrum to the government. As a result, we accelerated thedepreciation of certain equipment that may have a shorter useful life as aresult of the digital conversion.

 

**Results of Operations**

 

Results of operations for the three and nine monthsended September 30, 2008 and 2007 include the results of our 26 televisionstations, which were owned for the entire period presented, and the managementfees derived by the three television and two radio stations managed by us forthe entire period presented.

 

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*ThreeMonths Ended September 30, 2008*

*Comparedto Three Months Ended September 30, 2007*

 
| ** **                                      | ** ** | **For the three months ended** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2008**                                           | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** **        | ** ** |
| Total revenue                                   |       | $                                                  | 176,212    |       | $          | 176,775           |       | $ | (563 | ) | -0.3 | % |
| Station  operating expenses:                    |       |                                               |       |       |       |              |       |   |   |
| Salaries,  benefits and other operating costs   |       | 101,841                                            |       | 101,831    |       | 10                |       | 0.0 | % |
| Amortization of  program rights                 |       | 20,280                                             |       | 18,679     |       | 1,601             |       | 8.6 | % |
| Depreciation and  amortization                  |       | 13,480                                             |       | 13,310     |       | 170               |       | 1.3 | % |
| Corporate,  general and administrative expenses |       | 9,151                                              |       | 12,534     |       | (3,383            | )          | -27.0 | % |
| Operating income                                |       | 31,460                                             |       | 30,421     |       | 1,039             |       | 3.4 | % |
|                                            |       |                                               |       |       |       |              |       |   |   |
| Interest expense                                |       | 12,840                                             |       | 15,926     |       | (3,086            | )          | -19.4 | % |
| Interest income                                 |       | (38                                                | )          | (555       | )          | 517               |       | -93.2 | % |
| Interest  expense, net – Capital Trust     |       | —                                             |       | 2,438      |       | (2,438            | )          | -100.0 | % |
| Income before  income taxes and equity earnings |       | 18,658                                             |       | 12,612     |       | 6,046             |       | 47.9 | % |
|                                            |       |                                               |       |       |       |              |       |   |   |
| Income tax  expense                             |       | 4,976                                              |       | 2,138      |       | 2,838             |       | 132.7 | % |
| Equity in loss  of affiliates, net of tax       |       | 2,124                                              |       | 733        |       | 1,391             |       | 189.8 | % |
| Net income                                      |       | $                                                  | 11,558     |       | $          | 9,741             |       | $ | 1,817 |   | 18.7 | % |

 

*Totalrevenue*.  Total revenue includes:

 

(i)    cash advertising revenue, netof agency and national representatives’ commissions;

(ii)   retransmission consent revenue;

(iii)  net digital media revenue, whichincludes primarily Internet advertising revenue and, to a lesser extent,revenue from advertising on multicast weather channels;

(iv)  network compensation; and

(v)   other revenue, primarily barterand trade revenue and management fees earned from Hearst.

 
| ** **                                     | ** ** | **For the three months ended September 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                     | ** ** | **2008**                                                                   | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                     | ** ** | **(In thousands)**                                                    | ** ** | ** ** | ** ** | ** **        | ** ** |
| Net advertising  revenue (excluding political) |       | $                                                                          | 129,489    |       | $          | 146,355           |       | $ | (16,866 | ) | -11.5 | % |
| Net political  revenue                         |       | 23,706                                                                     |       | 6,960      |       | 16,746            |       | 240.6 | % |
| Retransmission  consent revenue                |       | 6,788                                                                      |       | 5,561      |       | 1,227             |       | 22.1 | % |
| Net digital  media revenue                     |       | 4,920                                                                      |       | 5,246      |       | (326              | )          | -6.2 | % |
| Network  compensation                          |       | 1,875                                                                      |       | 2,144      |       | (269              | )          | -12.5 | % |
| Other revenue                                  |       | 9,434                                                                      |       | 10,509     |       | (1,075            | )          | -10.2 | % |
| Total revenue                                  |       | $                                                                          | 176,212    |       | $          | 176,775           |       | $ | (563 | ) | -0.3 | % |

 

Total revenue in thethree months ended September 30, 2008 was $176.2 million as compared to$176.8 million in the three months ended September 30, 2007, a decrease of$0.6 million, or 0.3%. This decrease was primarily attributable to thefollowing factors:

 

(i)    a $16.9 million decrease innet advertising revenue (excluding political) due to the current economicdownturn in many of our local markets, which resulted in declines in the auto,retail, telecommunications, restaurant, movies, paid programming and furniturecategories;

(ii)   and a $0.3 million decrease innet digital media revenue resulting from the current economic downturn;partially offset by

(iii)  a $16.7 million increase in netpolitical advertising and

(iv)  a $1.2 million increase inretransmission consent revenue.

 

*Salaries,benefits and other operating costs*.    Duringthe three months ended September 30, 2008, salaries, benefits and otheroperating costs remained flat compared to the three months ended September 30,2007.  Higher 

 

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compensation costs, newsexpense and programming costs were offset by a $3.0 million gain on the Nextelequipment exchange and lower spending on certain discretionary items.

 

*Amortizationof program rights*.  Amortization of program rightswas $20.3 million in the three months ended September 30, 2008, ascompared to $18.7 million in the three months ended September 30, 2007, anincrease of $1.6 million, or 8.6%. This increase was primarily due towrite-downs on two of our off-network syndicated programs.

 

*Depreciation and amortization*.   Depreciationand amortization expense was $13.5 million in the three months ended September 30,2008, as compared to $13.3 million in the three months ended September 30,2007, a slight increase of $0.2 million, or 1.3%. Depreciation expense was$12.0 million in the three months ended September 30, 2008, as compared to$11.6 million in the three months ended September 30, 2007, an increase of$0.4 million, or 3%.  The increasein depreciation expense is primarilydue to the substantial completion in 2007 of several large building projects.

 

*Corporate,general and administrative expenses*.    Corporate,general and administrative expenses were $9.2 million in the three months endedSeptember 30, 2008, as compared to $12.5 million in the three months endedSeptember 30, 2007, a decrease of $3.4 million, or 27.0%. This decreasewas primarily due to $3.6 million in legal and investment banking expensesrelated to the Hearst Corporation’s tender offer in the third quarter of 2007.

 

*Interestexpense. *Interestexpense was $12.8 million in the three months ended September 30, 2008, ascompared to $15.9 million in the three months ended September 30, 2007, adecrease of $3.1 million, or 19.5%, reflecting the repayment of $125.0 millionof the 7% senior notes and $90.0 million of the 7.18% private placement notesin December 2007, offset in part by additional amounts outstanding underthe revolving credit facility.

 

*Interestexpense, net – Capital Trust. *Interestexpense, net – Capital Trust was $0 in the three months ended September 30,2008, as compared to $2.4 million in the three months ended September 30,2007.  The decrease was due to the redemptionin full of the Series B Debentures on June 23, 2008.

 

*Interest income.*    Interest income was $0.04 million in thethree months ended September 30, 2008, as compared to $0.6 million in thethree months ended September 30, 2007, a decrease of $0.5 million, or 93%. This decrease was due to lower cash balances in 2008 as comparedto the same period in 2007.

 

*Incometax expense.*    We recorded income taxexpense of $5.0 million in the three months ended September 30, 2008, ascompared to $2.1 million in the three months ended September 30, 2007, anincrease of $2.8 million.  This increasewas primarily due to an increase in income before income taxes from $12.6million in the three months ended September 30, 2007 to $18.7 million inthe three months ended September 30, 2008.

 

The effective tax ratefor the three months ended September 30, 2008 was 26.7% as compared to17.0% for the three months ended September 30, 2007.  The 2007 rate was more significantly affectedby the reductions in the liability for uncertain tax positions due to theexpiration of statutes of limitations in certain state and local jurisdictionsduring the third quarter.

 

*Equity in loss of affiliates, netof tax*.  Equity in loss of affiliates, net of tax wasa loss of $2.1 million for the three months ended September 30, 2008, ascompared to a loss of $0.7 million for the three months ended September 30,2007, and represents our share of losses in Internet Broadcasting Systems, Inc.(“Internet Broadcasting”) and in Ripe Digital Entertainment, Inc. (“RDE”).  Both companies have incurred losses duringthe third quarter of 2008.

 

*Netincome*.    Net income was $11.6 millionin the three months ended September 30, 2008, as compared to $9.7 millionin the three months ended September 30, 2007, an increase of $1.8 million,or 18.7%.  This increase was primarilydue to the items described above.

 

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*Nine MonthsEnded September 30, 2008*

*Comparedto Nine Months Ended September 30, 2007*

 
| ** **                                      | ** ** | **For the nine months ended September 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2008**                                                                  | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(In thousands)**                                                   | ** ** | ** ** | ** ** | ** **        | ** ** |
| Total revenue                                   |       | $                                                                         | 523,387    |       | $          | 539,177           |       | $ | (15,790 | ) | -2.9 | % |
| Station operating  expenses:                    |       |                                                                      |       |       |       |              |       |   |   |
| Salaries,  benefits and other operating costs   |       | 307,915                                                                   |       | 305,073    |       | 2,842             |       | 0.9 | % |
| Amortization of  program rights                 |       | 57,598                                                                    |       | 57,329     |       | 269               |       | 0.5 | % |
| Depreciation and  amortization                  |       | 41,799                                                                    |       | 42,492     |       | (693              | )          | -1.6 | % |
| Insurance  settlement                           |       | (11,549                                                                   | )          | —     |       | (11,549           | )          | n/a |   |
| Corporate,  general and administrative expenses |       | 27,343                                                                    |       | 29,201     |       | (1,858            | )          | -6.4 | % |
| Operating income                                |       | 100,281                                                                   |       | 105,082    |       | (4,801            | )          | -4.6 | % |
|                                            |       |                                                                      |       |       |       |              |       |   |   |
| Interest expense                                |       | 38,017                                                                    |       | 47,846     |       | (9,829            | )          | -20.5 | % |
| Interest income                                 |       | (66                                                                       | )          | (1,309     | )          | 1,243             |       | n/a |   |
| Interest  expense, net – Capital Trust     |       | 8,585                                                                     |       | 7,313      |       | 1,272             |       | 17.4 | % |
| Income before  income taxes and equity earnings |       | 53,745                                                                    |       | 51,232     |       | 2,513             |       | 4.9 | % |
|                                            |       |                                                                      |       |       |       |              |       |   |   |
| Income tax  expense                             |       | 12,709                                                                    |       | 18,656     |       | (5,947            | )          | -31.9 | % |
| Equity in loss  of affiliates, net of tax       |       | 5,344                                                                     |       | 1,564      |       | 3,780             |       | 241.7 | % |
| Net income                                      |       | $                                                                         | 35,692     |       | $          | 31,012            |       | $ | 4,680 |   | 15.1 | % |

 
| ** **                                     | ** ** | **For the nine months ended September 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|------------------------------------------------|------------|---------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                     | ** ** | **2008**                                                                  | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                     | ** ** | **(In thousands)**                                                   | ** ** | ** ** | ** ** | ** **        | ** ** |
| Net advertising  revenue (excluding political) |       | $                                                                         | 411,030    |       | $          | 458,222           |       | $ | (47,192 | ) | -10.3 | % |
| Net political  revenue                         |       | 41,785                                                                    |       | 13,363     |       | 28,422            |       | 212.7 | % |
| Retransmission  consent revenue                |       | 19,877                                                                    |       | 16,148     |       | 3,729             |       | 23.1 | % |
| Net digital  media revenue                     |       | 15,487                                                                    |       | 14,282     |       | 1,205             |       | 8.4 | % |
| Network  compensation                          |       | 6,383                                                                     |       | 7,258      |       | (875              | )          | -12.1 | % |
| Other revenue                                  |       | 28,825                                                                    |       | 29,904     |       | (1,079            | )          | -3.6 | % |
| Total revenue                                  |       | $                                                                         | 523,387    |       | $          | 539,177           |       | $ | (15,790 | ) | -2.9 | % |

 

Total revenue in the ninemonths ended September 30, 2008 was $523.4 million as compared to $539.2million in the nine months ended September 30, 2007, a decrease of $15.8million, or 2.9 %. This decrease was primarily attributable to the followingfactors:

 

(i)     a$47.2 million decrease in net advertising revenue (excluding political) due tothe current economic downturn in many of our local markets, which resulted indeclines in the automotive, retail, telecommunications, restaurants, movies andfurniture categories; partially offset by

(ii)    a$28.4 million increase in net political advertising;

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

(iv)   a$1.2 million increase in net digital media revenue.

 

*Salaries,benefits and other operating costs*.    Salaries,benefits and other operating costs were $307.9 million in the nine months endedSeptember 30, 2008, as compared to $305.1 million in the nine months endedSeptember 30, 2007, an increase of $2.8 million, or 0.9%.  This increase was primarily due to:

 

(i)    a$5.1 million increase in compensation and employee benefits expense; and

(ii)   a$3.1 million increase in digital expenses; partially offset by

(iii)  a $3.5 million gain on Nextel equipment exchange; and

(iv)  a$1.6 million decrease in pension costs

 

*Amortizationof program rights*.  Amortization of program rightswas $57.6 million in the nine months ended September 30, 2008, as comparedto $57.3 million in the nine months ended September 30, 2007, an increaseof $0.3 

 

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million, or 0.5%.  This increase was primarily due towrite-downs in the third quarter of 2008 related to two of our off-networksyndicated programs.

 

*Depreciation and amortization*.  Depreciation and amortization was $41.8 million in the nine months ended September 30,2008, as compared to $42.5 million in the nine months ended September 30,2007, a decrease of $0.7 million, or 1.6%. Depreciation expense was $37.3 million in the nine months ended September 30,2008 and September 30, 2007. Amortization expense was $4.5 million for the nine months ended September 30,2008, as compared to $5.2 million for the nine months ended September 30,2007, a decrease of $0.7 million, or 14%.

 

*Insurance settlement. *During the firstquarter of 2008, the Company recognized an $11.5 million insurance settlementresulting from Hurricane Katrina as an offset to Station operating expenses.

 

*Corporate,general and administrative expenses*.    Corporate,general and administrative expenses were $27.3 million in the nine months endedSeptember 30, 2008, as compared to $29.2 million in the nine months ended September 30,2007, a decrease of $1.9 million, or 6.4%. This decrease was primarily due to:

 

(i)    a$ 3.6 million decrease in legal expense due to the absence of costs related tothe Hearst Corporation’s tender offer in 2007; partially offset by

(ii)   a$1.3 million increase related to employee compensation expense, a portion ofwhich is related to our investment in our digital media initiatives.

 

*Interestexpense. *Interestexpense was $38.0 million in the nine months ended September 30, 2008, ascompared to $47.8 million in the nine months ended September 30, 2007, adecrease of $9.8 million, or 21%, reflecting the repayment of $125.0 million ofthe 7% senior notes and $90.0 million of the 7.18% private placement notes in December 2007,offset in part by additional amounts outstanding under the revolving creditfacility.

 

*Interest income.*    Interest income was $0.07 million in the ninemonths ended September 30, 2008, as compared to $1.3 million in the ninemonths ended September 30, 2007, a decrease of $1.2 million, or 95%. Thisdecrease is primarily due to lower cash balances in 2008.

 

*Interestexpense, net – Capital Trust. *Interestexpense, net – Capital Trust was $8.6 million in the nine months ended September 30,2008, as compared to $7.3 million in the nine months ended September 30,2007, an increase of $1.3 million, due to the $3.9 million premium paid on theredemption of the Series B Debentures on June 23, 2008.

 

*Incometax expense.*    We recorded income taxexpense of $12.7 million in the nine months ended September 30, 2008, ascompared to $18.7 million in the nine months ended September 30, 2007, adecrease of $5.9 million. The effective tax rate for the nine months ended September 30,2008 was 24% as compared to 36.4% for the nine months ended September 30,2007.  This decrease was primarily due to

 

(i)      $4.6million in tax benefits, as a result of the settlement of certain tax returnexaminations; and

(ii)     a$2.5 million tax benefit associated with the utilization of capital loss carryforwards; partially offset by

(iii)    an increase in income before income taxes of $2.5million.

 

*Equity in loss of affiliates, net of tax*.  Equity in loss of affiliates, net of tax, was$5.3 million for the nine months ended September 30, 2008 as compared to$1.6 million for the nine months ended September 30, 2007, an increase of$3.8 million.  This increase representsour share of losses in Internet Broadcasting and in RDE.  Both companies have incurred losses during2008.

 

*Netincome*.    Net income was $35.7 millionin the nine months ended September 30, 2008, as compared to $31.0 millionin the nine months ended September 30, 2007, an increase of $4.7 million,or 15.1%.  This increase was primarilydue to the items described above.

 

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**Liquidityand Capital Resources**

 

As of September 30,2008, the Company’s cash and cash equivalents balance was $11.8 million, ascompared to $6.0 million as of December 31, 2007.  The net increase in cash and cash equivalentsof $5.8 million during the nine months ended September 30, 2008 was due tothe factors described below under Operating Activities, Investing Activities,and Financing Activities.

 
| ** **                                      | ** ** | **Nine months ended September 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2008**                                                | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(In thousands)**                                 | ** ** | ** ** | ** ** | ** **        | ** ** |
| Net cash  provided by operating activities      |       | $                                                       | 126,219    |       | $          | 86,732            |       | $ | 39,487 |   | 45.5 | % |
| Net cash used in  investing activities          |       | $                                                       | (22,294    | )          | $          | (42,977           | )          | $ | 20,683 |   | -48.1 | % |
| Net cash used in  financing activities          |       | $                                                       | (98,132    | )          | $          | (6,797            | )          | $ | (91,335 | ) | n/a |   |
|                                            |       |                                                    |       |       |       |              |       |   |   |
| Cash paid for:                                  |       |                                                    |       |       |       |              |       |   |   |
| Interest                                        |       | 33,491                                                  |       | 37,911     |       | (4,420            | )          | -11.7 | % |
| Interest on Note  payable to Capital Trust      |       | 8,586                                                   |       | 4,875      |       | 3,711             |       | 76.1 | % |
| Taxes, net of  refunds                          |       | 7,401                                                   |       | 34,963     |       | (27,562           | )          | -78.8 | % |
| Purchase of  property, plant and equipment, net |       | 26,705                                                  |       | 42,103     |       | (15,398           | )          | -36.6 | % |
| Dividends paid  on common stock                 |       | 19,713                                                  |       | 19,640     |       | 73                |       | 0.4 | % |
| Series A  Common Stock repurchases         |       | 1,091                                                   |       | 2,270      |       | (1,179            | )          | -51.9 | % |

 

*Operating Activities*

 

Net cash provided by operating activities was $126.2 million in thenine months ended September 30, 2008, as compared to $86.7 million in thenine months ended September 30, 2007, an increase of $39.5 million, or46%. This increase was primarily due to:

 

(i)    higher levels of cashgenerated from political advertisements that are paid for in advance, therebyrequiring a lower level of investment in accounts receivable;

(ii)   the receipt of $8.7 million ofinsurance proceeds in the first quarter of 2008 for business interruption andto recover the incremental expenses incurred due to Hurricane Katrina; and

(iii)  a $27.6 million decrease in cashtaxes paid in 2008 compared to 2007 due to timing.

 

*Investing Activities*

 

Net cash used in investing activities was $22.3 million in the ninemonths ended September 30, 2008, as compared to $43.0 million in the ninemonths ended September 30, 2007, a decrease of $20.7 million, or 48%.  This decrease is primarily due to:

 

(i)    a decrease in capitalexpenditures to $26.7 million in the nine months ended September 30, 2008from $ 42.1 million in the same period in 2007 due to the substantialcompletion of  several large buildingprojects;

(ii)   the receipt of $2.9 million ofinsurance proceeds on property losses resulting from Hurricane Katrina in thefirst quarter of 2008.  In the firstquarter of 2007, the Company received $1.0 million of insurance proceeds as thefinal payment in the settlement of a property loss claim resulting from thecollapse of a tower in Omaha, NE; and

(iii)  proceeds of $4.0 million fromthe redemption of the Series B Debentures on June 23, 2008.

 

*Financing Activities*

 

Net cash used in financing activities was $98.1 million in the ninemonths ended September 30, 2008, as compared to net cash used in financingactivities of $6.8 million in the nine months ended September 30, 2007, achange of $91.3 million. This change was primarily due to:

 

(i)    theredemption of the outstanding Series B Debentures in June 2008resulting in a net debt reduction of $134 million; and

(ii)   proceedsfrom stock option exercises and employee stock purchases of $2.7 million in thenine months ended September 30, 2008 compared to $15.1 million in the ninemonths ended September 30, 2007; partially offset by

(iii)  the net borrowing of $54.0 million on our creditfacility in 2008.

 

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*Credit Facility and Other Long Term Debt*

 

The Company has a $500 million five-year unsecured revolving creditfacility, which matures on April 15, 2010. The credit facility iscommitted by a syndicate of banks including JPMorgan Chase Bank, N.A., Bank ofAmerica, N.A., Bank of Montreal, BNP Paribas, The Royal Bank of Scotland,Mizuho Bank, Ltd., Wells Fargo Bank, N.A., The Bank of Tokyo-Mitsubishi UFJ,Ltd., The Bank of New York Mellon Corporation, Wachovia Bank, NationalAssociation and Calyon.  The creditfacility can be used for general corporate purposes including working capital,investments, acquisitions, debt repayment and dividend payments.  Outstanding principal balances under thecredit facility bear interest at our option at LIBOR or the alternate base rate(“ABR”), plus the applicable margin.  Theapplicable 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 “LeverageRatio”).  The ABR is the greater of (i) theprime rate or (ii) the Federal Funds Effective Rate in effect plus0.5%.  We are required to pay acommitment 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.  Thecredit facility is a general unsecured obligation of the Company.  We have borrowed $295 million under thecredit facility as of September 30, 2008.

 

As of September 30, 2008, our long-term debt obligations includingthe credit facility were $757.1 million and our current debt maturities totaled$90 million.  Our long-term debtobligations bear interest at fixed rates. The Company’s credit ratings were BBB- by Standard & Poor’s andFitch Ratings and Baa3 by Moody’s Investors Service, as of September 30,2008.  Such credit ratings are consideredto be investment grade.

 

Our debt obligationscontain certain financial and other covenants and restrictions on theCompany.  Certain of the financialcovenants include credit ratios such as leverage and interest coverage, andthreshold tests such as consolidated net worth, but such covenants do notinclude any triggers explicitly tied to the Company’s credit ratings or stockprice.  We are in compliance with allsuch covenants and restrictions as of September 30, 2008.

 

We anticipate that our primary sources of cash, which include currentcash balances, cash provided by operating activities, and amounts availableunder our credit facility, will be sufficient to finance the operating andworking capital requirements of our stations, as well as our debt service requirements,anticipated capital expenditures, and other obligations of the Company for thenext 12 months.  We anticipate accessingone or more capital markets during 2009 to refinance some or all of the currentcredit facility.

 

**Item 3.    Quantitativeand Qualitative Disclosures About Market Risk**

 

As of September 30, 2008, the Company was not involved in anyderivative financial instruments. However, the Company may consider certain interest-rate risk strategiesin the future.

 

As of September 30, 2008, we have borrowed $295million under our credit facility, which loan bears interest at LIBOR plus theapplicable margin.  The applicable marginon LIBOR loans varies between 0.50% and 1.00% depending on the ratio of totaldebt to earnings before interest, taxes, depreciation and amortization asdefined by the credit agreement.

 

**Item 4.    Controlsand Procedures**

 

The Company’s managementperformed an evaluation under the supervision and with the participation of theCompany’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),of the effectiveness of the disclosure controls and procedures (as that term isdefined in Exchange Act Rule 13a-15(e)) as of the end of the fiscalquarter ended September 30, 2008. Based on that evaluation, and as of the end of the quarter for whichthis report is made, the Company’s management, including the CEO and CFO,concluded that the Company’s disclosure controls and procedures wereeffective.  Our management, including theCEO and CFO, performed an evaluation of any changes that occurred in ourinternal control over financial reporting (as that term is defined in ExchangeAct Rule 13a-15(f)) during the fiscal quarter ended September 30,2008.  That evaluation did not identifyany changes in the Company’s internal control over financial reporting thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**PART II**

**OtherInformation**

 

**Item 1A.  Risk Factors**

 

Inaddition to the other information set forth in this report, you shouldcarefully consider the factors discussed in Part I, “Item 1A. RiskFactors” of the 2007 10-K, as amended by “Item 1A. Risk Factors” in theQuarterly Report for the fiscal period ended June 30, 2008, which couldmaterially affect our business, financial condition or future results. Therisks described in the 2007 10-K, as amended, are not the only risksfacing us. Additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.  There have been no material changes from therisk factors disclosed in the 2007 10-K, as amended, except for the following(reflecting the execution of a Tax Sharing Agreement with Hearst):

 

**We May Encounter Conflicts of Interest with Our Controlling Stockholder**

 

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

 

·      a Lease Agreement (wherebywe lease one  floor of the Hearst Towerin 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 tocertain Hearst-owned or managed television and radio stations);

 

·      an Option Agreement (wherebyHearst 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 aprospective 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 nameand operation of our business);

 

·      a Tax Sharing Agreement(whereby the method of determining the amounts owed and timing of paymentsamong other items resulting from the consolidation is confirmed, as well as taxpreparation and related services by Hearst to the Company); and

 

·      a Services Agreement(whereby Hearst provides us certain administrative services, such asaccounting, financial, legal, tax, insurance, data processing and employeebenefits).

 

It is possible that weand Hearst may enter into additional related party transactions and/oragreements in the future.  Because we andHearst are affiliates, it is possible that our interests concerning thesetransactions and/or agreements may from time to time conflict and that more favorableterms than those we have negotiated with Hearst may be available from thirdparties.

 

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**Item 2.    UnregisteredSales of Equity Securities, Use of Proceeds and Issuer Purchases of EquitySecurities.**

 

*Purchaseof Equity Securities by the Issuer and Affiliated Purchasers. *The following tablereflects purchases of our Series A Common Stock made by HearstBroadcasting during the three months ended September 30, 2008:

 
| **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** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|
| July 1 –  July 31           |       | 1,568,318                                        |       | $                                            | 19.57      |                                                                                                             | 1,568,318  |                                                                                                                |       |   |
| August 1 –  August 31       |       | 353,928                                          |       | $                                            | 19.71      |                                                                                                             | 353,928    |                                                                                                                | 0          | (1) |
| September 1  – September 30 |       | 0                                                |       | $                                            | 0.00       |                                                                                                             | 0          |                                                                                                                |       |   |
| Total                                      |       | 1,922,246                                        |       | $                                            | 19.59      |                                                                                                             | 1,922,246  |                                                                                                                |       |   |

 

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(1) On December 6, 2007, Hearstfiled an amendment to its Schedule 13D with the Securities and ExchangeCommission indicating that its Board of Directors had approved the purchase ofup to eight million additional shares of our Series A Common Stock inorder to increase its ownership percentage to approximately 82% to permit us tobe consolidated with Hearst for federal income tax purposes.  Previously, Hearst had authorized thepurchase of up to 25 million shares of our Series A Common Stock.  As of August 6, 2008 Hearst reached thelimit of its eight million share purchase authorization.

 

As of September 30,2008, Hearst beneficially owned approximately 67.4% of the Company’soutstanding Series A Common Stock and 100% of the Company’s outstanding Series BCommon Stock, representing in the aggregate approximately 81.8% of ouroutstanding common stock.

 

The following tablereflects purchases made by the Company of its Series A Common Stock duringthe three months ended September 30, 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** | ** **     |
|--------------------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|----------------|
| July 1 –  July 31           |       | 0                                     |       | N/A                               |       | 0                                                                             |       |                                                                                  |           |
| August 1 –  August 31       |       | 0                                     |       | N/A                               |       | 0                                                                             |       |                                                                                  |           |
| September 1  – September 30 |       | 0                                     |       | N/A                               |       | 0                                                                             |       | $                                                                                     | 182,852,123.30 | (1) |
| Total                                      |       | 0                                     |       | N/A                               |       | 0                                                                             |       |                                                                                  |           |
|                                            |            |                                       |            |                                   |            |                                                                               |            |                                                                                       |                |  |

 

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(1)   In May 1998, the Company’sBoard of Directors authorized the repurchase of up to $300 million of itsoutstanding Series A Common Stock. Such purchases may be effected from time to time in the open market orin private transactions, subject to market conditions and management’sdiscretion.  As of September 30,2008, the Company has spent approximately $117.1 million to repurchaseapproximately 4.8 million shares of Series A Common Stock at an averageprice of $24.54. There can be no assurance that such repurchases will occur inthe future or, if they do occur, what the terms of such repurchases will be.

 

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**Item 5.    OtherInformation**

 

On October 30, 2008, the Company entered into a Tax Sharing Agreementwith Hearst Holdings, Inc. as a result of the July 1, 2008 taxconsolidation.  The agreement specifiesthe method of determining the amounts owed and timing of payments resultingfrom the consolidation, as well as providing for tax preparation and relatedservices by Hearst to the Company. A copy of the Tax Sharing Agreement is attachedas Exhibit 10.1

 

OnOctober 30, 2008, the Company entered into an employment agreement with itsExecutive Vice President and Chief Financial Officer, Harry T. Hawks, for a term commencing as of January 1,2008 and ending on December 31, 2010.  Forcalendar year 2008, Mr. Hawks’ employment agreement provides for an annual basesalary of $600,000 and a maximum bonus of 75% of the annual base salary.  For each of calendar years 2009 and 2010, theemployment agreement provides for an annual base salary of $625,000 and amaximum bonus of 75% of the annual base salary. Mr. Hawks has served as the Company’s Executive Vice President and ChiefFinancial Officer since February 2000, and as the Company’s Senior VicePresident and Chief Financial Officer from August 29, 1997 to February2000.  A copy of Mr. Hawks’ employment agreementis attached as Exhibit 10.4.

 

 

**Item 6.    Exhibits**

 

**(a) Exhibits:**

 
| 10.1   |   | Tax Sharing Agreement,  dated as of October 30, 2008, between the Company and Hearst  Holdings, Inc.                                                                                                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.2   |   | Amendment No. 3 to  Retransmission Rights Agency Agreement, dated as of October 17, 2008,  between the Company and Lifetime Entertainment Services. Portions of this  agreement have been redacted pursuant to a request for confidential treatment  submitted to the SEC on October 31, 2008. We have filed the redacted  material separately with the SEC. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.3   |   | Amended and Restated  Digital Retransmission Consent Agreement, dated as of January 1, 2009,  between the Company and Comcast Cable Communications, LLC. Portions of this  agreement have been redacted pursuant to a request for confidential treatment  submitted to the SEC on October 31, 2008. We have filed the redacted  material separately with the SEC. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.4   |   | Employment Agreement  between the Company and Harry T. Hawks, executed October 30, 2008.                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1   |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) under the Securities  Exchange Act of 1934, as amended.                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) under the Securities  Exchange Act of 1934, as amended.                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 32.1   |   | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                 |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|       | **HEARST-ARGYLE  TELEVISION, INC.**                                                   |
|------------|---------------------------------------------------------------------------------------|
|       |                                                                                  |
|       |                                                                                  |
| By:   | /S/ JONATHAN C.  MINTZER                                                              |
|       | Name: Jonathan C.  Mintzer  Title: Vice President, General Counsel and Secretary |
| ** ** | ** **                                                                            |
| Dated:     | **October 31, 2008**                                                             |

 

 
| **Name**            | ** ** | **Title**                       | ** ** | **Date**               |
|---------------------|------------|---------------------------------|------------|------------------------|
|                |       |                            |       |                   |
| /S/ HARRY T.  HAWKS |       | Executive Vice  President       |       | October 31,  2008 |
| Harry T. Hawks      |       | and Chief  Financial Officer    |       |                   |
|                |       | (Principal  Financial Officer)  |       |                   |
|                |       |                            |       |                   |
|                |       |                            |       |                   |
| /S/ LYDIA G.  BROWN |       | Corporate  Controller           |       | October 31,  2008 |
| Lydia G. Brown      |       | (Principal  Accounting Officer) |       |                   |

 

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