Table of Contents

 

 

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009**

 

**or**

 

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

 

**For thetransition 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 preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.     Yes  x        No  o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes  o        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 “large accelerated filer”,“accelerated filer”, and “smaller reporting company” in Rule 12b-2 of theExchange 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 April 27, 2009: 94,254,329 shares(consisting of 52,955,681 shares of Series A Common Stock and 41,298,648shares of Series B Common Stock).

 

 

 

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**HEARST-ARGYLE TELEVISION, INC.**

 

**Index**

** **
|              |                                                                                                                                             |            |
|-------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
|              | *** ***                                                                                                                                     | **Page****No.** |
| ** **        | ** **                                                                                                                                       |            |
| **Part I**   | **Financial**Information**                                                                                                                       |            |
|              |                                                                                                                                             |            |
| **Item 1.**  | **Financial Statements**                                                                                                                         |            |
|              | Condensed Consolidated Balance Sheets as of March 31,  2009 (unaudited)  and December 31, 2008 | 1               |
|              | Condensed Consolidated Statements of Operation for the  Three Months Ended  March 31, 2009 and 2008 (unaudited)                        | 2               |
|              | Condensed Consolidated Statements of Cash Flows for  the Three Months Ended  March 31, 2009 and 2008 (unaudited)                       | 3               |
|              | Notes to Condensed Consolidated Financial Statements                                                                                             | 5               |
|              |                                                                                                                                             |            |
| **Item 2.**  | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                  | 14              |
|              |                                                                                                                                             |            |
| **Item 3.**  | **Quantitative  and Qualitative Disclosures about Market Risk**                                                                                  | 20              |
|              |                                                                                                                                             |            |
| **Item 4.**  | **Controls and  Procedures**                                                                                                                     | 21              |
|              |                                                                                                                                             |            |
| **Part II**  | **Other Information**                                                                                                                            |            |
|              |                                                                                                                                             |            |
| **Item 1.**  | **Legal Proceedings**                                                                                                                            | 21              |
|              |                                                                                                                                             |            |
| **Item 1A.** | **Risk Factors**                                                                                                                                 | 21              |
|              |                                                                                                                                             |            |
| **Item 2.**  | **Unregistered  Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity  Securities**                                         | 22              |
|              |                                                                                                                                             |            |
| **Item 6.**  | **Exhibits**                                                                                                                                     | 24              |
|              |                                                                                                                                             |            |
| **Signatures**    |                                                                                                                                             | 25              |

 

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**PART I**

**FINANCIAL INFORMATION**

**Item 1. Financial Statements**

**HEARST-ARGYLE TELEVISION, INC.**

**Condensed Consolidated Balance Sheets**

 
| ** **                                       | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | **(Unaudited)**         | ** ** | ** **                 | ** ** |
| ** **                                       | ** ** | **(In thousands)**      | ** ** |
| **Assets**                                       | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current assets:                                  |       |                    |       |                       |       |
| Cash and cash  equivalents                       |       | $                       | 8,349      |                       | $          | 7,044 |   |
| Accounts  receivable, net                        |       | 107,183                 |       | 121,746                    |       |
| Program and  barter rights                       |       | 42,082                  |       | 63,492                     |       |
| Deferred income  tax asset                       |       | 4,707                   |       | 4,707                      |       |
| Other                                            |       | 6,307                   |       | 5,169                      |       |
| Total current  assets                            |       | 168,628                 |       | 202,158                    |       |
| Property, plant  and equipment, net              |       | 289,387                 |       | 296,470                    |       |
| Intangible  assets, net                          |       | 1,579,827               |       | 1,581,315                  |       |
| Goodwill                                         |       | 789,526                 |       | 789,526                    |       |
| Other assets:                                    |       |                    |       |                       |       |
| Deferred  financing costs, net                   |       | 6,499                   |       | 6,706                      |       |
| Investments                                      |       | 25,871                  |       | 26,974                     |       |
| Program and  barter rights, noncurrent           |       | 6,767                   |       | 8,367                      |       |
| Other assets                                     |       | 1,968                   |       | 2,198                      |       |
| Total other  assets                              |       | 41,105                  |       | 44,245                     |       |
| Total assets                                     |       | $                       | 2,868,473  |                       | $          | 2,913,714 |   |
| ** **                                       | ** ** | ** **              | ** ** | ** **                 | ** ** |
| **Liabilities  and Stockholders’ Equity**   | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current liabilities:                             |       |                    |       |                       |       |
| Current portion  of long-term debt               |       | $                       | 90,000     |                       | $          | 90,000 |   |
| Accounts payable                                 |       | 6,126                   |       | 12,982                     |       |
| Accrued  liabilities                             |       | 36,399                  |       | 48,072                     |       |
| Program and  barter rights payable               |       | 43,642                  |       | 64,743                     |       |
| Payable to  Hearst Corporation, net              |       | 2,080                   |       | 9,483                      |       |
| Other                                            |       | 3,451                   |       | 4,510                      |       |
| Total current  liabilities                       |       | 181,698                 |       | 229,790                    |       |
|                                             |       |                    |       |                       |       |
| Program and  barter rights payable, noncurrent   |       | 13,666                  |       | 15,728                     |       |
| Long-term debt                                   |       | 714,110                 |       | 701,110                    |       |
| Deferred income  tax liability                   |       | 467,142                 |       | 470,158                    |       |
| Other  liabilities                               |       | 125,727                 |       | 123,305                    |       |
| Total noncurrent  liabilities                    |       | 1,320,645               |       | 1,310,301                  |       |
| Commitments and  contingencies                   |       |                    |       |                       |       |
| Stockholders’  equity:                      |       |                    |       |                       |       |
| Series A  common stock                      |       | 573                     |       | 571                        |       |
| Series B  common stock                      |       | 413                     |       | 413                        |       |
| Additional  paid-in capital                      |       | 1,349,639               |       | 1,347,833                  |       |
| Retained  earnings                               |       | 189,379                 |       | 198,694                    |       |
| Accumulated  other comprehensive loss, net       |       | (56,714                 | )          | (56,714                    | )          |
| Treasury stock,  at cost                         |       | (117,160                | )          | (117,174                   | )          |
| Total  stockholders’ equity                 |       | 1,366,130               |       | 1,373,623                  |       |
| Total  liabilities and stockholders’ equity |       | $                       | 2,868,473  |                       | $          | 2,913,714 |   |

 

See notes to condensed consolidated financialstatements.

 

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**HEARST-ARGYLE TELEVISION, INC.**

 

**Condensed Consolidated Statements ofOperations**

** **
| ** **                                             | ** ** | **Three Months Ended March 31,**                              | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2009**                                                           | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **(Unaudited)**                                                    | ** ** |
| ** **                                             | ** ** | **(In thousands, except per share data)** | ** ** |
|                                                   |       |                                                               |       |   |   |
| Total revenue                                          |       | $                                                                  | 133,841    |   | $ | 165,053 |   |
| Station  operating expenses:                           |       |                                                               |       |   |   |
| Salaries,  benefits and other operating costs          |       | 94,137                                                             |       | 104,128 |   |
| Amortization of  program rights                        |       | 18,622                                                             |       | 18,712 |   |
| Depreciation and  amortization                         |       | 13,810                                                             |       | 14,052 |   |
| Insurance  settlement                                  |       | —                                                             |       | (11,549 | ) |
| Corporate,  general and administrative expenses        |       | 8,879                                                              |       | 8,716 |   |
| Operating (loss)  income                               |       | (1,607                                                             | )          | 30,994 |   |
| Interest expense                                       |       | 9,805                                                              |       | 12,883 |   |
| Interest income                                        |       | —                                                             |       | (19 | ) |
| Interest  expense, net — Capital Trust            |       | —                                                             |       | 2,438 |   |
| Income (loss)  before income taxes and equity earnings |       | (11,412                                                            | )          | 15,692 |   |
| Income tax  (benefit) expense                          |       | (2,782                                                             | )          | 4,290 |   |
| Equity in loss  of affiliates, net of tax              |       | 685                                                                |       | 1,362 |   |
| Net (loss)  income                                     |       | $                                                                  | (9,315     | ) | $ | 10,040 |   |
|                                                   |       |                                                               |       |   |   |
| (Loss) income  per common share — basic           |       | $                                                                  | (0.10      | ) | $ | 0.11 |   |
| Number of common  shares used in the calculation       |       | 93,739                                                             |       | 93,509 |   |
|                                                   |       |                                                               |       |   |   |
| (Loss) income  per common share — diluted         |       | $                                                                  | (0.10      | ) | $ | 0.11 |   |
| Number of common  shares used in the calculation       |       | 93,739                                                             |       | 94,120 |   |
|                                                   |       |                                                               |       |   |   |
| Dividends per  common share declared                   |       | $                                                                  | —     |   | $ | 0.07 |   |

 

See notes to condensed consolidated financialstatements.

 

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**HEARST-ARGYLE TELEVISION, INC.**

 

**Condensed Consolidated Statements ofCash Flows**

** **
| ** **                                                                                           | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                           | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                                                                                           | ** ** | **(Unaudited)**                       | ** ** |
| ** **                                                                                           | ** ** | **(In thousands)**                    | ** ** |
| **Operating  Activities**                                                                            | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net (loss)  income                                                                                   |       | $                                     | (9,315     | ) | $ | 10,040 |   |
| Adjustments to  reconcile net income (loss) to net cash (used in) provided by operating  activities: |       |                                  |       |   |   |
| Depreciation                                                                                         |       | 12,322                                |       | 12,564 |   |
| Amortization of  intangible assets                                                                   |       | 1,488                                 |       | 1,488 |   |
| Amortization of  deferred financing costs                                                            |       | 207                                   |       | 219 |   |
| Amortization of  program rights                                                                      |       | 18,622                                |       | 18,712 |   |
| Deferred income  taxes                                                                               |       | (2,596                                | )          | 1,291 |   |
| Equity in loss  of affiliates, net                                                                   |       | 685                                   |       | 1,362 |   |
| Provision for  doubtful accounts                                                                     |       | 516                                   |       | 415 |   |
| Stock-based  compensation expense                                                                    |       | 1,375                                 |       | 2,083 |   |
| Insurance  settlement                                                                                |       | —                                |       | (11,549 | ) |
| Business  interruption insurance proceeds                                                            |       | —                                |       | 8,659 |   |
| Non-cash gain on  Nextel equipment exchange                                                          |       | (1,329                                | )          | — |   |
| Program payments                                                                                     |       | (18,772                               | )          | (18,189 | ) |
| Changes in  operating assets and liabilities:                                                        |       |                                  |       |   |   |
| Decrease in  Accounts receivable                                                                     |       | 14,047                                |       | 31,695 |   |
| (Increase)  decrease in Other assets                                                                 |       | (886                                  | )          | 745 |   |
| (Decrease) in  Accounts payable and accrued liabilities                                              |       | (18,771                               | )          | (16,172 | ) |
| Increase  (decrease) in Other liabilities                                                            |       | 543                                   |       | 644 |   |
| Net cash (used  in) provided by operating activities                                                 |       | (1,864                                | )          | 44,007 |   |
|                                                                                                 |       |                                  |       |   |   |
| **Investing  Activities**                                                                            | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment, net                                                     |       | (3,694                                | )          | (7,190 | ) |
| Property loss  insurance proceeds                                                                    |       | —                                |       | 2,890 |   |
| Net cash used in  investing activities                                                               |       | (3,694                                | )          | (4,300 | ) |
|                                                                                                 |       |                                  |       |   |   |
| **Financing  Activities**                                                                            | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Payments on  credit facility                                                                         |       | —                                |       | (27,000 | ) |
| Borrowings on  credit facility                                                                       |       | 13,000                                |       | — |   |
| Dividends paid  on common stock                                                                      |       | (6,585                                | )          | (6,569 | ) |
| Series A  Common Stock repurchases                                                              |       | —                                |       | (1,091 | ) |
| Principal  payments and repurchase of long term debt                                                 |       | —                                |       | (12 | ) |
| Proceeds from  employee stock purchase plan and stock option exercises                               |       | 448                                   |       | 1,735 |   |
| Net cash  provided by (used in) financing activities                                                 |       | 6,863                                 |       | (32,937 | ) |
|                                                                                                 |       |                                  |       |   |   |
| Increase in cash  and cash equivalents                                                               |       | 1,305                                 |       | 6,770 |   |
| Cash and cash  equivalents at beginning of period                                                    |       | 7,044                                 |       | 5,964 |   |
| Cash and cash  equivalents at end of period                                                          |       | $                                     | 8,349      |   | $ | 12,734 |   |

 

See notes to condensed consolidated financialstatements.

 

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**HEARST-ARGYLE TELEVISION, INC.**

 

**Condensed Consolidated Statements ofCash Flows**

**(continued)**

 
| ** **                                              | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| ** **                                              | ** ** | **(Unaudited)**                       | ** ** |
| ** **                                              | ** ** | **(In thousands)**                    | ** ** |
| **Supplemental  Cash Flow Information:**                | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Cash  paid during the period for:**                   | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Interest                                                |       | $                                     | 6,932      |   | $ | 8,731 |   |
| Interest on Note  payable to Capital Trust              |       | $                                     | —     |   | $ | 2,438 |   |
| Taxes, net of  refunds                                  |       | $                                     | 661        |   | $ | 5,501 |   |
| **Non-cash  investing and financing activities:**       | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Accrued  property, plant & equipment purchases |       | $                                     | 241        |   | $ | 736 |   |

 

See notes to condensed consolidated financialstatements.

 

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**Hearst-Argyle Television, Inc.**

**Notes to CondensedConsolidated Financial Statements**

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

 

**1.    Basisof 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 was required to be deconsolidated upon adoption of the FinancialAccounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003),*Consolidation of Variable Interest Entities*(“FIN 46(R)”). Intercompany accounts have been eliminated in consolidation.

 

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 31,2008. In the opinion of management, all adjustments considered necessary for afair presentation have been included and are normal and recurring in nature.Operating results for the three months ended March 31, 2009 are notnecessarily indicative of the results that may be expected for the full year.

 

**2.    RecentDevelopments**

 

On March 25, 2009,Hearst Broadcasting, Inc. (“Broadcasting”), an indirect wholly-ownedsubsidiary of The Hearst Corporation (“Hearst”), announced its intentions tolaunch a tender offer to acquire the outstanding shares of the Company’s Series ACommon Stock that it did not already own for $4.00 per share (the “Offer”).  On March 26, 2009, our Board ofDirectors appointed a special committee of directors unaffiliated with Hearst(the “Special Committee”) to consider the Offer and make a recommendation tothe Company’s shareholders, other than Hearst. The Special Committee has engaged outside legal counsel and anindependent financial advisor to advise it with respect to the Offer.  On April 27, 2009, Hearst announced thatit intended to increase the tender offer price to $4.50 per share.  The Company recognized nominal expensesrelated to the Offer for the three months ended March 31, 2009.  In connection with the March 25, 2009announcement, several lawsuits have been filed. See further detail in Note 12.

 

As of July 1,2008, the Company files federal and certain state income tax returns as part ofBroadcasting’s consolidated returns. TheCompany continues to file separate income tax returns in states where aconsolidated return is not permitted. For the period commencing after July 1, 2008, the provision forincome taxes in the Company’s consolidated financial statements has beendetermined on a separate return basis, as if we were filing as a stand aloneentity. However, if Broadcastingis able to utilize a tax asset generated by the Company, which the Companywould not otherwise be able to use on a separate return basis, Broadcastingwill pay the Company 50% of that benefit. Federal income taxes currentlypayable will be paid to Broadcasting.

 

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 in 2005.The Company received $11.5 million in the first quarter of 2008 to bring thetotal recoveries to $16.5 million, net of deductibles, given the receipt of anadvance payment of $5.0 million in the fourth quarter of 2006. The $11.5million received in the first quarter of 2008 has been recorded as an offset toStation Operating Expenses.

 

 In 2006 SprintNextel Corporation (“Nextel”) was granted the right from the FCC to claim frombroadcasters in each market across the country the 1.9 GHz spectrum to use foran emergency communications system.  In order to reclaim this signal,Nextel must replace all analog equipment currently using this spectrum withdigital equipment.  All broadcasters have agreed to use the digitalsubstitute that Nextel will provide.  The transition will be completed ona market-by-market basis.  During the first quarter of 2009, we recorded$1.3 million of gains which primarily represents the difference between thefair market value of the equipment we received and the book value of the analogequipment we exchanged in two of our markets. No markets were transitioned during the first quarter of 2008.  The gain is reflected as an offset toSalaries, benefits and other operating costs. As the equipment is exchanged inour remaining markets, we expect to record additional gains.

 

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**Hearst-ArgyleTelevision, Inc.**

**Notes toCondensed Consolidated Financial Statements**

**Tabularamounts in thousands, except per share data**

 

**3.   Accounting Pronouncements**

 

In March 2009, theFASB released proposed Statement of Financial Accounting Standards (“SFAS”)157-e, *Determining Whether a Market Is Not Active and aTransaction Is Not Distressed* (“SFAS 157-e”).  Thisproposal provides additional guidance in determining whether a market for afinancial asset is not active and a transaction is not distressed for fairvalue measurement purposes as defined in SFAS 157, *Fair ValueMeasurements*(“SFAS 157”).  SFAS 157-e is effective forinterim periods ending after June 15, 2009, but early adoption ispermitted for interim periods ending after March 15, 2009.  TheCompany does not expect the adoption of SFAS 157-e to have a material impact onthe Company’s financial position, cash flows or results of operations.

 

In January 2009, theFASB released Proposed Staff Position SFAS 107-b and Accounting PrinciplesBoard (“APB”) Opinion No. 28-a, *Interim Disclosures aboutFair Value of Financial Instruments* (“SFAS 107-b and APB 28-a”).  Thisproposal amends FASB Statement No. 107, *Disclosuresabout Fair Values of Financial Instruments*, to require disclosuresabout fair value of financial instruments in interim financial statements aswell as in annual financial statements.  The proposal also amends APBOpinion No. 28,*Interim FinancialReporting*, to require those disclosures in all interim financialstatements.  This proposal is effective for interim periods endingafter June 15, 2009, but early adoption is permitted for interim periodsending after March 15, 2009.  The Company does not expect theadoption of this standard to have a material impact on the Company’sdisclosures.

 

In February 2008,the FASB issued FASB Staff Position (“FSP”) FAS No. 157-2, whichdeferred the effective date of SFAS 157 to fiscal years beginning after November 15,2008 for nonfinancial assets and nonfinancial liabilities, except those thatare recognized or disclosed at fair value in the financial statements on arecurring basis (at least annually).  Theadoption of SFAS 157 for nonfinancial assets and liabilities did not have amaterial impact on the Company’s financial position, cash flows or results ofoperations.

 

**4.    Stock-BasedCompensation**

 

Stock-based compensation expense for each of the three months ended March 31,2009 and 2008 was $1.4 and $2.1 million, respectively. The total deferred tax benefit relatedthereto was $0.2 million for the three months ended March 31, 2009 and$0.8 million for the three months ended March 31, 2008.  As of March 31, 2009, there was $7.6million of total unrecognized compensation cost related to unvested share-basedcompensation awards granted under the Company’s equity compensation plans,which does not include the effect of future grants of equity compensation, ifany. Of the total $7.6 million, we expect to recognize approximately 55% in theremaining interim periods of 2009, 38% in 2010 and 7% in 2011.

 

**5.    Long-TermDebt**

 

Long-term debt asof March 31, 2009 and December 31, 2008 consisted of the following:

 
| ** **                 | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|----------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **(Unaudited)**              | ** ** | ** **                      | ** ** |
| Revolving credit  facility |       | $                            | 342,000    |                            | $          | 329,000 |   |
| Senior notes               |       | 282,110                      |       | 282,110                         |       |
| Private  placement debt    |       | 180,000                      |       | 180,000                         |       |
| Total debt                 |       | 804,110                      |       | 791,110                         |       |
| Less: Current  maturities  |       | (90,000                      | )          | (90,000                         | )          |
|                       |       |                         |       |                            |       |
| Total long-term  debt      |       | $                            | 714,110    |                            | $          | 701,110 |   |

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

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

 

**CreditFacility**

 

In November 2006, weincreased our five-year unsecured revolving credit facility to $500 million.The credit facility, which matures on April 15, 2010, can be used forgeneral 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 $342.0 million under thecredit facility as of March 31, 2009.

 

**Senior Notes**

 

AtMarch 31, 2009, the Senior Notes, which are unsecured obligations,consisted of $166.0 million principal amount of 7.0% senior notes due 2018 and$116.1 million principal amount of 7.5% senior notes due 2027.  The Senior Notes were initially issued in November 1997and January 1998 in aggregate principal amounts of $200.0 million and$175.0 million, respectively.

 

**PrivatePlacement Debt**

 

At March 31 2009, the Private Placement Debtconsists of $180.0 million in senior, unsecured notes, which bear interest at7.18% per year.  The third of fivemandatory $90.0 million annual payment installments was made on December 15,2008.  The fourth and fifth mandatory$90.0 million payments will be made on December 15, 2009 and December 15,2010, respectively.  The PrivatePlacement Debt was initially issued in an aggregate principal amount of $450.0million in connection with the January 1999 acquisition of KCRA-TV(Sacramento).

 

**Debt Covenants and Restrictions**

 

The Company’s debtobligations contain certain financial and other covenants and restrictions onthe Company.  None of these covenants orrestrictions includes any triggers explicitly tied to the Company’s creditratings or stock price.  Pursuant to ourrevolving credit facility and Private Placement Debt agreements we mustmaintain minimum interest coverage and a minimum consolidated net worth andcannot exceed a maximum leverage ratio.  These covenants are tested on a quarterly basis.  The Company is in compliance with all suchcovenants and restrictions as of March 31, 2009.  However, technical covenant compliance in thefuture could be negatively impacted if volatility in the U.S. credit marketspersists and/or economic and industry conditions continue to deteriorate or donot improve.  A covenant default, if notcured by amendment, waiver or corrective action by the Company within thepermitted time period, could result in the acceleration of outstanding amountsunder our debt instruments.

 

**6.    EarningsPer Share**

 

The calculation ofbasic earnings per share (“EPS”) for each period is based on the weightedaverage number of common shares outstanding during the period. The calculationof dilutive EPS for each period is based on the weighted average number ofcommon shares outstanding during the period, including restricted stock issuedto date, plus the effect, if any, from the assumed exercise of stock optionsand conversion of Redeemable Convertible Preferred Securities related to theCapital Trust. The following table sets forth a reconciliation between basicEPS and diluted EPS, in accordance with SFAS No. 128, *Earnings Per Share*:

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

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

 
| ** **                                                 | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| ** **                                                 | ** ** | **(Unaudited)**                                      | ** ** |
| Net income  (Basic and Diluted)                            |       | $                                                    | (9,315     | ) | $ | 10,040 |   |
|                                                       |       |                                                 |       |   |   |
| Basic shares                                               |       | 93,739                                               |       | 93,509 |   |
| Basic EPS                                                  |       | $                                                    | (0.10      | ) | $ | 0.11 |   |
|                                                       |       |                                                 |       |   |   |
| Diluted shares                                             |       | 93,739                                               |       | 94,120 |   |
| Diluted EPS                                                |       | $                                                    | (0.10      | ) | $ | 0.11 |   |
|                                                       |       |                                                 |       |   |   |
| Basic shares                                               |       | 93,739                                               |       | 93,509 |   |
| Add: Shares  issued upon assumed exercise of stock options |       | —                                               |       | 611 |   |
| Diluted shares                                             |       | 93,739                                               |       | 94,120 |   |

 

For the three month period ended March 31, 2008, the Company wasrequired to perform a dilution test on the Convertible Preferred Securitiesissued by the Capital Trust (which were redeemed in full in June 2008).  This test considers only the total number of sharesthat could be issued if converted and does not consider either the conversionprice or the share price of the underlying common shares. For the three monthsended March 31, 2008, 5,127,881 shares of Series A Common Stock to beissued upon the conversion of 2,600,000 shares of Series B 7.5% RedeemableConvertible Preferred Securities are 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 are dilutive,the interest, net of tax, related to the Capital Trust is added back to Netincome for purposes of the diluted EPS calculation.

 

Options topurchase 6,946,216 and 5,028,134 shares of Series A Common Stock (beforeapplication of the treasury stock method), for the three months ended March 31,2009 and 2008, respectively, were not included in the computation of dilutedEPS because the exercise price was greater than the average market price of$2.69 and $21.25, respectively. Restricted stock totaling 414,012 shares were not included in thecomputation of diluted EPS as of March 31, 2009 because the effect wouldhave been anti-dilutive due to the Company’s net loss.

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

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

 

**7.    Goodwill and Intangible Assets**

 
| ** **                                                         | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | **(Unaudited)**              | ** ** | ** **                      | ** ** |
| Total intangible  assets subject to amortization, net              |       | $                            | 92,641     |                            | $          | 94,129 |   |
| Intangible  assets not subject to amortization — FCC licenses |       | 1,487,186                    |       | 1,487,186                       |       |
| Total intangible  assets, net                                      |       | $                            | 1,579,827  |                            | $          | 1,581,315 |   |
|                                                               |       |                         |       |                            |       |
| Goodwill                                                           |       | $                            | 789,526    |                            | $          | 789,526 |   |

 

Summarized below are the carrying values of intangibleassets subject to amortization as of March 31, 2009 and December 31,2008:

 
| ** **                                       | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **(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    |                            | $          | 82,675 |   | $ | 41,360 |   | $ | 124,035 |   | $ | 81,790 |   | $ | 42,245 |   |
| Network  affiliations                            |       | 95,493                       |       | 44,257                          |       | 51,236 |   | 95,493 |   | 43,659 |   | 51,834 |   |
| Other                                            |       | 743                          |       | 698                             |       | 45 |   | 743 |   | 693 |   | 50 |   |
| Total intangible  assets subject to amortization |       | $                            | 220,271    |                            | $          | 127,630 |   | $ | 92,641 |   | $ | 220,271 |   | $ | 126,142 |   | $ | 94,129 |   |

 

The Company’samortization expense for intangible assets was approximately $1.5 million foreach of the three months ended March 31, 2009 and 2008.  Annual intangible asset amortization expenseis estimated to be approximately $6.0 million in each of the next five years.

 

**8.    IncomeTaxes**

 

For the three monthsended March 31, 2009, the Company recognized an income tax benefit of $2.8million compared to income tax expense of $4.3 million for thethree months ended March 31, 2008.

 

The effective tax ratefor the three months ended March 31, 2009 was 24.4% as comparedto 27.3% for the three months ended March 31, 2008.  Theeffective tax rate for the first quarter of 2009 was impacted by certainchanges in state tax laws that required the re-measurement of the Company’sdeferred tax liabilities.  The effective tax rate for thefirst quarter of 2008 was favorably impacted by the 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 during the quarter. In the first quarter of 2008, weutilized $2.5 million (tax effected) of the other capital loss carry forwardswhich would have expired.

 

**9.    CommonStock**

 

**CommonStock Repurchase**

 

In May 1998,the Company’s Board of Directors authorized the repurchase of up to $300million of its outstanding Series A Common Stock. Such repurchases may beeffected from time to time in the open market or in private transactions,subject to market conditions and management’s discretion. During the threemonths ended March 31, 2009, the Company did not repurchase any shares.Between May 1998 and March 31, 2009, the Company repurchasedapproximately 4.8 million shares of Series A Common Stock at a cost ofapproximately $117.2 million and 

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

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

 

an average price of $24.54.  There can be no assurance that suchrepurchases will occur in the future or, if they do occur, what the terms ofsuch repurchases will be.

 

In August 2008, Hearst and Broadcasting completed theirauthorization to purchase up to eight million shares of our Series ACommon Stock.  Hearst authorized thesepurchases in December 2007 in order to increase its ownership percentage toapproximately 82% to permit us to be consolidated with Hearst for federalincome tax purposes.  Previously, Hearsthad authorized the purchase of up to 25 million shares of our Series ACommon Stock.  Between May 1998 (the date of Hearst’sfirst purchase authorization) and March 31, 2009, under these purchaseauthorizations Hearst purchased approximately 31.1 million shares of theCompany’s Series A Common Stock.

 

 As of March 31, 2009 and December 31,2008, Hearst owned approximately 82% of the Company’s outstanding common stock.

 

**CommonStock Dividends**

 

On February 24,2009, the Company’s Board of Directors suspended payment of the Company’sdividend.  We do not currently know when,or if, dividends will be declared by the Board in the future.

 

**10.    RelatedParty Transactions**

 

*Hearst*.    As of March 31,2009, Hearst owned approximately 67.1% of our Series A Common Stock and100% of our Series B Common Stock, representing in the aggregateapproximately 82% of both the economic interest and outstanding voting power ofour common stock, except with regard to the election of directors.  With regard to the election of directors,Hearst’s ownership of our Series B Common Stock entitles Hearst to elect11 of 13 members of our Board of Directors. During the three months ended March 31,2009 and 2008, we were engaged in the following transactions with Hearst orparties related to Hearst:

 

·                  *Tax Sharing Agreement*. On October 30, 2008, the Company entered into a TaxSharing Agreement with Hearst 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.

 

·                  *Hearst Tower Lease.  *On May 5, 2006 the Company entered into a LeaseAgreement with Hearst to lease one floor of the Hearst Tower in Manhattan forour corporate offices. For the three months ended March 31, 2009 and 2008,we recorded $0.5 million and $0.4, respectively, in rent expense, net of aportion of the $1.9 million tenant improvement allowance, which the Company isamortizing over the lease term.

 

·                  *Management Agreement*.  The Company recorded revenueof approximately $0.5 million and $1.1 million in the three months ended March 31,2009 and 2008, respectively, relating to a management agreement with Hearst(the “Management Agreement”). Pursuant to the Management Agreement, the Companyprovides certain sales, news, programming, legal, financial, engineering andaccounting management services for certain Hearst-owned television and radiostations. Certain employees of these managed stations are also participants inthe Company’s equity compensation plans. The Company believes the terms of theManagement Agreement are reasonable to both parties; however, there can be noassurance that more favorable terms would not be available from third parties.

 

·                  *Services Agreement*.  The Company incurredexpenses of approximately $1.8 and $1.7 million in the three months ended March 31,2009 and 2008, 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.

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

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

 

·                  *Interest Expense, Net — CapitalTrust.*  The Company incurred interest expense, net, relatedto the Subordinated Debentures issued to its wholly-owned unconsolidatedsubsidiary, the Capital Trust, of $2.4 million for the three months ended March 31,2008.  The Capital Trust then paidcomparable amounts to its Redeemable Convertible Preferred Securities holders,including Hearst, which received $0.5 million during the three months ended March 31,2008.  In June 2008 the Companyredeemed the Subordinated Debentures and Redeemable Convertible PreferredSecurities in full and the Capital Trust has since been dissolved.

 

·                  *Dividendson Common Stock.*  During the three months ended March 31,2009, the Company paid the following dividend to Hearst, which was declared in December 2008:

 
| **Dividend Amount** | ** ** | **Payment Date** | ** **            | **Total Dividend** | ** ** | **Hearst Portion** | ** ** |
|--------------------------|------------|-----------------------|-----------------------|-------------------------|------------|-------------------------|------------|
| $                        | 0.07       |                  | January 15, 2009 |                    | $          | 6,585                   |       | $ | 5,376 |   |
|                          |            |                       |                       |                         |            |                         |            |  |  |  |

 

On February 24, 2009, the Company’s Board ofDirectors suspended payment of the dividend. We do not currently know when, or if, dividends will be declared by ourBoard in the future.

 

·                  *Radio Facilities Lease.*  Pursuant to a leaseagreement, Hearst paid the Company approximately $0.2 million for each of thethree months ended March 31, 2009 and 2008. Under this agreement, Hearstleases from the Company premises for WBAL-AM and WIYY-FM, Hearst’s Baltimore,Maryland radio stations.

 

·                  *Lifetime Entertainment Services*.  The Company has agreementswith Lifetime Entertainment Services (“Lifetime”), an entity owned 50% by anaffiliate of Hearst and 50% by The Walt Disney Company, whereby for certainperiods of time (i) the Company has assisted  Lifetime in securing distribution andsubscribers for the Lifetime Television, Lifetime Movie Network and/or LifetimeReal Women programming services; and (ii) Lifetime has acted as theCompany’s agent with respect to the negotiation of certain of the Company’sagreements 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 theagreements of $9.4 million and $5.5 million in the three months ended March 31,2009 and 2008, respectively.

 

·                  *Wide Orbit, Inc. *In November 2004, theCompany entered into an agreement to license from Wide Orbit, Inc. (“WideOrbit”) traffic sales and billing solutions software. Hearst owns approximately7.3% of Wide Orbit. For the three months ended March 31, 2009 and 2008,the Company paid Wide Orbit approximately $0.5 million, under the agreement.

 

·                  *N*ew*England Cable News*. One of the Company’s executive officers, David J. Barrett, serves asHearst’s representative on themanagement board of New England Cable News, a regional cable channel, jointlyowned by Hearst Cable News, Inc., an indirect wholly-owned subsidiary ofHearst, and Comcast MO Cable News, Inc. (“NECN”).  Hearst pays $2,000 per month to the Companyas compensation for his service.  Inaddition, two of our television stations, WPTZ/WNNE and WMTW, provideoffice space to certain of NECN’s reporters in exchange for news gatheringservices.

 

·                  *Other Transactions with Hearst*.    In the threemonths ended March 31, 2009 and 2008, the Company recorded immaterial netrevenue relating to advertising sales from Hearst.

 

*Internet Broadcasting Systems, Inc.*    Asof March 31, 2009, the Company owned 37.6% of Internet BroadcastingSystems, Inc. (“Internet Broadcasting”) on a fully diluted basis.   The Company also has various agreementspursuant to which the Company paid Internet Broadcasting $3.9 million and $2.9million during the three months ended March 31, 2009 and 2008,respectively. In addition, Internet Broadcasting hosts the Company’s corporatewebsite for a nominal amount.  Harry T.Hawks and Roger Keating, two of the Company’s executive officers, serve on theBoard of Directors of Internet Broadcasting, from which they do not receivecompensation for their Board service.

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

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

 

*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-month period ended March 31, 2009 and2008, these sales generated revenue of approximately $0.2 million, of whichapproximately $0.1 million was distributed to the Company.  Dean Conomikes, the owner of SBTV, is the sonof John G. Conomikes, a member of the Company’s Board of Directors.

 

*RDE*. As of March 31, 2009, the Company owned 23.9% of Ripe DigitalEntertainment, Inc. (“RDE”).  In thethree-month periods ended March 31, 2009 and 2008, the Company earnedimmaterial rental income from RDE for office space in the Company’s formercorporate headquarters.  Harry Hawks, oneof the Company’s executive officers, serves on the Board of Directors of RDE,from which he does not receive compensation for his Board service.

 

*Other*.   In the ordinary courseof business, the Company enters into transactions with related parties, none ofwhich were significant to the Company’s financial results in the three monthsended March 31, 2009 and 2008.

 

**11.    Retirement Plans and OtherPost-Retirement Benefits**

 

***Overview***

 

The Company maintains seven defined benefit pensionplans (the “Pension Plans”) and other post-retirement benefit plans (medicaland life insurance) 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 thePension Plans are generally based on years of credited service, age atretirement and average of the highest five consecutive years’ compensation. Theservice cost of the Pension Plans is computed on the basis of the Project UnitCredit Actuarial Cost Method.  Priorservice cost is amortized over the employees’ expected future service periods.

 

*Net Periodic Pension and Post-Retirement BenefitCost*

 

The followingschedule presents net periodic pension cost for the Company’s Pension Plans inthe three months ended March 31, 2009 and 2008:

 
| ** **                          | ** ** | **Pension Benefits**                            | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **                          | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| ** **                          | ** ** | **(Unaudited)**                                      | ** ** |
| Service cost                        |       | $                                                    | 2,705      |   | $ | 2,598 |   |
| Interest cost                       |       | 3,327                                                |       | 2,972 |   |
| Expected return  on plan assets     |       | (3,339                                               | )          | (3,248 | ) |
| Amortization of  prior service cost |       | 58                                                   |       | 106 |   |
| Amortization of  net loss           |       | 604                                                  |       | 419 |   |
| Net periodic  pension cost          |       | $                                                    | 3,355      |   | $ | 2,847 |   |

 

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**Hearst-Argyle Television, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

**Tabular amounts inthousands, except per share data**

 

The following schedule presents net periodic benefitcost for the Company’s other post-retirement benefit plans in the three monthsended March 31, 2009 and 2008:

 
| ** **                              | ** ** | **Post-Retirement Benefits**                    | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **                              | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **(Unaudited)**                                      | ** ** |
| Service cost                            |       | $                                                    | 18         |   | $ | 20 |   |
| Interest cost                           |       | 95                                                   |       | 98 |   |
| Amortization of  prior service cost     |       | (23                                                  | )          | (23 | ) |
| Amortization of  initial net obligation |       | —                                               |       | — |   |
| Amortization of  net loss               |       | 41                                                   |       | 44 |   |
| Net periodic  benefit cost              |       | $                                                    | 131        |   | $ | 139 |   |

 

*Contributions*

 

During the threemonths ended March 31, 2009, we contributed $0.9 million to our PensionPlans and we contributed approximately $0.1 million to our Post-RetirementBenefit Plans.   During the three monthsended March 31, 2008, we did not make any contributions to our PensionPlans or our Post-Retirement Benefit Plans. During the year ending December 31, 2009, the Company expects tocontribute approximately $4.9 million to the Pension Plans and approximately$0.4 million to the post-retirement benefit plans.

 

**12.    OtherCommitments and Contingencies**

 

*Legal Matters*

 

Six putative classactions have been filed in response to Hearst’s March 25, 2009,announcement that it intended to launch a cash tender offer to acquire theoutstanding shares of the Company’s Series A Common Stock that it did notalready own for $4.00 per share (the “Offer”). Four of the suits were filed in New York State Supreme Court: *Schwartz v. Hearst-Argyle Television, Inc., et al.*,Index No. 600926/2009 (filed on March 25, 2009); *Kahn v.Hearst-Argyle Television, Inc., et al.*, Index No. 650163/2009(filed on March 25, 2009); *Blizinsky v. Hearst-ArgyleTelevision, Inc. et al.*, Index No. 650178/2009 (filed on March 31,2009); and *Sullivan v. Bennack, et al.,*Index No. 601101/2009(filed on April 10, 2009).  Two ofthe suits were filed in the Delaware Court of Chancery: *StationaryEngineers Local 39 Pension Plan v. Hearst-Argyle Television, Inc., et al.*,Case No. 4459-VCN; and *Kupfer v. Barrett, et al.*,Case No. 4460-VCN, on March 27, 2009 (both filed on March 27,2009). The Delaware suits were consolidated by court order on April 20,2009, under the caption *In re Hearst-ArgyleTelevision, Inc. Shareholders Litigation*, Case No. 4459-VCN.

 

The complaints named theCompany and members of its Board of Directors, as well as Hearst and certain ofits affiliates, as defendants and alleged, among other things, that theproposed offer price was inadequate and unfair to the Company’s shareholdersand purported to state claims for, among other things, breach of fiduciary dutyin connection with the proposed offer. The complaints sought orders enjoining the consummation of the proposedoffer, compensatory damages, attorneys’ fees and expenses, and other equitablerelief.

 

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**Item 2.**                   **Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

**Organization of Information**

 

Management’sDiscussion and Analysis provides a narrative on our financial performance andcondition that should be read in conjunction with the accompanying condensedconsolidated financial statements.  Itincludes the following sections:

 

·                  Forward-Looking Statements

·                  Executive Summary

·                  Results of Operations

·                  Liquidity and Capital Resources

** **

**Forward-LookingStatements**

 

This report****includes****or incorporates forward-lookingstatements. We base these forward-looking statements on our currentexpectations and projections about future events. These forward-lookingstatements generally can be identified by the use of statements that includewords and/or 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. The forward-looking statements contained in thisreport, concerning, among other things, trends and projections involvingrevenue, income, earnings, cash flow, liquidity, operating expenses, assets,liabilities, capital expenditures, dividends and capital structure, involverisks and uncertainties, and are subject to change based on various importantfactors. Those factors include the impact on our operations from

 

·                  Changes innational and regional economies;

·                  Changes inadvertising trends and our advertisers’ financial condition;

·                  Our ability toservice and refinance our outstanding debt and meet our liquidity needs;

·                  Abilityof Hearst to commence and complete the Offer, the terms and conditions on whichthe proposed Offer is made and developments regarding the proposed Offer;

·                  Impactof the announcement of the proposed Offer on our business generally, includingrelationships with customers, suppliers and employees;

·                  Competition foraudience, programming and advertisers in the broadcast television markets weserve;

·                  Pricingfluctuations in local and national advertising;

·                  Changes inFederal regulations that affect us, including changes in Federal communicationslaws or regulations;

·                  Localregulatory actions and conditions in the areas in which our stations operate;

·                  Our ability toobtain quality programming for our television stations;

·                  Successfulintegration of television stations we acquire;

·                  Volatility inprogramming costs, industry consolidation, technological developments, andmajor world events; and

·                  Potentialadverse effects if we are required to recognize impairment charges or otheraccounting-related developments.

 

For a discussion ofadditional risk factors that are particular to our business, please refer tothe Risk Factors section of our Annual Report on Form 10-K for the fiscalyear ended December 31, 2008 (the “2008 10-K”), as well as the riskfactors included in Part II, Item 1A. of this report.  These and other matters we discuss in thisreport, or in the documents we incorporate by reference into this report, maycause actual results to differ from those we describe. We undertake noobligation to update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise.

 

**Executive Summary**

 

Hearst-ArgyleTelevision, Inc. and its subsidiaries (hereafter “we” or the “Company”)own and operate 26 network-affiliated television stations.  Additionally, we provide management servicesto two network-affiliated stations, one independent television station and tworadio stations owned by The Hearst Corporation (“Hearst”) in exchange formanagement fees.  We seek to attract ourtelevision audience by providing compelling content on multiple media 

 

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platforms.   Weprovide leading local news programming and popular network and syndicatedprograms at each of our television stations, 20 of which are in the top 50 U.S.television markets.  We also own 39websites and currently multicast digital channels in addition to their maindigital channel at 24 of our stations, which feature 24-hour weather andentertainment programming.  We stream aportion of our television programming, including our news and weatherforecasts, and we publish community information, user-generated content and entertainmentcontent on our stations’ websites.  Wealso have a companion mobile (“WAP”) site for 25 of our markets.  We believe that aligning our contentofferings with audience media consumption patterns in this manner ultimatelybenefits our advertisers.  Our advertisersbenefit from a variety of marketing opportunities, including traditional spotcampaigns, community events and sponsorships at our television stations, aswell as on our stations’ Internet and/or mobile websites, enabling them toreach our audience in multiple ways.

 

**Eventsand Other Factors Occurring During the Quarter**

 

·                  The United States and global economiesare currently in a recession and undergoing a period of economic uncertainty,and the related capital markets are experiencing significant disruption.   In certain of the local markets in which ourstations operate there has been a weakening in the economic climate due to thehousing market slump, subprime mortgage issues and tightening of credit marketsresulting in pressure on employment, retail sales and consumer confidence.  The resulting economic recession has impactedthe automotive industry, which historically has been our largest advertisingcategory, particularly hard.  In additionto the weakness in automotive, financial, retail, furniture, movies, healthservices and consumer packaged goods advertising categories were also impactedin the first quarter of 2009.  We haveresponded to this weakness in advertising with cost cutting efforts throughoutthe Company.

 

·                  On March 25, 2009, HearstBroadcasting, Inc. (“Broadcasting”), an indirect wholly-owned subsidiaryof The Hearst Corporation (“Hearst”), announced its intentions to launch atender offer to acquire the outstanding shares of the Company’s Series ACommon Stock that it did not already own for $4.00 per share (the “Offer”).  On March 26, 2009, our Board ofDirectors appointed a special committee of directors unaffiliated with Hearst(the “Special Committee”) to consider the Offer and make a recommendation tothe Company’s shareholders, other than Hearst. The Special Committee has engaged outside legal counsel and anindependent financial advisor to advise it with respect to the Offer.  On April 27, Hearst announced that itintended to increase the tender offer price to $4.50 per share.  The Company recognized nominal expensesrelated to the Offer for the three months ended March 31, 2009.  Total payments to outside advisors related tothe offer could be approximately $4.0 million. In connection with the announcement, several lawsuits have been filed.  See further detail in the Legal Proceeding Section inPart II. Item 1 of this report.

 

·                  During the first quarter of 2008, we reached a finalsettlement with our insurance carriers related to lost property, increasedexpenses and interrupted business at WDSU-TV in New Orleans, Louisiana,resulting from Hurricane Katrina in 2005. We received $11.5 million in thefirst 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 2008was 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.

 

**Economicand Industry Trends**

 

·                  The duration of the economic recession is unknown atthis time, as is the ongoing effect on certain local market economies.  Our operating results may continue to benegatively impacted throughout the duration of the recession.  Were our results to continue to be negativelyimpacted there is no assurance that we would be able to maintain technicalcovenant compliance over the next 12 months without further corrective actionby the Company or by amendment or replacement of certain existing agreements.

 

·                  Pursuant to the Cable Television Consumer Protectionand Competition Act of 1992 (“1992 Cable Act”) and the FCC’s “must carry”regulations, cable operators are generally required to devote up to one-thirdof their activated channel capacity to the carriage of the analog signal oflocal commercial television stations.  Ona cable system-by-cable system basis, a local television broadcast station mustchoose once every three years whether to waive the right to mandatory, butuncompensated, carriage and, instead, to negotiate a grant of retransmissionconsent.  For the period from January 1,2009 to December 31, 2011, we have opted to 

 

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negotiate retransmissionconsent with most of the cable systems that carry our stations.  During 2008, we concluded retransmissionconsent agreements with a majority of our cable systems as measured bysubscriber base.  Executed agreementshave led to an increase in retransmission revenues in 2009.

 

·                  The Satellite Home ViewerImprovement Act of 1999 (“SHVIA”) established a compulsory copyright licensing system for the distributionof local television station signals by direct broadcast satellite systems toviewers in each DMA.  Under SHVIA’s “carry-one,carry-all” provision, a direct broadcast satellite system generally is requiredto retransmit the analog signal of all local television stations in a DMA ifthe system chooses to retransmit the analog signal of any local televisionstation in that DMA.  Television stationslocated in markets in which satellite carriage of local stations is offered mayelect mandatory carriage or retransmission consent once every three years. We have opted to negotiate retransmission consent for all of thesatellite systems that carry our stations for the period from January 1,2009 to December 31, 2011, and we already have existing agreements in place withthe satellite systems.

 

·                  In 2006 Sprint Nextel Corporation (“Nextel”) wasgranted the right from the FCC to claim from broadcasters in each market acrossthe country the 1.9 GHz spectrum to use for an emergency communicationssystem.  In order to reclaim this signal, Nextel must replace all analogequipment currently using this spectrum with digital equipment.  Allbroadcasters have agreed to use the digital substitute that Nextel willprovide.  The transition will be completed on a market-by-marketbasis.  During the three months ended March 31, 2009, we recorded$1.3 million of gains which primarily represents the difference between thefair market value of the equipment we received and the book value of the analogequipment we exchanged in two of our markets. The gain is reflected as an offset to Salaries, benefits and otheroperating costs.  As the equipment isexchanged in our remaining markets, we expect to record additional gains.

 

·                  The Federal Communications Commission (“FCC”) haspermitted broadcast television station licensees to use their digital spectrumfor a wide variety of services such as high-definition television programming,audio, data and other types of communication, subject to the requirement thateach broadcaster provide at least one free video channel equal in quality tothe current analog channel.  We currentlyhave multicast channels broadcasting weather programs, an additionalnetwork affiliation and movie channels. Numerous other multicast opportunities are being reviewed.  We have also affiliated with the Open MobileVideo Coalition, which contemplates launching a mobile video service using aportion of available digital spectrum. We continue to explore alternative usesof our digital spectrum.

 

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

 

·                  Compensation from networks to their affiliates inexchange for broadcasting of network programming has been sharply reduced inrecent years and is expected to be eliminated in the future.  Our affiliation agreements with ABC and NBCexpire on December 31, 2009.  Wewill be negotiating renewal agreements during 2009, and renewal terms are notpresently known.

 

**Resultsof Operations**

 

Resultsof operations for the three months ended March 31, 2009 and 2008 includethe results of our 26 television stations, which were owned for the entireperiod presented, and the management fees derived by the three television andtwo radio stations managed by us for the entire period presented.

 

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*ThreeMonths Ended March 31, 2009*

*Comparedto Three Months Ended March 31, 2008*

 
| ** **                                         | ** ** | **For the three months ended March 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                         | ** ** | **2009**                                                               | ** ** | **2008**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                         | ** ** | **(In thousands)**                                                | ** ** | ** ** | ** ** | ** **        | ** ** |
| Total revenue                                      |       | $                                                                      | 133,841    |       | $          | 165,053           |       | $ | (31,212 | ) | -18.9 | % |
| Station  operating expenses:                       |       |                                                                   |       |       |       |              |       |   |   |
| Salaries,  benefits and other operating costs      |       | 94,137                                                                 |       | 104,128    |       | $                 | (9,991     | ) | -9.6 | % |
| Amortization of  program rights                    |       | 18,622                                                                 |       | 18,712     |       | $                 | (90        | ) | -0.5 | % |
| Depreciation and  amortization                     |       | 13,810                                                                 |       | 14,052     |       | $                 | (242       | ) | -1.7 | % |
| Insurance  settlement                              |       | —                                                                 |       | (11,549    | )          | $                 | 11,549     |   | -100.0 | % |
| Corporate,  general and administrative expenses    |       | 8,879                                                                  |       | 8,716      |       | $                 | 163        |   | 1.9 | % |
| Operating income                                   |       | (1,607                                                                 | )          | 30,994     |       | $                 | (32,601    | ) | -105.2 | % |
|                                               |       |                                                                   |       |       |       |              |       |   |   |
| Interest expense                                   |       | 9,805                                                                  |       | 12,883     |       | $                 | (3,078     | ) | -23.9 | % |
| Interest income                                    |       | —                                                                 |       | (19        | )          | $                 | 19         |   | -100.0 | % |
| Interest  expense, net — Capital Trust        |       | —                                                                 |       | 2,438      |       | $                 | (2,438     | ) | -100.0 | % |
| Income before  income taxes and equity earnings    |       | (11,412                                                                | )          | 15,692     |       | $                 | (27,104    | ) | -172.7 | % |
|                                               |       |                                                                   |       |       |       |              |       |   |   |
| Income tax expense                                 |       | (2,782                                                                 | )          | 4,290      |       | $                 | (7,072     | ) | -164.8 | % |
| Equity in loss  (income) of affiliates, net of tax |       | 685                                                                    |       | 1,362      |       | $                 | (677       | ) | -49.7 | % |
| Net income                                         |       | $                                                                      | (9,315     | )          | $          | 10,040            |       | $ | (19,355 | ) | -192.8 | % |

 
| *Total  revenue*.    Total  revenue includes: |
|-------------------------------------------------------------------|
| (i)                                                               | cash advertising revenue,  net of agency and national representatives’ commissions; |
| (ii)                                                              | retransmission consent  revenue; |
| (iii)                                                             | net digital media  revenue, which includes primarily Internet advertising revenue and, to a  lesser extent, revenue from advertising on multicast channels; |
| (iv)                                                              | network compensation;  and |
| (v)                                                               | other revenue,  primarily barter and trade revenue and management fees earned from Hearst. |

 
| ** **                                               | ** ** | **For the three months ended March 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                               | ** ** | **2009**                                                               | ** ** | **2008**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                               | ** ** | **(In thousands)**                                                | ** ** | ** ** | ** ** | ** **        | ** ** |
| Net local and  national ad revenue (excluding political) |       | $                                                                      | 106,755    |       | $          | 132,877           |       | $ | (26,122 | ) | -19.7 | % |
| Net political  revenue                                   |       | 756                                                                    |       | 9,602      |       | (8,846            | )          | -92.1 | % |
| Retransmission  consent revenue                          |       | 12,416                                                                 |       | 6,276      |       | 6,140             |       | 97.8 | % |
| Barter and trade  revenue                                |       | 5,566                                                                  |       | 6,247      |       | (681              | )          | -10.9 | % |
| Net digital  media revenue                               |       | 4,036                                                                  |       | 4,892      |       | (856              | )          | -17.5 | % |
| Network  compensation                                    |       | 1,525                                                                  |       | 2,176      |       | (651              | )          | -29.9 | % |
| Other revenue                                            |       | 2,787                                                                  |       | 2,983      |       | (196              | )          | -6.6 | % |
| Total revenue                                            |       | $                                                                      | 133,841    |       | $          | 165,053           |       | $ | (31,212 | ) | -18.9 | % |

 
| Total revenue in  the three months ended March 31, 2009 was $133.8 million as compared to  $165.1 million in the three months ended March 31, 2008, a decrease of  $31.2 million or 18.9%. This decrease was primarily attributable to the  following factors: |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| (i)   | a $26.1 million  decrease in net non-political local and national advertising due to the  economic downturn impacting our largest markets, which resulted in declines  in the automotive, financial, retail, furniture, movies, health services and  consumer packaged goods categories; |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  | an $8.8 million  decrease in net political revenues;                                                                                                                                                                                                                                     |
| (iii) | an $0.9 million  decrease in net digital media revenues; partially offset by                                                                                                                                                                                                             |
| (iv)  | a $6.1 million increase  in retransmission consent revenue related to the renegotiated retransmission  agreements.                                                                                                                                                                       |

 

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*Salaries,benefits and other operating costs*.    During the three months endedMarch 31, 2009, salaries, benefits and other operating costs (“SB&O”)were $94.1 million, as compared to $104.1 million in the three months ended March 31,2008, a decrease of $9.9 million or 9.6%. This decrease was primarily due to:

 
| (i)   | a decrease of $3.0  million in payroll expenses, primarily related to a decrease in news  personnel in a non- election year and cost cutting efforts; |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  | $1.3 million in gains  recognized as a result of the Nextel equipment exchange;                                                                       |
| (iii) | a decrease of $1.1  million in news expense related to reduced demands in an off-election and  non-Olympic year; and                                  |
| (iv)  | general cost cutting  efforts.                                                                                                                        |

 

*Amortizationof program rights*.  Amortizationof program rights was relatively flat at $18.6 million in the three monthsended March 31, 2009, as compared to $18.7 million in the three monthsended March 31, 2008.

 

*Depreciation and amortization*.   Depreciationand amortization expense was $13.8 million in the three months ended March 31,2009, as compared to $14.1 million in the three months ended March 31,2008, a decrease of $0.2 million or 1.7%. Depreciation expense was $12.3million in the three months ended March 31, 2009, as compared to $12.6million in the three months ended March 31, 2007, a decrease of 2.4%.

 

*Insurance settlement. *As described above, in thethree months ended March 31, 2008, the Company recognized an $11.5 millioninsurance settlement resulting from Hurricane Katrina as an offset to Stationoperating expenses.

 

*Corporate,general and administrative expenses*.    Corporate, general andadministrative expenses were $8.9 million in the three months ended March 31,2009, as compared to $8.7 million in the three months ended March 31,2008, an increase of $0.2 million or 1.9%.  This increase was primarily due to increased professional expenses.

 

*Interestexpense. *Interest expense was $9.8 million in the three monthsended March 31, 2009, as compared to $12.9 million in the three monthsended March 31, 2008, a decrease of $3.1 million or 23.9%, due to lowerinterest rates.

 

*Income tax expense*.    We recorded income tax benefit of $2.8million in the three months ended March 31, 2009, as compared to anexpense of $4.3 million in the three months ended March 31, 2008, adecrease of $7.1 million.  This decreasewas primarily due to a decrease in income before income taxes from $15.7million in the three months ended March 31, 2008 to a loss of $11.4million in the three months ended March 31, 2009 offset in part by theimpact of certain state tax laws enacted during the first quarter of 2009.

 

 Theeffective tax rate for the three months ended March 31, 2009 was 24.4% ascompared to 27.3% for the three months ended March 31, 2008.  For the three months ended March 31,2009, the effective tax rate was primarily affected by certain changes in statetax laws that required the re-measurement of our deferred tax liabilities.

 

*Equity in loss of affiliates, net of tax*. Equity in loss of affiliates, net of tax, was a loss of $0.7 million forthe three months ended March 31, 2009, as compared to a loss of $1.4million for the three months ended March 31, 2008.

 

*Netincome*.    Netloss was $9.3 million in the three months ended March 31, 2009, ascompared to an income of $10.0 million in the three months ended March 31,2008, a decrease of $19.4 million.  Thisdecrease was primarily due to the items described above.

 

**Liquidityand Capital Resources**

 

As of March 31,2009, the Company’s cash and cash equivalents balance was $8.3 million, ascompared to $7.0 million as of December 31, 2008.  The net increase in cash and cash equivalentsof $1.3 million during the three months ended March 31, 2009 was due tothe factors described below under Operating Activities, Investing Activities,and Financing Activities.

 

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| ** **                                           | ** ** | **Three months ended March 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                           | ** ** | **2009**                                             | ** ** | **2008**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                           | ** ** | **(In thousands)**                              | ** ** | ** ** | ** ** | ** **        | ** ** |
| Net cash (used  in) provided by operating activities |       | $                                                    | (1,864     | )          | $          | 44,007            |       | $ | (45,871 | ) | -104.2 | % |
| Net cash used in  investing activities               |       | $                                                    | (3,694     | )          | $          | (4,300            | )          | $ | 606 |   | 14.1 | % |
| Net cash  provided by (used in) financing activities |       | $                                                    | 6,863      |       | $          | (32,937           | )          | $ | 39,800 |   | 120.8 | % |
|                                                 |       |                                                 |       |       |       |              |       |   |   |
| Cash paid for:                                       |       |                                                 |       |       |       |              |       |   |   |
| Interest                                             |       | $                                                    | 6,932      |       | $          | 8,731             |       | $ | (1,799 | ) | -20.6 | % |
| Interest on Note  payable to Capital Trust           |       | $                                                    | —     |       | $          | 2,438             |       | $ | (2,438 | ) | -100.0 | % |
| Taxes, net of  refunds                               |       | $                                                    | 661        |       | $          | 5,501             |       | $ | (4,840 | ) | -88.0 | % |
| Purchase of  property, plant and equipment, net      |       | $                                                    | 3,694      |       | $          | 7,190             |       | $ | (3,496 | ) | -48.6 | % |
| Dividends paid  on common stock                      |       | $                                                    | 6,585      |       | $          | 6,569             |       | $ | 16 |   | 0.2 | % |
| Series A  Common Stock repurchases              |       | $                                                    | —     |       | $          | 1,091             |       | $ | (1,091 | ) | -100.0 | % |

 

*Operating Activities*

 

Net cash used in operating activities was $1.9 million in the threemonths ended March 31, 2009, as compared to net cash provided by operatingactivities of $44.0 million in the three months ended March 31, 2008, adecrease of $45.9 million. This decrease was primarily due to:

 
| (i)   | a $19.4 million decrease in net income;                                                                                                                                                                                              |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  | the receipt of $8.7 million of insurance proceeds  for business interruption and to recover the incremental expenses incurred  due to Hurricane Katrina in 2008; and                                                                 |
| (iii) | lower levels of cash generated by accounts  receivable in 2009 attributable to lower revenues and a higher portion of  fourth quarter 2008 revenues derived from political advertising, which is  typically paid in cash in advance. |

 

*Investing Activities*

 

Net cash used in investing activities was $3.7 million in the threemonths ended March 31, 2009, as compared to $4.3 million in the threemonths ended March 31, 2008.  Thischange was primarily due to:

 
| (i)  | a decrease in capital expenditures to $3.7 million  in the first three months of 2009 from $7.2 million in the three months ended  March 31, 2008; and |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii) | the receipt of $2.9 million of insurance proceeds on  property losses resulting from Hurricane Katrina in the first quarter of  2008.                       |

 

*FinancingActivities*

 

Net cash provided by financing activities was $6.9 million in the threemonths ended March 31, 2009, as compared to net cash used in financingactivities of $32.9 million in the three months ended March 31, 2008. Thischange was primarily due to:

 

(i)             repaymentof $27.0 million on our credit facility in the first quarter of  2008; and

(ii)   borrowingsof $13.0 million on our credit facility in the first quarter of 2009.

 

*Credit Facility and Other Long Term Debt*

 

As of March 31, 2009, our total long-term debtobligations including the credit facility were $804.1 million. Our current debtmaturities totaled $90.0 million of that amount.

 

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| ** **                 | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|----------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **(Unaudited)**              | ** ** | ** **                      | ** ** |
| Revolving credit  facility |       | $                            | 342,000    |                            | $          | 329,000 |   |
| Senior notes               |       | 282,110                      |       | 282,110                         |       |
| Private  placement debt    |       | 180,000                      |       | 180,000                         |       |
| Total debt                 |       | 804,110                      |       | 791,110                         |       |
| Less: Current  maturities  |       | (90,000                      | )          | (90,000                         | )          |
|                       |       |                         |       |                            |       |
| Total long-term  debt      |       | $                            | 714,110    |                            | $          | 701,110 |   |

 

The Company has a $500 million five-year unsecured revolving creditfacility, which matures on April 15, 2010. The credit facility can be usedfor 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 $342.0 million under thecredit facility as of March 31, 2009.

 

The Senior Notes, which are unsecured obligations, consist of $166.0million principal amount of 7.0% senior notes due 2018 and $116.1 millionprincipal amount of 7.5% senior notes due 2027. The Senior Notes were initially issued in November 1997 and January 1998in aggregate principal amounts of $200.0 million and $175.0 million,respectively.

 

ThePrivate Placement Debt consists of $180.0 million in senior, unsecured notes,which bear interest at 7.18% per year.  The third offive mandatory $90.0 million annual payment installments was made on December 15,2008.  The fourth mandatory $90 million payment is due December 15,2009 and the fifth and final mandatory $90 million payment is due December 15,2010.  These long-term debt obligationsbear interest at a fixed rate.  The Private Placement Debt was initiallyissued in an aggregate principal amount of $450.0 million in connection withthe January 1999 acquisition of KCRA-TV (Sacramento).

 

Our debt obligations contain certain financial and other covenants andrestrictions on the Company.  Certain ofthe financial covenants include credit ratios such as leverage and interestcoverage, and threshold tests such as consolidated net worth, but suchcovenants do not include any triggers explicitly tied to the Company’s creditratings or stock price.  We are incompliance with all such covenants and restrictions as of March 31,2009.  However, technical covenantcompliance in the future could be negatively impacted if volatility in the U.S.credit markets persist and/or economic and industry conditions continue todeteriorate or do not improve, and would therefore require additionalcorrective action by the Company and/or amendment or replacement of certainexisting agreements.  We are currentlyevaluating various financing alternatives available to the Company.  Such alternatives may include accessing oneor more capital markets, including bank credit facilities, public bondofferings, private placements or such other markets as may be deemedappropriate.  The cost and terms of anysuch financings could be impacted, positively or negatively, pending the outcomeof the proposed Offer, if commenced; and/or by any explicit involvement by Hearst.  The purpose of such financing, or financings,if completed, would be to provide liquidity to the Company, repay or refinancethe $90 million payment on our private placement debt due December 2009,and to repay or refinance the current revolving credit facility which matures April 2010.

 

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

 

As of March 31, 2009, the Company was not involved in anyderivative financial instruments. However, the Company may consider certain interest-rate risk strategiesin the future.

 

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As of March 31, 2009, we have borrowed $342.0million under our credit facility, which loan bears interest at LIBOR plus theapplicable margin. The applicable margin on LIBOR loans varies between 0.50%and 1.00% depending on the ratio of total debt to earnings before interest,taxes, depreciation and amortization as defined 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 March 31, 2009.  Basedon that evaluation, and as of the end of the quarter for which this report ismade, the Company’s management, including the CEO and CFO, concluded that theCompany’s disclosure controls and procedures were effective.  Our management, including the CEO and CFO,performed an evaluation of any changes that occurred in our internal controlover financial reporting (as that term is defined in Exchange Act Rule 13a-15(f))during the fiscal quarter ended March 31, 2009.  That evaluation did not identify any changesin the Company’s internal control over financial reporting that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II**

**OtherInformation**

 

**Item 1.Legal Proceedings.**

 

The information presentedin Note 12 of the “Notes to Condensed Consolidated Financial Statements” underthe caption “Legal Matters” is incorporated herein by reference, pursuant to Rule 12b-23.

 

**Item 1A.Risk Factors.**

 

In addition to theother information set forth in this report, you should carefully consider thefactors discussed in Part I, “Item 1A. Risk Factors” of the 200810-K, which could materially affect our business, financial condition or futureresults. The risks described in the 2008 10-K 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 oradditions to the risk factors disclosed in the 2008 10-K, except for thefollowing:

 

***TheMarket Price of our Common Stock Has Been, and May Continue to Be, MateriallyAffected by the Proposed Tender Offer***

 

The current market priceof our common stock may reflect, among other things, the anticipatedcommencement and completion of the proposed tender offer (the “Offer”).  The current market price is considerablyhigher than the price before the proposed Offer was announced on March 25,2009.  To the extent that the currentmarket price of our common stock reflects market assumptions that the proposedOffer will be commenced and completed, it is possible that the price of ourcommon stock could decline if these market assumptions are not realized.  However, there can be no assurance in thisregard or as to any other forward-looking statements or matters relating to ourstock price or otherwise, which are subject to numerous uncertainties andmatters beyond the control of the Company. In addition, please note that if and when the proposed Offer iscommenced, the Company will publish a Solicitation/Recommendation Statement onSchedule 14D-9 in accordance with the requirements of the Securities ExchangeAct of 1934, which will contain the recommendation of the Special Committeewith respect to the Offer.  Thestatements in this report are not a solicitation or recommendation of the Companyto its shareholders in connection with the proposed Offer, and shareholdersshould carefully review the Solicitation/Recommendation Statement when it ispublished before making any decision as to the Offer.

 

We may also be subject toadditional risks, whether or not the Offer is commenced or completed,including:

 
| · | our management having  spent a significant amount of their time and efforts directed toward the  proposed Offer, which time and efforts otherwise would have been spent on our  business and other opportunities that could have been beneficial to us;        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | costs relating to the  proposed Offer, such as legal, financial, and accounting fees, much of which  must be paid regardless of whether the proposed Offer is completed;                                                                                       |
| · | uncertainties relating  to the proposed Offer may adversely affect our relationships with our  employees, vendors, customers and other key constituencies; and                                                                                                 |
| · | the outcome of the  pending litigation that has been instituted against us, or new litigation  that may be instituted against us, our board of directors and others relating  to the proposed Offer or any settlement of such litigation or judicial  actions. |

 

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Accordingly, investors should not place undue relianceon the occurrence of the proposed Offer. The realization of any of these risks may materially adversely affectour business, financial condition, results of operations or the market price ofour common stock.

 

***We May beUnable to Obtain Additional or Replacement Financing on Favorable Terms ifExplicit Support from Hearst is Not Available.***

 

The Company has a number of debt obligations that aredue for payment within the next 12 months including our $500 million revolvingcredit facility (maturing on April 15, 2010) under which we haveborrowings of $342.0 million as of March 31, 2009, and the PrivatePlacement Debt, for which a $90 million payment is due December 15,2009.  We are currently evaluatingvarious financing alternatives available to the Company.  At the present time, advertising-supportedmedia companies, particularly those in broadcasting like the Company, are outof favor in the various debt and equity capital markets.  Our efforts to pursue such financing alternativesmay be adversely affected if Hearst is unwilling or unable to provide explicitassistance due to the pendency of the proposed Offer and/or any otherfactors.  If Hearst is unwilling orunable to provide us such assistance, we may be unable to obtain new financingon as favorable terms.

 

***UncertaintiesAssociated with the Proposed Offer May Cause a Loss of Employees and May OtherwiseMaterially Adversely Affect our Business Operations.***

 

Our future results of operations will depend in partupon our ability to retain existing highly skilled and qualified employees andto attract new employees.  The failure tocontinue to attract and retain such individuals could materially adverselyaffect our ability to compete.  Inaddition, current and prospective employees may experience uncertainty abouttheir roles if the proposed Offer is commenced and completed. This uncertaintymay materially adversely affect our ability to attract and retain keymanagement, sales, marketing, and other personnel. An inability to retain keypersonnel could have an adverse effect on our ability to operate the businessas a stand-alone enterprise in the event the proposed Offer is not consummated.

 

**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 table reflects purchases of our Series ACommon Stock made by Hearst Broadcasting during the three months ended March 31,2009:

 
| **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** | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|
| January 1 -  January 31   |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       |                                                                                                                |       |
| February 1  - February 28 |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       |                                                                                                                |       |
| March 1 -  March 31       |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       | 0                                                                                                                   | (1)        |
| Total                               |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       |                                                                                                                |       |

 

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

 

As of December 31,2008, Hearst beneficially owned approximately 67.1% of the Company’soutstanding Series A Common Stock and 100% of the Company’s outstanding Series BCommon Stock, representing in the aggregate approximately 82% of ouroutstanding common stock.

 

The following tablereflects purchases made by the Company of its Series A Common Stock duringthe three months ended March 31, 2009.

 

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| **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** | ** **  |
|-------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|-------------|
| January 1 -  January 31   |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       |                                                                                                                               |        |
| February 1  - February 28 |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       |                                                                                                                               |        |
| March 1 -  March 31       |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       | $                                                                                                                                  | 182,852,123 | (1) |
| Total                               |       | 0                                                |       | N/A                                          |       | 0                                                                                                                |       |                                                                                                                               |        |
|                                     |            |                                                  |            |                                              |            |                                                                                                                  |            |                                                                                                                                    |             |  |

 

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(1)           In May 1998, the Company’s Boardof Directors authorized the repurchase of up to $300 million of its outstandingSeries A Common Stock.  Suchpurchases may be effected from time to time in the open market or in privatetransactions, subject to market conditions and management’s discretion. Between May 1998 and March 31,2009, the Company repurchased approximately 4.8 million shares of Series ACommon Stock at a cost of approximately $117.1 million and an average price of$24.54.  There can be no assurance thatsuch repurchases will occur in the future or, if they do occur, what the termsof such repurchases will be.

 

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**Item 6.****    Exhibits**

 
| **(a) Exhibits:** |
|------------------------|
|                   |   |   |
| 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:                              | April 29, 2009 |
|            |                                     |  |  |  |

 
| **Name**            | ** ** | **Title**                           | ** ** | **Date**              |
|---------------------|------------|-------------------------------------|------------|-----------------------|
|                |       |                                |       |                  |
| /S/ HARRY T.  HAWKS |       | Executive Vice  President and Chief |       | April 29 ,  2009 |
| Harry T. Hawks      |       | Financial  Officer                  |       |                  |
|                |       | (Principal  Financial Officer)      |       |                  |
|                |       |                                |       |                  |
|                |       |                                |       |                  |
| /S/ LYDIA G.  BROWN |       | Corporate  Controller               |       | April 29,  2009  |
| Lydia G. Brown      |       | (Principal  Accounting Officer)     |       |                  |

 

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