##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
     Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
    (no fee required)For the transition period
    from       to   Commission File Number 1-13452
 ION MEDIA NETWORKS,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other
    jurisdiction of
    incorporation or organization)

59-3212788(I.R.S. Employer
    Identification No.)601 Clearwater Park Road,
    West Palm Beach, Florida(Address of principal
    executive offices)

33401(Zip
    Code)   Registrants telephone number, including area code:
    (561)
    659-4122
 Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Exchange on Which RegisteredClass A Common Stock,
    $0.001 par value

American Stock Exchange   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2).
 o o þ
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  PageItem 1.


Business


3Item 1A.


Risk
    Factors


21Item 1B.


Unresolved SEC
    Staff Comments


29Item 2.


Properties


29Item 3.


Legal
    Proceedings


30Item 4.


Submission of
    Matters to Vote of Security Holders


30Item 5.


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


30Item 6.


Selected Financial
    Data


32Item 7.


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


33Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


47Item 8.


Financial
    Statements and Supplementary Financial Data


48Item 9.


Changes in and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


48Item 9A.


Controls and
    Procedures


48Item 9B.


Other Information


48Item 10.


Directors,
    Executive Officers and Corporate Governance


48Item 11.


Executive
    Compensation


53Item 12.


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


66Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


69Item 14.


Principal
    Accountant Fees and Services


71Item 15.


Exhibits and
    Financial Statement Schedules


72EX-10.249 Cordoba Employment AgreementEX-21 List of SubsidiariesEX-23.1 Consent of Rachlin Cohen LLPEX-23.2 Consent of Ernst & YoungEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO   2




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##### Table of Contents



PART I
  ITEM 1.
    Business  General
      Recent
    Events
  1 4 3 4
    NBCU Relationship
 3




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##### Table of Contents



1 4 1 4
  Business
    Strategy
      
    changing our corporate name to ION Media Networks, Inc., with
    associated changes in our corporate logo and brand identity;
    rebranding our network from ito ION
    Television,which we began on January 29,
    2007, to reflect our decision to expand from independent
    programming to content for broader audiences across various age
    groups and to be consistent with our corporate brand identity;
    significantly reducing our programming expenses by reducing our
    investments in new original entertainment programming and
    forming strategic alliances with both established and newly
    emerging content providers;
    re-entering the general network spot advertising market;
    utilizing our digital multicasting capability to launch new
    digital television services; and
    exploring additional uses for our digital spectrum.   4




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qubo qubo qubo (24/7) 24/7
    
    Network Long Form Paid Programming.  We
    sell airtime for long form paid programming, consisting
    primarily of infomercials, during broadcasting hours when we are
    not airing entertainment programming or local public interest
    programming. Our network long form paid programming represented
    approximately 48.6%, 44.2% and 39.8% of our net revenue during
    the years ended December 31, 2006, 2005 and 2004,
    respectively.
    Network Spot Advertising.  We sell commercial
    airtime to advertisers who want to reach our entire nationwide
    viewing audience with a single advertisement. Our network spot
    advertising revenue represented approximately 18.8%, 20.7% and
    20.7% of our net revenue during the years ended
    December 31, 2006, 2005 and 2004, respectively.
    Station Advertising.  We sell commercial
    airtime to advertisers who want to reach the viewing audience in
    specific geographic markets in which we own and operate our
    television stations. These advertisers may be local businesses
    or regional or national advertisers who want to target their
    advertising in these markets. Our station advertising sales
    represented approximately 32.6%, 35.1% and 39.5% of our net
    revenue during the years ended December 31, 2006, 2005 and
    2004, respectively, (including 29.9%, 25.7% and 22.8%,
    respectively, of our net revenue during such years which was
    derived from long form paid programming).    non-network
 5




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##### Table of Contents



Operating
    Strategy
    
    Implement New Sales Strategy.  In January 2007,
    we announced several strategic initiatives, including a
    realignment of our critical sales and marketing personnel and
    our return to the general network spot advertising market. We
    believe that our re-entry into the general network spot
    advertising market is necessary in order to increase our
    revenues. Based on our recent content initiatives and new
    partnerships, we have outlined a diversified revenue strategy
    that focuses on five areas: general network spot advertising,
    direct response, network long form, local long form and content
    revenue sharing relationships.
    Increase Ratings.  We believe that the success
    of our re-entry into the general network spot advertising market
    will be dependent upon our ability to increase the ratings of
    our network entertainment programming. We are introducing new
    content that we expect will increase our ratings and enable us
    to generate more lucrative sales opportunities than had been
    previously available to us.
    Maintain a Flexible Programming Strategy.  An
    important element of our plan to improve our business operations
    and cash flow is to continue to maintain a flexible programming
    strategy that allows us to take advantage of opportunities that
    may arise for us to improve our return on our broadcast airtime
    while significantly reducing our overall programming expenses.
    We believe this strategy allows us to enter into content license
    and strategic programming agreements that result in higher
    quality programming and significantly lower costs as compared to
    prior years when we had invested substantial amounts in new
    original entertainment programming.
    Exploit Our Broadcast Station Groups Digital Television
    Platform.  Our owned and operated station group
    gives us a significant platform for digital broadcasting. We
    have completed the construction of digital broadcast facilities
    for 52 of our 60 owned and operated stations and intend to
    explore the most effective use of digital broadcast technology
    for each of our stations. We believe that quboand ION
    Life are indicative of our ability to provide a significant
    broadband platform on which to broadcast digital television,
    including multiple television networks. We are also exploring
    additional uses for our unused digital spectrum. While future
    applications of this technology are uncertain, we believe that
    we are well positioned to take advantage of future opportunities
    with respect to our digital spectrum.
    Benefit from a Centralized, Efficient Operating
    Structure.  We centralize many of the functions of
    our owned and operated stations, including promotions,
    advertising, research, engineering, accounting and sales
    traffic. Our stations average fewer than 10 employees compared
    to an average of 90 employees at network-affiliated stations,
    and an average of 65 employees at independent stations in
    markets of similar size to ours. We employ a centralized
    programming strategy, which we believe enables us to keep our
    programming costs per station significantly lower than those of
    comparable stations. We provide programming for all of our
    stations and each station offers substantially the same
    programming schedule.
    Continue Airing Long Form Paid
    Programming.  We air a substantial amount of long
    form paid programming, as we have done since prior to launching
    our television network (then known as PAX TV) in
    1998, as we believe this provides us with a stable revenue base.
    The portion of our net revenues which is derived from network
    and station long form paid programming increased to 78.5% for
    the year ended December 31, 2006 from 46.4% for the year
    ended December 31, 2002.
    Expand and Improve Our Television
    Distribution.  We intend to continue to expand our
    television distribution system to reach as many
    U.S. television households as possible in a cost efficient
    manner. We will seek to replace the distribution lost by the
    termination of our network affiliation agreements through the
    negotiation of new, more flexible affiliation agreements and
    carriage agreements with cable systems in the affected markets,
    as and if such agreements can be concluded on cost efficient
    terms. We continue working to improve the channel positioning of
    our broadcast television stations on local cable systems across
    the country, as we believe the ability to view our programming
    on one of the lower numbered channel positions (generally below
    channel 21) on a cable system improves the likelihood that
    viewers will watch our programming. 6




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Distribution
      Our Owned and Operated Television Stations.
      Market


Station Call


Broadcast


Total Market TVMarket Name

Rank(1)


Letters


Channel


Households(1)New York


1



WPXN



31



7,366,950Los Angeles


2



KPXN



30



5,611,110Chicago


3



WCPX



38



3,455,020Philadelphia


4



WPPX



61



2,941,450San Francisco


5



KKPX



65



2,383,570Dallas


6



KPXD



68



2,378,660Boston (Manchester)


7



WBPX



68



2,372,030Boston


7



WDPX



58



2,372,030Boston


7



WPXG



21



2,372,030Washington D.C


8



WPXW



66



2,272,120 7




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##### Table of Contents



Market


Station Call


Broadcast


Total Market TVMarket Name

Rank(1)


Letters


Channel


Households(1)Washington D.C


8



WWPX



60



2,272,120Atlanta


9



WPXA



14



2,205,510Houston


10



KPXB



49



1,982,120Detroit


11



WPXD



31



1,938,320Tampa


12



WXPX



66



1,755,750Phoenix


13



KPPX



51



1,725,000Seattle


14



KWPX



33



1,724,450Minneapolis


15



KPXM



41



1,678,430Miami


16



WPXM



35



1,538,620Cleveland


17



WVPX



23



1,537,500Denver


18



KPXC



59



1,431,910Orlando


19



WOPX



56



1,395,830Sacramento


20



KSPX



29



1,368,680Portland, OR


23



KPXG



22



1,117,990Indianapolis


25



WIPX



63



1,060,550Hartford


28



WHPX



26



1,014,630Raleigh-Durham


29



WFPX



62



1,006,330Raleigh-Durham


29



WRPX



47



1,006,330Nashville


30



WNPX



28



944,100Kansas City


31



KPXE



50



913,280Milwaukee


34



WPXE



55



882,990Salt Lake City


35



KUPX



16



839,170San Antonio


37



KPXL



26



774,470West Palm Beach


38



WPXP



67



772,140Grand Rapids


39



WZPX



43



734,670Birmingham


40



WPXH



44



723,210Norfolk


42



WPXV



49



712,790Memphis(2)(3)


44



WPXX



50



664,290Oklahoma City


45



KOPX



62



662,380Greensboro


47



WGPX



16



660,570Louisville(2)(4)


48



WBNA



21



648,190Buffalo


49



WPXJ



51



639,990Jacksonville


50



WPXC



21



639,110Providence


51



WPXQ



69



633,950Wilkes Barre


53



WQPX



64



590,170New Orleans(2)(3)


54



WPXL



49



566,960Albany


56



WYPX



55



554,970Knoxville


60



WPXK



54



523,010Tulsa


62



KTPX



44



513,090Lexington


63



WUPX



67



483,520Charleston, WV


65



WLPX



29



477,040Roanoke


68



WPXR



38



445,840Honolulu


72



KPXO



66



419,160Des Moines


73



KFPX



39



417,900 8




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Market


Station Call


Broadcast


Total Market TVMarket Name

Rank(1)


Letters


Channel


Households(1)Spokane


77



KGPX



34



395,490Syracuse


79



WSPX



56



386,940Cedar Rapids


89



KPXR



48



333,270Greenville-N. Bern


107



WEPX



38



270,420Greenville-N. Bern


107



WPXU



35



270,420Wausau


134



WTPX



46



180,640     (1)
    
    Market rank is based on the number of television households in
    the television market or DMA as estimated by Nielsen, effective
    as of September 2006.(2)
    
    Station is independently owned and is operated by us under a TBA.(3)
    
    We have the option to acquire the station and the current owner
    has the right to require us to purchase the station at anytime
    after January 1, 2007 through December 31, 2008.(4)
    
    We have a right of first refusal to acquire the station.  Cable and Satellite Distribution. non-network
  Our Network Affiliated Stations. month-to-month
  Programming
  i, market-by-market qubo
 9




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not-for-profit
  Ratings
  2007-2008
  Advertising
   10




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
    economic and market conditions;
    the size of the market in which a station operates;
    a programs popularity among the viewers that an advertiser
    wishes to attract;
    the number of advertisers competing for a time slot;
    the availability of alternative advertising media in the market
    area;
    the demographic composition of the market served by the
    station; and
    development of projects, features and programs that tie
    advertiser messages to programming.  NBCU
    Relationship
      
    We and NBCU amended the terms of NBCUs investment in us,
    including the terms of the Series B preferred stock NBCU
    holds; 11




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
    Mr. Paxson granted NBCU the right to purchase all shares of
    our common stock held by him and his affiliates and resigned as
    our director and officer;
    NBCU agreed that it or its transferee of the right to purchase
    Mr. Paxsons shares will make a tender offer for all
    of our outstanding shares of Class A common stock if it
    exercises or transfers its right to purchase
    Mr. Paxsons shares or transfers a control block of
    its Series B preferred stock;
    NBCU agreed to return a portion of its preferred stock to us if
    its right to purchase Mr. Paxsons shares is not
    exercised, which either NBCU or we will distribute to the
    holders of our Class A common stock other than
    Mr. Paxson;
    We agreed to purchase all of our common stock held by
    Mr. Paxson if NBCUs right to purchase expires
    unexercised or fails to close within a prescribed time frame;
    We issued $188.6 million of additional preferred stock to
    NBCU in full satisfaction of our obligations through
    September 30, 2005 for accrued and unpaid dividends on our
    preferred stock held by NBCU; and
    We settled all pending litigation and arbitration proceedings
    with NBCU.  Series B preferred stock.
      Investment Agreement.
  
    approval of annual budgets;
    expenditures materially in excess of budgeted amounts;
    material amendments to our certificate of incorporation or
    bylaws; 12




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
    material asset sales or purchases, including sales of our
    television stations which are located in the top
    50 designated market areas;
    business combinations where we would not be the surviving
    corporation or as a result of which we would experience a change
    of control;
    issuances or sales of any capital stock, with some exceptions;
    stock splits or recombinations;
    any increase in the size of our board of directors other than an
    increase resulting from provisions of our outstanding preferred
    stock; and
    joint sales, joint services, time brokerage, local marketing or
    similar agreements as a result of which our stations with
    national household coverage of 20% or more would be subject to
    those agreements.    Right to Purchase Mr. Paxsons
    Stock.
       13




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Stockholder Agreement.
  
    NBCU or a permitted transferee of the call right or NBCUs
    Series B preferred stock is required to conduct an offer
    (the tender offer) to purchase all outstanding
    shares of our Class A common stock (other than shares held
    by the Paxson Stockholders and shares issued after
    November 7, 2005 that were not issued pursuant to
    preexisting contractual obligations) at a price of
    $1.25 per share, increasing at an annual rate of 10% from
    October 1, 2005 through the date of the commencement of the
    tender offer, concurrently with the earliest to occur of:          
    If the tender offer does not occur, NBCU will deliver to us or
    our transfer agent shares of the Series B preferred stock
    with an aggregate liquidation preference plus accrued and unpaid
    dividends equal to $105 million plus 10% per annum
    from October 1, 2005, and we or our transfer agent will
    distribute to all holders of our Class A common stock,
    other than the Paxson Stockholders and certain other holders of
    shares issued after November 7, 2005, on a pro rata basis,
    shares of Series B preferred stock (or another series of
    preferred stock hereafter created with substantially identical
    economic rights) with an aggregate liquidation preference equal
    to the amount of the preferred stock surrendered by NBCU. If
    NBCU becomes obligated to deliver shares of Series B
    preferred stock to us for this purpose, and the distribution of
    such shares to the holders of our Class A common stock
    would violate any of our existing debt instruments, NBCU is
    obligated 14




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to (i) amend the terms of the Series B preferred stock
    so that it is not exchangeable for convertible debentures prior
    to April 18, 2010 and to amend the terms of the convertible
    debentures and the indenture under which they may be issued to
    provide that the maturity date of the convertible debentures
    will not be prior to April 19, 2010, or (ii) deliver
    the shares of Series B preferred stock to our transfer
    agent with instructions to distribute such shares to the holders
    of the Class A common stock as described above.  
    We shall grant stock-based compensation awards with respect to
    24 million shares of our Class A common stock to
    selected members of our management within 18 months after
    November 7, 2005 (in addition to the 26 million shares
    issuable pursuant to the stock-based compensation awards made to
    R. Brandon Burgess, our chief executive officer, and Dean M.
    Goodman, our then president and chief operating officer, in
    connection with these transactions).       15




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Competition
    Audience. non-network
    Advertising.
  Federal
    Regulation of Broadcasting
    License Issuance and Renewal.
  General Ownership Matters.
 16




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Television National Ownership Rule.
    market-by-market
 17




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Television Duopoly Rule.
      Television/Newspaper Radio/Television Cross
    Ownership.
    Television Time Brokerage Agreements.
 18




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Alien Ownership.
  Dual Network Rule.
  Programming and Operation.
        Equal Employment Opportunity
    Requirements.
  Cable Must Carry/Retransmission Consent
    Regulations.
   19




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Satellite Carriage of Television Broadcast
    Signals. non-network
  Digital Television Service.
     20




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Proposed Changes.
  Employees
    Seasonality
    Trademarks
    and Service Marks
    Available
    Information
  www.ionmedia.tv Form 10-K, Form 10-Q, Form 8-K
  ITEM 1A.
    Risk
    Factors  Forward-Looking
    Statements and Associated Risks and Uncertainties
   21




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We
    have a high level of indebtedness and are subject to
    restrictions imposed by the terms of our indebtedness and
    preferred stock.
    We
    have a history of significant operating losses and negative cash
    flow and we may not become profitable in the
    future.
      We
    failed to redeem our outstanding preferred stock by the
    scheduled redemption dates in the fourth quarter of 2006, and
    the holders have the right to elect additional directors to our
    board of directors and to thereby influence our management and
    policies.
  1 4
 22




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The
    owner of two of the television stations that we operate under
    time brokerage agreements has the right to require us to
    purchase these stations at an aggregate purchase price of
    $36 million, and has exercised that right for one of the
    two stations.
  We have a history of
    significant operating losses and negative cash flow and we may
    not become profitable in the future.
  We may
    not be successful in operating a broadcast television
    network.
    If the
    rates at which we are able to sell long form paid programming
    were to decline, or if our new sales strategy is unsuccessful,
    our financial results could be adversely affected.
   23




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We may
    lose a portion of our television distribution
    platform.
  month-to-month
  We may
    be unable to satisfy our obligations to repurchase our senior
    debt if we experience a change of control.
    The
    exercise by NBCU, or a permitted transferee of NBCUs
    investment in us, of the rights under our agreements with NBCU
    could adversely affect our business.
    
    approval of annual budgets;
    expenditures materially in excess of budgeted amounts;
    material amendments to our certificate of incorporation or
    bylaws;
    material asset sales or purchases, including sales of our
    television stations which are located in the top 50 DMAs;
    business combinations where we would not be the surviving
    corporation or as a result of which we would experience a change
    of control;
    issuances or sales of any capital stock, with some exceptions;
    stock splits or recombinations;
    any increase in the size of our board of directors other than an
    increase resulting from provisions of our outstanding preferred
    stock; and 24




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
    joint sales, joint services, time brokerage, local marketing or
    similar agreements as a result of which our stations with
    national household coverage of 20% or more would be subject to
    those agreements.    Our
    ability to pursue strategic alternatives is subject to
    limitations and factors beyond our control.
    We
    could be adversely affected by actions of the FCC, the
    U.S. Congress and the courts that could alter broadcast
    television ownership rules in a way that would materially affect
    our present operations or future business
    alternatives.
     25




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market-by-market
    We are
    required by the FCC to abandon the analog broadcast service of
    22 of our full power stations occupying the 700 MHz
    spectrum, and the digital broadcast service of two stations
    occupying the 700 MHz spectrum, and may suffer adverse
    consequences if we are unable to secure alternative distribution
    on reasonable terms.
  52-69
  We
    cannot assure you that we will successfully exploit our
    broadcast station groups digital television
    platform.
   26




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We are
    dependent upon our senior management team and key personnel and
    the loss of any of them could materially and adversely affect
    us.
    We
    operate in a very competitive business
    environment.
  non-network
    We may
    be adversely affected by changes in the television broadcasting
    industry or a general deterioration in economic
    conditions.
    
    the condition of the U.S. economy;
    changes in audience tastes;
    changes in priorities of advertisers;
    new laws and governmental regulations and policies;
    changes in broadcast technical requirements;
    technological changes;
    proposals to eliminate the tax deductibility of expenses
    incurred by advertisers or to prohibit the television
    advertising of some categories of goods or services;
    changes in the law governing advertising by candidates for
    political office; and
    changes in the willingness of financial institutions and other
    lenders to finance television station acquisitions and
    operations. 27




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Our
    business is subject to extensive and changing regulation that
    could increase our costs, expose us to greater competition, or
    otherwise adversely affect the ownership and operation of our
    stations or our business strategies.
      
    determine the frequencies, location and power of our broadcast
    stations;
    regulate the equipment used by our stations;
    adopt and implement regulations and policies concerning the
    ownership and operation of our television stations; and
    impose penalties on us for violations of the Communications Act
    or FCC regulations.      We
    believe that the success of our television operations depends to
    a significant extent upon access to households served by cable
    television systems. If the law requiring cable system operators
    to carry our signal were to change, we might lose access to
    cable television households, which could adversely affect our
    operations.
   28




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The
    appraised value of our television stations has continued to
    decline over the past several years, and we cannot assure you
    that we would actually be able to realize, in any sale,
    liquidation, merger or other transaction involving our assets,
    the estimated values of such assets set forth in any
    appraisal.
  start-up
    Item 1B.
    Unresolved
    SEC Staff Comments    Item 2.
    Properties     29




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Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    2006


2005High


Low


High


LowFirst Quarter

$
0.98


$
0.87


$
2.15


$
0.48Second Quarter


0.94



0.83



1.56



0.53Third Quarter


1.00



0.78



0.65



0.42Fourth Quarter


0.83



0.40



1.15



0.37     Dividends
   30




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##### Table of Contents



Stock
    Performance Graph
    
  INDEXED
    RETURNS
  Years EndingBasePeriodCompany Name / Index(1)

12/31/01


12/31/02


12/31/2003


12/31/2004


12/31/2005


12/31/2006ION Media Networks, Inc. -CL A

$
100.00


$
19.71


$
36.84


$
13.21


$
8.61


$
4.78AMERICAN STOCK EXCHANGE IND

$
100.00


$
81.74


$
110.63


$
127.83


$
138.33


$
160.48MEDIA INDEX

$
100.00


$
86.19


$
103.75


$
82.43


$
69.21


$
76.43   (1)
    
    The comparison assumes $100 was invested at the per share
    closing price of our Class A Common Stock on
    December 31, 2001. Similar calculations were made with
    respect to the American Stock Exchange Market Value Index and
    the Media Index for the relevant periods assuming that all
    dividends were reinvested. 31




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Item 6.
    Selected
    Financial Data    2006


2005


2004


2003


2002(In thousands, except per share data)Statement of Operations
    Data:Net revenues

$
228,896


$
254,176


$
276,630


$
270,939


$
276,921Operating income (loss)(1)


37,260



(22,150
)


(12,419
)


44,195



(69,906
)Net loss(2)


(173,744
)


(235,670
)


(187,972
)


(76,213
)


(336,186
)Net loss attributable to common
    stockholders(3)


(256,629
)


(275,031
)


(245,735
)


(146,317
)


(446,285
)Basic and Diluted Loss Per
    Common
    Share: (4)Net loss

$
(3.53
)

$
(3.94
)

$
(3.61
)

$
(2.14
)

$
(6.88
)Weighted average shares
    outstanding  basic and diluted


72,772



69,747



68,139



68,390



64,849Balance Sheet Data:Cash and cash equivalents

$
58,601


$
90,893


$
82,047


$
97,123


$
25,765Working capital (deficit)(5)


(606,168
)


(494,108
)


77,422



67,132



19,188Total assets


1,056,987



1,146,256



1,224,305



1,283,677



1,276,619Total debt


1,123,347



1,122,283



1,004,093



925,608



900,101Total mandatorily redeemable
    preferred stock


620,020



540,916



471,355



410,739



354,498Total mandatorily redeemable
    convertible preferred stock(6)


860,406



777,521



740,745



684,067



638,603Total common stockholders
    deficit


(1,849,871
)


(1,594,095
)


(1,327,341
)


(1,089,845
)


(958,267
)Other Data:Cash flows (used in) provided by
    operating activities

$
(13,057
)

$
3,047


$
(9,717
)

$
32,916


$
(75,428
)Cash flows (used in) provided by
    investing activities


(17,669
)


8,798



(23,647
)


60,929



(7,689
)Cash flows (used in) provided by
    financing activities


(1,566
)


(2,999
)


18,288



(22,487
)


25,024Program rights payments and
    deposits


8,892



45,568



67,682



34,239



116,243Payments for cable distribution
    rights






368



123



4,347



9,286Purchases of property and equipment


13,089



15,336



15,845



26,732



31,177     (1)
    
    Our results in 2006 include a restructuring credit of
    $7.2 million (see Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Restructuring), a
    $1.3 million reduction in music license fees resulting from
    a retroactive revision to the fee structure employed by a music
    license organization and a $1.3 million charge related to
    the obsolescence and disposal of some of our property and
    equipment. Our results for 2005 include a restructuring charge
    in the amount of $30.9 million and $16.8 million of
    proceeds received from the settlement of an insurance claim. Our
    results for 2004 include an adjustment of $4.0 million to
    recognize additional rent expense for lease arrangements that
    provide for escalating lease 32




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##### Table of Contents



payments (approximately $3.1 million of which pertains to
    prior periods), insurance proceeds of $3.3 million, a
    $3.0 million reduction in music license fees from the
    settlement of a dispute and commencement of a new agreement with
    a music license organization, additional depreciation expense of
    $1.7 million for certain leasehold improvements to adjust
    their amortization period to the shorter of their useful lives
    or the lease terms and a $0.8 million charge for certain
    state taxes in jurisdictions in which we have operations. Our
    results for 2003 include gains on the sale of broadcast assets
    in the aggregate amount of $51.6 million, a reduction of
    $6.6 million for cable and satellite distribution rights
    which we determined had been
    over-amortized,
    an impairment charge of $5.2 million connected with a
    purchase option on a television station and which pertained to
    prior periods, recognition of additional state tax liabilities
    of $3.1 million, a $2.2 million reduction of operating
    expenses resulting from a settlement of a dispute related to
    interference with one of our broadcast signals and a
    $1.5 million reduction in bad debt expense resulting from
    our shift to increased prepaid long form advertising. In
    addition, we recorded adjustments to write down programming to
    net realizable value of $3.2 million, $4.6 million,
    $1.1 million and $41.3 million in 2006, 2004, 2003 and
    2002, respectively, and a restructuring charge of
    $2.2 million in 2002.(2)
    
    Includes losses on extinguishment of debt of $54.1 million,
    $6.3 million and $17.6 million in 2005, 2004 and 2002,
    respectively. Net loss for 2005 also includes the recognition of
    a $34.4 million income tax benefit in connection with the
    settlement with the IRS regarding the 1997 disposition of our
    radio division. Net loss for 2004 also includes
    $4.0 million of additional tax expense resulting from a
    change in estimated state income tax rates. Net loss for 2003
    includes a tax benefit of $4.7 million resulting from the
    sale of a television station. Net loss for 2002 includes an
    additional provision for deferred taxes of $168.6 million
    resulting from the adoption of SFAS No. 142,
    Goodwill and Other Intangible Assets.(3)
    
    Includes dividends and accretion on redeemable preferred stock,
    including a net decrease in accrued dividends on our
    Series B preferred stock in the amount of
    $23.7 million in 2005 as compared to 2004, as a result of
    our comprehensive settlement with NBCU.(4)
    
    Because of losses from continuing operations, the effect of
    stock options and warrants is antidilutive. Accordingly, our
    presentation of diluted earnings per share is the same as that
    of basic earnings per share.(5)
    
    2006 and 2005 reflect mandatorily redeemable preferred stock of
    $620.0 million and $540.9 million, respectively, that
    was required to be redeemed on or before November 15, 2006
    and is presented as a liability in accordance with Statement of
    Financial Accounting Standards (SFAS) No. 150.(6)
    
    2006 includes mandatorily redeemable convertible preferred stock
    in the amount of $171.0 million that was required to be
    redeemed on December 31, 2006.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  OVERVIEW:
  i
   33




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
    changing our corporate name to ION Media Networks, Inc., with
    associated changes in our corporate logo and brand identity;
    rebranding our network from ito ION
    Television, which we began on January 29, 2007, to
    reflect our decision to expand from independent programming to
    content for broader audiences across various age groups and to
    be consistent with our corporate brand identity;
    significantly reducing our programming expenses by reducing our
    investments in new original entertainment programming and
    forming strategic alliances with both established and newly
    emerging content providers;
    re-entering the general network spot advertising market, which
    we had exited in July of 2005;
    utilizing our digital multicasting capability to launch new
    digital television services; and
    exploring additional uses for our digital spectrum.  qubo qubo qubo (24/7) 24/7
    Liquidity and Capital Resources Recent Events
    
    We and NBCU amended the terms of NBCUs investment in us,
    including the terms of the Series B preferred stock NBCU
    holds;
    Mr. Paxson granted NBCU the right to purchase all shares of
    our common stock held by him and his affiliates and resigned as
    our director and officer;
    NBCU agreed that it or its transferee of the right to purchase
    Mr. Paxsons shares will make a tender offer for all
    of our outstanding shares of Class A common stock if it
    exercises or transfers its right to purchase
    Mr. Paxsons shares or transfers a control block of
    its Series B preferred stock; 34




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##### Table of Contents




    NBCU agreed to return a portion of its preferred stock to us if
    the right to purchase Mr. Paxsons shares is not
    exercised, which either NBCU or we will distribute to the
    holders of our Class A common stock other than
    Mr. Paxson;
    We agreed to purchase all of our common stock held by
    Mr. Paxson if NBCUs right to purchase
    Mr. Paxsons shares expires unexercised or fails to
    close within a prescribed time frame;
    We issued $188.6 million of additional preferred stock to
    NBCU in full satisfaction of our obligations through
    September 30, 2005 for accrued and unpaid dividends on our
    preferred stock held by NBCU; and
    We settled all pending litigation and arbitration proceedings
    with NBCU.  Financial
    Performance:
  
    Net revenues in 2006 decreased 10% to $228.9 million
    compared to $254.2 million in 2005.
    Operating income in 2006 was $37.3 million, as compared to
    an operating loss of $22.2 million in 2005. We recorded
    $30.9 million of restructuring charges in 2005, and in 2006
    we recorded a net restructuring credit of approximately
    $7.0 million, which primarily reflects the amendment of the
    terms of a contract under which our obligations had been accrued
    as part of our 2005 restructuring. In addition, the reductions
    in selling, general and administrative expenses and program
    rights amortization expense in 2006 of approximately
    $56.9 million more than offset the decline in revenues in
    2006 and the cash we received in 2005 in connection with the
    settlement of an insurance claim.
    Net loss attributable to common stockholders in 2006 was
    $256.6 million, as compared to $275.0 million in 2005,
    as the increase in operating income was largely offset by higher
    dividends on redeemable preferred stock in 2006 and a
    $34.4 million income tax benefit recorded in 2005 in
    connection with the settlement with the IRS pertaining to the
    disposition of our radio division in 1997 (see Note 11 to
    the consolidated financial statements).
    Cash used in operating activities was $13.1 million in
    2006, as compared to cash provided by operating activities of
    $3.0 million in 2005. The decrease is mainly due to a
    $30.8 million increase in cash interest payments in 2006 as
    compared to the prior year and the $16.8 million of cash
    received in 2005 from the insurance settlement mentioned above,
    largely offset by a $36.7 million decrease in program
    rights payments in 2006.  Balance
    Sheet:
  Liquidity and Capital Resources
  Sources
    of Cash:
    Key
    Company Performance Indicators:
   35




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Outlook
    for 2007:
  Liquidity and Capital Resources
        RESULTS
    OF OPERATIONS
  Critical
    Accounting Policies and Estimates
       36




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37




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Restructuring
    
    Terminated our joint sales agreements (JSAs) other
    than those with NBCU, effective June 30, 2005;
    exercised our right to terminate all of our network affiliation
    agreements, effective June 30, 2005;
    suspended, by mutual agreement, our network and national sales
    agency agreements with NBCU and each of our JSAs with
    NBCU; and
    reduced personnel by 68 employees.  non-network
   38




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##### Table of Contents



Results
    of Continuing Operations
    Year Ended December 31,2006


%


2005


%


2004


%Net revenues (net of agency
    commissions)

$
228,896



100.0


$
254,176



100.0


$
276,630



100.0Expenses:Programming and broadcast
    operations


53,725



23.5



56,899



22.4



57,484



20.8Program rights amortization,
    including adjustment of programming assets to net realizable
    value


32,083



14.0



61,091



24.0



58,261



21.1Selling, general and administrative


70,254



30.7



98,144



38.6



130,015



47.0Depreciation and amortization


36,332



15.9



38,793



15.3



43,664



15.8Insurance recoveries










(15,652
)


(6.2
)






Time brokerage fees


4,580



2.0



4,580



1.8



4,466



1.6Restructuring (credits) charges


(7,032
)


(3.1
)


30,906



12.2



(5
)


(0.0
)Total operating expenses


189,942



83.0



274,761



108.1



293,885



106.2(Loss) gain on sale or disposal of
    broadcast and other assets, net


(1,694
)


(0.7
)


(1,565
)


(0.6
)


4,836



1.7Operating income (loss)

$
37,260



16.3


$
(22,150
)


(8.7
)

$
(12,419
)


(4.5
)Other Data:Program rights payments and
    deposits

$
8,892






$
45,568






$
67,682Purchases of property and equipment


13,089







15,336







15,845Cash flows (used in) provided by
    operating activities


(13,057
)






3,047







(9,717
)Cash flows (used in) provided by
    investing activities


(17,669
)






8,798







(23,647
)Cash flows (used in) provided by
    financing activities


(1,566
)






(2,999
)






18,288   Years
    ended December 31, 2006 and 2005
       39




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40




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1 4
          Years
    Ended December 31, 2005 and 2004
     41




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Restructuring
      1 4
  1 4
  Liquidity
    and Capital Resources
 42




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Liquidity and Capital Resources
  LIQUIDITY
    AND CAPITAL RESOURCES
   43




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1 4 3 4
       44




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2007


2008


2009


2010


2011


Thereafter


TotalTerm loans and notes payable

$
75


$
86


$
95


$
46


$



$
1,130,000


$
1,130,302Obligations to CBS for program
    license


247























247Obligations for other program
    rights and program rights commitments


12,524























12,524Operating leases and employment
    agreements


24,296



22,063



14,927



13,282



11,573



83,312



169,453Total

$
37,142


$
22,149


$
15,022


$
13,328


$
11,573


$
1,213,312


$
1,312,526      45




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New
    Accounting Pronouncements
         46




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Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   47




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Financial Data    Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15
  Changes
    in Internal Control over Financial Reporting
  Rule 13a-15
  Item 9B.
    Other
    Information    PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Board of
    Directors
   48




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Class I
    Directors in Office (Term to Expire at the Annual Meeting in
    2007)
  DirectorAge

Position, Principal Occupation, Business Experience and
    Directorships

SinceR. Brandon Burgess


39


President of the Company since
    October 2006 and Chief Executive Officer since November 2005.
    Executive Vice President, Business Development &
    International Channels of NBC Universal, Inc. (NBCU), a
    television network that is a subsidiary of General Electric
    Company from June 2004 to November 2005. Executive Vice
    President, NBC Business Development of National Broadcasting
    Company, Inc. (predecessor of NBCU) from January 2002 to May
    2004. Chief Financial Officer for the NBC Television Network
    from 1999 to 2001.


2005Henry J. Brandon


49


Director since October 2005 of
    Vintage Fund Management, a private investment firm and merchant
    bank. Managing Director since October 2004 of Oracle Capital
    Partners, LLC, a private investment firm and merchant bank.
    Senior Vice President and Chief Financial Officer of Leeward
    Islands Lottery Holding Company, Inc., a lottery management and
    production company from August 2002 to August 2004. Principal,
    William E. Simon & Sons, LLC, a private investment firm
    and merchant bank, from 1995 to 2002.


2001  49




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##### Table of Contents



Class II
    Directors in Office (Term to Expire at the Annual Meeting in
    2008)
  Age

Position, Principal Occupation, Business Experience and
    Directorships

Director SinceW. Lawrence Patrick


57


Chairman of the Board since
    November 2005. President since 1984 of Patrick Communications,
    LLC, a media investment banking and brokerage firm, and Legend
    Communications, a radio group owner.


2005Raymond S. Rajewski


63


Executive Vice President of Viacom
    Television Stations Group, a subsidiary of Viacom Inc., a media
    company, from 1991 until his retirement in 2004.


2005   Class III
    Directors in Office (Term to Expire at the Annual Meeting in
    2009)
  Age

Position, Principal Occupation, Business Experience and
    Directorships

Director SinceFrederick M. R. Smith


64


Financial Consultant since January
    2002 through his wholly-owned company, Kirkwood Lane Associates,
    LLC. Co-head of the international private equity fund of Credit
    Suisse First Boston (CSFB), an investment banking firm, from May
    2001 to January 2002; co-head of the international private
    equity group of CSFB from December 1995 to May 2001. Employed in
    various capacities in the investment banking department of CSFB
    and its predecessors from 1968 to 1995. Director, Castle Brands,
    Inc., and Unwired Group Limited.


2006William A. Roskin(1)


65


Senior Advisor of Viacom Inc., a
    media company, since 2005. Executive Vice President 
    Human Resources and Administration from 2004 to 2005, Senior
    Vice President  Human Resources and Administration
    from 1992 to 2004, and Vice President  Human
    Resources and Administration from 1988 to 1992, of Viacom Inc.


2006 50




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##### Table of Contents



Age

Position, Principal Occupation, Business Experience and
    Directorships

Director SinceLucille S. Salhany(1)


60


President and Chief Executive
    Officer of JHMedia, a consulting company, since 1997. Partner
    and director of Echo Bridge Entertainment, an independent film
    distribution company, since 2003. President and Chief Executive
    Officer of LifeFX Networks, Inc. from 1999 to 2002. Chief
    Executive Officer and President of UPN (United Paramount
    Network), a broadcasting company, from 1999 to March 2002.
    Chairman of Fox Broadcasting Company, a national television
    network, from 1993 to 1994, and Chairman of Twentieth
    Television, a division of Fox Broadcasting Company, from 1991 to
    1993. Director, Hewlett-Packard Company.


2006     (1)
    
    Effective June 23, 2006, the Board of Directors appointed
    William A. Roskin and Lucille S. Salhany as Class III
    directors to fill two vacancies on the Board.  Other
    Executive Officers
  Stephen P. Appel
  Richard Garcia
  Adam K. Weinstein
  Curtis L. Brandon,
  Emma Cordoba
  The Board
    of Directors and its Committees
   51




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##### Table of Contents




    selection, retention, oversight and evaluation of our
    independent registered certified public accountants;
    meeting with our independent registered certified public
    accountants to review the scope and results of audits;
    approval of non-audit services provided to us by our independent
    registered certified public accountants; and
    consideration of various accounting and auditing matters related
    to our system of internal controls, financial management
    practices and other matters.         52




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Lead
    Independent Director
    Communication
    with the Board of Directors
  Stockholder-Director
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code of
    Ethics
  Form 10-K,
  Item 11.
    Executive
    Compensation  Compensation
    Discussion and Analysis
      Compensation
    Philosophy and Objectives
   53




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##### Table of Contents




    Total compensation must enable us to be competitive in the
    relevant marketplace for executive talent.
    A significant portion of an executives compensation
    opportunity should be directly related to company performance
    factors that influence stakeholder value.
    The total compensation program must facilitate our retention of
    executives, given the financial and operational challenges
    facing us.    change-in-control
    Elements
    of Executive Compensation
    
    base salary;
    annual incentive bonus;
    retention bonus; and
    other benefits.  Base
    Salary
    
    the executives individual performance;
    the executives current base salary and relevant market
    factors affecting our ability to attract and retain our key
    executives;
    internal pay equity; and
    changes in the executives level of responsibility.   54




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Annual
    Incentive Bonus
      i.e.
  i.e.
    Executive
    Retention Bonus Plan
   55




---



##### Table of Contents



Stock-Based
    Awards
      Retirement
    Benefits, Executive Perquisites and Other Benefits
      Chief
    Executive Officer Compensation
   56




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##### Table of Contents



Tax and
    Accounting Implications
  Deductibility
    of Executive Compensation
    Nonqualified
    Deferred Compensation
    Accounting
    for Stock-Based Compensation
    Compensation
    Committee Interlocks and Insider Participation
   57




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COMPENSATION
    COMMITTEE REPORT
  The information contained in this report shall not be deemed
    to be soliciting material or filed with
    the SEC or subject to the liabilities of Section 18 of the
    Exchange Act, except to the extent that we specifically
    incorporate it by reference into a document filed under the
    Securities Act or the Exchange Act.
  Form 10-K.
        SUMMARY
    COMPENSATION TABLE
    (g)


(h)Non-


Change inEquity


Pension ValueIncentive


and Nonquali-(e)


(f)


Plan


fied Deferred


(i)(a)




(c)


(d)


Stock


Option


Compen-


Compensation


All Other


(j)Name and

(b)


Salary


Bonus


Awards


Awards


sation


Earnings


Compensation


TotalPrincipal Position

Year


($)


($)(1)


($)(2)


($)(3)


($)(4)


($)


($)


($)R. Brandon BurgessChief Executive Officer, President
    and Director


2006



1,000,000



0



3,368,118



5,110,248



1,000,000



0



64,531
(5)


10,542,897Dean M. GoodmanFormer President, Chief Operating
    Officer and Director(6)


2006



576,154



0



1,070,891



406,200



700,000



145,082
(7)


3,073,471
(8)


5,971,798Stephen P. AppelPresident 
    Sales & Marketing


2006



475,860



225,000



0



0



634,480



0



23,841
(9)


1,359,181Richard GarciaSenior Vice President and Chief
    Financial Officer


2006



313,635



70,000



0



0



418,180



0



1,316
(10)


803,131Adam K. WeinsteinSenior Vice President, Secretary
    and Chief Legal Officer


2006



273,000



70,000



0



0



364,000



0



3,427
(10)


710,427Emma CordobaVice President, Director of Human
    Resources


2006



127,076



25,000



0



0



95,307



0



2,128
(10)


249,511     (1)
    
    The amounts in column (d) consists of a signing bonus for
    Mr. Appel and, in the case of the other Named Executive
    Officers, discretionary bonuses awarded in recognition of the
    cancellation of the Executive Retention Bonus Plan.(2)
    
    The amounts in column (e) reflect the dollar amount
    recognized for financial statement reporting purposes for the
    fiscal year ended December 31, 2006, in accordance with
    SFAS 123(R) of awards pursuant to the Stock Incentive Plans
    and thus include amounts from awards granted prior to 2006.
    These compensation costs reflect amounts for awards granted in
    fiscal 2005 and, with respect to Mr. Goodman, the
    acceleration of awards in 2006 in connection with his
    termination of employment. The methodology used in the
    calculation of these amounts is 58




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included in footnote 12 to our audited financial statements
    for the fiscal year ended December 31, 2006, included in
    this Annual Report on
    Form 10-K.  (3)
    
    The amounts in column (f) reflect the dollar amount
    recognized for financial statement reporting purposes for the
    fiscal year ended December 31, 2006, in accordance with
    SFAS 123(R) of awards pursuant to the Stock Incentive Plans
    and thus include amounts from awards granted prior to 2006.
    These compensation costs reflect amounts for awards granted in
    fiscal 2005 and, with respect to Mr. Goodman, the
    acceleration of awards in 2006 in connection with his
    termination of employment. Assumptions used in the calculation
    of this amount for fiscal years ended December 31, 2004,
    2005 and 2006 are included in footnotes 1 and 12 to our
    audited financial statements for the fiscal year ended
    December 31, 2006, included in this Annual Report on
    Form 10-K.(4)
    
    The amounts in column (g) consist of annual incentive bonuses
    earned for services rendered in 2006 that were or will be paid
    during 2007, and retention bonuses paid during 2006, as
    discussed in further detail under the headings Annual
    Incentive Bonus and Executive Retention Bonus
    Plan.(5)
    
    Includes: (i) a housing allowance of $5,000 per month
    for 12 months; (ii) spousal travel on an aircraft
    previously owned by us, valued at $3,068; and
    (iii) company-provided tickets for sporting and concert
    events, valued at $1,463.(6)
    
    Mr. Goodman served as our President, Chief Operating
    Officer and Director until October 17, 2006. Mr.
    Goodmans salary reported in column (c) does not include
    $63,333 contributed by him to his supplemental executive
    retirement plan.(7)
    
    Includes Mr. Goodmans contribution of $63,333 to his
    supplement executive retirement plan, our matching contribution
    of $63,333, and aggregate earnings of $18,416.(8)
    
    Includes: (i) a $3,000,000 lump sum payment in connection
    with Mr. Goodmans separation; (ii) reimbursement
    of $20,000 for legal fees incurred in connection with
    Mr. Goodmans separation; (iii) a $37,674 cash
    surrender value of a life insurance policy assigned by us to
    Mr. Goodman; (iv) $1,918 for the cost of term life
    insurance; (v) private club membership dues of $850;
    (vi) spousal travel on an airplane previously owned by us,
    valued at $561; and (vii) company-provided tickets for
    sporting and concert events, valued at $12,468.(9)
    
    Includes (i) private club membership dues of $17,815; and
    (ii) a parking allowance of $5,640.  (10)
    
    Includes a $1,000 contribution by us to the 401(k) profit
    sharing plan on behalf of the Named Executive Officer. 59




---



##### Table of Contents



Grants of
    Plan-Based Awards
    GRANTS OF
    PLAN BASED AWARDS
  (i)


(j)All Other


All OtherStock


Option


(k)


(l)Awards:


Awards:


Exercise


Grant DateEstimated Future Payouts


Number


Number of


or Base


Fair ValueEstimated Future Payouts Under Non- Equity Incentive Plan
    Awards (1)


Under Equity Incentive Plan Awards


of Shares


Securities


Price of


of Stock(b)


(c)


(d)


(e)


(f)


(g)


(h)


of Stock


Underlying


Option


and Option(a)

Grant


Threshold


Target


Maximum


Threshold


Target


Maximum


or Units


Options


Awards


AwardsName

Date


($)


($)(2)


($)(2)


(#)


(#)


(#)


(#)


(#)


($/sh)


($)R. Brandon BurgessExecutive Bonus Plan


N/A



0



1,000,000



1,000,000



























Dean M. GoodmanExecutive Bonus Plan


N/A



0



800,000



800,000



























Retention Bonus Plan


N/A



0



1,600,000



1,600,000



























Stephen P. AppelExecutive Bonus Plan


N/A



0



475,860



475,860



























Retention Bonus Plan


N/A



0



362,560



362,560



























Richard GarciaExecutive Bonus Plan


N/A



0



313,635



313,635



























Retention Bonus Plan


N/A



0



238,960



238,960



























Adam K. WeinsteinExecutive Bonus Plan


N/A



0



273,000



273,000



























Retention Bonus Plan


N/A



0



208,000



208,000



























Emma CordobaExecutive Bonus Plan


N/A



0



63,538



63,538



























Retention Bonus Plan


N/A



0



72,615



72,615



























     (1)
    
    The amounts shown in column (d) reflect the estimated
    payouts for fiscal 2006 under the Executive Bonus Program and
    the Executive Retention Bonus Plan. These amounts are based on
    the individuals fiscal 2006 salary and position. Actual
    non-equity incentive plan bonuses earned by these Named
    Executive Officers for fiscal 2006 are reported in the Summary
    Compensation Table under the column entitled Non-Equity
    Incentive Plan Compensation.(2)
    
    The amounts shown for the Retention Bonus Plan include the
    following amounts for which participants became ineligible upon
    termination of the plan (as described under Executive
    Retention Bonus Plan): Mr. Goodman 
    $900,000; Mr. Appel  $203,940;
    Mr. Garcia  $134,415;
    Mr. Weinstein  $117,000; Ms. Cordoba 
    $40,846. 60




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##### Table of Contents



Outstanding
    Equity Awards
    OUTSTANDING
    EQUITY AWARDS AT FISCAL YEAR-END
  Stock Awards(j)EquityIncentivePlanOption Awards











Awards:(d)














(i)


Market orEquity














Equity


PayoutIncentive











(h)


Incentive


Value ofPlan Awards:











Market


Plan Awards:


Unearned(b)


(c)


Number of








(g)


Value of


Number of


Shares,Number of


Number of


Securities








Number of


Shares or


Unearned


Units orSecurities


Securities


Underlying


(e)





Shares or


Units of


Shares, Units


OtherUnderlying


Underlying


Unexercised


Option


(f)


Units of


Stock


or Other


RightsUnexercised


Unexercised


Unearned


Exercise


Option


Stock That


that


Rights That


That Have(a)

Options (#)


Options (#)


Options


Price


Expiration


Have Not


Have Not


Have Not


Not VestedName

Exercisable


Unexercisable


(#)


($)


Date


Vested


Vested


Vested


($)R. Brandon Burgess










8,000,000


$
0.42



11/7/12











8,000,000



4,000,000







8,000,000


$
1.25



11/7/12















Dean M. Goodman






333,334






$
0.42



10/17/10



















333,333






$
1.25



10/17/10















26,667










$
0.01



10/13/13















Stephen P. Appel


10,000










$
0.01



10/2/13















Richard Garcia


6,667










$
0.01



10/2/13















Adam K. Weinstein


3,333










$
0.01



10/2/13















Emma Cordoba


2,667










$
0.01



10/2/13















   Option
    Exercises and Stock Vested
    OPTION
    EXERCISES AND STOCK VESTED
  Option Awards


Stock Awards(b)


(c)


(d)


(e)Number of Shares


Value Realized


Number of Shares


Value Realized(a)

Acquired on Exercise


on Exercise


Acquired on Vesting


on VestingName

(#)


($)


(#)


($)(1)R. Brandon Burgess














Dean M. Goodman










1,333,333



1,066,666Stephen P. Appel














Richard Garcia














Adam K. Weinstein














Emma Cordoba














     (1)
    
    The value realized equals the closing sale price of our
    Class A common stock on the vesting date, multiplied by the
    number of stock units that vested. There is an exercise price of
    $0.01 per stock unit payable upon settlement of the units. 61




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##### Table of Contents



PENSION
    BENEFITS
    (d)


(c)(c)


Present Value of


PaymentsNumber of Years


Accumulated


During Last(a)

(b)

Credited Service


Benefit


Fiscal YearName

Plan Name

(#)


($)


($)R. Brandon Burgess












Dean M. Goodman

Supplemental Executive
    Retirement Plan


11.75



374,730



41,847Stephen P. Appel












Richard Garcia












Adam K. Weinstein












Emma Cordoba












   NONQUALIFIED
    DEFERRED COMPENSATION
    (c)(b)


Registrant





(e)


(f)Executive


Contribution in


(d)


Aggregate


Aggregate BalanceContribution in


Last Fiscal


Aggregate Earnings


Withdrawals/


at Last(a)

Last Fiscal Year


Year


in Last Fiscal Year


Distributions


Fiscal Year EndName

($)


($)


($)


($)


($)R. Brandon Burgess


















Dean M. Goodman


63,333
(1)


63,333
(1)


18,416
(1)


41,847



374,730
(2)Stephen P. Appel


















Richard Garcia


















Adam K. Weinstein


















Emma Cordoba


















     (1)
    
    All of this amount is reported as compensation to
    Mr. Goodman in the Summary Compensation Table.(2)
    
    Mr. Goodmans supplemental executive retirement plan
    was terminated and all amounts paid out in January 2007.  POTENTIAL
    PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
    Employment
    Agreements
  R. Brandon
    Burgess
   62




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##### Table of Contents



Stephen
    P. Appel
   63




---



##### Table of Contents



Richard
    Garcia
    Adam
    K. Weinstein
   64




---



##### Table of Contents



Emma
    Cordoba
      Separation
    Agreement
  Dean
    M. Goodman
    DIRECTOR
    COMPENSATION
   65




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##### Table of Contents



out-of-pocket
          Director
    Summary Compensation Table
    (f)Change inPension Value(b)


(c)


(d)


(e)


And Deferred


(g)Fees Earned or


Stock


Option


Non-Equity


Compensation


All Other


(h)(a)

Paid in Cash


Awards


Awards


Incentive Plan


Earnings


Compensation


TotalName

($)


($)(1)


($)


Compensation($)


($)


($)(2)


($)Henry J. Brandon III


64,917



81,804



















146,721W. Lawrence Patrick


184,250



36,708



















220,958Lucille S. Salhany


59,628



6,918



















66,546Frederick M.R. Smith


82,774



12,921



















95,695William A. Roskin


32,962



6,918



















39,880Raymond S. Rajewski


94,500



36,831



















131,331     (1)
    
    Reflects the dollar amount recognized for financial statement
    reporting purposes for the fiscal year ended December 31,
    2006 in accordance with SFAS 123(R) and thus may include
    amounts from awards granted in and prior to 2006.  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   66




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##### Table of Contents



Amount and Nature





Aggregateof Beneficial





VotingClass of Stock

Name of Beneficial Owner(1)

Ownership


% of Class


Power (%)Class A Common Stock

NBC Universal, Inc.(2), (3)


Citadel Investment Group, L.L.C.(3)


Lowell W. Paxson(4)


15,455,062



23.7
%


9.7
%The Goldman Sachs Group, Inc.(5)


4,509,196



6.9
%


2.8
%Directors:Henry J. Brandon(6)


154,333




*


*W. Lawrence Patrick(6)


154,333




*


*Raymond S. Rajewski(6)


154,333




*


*R. Brandon Burgess(7)


Frederick M.R. Smith(6)


66,555




*


*William A. Roskin(6)


61,167




*


*Lucille S. Salhany(6)


61,167




*


*Certain Executive Officers:Stephen P. Appel(8)


208,793




*


*Richard Garcia(8)


177,111




*


*Adam K. Weinstein(8)


267,692




*


*Emma Cordoba(8)


80,709




*


*All directors, nominees and
    executive officers as a group (11 persons)(9)


1,231,860



1.9
%


*Class B Common Stock

Lowell W. Paxson


8,311,639



100
%


52.3
%     *
    
    Less than 1%(1)
    
    Unless otherwise specified in the footnotes to this table, the
    address of each person in this table is c/o ION Media
    Networks, Inc., 601 Clearwater Park Road, West Palm Beach,
    Florida
    33401-6233.(2)
    
    Does not include 303,035,000 shares of Class A common
    stock issuable upon conversion of shares of Series B
    preferred stock held by NBC Palm Beach Investment I, Inc.,
    such holder is a subsidiary of NBC Universal, Inc. (f/k/a
    National Broadcasting Company, Inc.) (NBCU), the
    address of which is 30 Rockefeller Plaza, New York, New York
    10112, and NBCU and its parent entity, General Electric Company,
    Inc., and each disclaims beneficial ownership of such securities.(3)
    
    Does not include 15,455,062 shares of Class A common
    stock and 8,311,639 shares of Class B common stock
    beneficially owned by Mr. Paxson that affiliates of NBCU
    have the right to acquire, which affiliates have agreed to
    transfer such right to an affiliate of Citadel Investment Group,
    L.L.C. (Citadel). The holders rights to
    acquire these securities and Citadels right to acquire
    such  holders rights are subject to material conditions,
    including compliance with the rules of the FCC, and according to
    information contained in an amendment to Schedule 13D filed
    with the Securities and Exchange Commission, dated
    February 22, 2007, are not presently exercisable. The
    address of Citadel is 131 Dearborn Street, 32nd Floor,
    Chicago, Illinois 60603, and Citadel disclaims beneficial
    ownership of such securities.(4)
    
    Does not include 8,311,639 shares of Class B Common
    Stock, each share of which is convertible into one share of
    Class A common stock. Mr. Paxson is the beneficial
    owner of all reported shares, other than 100 shares of
    Class A common stock, through his control of Second Crystal
    Diamond, Limited Partnership and Paxson Enterprises, Inc.(5)
    
    According to a Schedule 13G filed with the Commission on
    February 12, 2007 and dated as of December 31, 2006,
    the address of The Goldman Sachs Group, Inc. is 85 Broad Street,
    New York, New York 10004. 67




---



##### Table of Contents



(6)
    
    Includes, with respect to Mr. Brandon, 32,000 shares
    subject to vesting in equal annual installments of
    16,000 shares over a two year period commencing on
    October 2, 2006 and 46,555 shares which vest on
    January 1, 2008; with respect to Mr. Patrick,
    48,000 shares subject to vesting in equal annual
    installments of 16,000 shares over a three year period
    commencing March 17, 2007 and 46,555 shares which vest
    on January 1, 2008; with respect to Mr. Rajewski,
    64,000 shares subject to vesting in equal annual
    installments of 16,000 shares over a four year period
    commencing June 10, 2006 and 46,555 shares which vest
    on January 1, 2008; with respect to Ms. Salhany,
    14,612 shares which vest on June 23, 2007 and
    46,555 shares which vest on January 1, 2008; with
    respect to Mr. Smith, 20,000 shares which vest on
    April 14, 2007 and 46,555 shares which vest on
    January 1, 2008; and with respect to Mr. Roskin,
    14,612 shares which vest on June 23, 2007 and
    46,555 shares which vest on January 1, 2008. The
    holders possess voting power with respect to these shares. These
    shares will vest immediately upon the occurrence of certain
    events, including a change of control of our company.(7)
    
    Does not include (i) 8,000,000 restricted stock units, each
    representing the contingent right to receive one share of our
    Class A common stock, vesting in four equal
    installments 18, 24, 36 and 48 months after the
    November 7, 2005 grant date, subject to termination and
    acceleration of vesting under specified circumstances and to
    Mr. Burgesss continued employment with us; or
    (ii) 16,000,000 shares of our Class A common
    stock issuable upon the exercise of options that are not
    presently exercisable.(8)
    
    Includes shares which may be acquired within 60 days
    through the exercise of stock options granted under our Stock
    Incentive Plans as follows: Mr. Appel  10,000;
    Mr. Garcia  6,667;
    Mr. Weinstein  3,333; and
    Ms. Cordoba  2,667.(9)
    
    Includes the shares described in notes 6 and 8 above.      Number of SecuritiesRemaining Available forNumber of Securities


Weighted Average


Future Issuance Underto be Issued Upon


Exercise Price of


Equity Compensation PlansExercise of Outstanding


Outstanding Options


(Excluding SecuritiesOptions and Rights


and Rights


in First Column)Equity Compensation plans approved
    by security holders


25,571,414
(1)

$
0.56



27,714,443Equity Compensation plans not
    approved by security holders


22,500


$
7.25



0Total


25,593,914







27,714,443     (1)
    
    Includes an aggregate of 25,000,000 shares that may be
    issued in connection with the November 7, 2005 awards to
    Mr. Burgess and Mr. Goodman, consisting of 8,333,333
    restricted stock units, 333,333 of which have a purchase price
    of $.01 per share and 8,000,000 of which do not have a
    purchase price, and options to purchase 16,666,667 shares,
    8,333,334 of which have an exercise price of $0.42 per
    share and 8,333,333 of which have an exercise price of
    $1.25 per share.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Transactions
    with Related Persons
  Lowell W. Paxson.
 68




---



##### Table of Contents



Dean M. Goodman.
 69




---



##### Table of Contents



The Christian Network, Inc. not-for-profit
           70




---



##### Table of Contents



Stephen P. Appel.
  Item 14.
    Principal
    Accountant Fees and Services    Compensation
    of Independent Registered Certified Public Accountants
  Audit Fees. Form 10-Q Form 10-Q
  Audit-Related Fees. Form 10-Q
  Tax Fees.
  All Other Fees.
   71




---



##### Table of Contents



PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedules            ExhibitNumber



Description of Exhibits3
.1.1



Certificate of Incorporation of
    the Company (22)3
.1.6



Certificate of Designation of the
    Companys
    93/4%
    Series A Convertible Preferred Stock (4)3
.1.7



Certificate of Designation of the
    Companys
    141/4%
    Cumulative Junior Exchangeable Preferred Stock (4)3
.1.8



Second Amended and Restated
    Certificate of Designation of the Companys 11%
    Series B Convertible Exchangeable Preferred Stock, filed
    March 7, 2006 with the State of Delaware (20)3
.1.9



Certificate of Amendment to the
    Certificate of Incorporation of the Company (6)3
.2



Amended and Restated Bylaws of the
    Company (effective November 1, 2006) (25)4
.4



Amended and Restated Investment
    Agreement, dated as of November 7, 2005, by and between the
    Company and NBC Universal, Inc. (15)4
.4.1



Amended and Restated Stockholder
    Agreement, dated as of November 7, 2005, among the Company,
    NBC Universal, Inc., Lowell W. Paxson, Second Crystal Diamond
    Limited Partnership and Paxson Enterprises, Inc. (15)4
.4.2



Master Transaction Agreement,
    dated as of November 7, 2005, among the Company, NBC
    Universal, Inc., certain subsidiaries of NBC Universal, Inc.,
    the Paxson Stockholders and Paxson Management Corporation (15)4
.4.3



Form of Indenture with respect to
    the Companys 8% Exchange Debentures due 2009 (15)4
.4.4



Registration Rights Agreement,
    dated September 15, 1999, between the Company and National
    Broadcasting Company, Inc. (15)4
.4.5



Registration Rights Agreement
    Letter Amendment, dated November 7, 2005, between the
    Company and NBC Universal, Inc. (15)4
.6



Indenture, dated as of
    June 10, 1998, by and between the Company, the Guarantors
    named therein and the Bank of New York, as Trustee, with respect
    to the
    131/4%
    Exchange Debentures due 2006 (4)4
.7



Indenture, dated as of
    December 30, 2005, among the Company, the subsidiary
    guarantors named therein, and The Bank of New York Trust
    Company, NA, as Trustee, with respect to the Companys
    Floating Rate First Priority Senior Secured Notes due 2012 (17)4
.7.1



Supplemental Indenture, dated as
    of February 28, 2006, among the Company, the subsidiary
    guarantors named therein, and The Bank of New York Trust
    Company, NA, as Trustee, with respect to the Companys
    Floating Rate First Priority Senior Secured Notes due 2012 (21) 72




---



##### Table of Contents



ExhibitNumber



Description of Exhibits4
.8



Indenture, dated as of
    December 30, 2005, among the Company, the subsidiary
    guarantors named therein, and The Bank of New York Trust
    Company, NA, as Trustee, with respect to the Companys
    Floating Rate Second Priority Senior Secured Notes due 2013 (17)4
.8.1



Supplemental Indenture, dated as
    of February 28, 2006, among the Company, the subsidiary
    guarantors named therein, and The Bank of New York Trust
    Company, NA, as Trustee, with respect to the Companys
    Floating Rate Second Priority Senior Secured Notes due 2013 (21)4
.9



Term Loan Agreement, dated
    December 30, 2005, among the Company, the subsidiary
    guarantors named therein, the Lenders named therein, Citicorp
    North America, Inc., as administrative agent, Citigroup Global
    Markets Inc. and UBS Securities LLC, as joint lead arrangers,
    and Citigroup Global Markets Inc., UBS Securities LLC, Bear,
    Stearns & Co. Inc., Goldman Sachs Credit Partners L.P.,
    and CIBC World Markets Corp., as joint bookrunners (17)4
.9.1



First Amendment to Term Loan
    Agreement, dated as of February 28, 2006, among the
    Company, the subsidiary guarantors named therein, and Citicorp
    North America, Inc., as Administrative Agent (21)4
.10



Pledge and Security Agreement,
    dated as of December 30, 2005, among the Company, the
    subsidiary guarantors named therein, The Bank of New York Trust
    Company, NA, as collateral agent for the Secured Parties, as
    First Priority Trustee and as Second Priority Trustee, and
    Citicorp North America, Inc., as First Priority Administrative
    Agent (17)10
.27



Paxson Communications Corp. Profit
    Sharing Plan (1)10
.157



Paxson Communications Corporation
    1996 Stock Incentive Plan (2)10
.186



Option Agreement, dated
    November 14, 1997, by and between the Company and Flinn
    Broadcasting Corporation for Television station
    WCCL-TV, New
    Orleans, Louisiana (3)10
.187



Option Agreement, dated
    November 14, 1997, by and between the Company and Flinn
    Broadcasting Corporation for Television station
    WFBI-TV,
    Memphis, Tennessee (3)10
.208.4



Letter agreement setting forth
    terms of resignation of Lowell W. Paxson, dated November 7,
    2005 (15)10
.225



Employment Agreement, dated as of
    November 7, 2005, between Dean M. Goodman and the Company
    (15)10
.228



Paxson Communications Corporation
    1998 Stock Incentive Plan, as amended (6)10
.231



Amended and Restated Employment
    Agreement, by and between the Company and Richard Garcia,
    effective as of January 1, 2004 (8)10
.231.1



Amendment to Employment Agreement,
    dated February 9, 2005, between the Company and Richard
    Garcia (12)10
.231.2



Amendment to Employment Agreement,
    dated March 15, 2005, between the Company and Richard
    Garcia (11)10
.231.3



Amendment to Employment Agreement,
    dated January 23, 2006, between the Company and Richard
    Garcia (18)10
.232



Employment Agreement, dated as of
    January 1, 2004, as amended effective January 1, 2005,
    by and between the Company and Adam K. Weinstein (9)10
.232.1



Amendment to Employment Agreement,
    dated February 9, 2005, between the Company and Adam K.
    Weinstein (12)10
.233



Form of Indemnification Agreement
    by and between the Company and members of the Board of Directors
    of the Company (10)10
.234.1



Master Agreement for Overnight
    Programming, Use of Digital Capacity and Public Interest
    Programming, dated as of September 10, 1999, between the
    Company and The Christian Network, Inc. (14)10
.234.2



First Amendment to Master
    Agreement, dated as of June 13, 2005, between the Company
    and The Christian Network, Inc. (13)10
.234.3



Letter Agreement, dated
    June 13, 2005, between the Company and The Christian
    Network, Inc. (13)10
.235



Paxson Consulting and
    Noncompetition Agreement, dated as of November 7, 2005,
    among Lowell W. Paxson, the Company and NBC Universal, Inc. (15) 73




---



##### Table of Contents



ExhibitNumber



Description of Exhibits10
.236



Employment Agreement, dated as of
    November 7. 2005, between R. Brandon Burgess and the Company (15)10
.237



Settlement Agreement, dated
    November 7, 2005, between the Company and NBC Universal,
    Inc. (15)10
.238



PMC Management and Proxy
    Agreement, dated as of November 7, 2005, among the Company,
    Paxson Management Corporation and, for certain limited purposes,
    Lowell W. Paxson (15)10
.239



Purchase Agreement, dated
    December 19, 2005, among the Company, each of the
    Companys direct or indirect domestic subsidiaries parties
    thereto and Citigroup Global Markets Inc., UBS Securities LLC,
    Bear, Stearns & Co. Inc., CIBC World Markets Corp. and
    Goldman, Sachs & Co., as representatives of the initial
    purchasers (16)10
.240



Indenture, dated as of
    December 30, 2005, among the Company, the subsidiary
    guarantors named therein, and The Bank of New York Trust
    Company, NA, as Trustee, with respect to the Companys
    Floating Rate First Priority Senior Secured Notes due 2012
    (incorporated by reference to Exhibit 4.7)10
.241



Indenture, dated as of
    December 30, 2005, among the Company, the subsidiary
    guarantors named therein, and The Bank of New York Trust
    Company, NA, as Trustee, with respect to the Companys
    Floating Rate Second Priority Senior Secured Notes due 2013
    (incorporated by reference to Exhibit 4.8)10
.242



Term Loan Agreement, dated
    December 30, 2005, among the Company, the subsidiary
    guarantors named therein, the Lenders named therein, Citicorp
    North America, Inc., as administrative agent, Citigroup Global
    Markets Inc. and UBS Securities LLC, as joint lead arrangers,
    and Citigroup Global Markets Inc., UBS Securities LLC, Bear,
    Stearns & Co. Inc., Goldman Sachs Credit Partners L.P.,
    and CIBC World Markets Corp., as joint bookrunners (incorporated
    by reference to Exhibit 4.9)10
.243



Employment Agreement, dated as of
    January 1, 2004, by and between the Company and Stephen P.
    Appel (21)10
.243.1



Amendment to Employment Agreement,
    dated January 23, 2006, between the Company and Stephen P.
    Appel (21)10
.243.2



Employment Agreement, dated
    December 6, 2006, between the Company and Stephen P. Appel
    (26)10
.244



Company Stock Purchase Agreement,
    dated as of November 7, 2005, among Lowell W. Paxson,
    Second Crystal Diamond Limited Partnership, Paxson Enterprises,
    Inc. and the Company (15)10
.245



ISDA Master Agreement, dated as of
    February 22, 2006, among the Company, each of its
    subsidiaries listed in Annex A to the schedule thereto, and
    UBS AG, as supplemented and amended by the Schedule and the
    Confirmations thereto, each dated as of February 22, 2006
    (19)10
.246



ISDA Master Agreement, dated as of
    February 22, 2006, among the Company, each of its
    subsidiaries listed in Annex A to the schedule thereto, and
    Goldman Sachs Capital Markets, L.P., as supplemented and amended
    by the Schedule and the Confirmations thereto, each dated as of
    February 22, 2006 (19)10
.247



Separation Agreement and General
    Release, dated October 17, 2006, between the Company and
    Dean M. Goodman (24)10
.248



ION Media Networks, Inc. 2006
    Stock Incentive Plan (23)10
.249



Employment Agreement, dated as of
    January 1, 2004, as amended January 9, 2005 and
    April 5, 2005, by and between the Company and Emma Cordoba14
.1



Code of Ethics and Business
    Conduct (7)21




Subsidiaries of the Company23
.1



Consent of Rachlin
    Cohen & Holtz, LLP23
.2



Consent of Ernst & Young
    LLP31
.1



Certification by the Chief
    Executive Officer of ION Media Networks, Inc. pursuant to
    Rule 13a-14
    under the Securities Exchange Act of 1934, as amended31
.2



Certification by the Chief
    Financial Officer of ION Media Networks, Inc. pursuant to
    Rule 13a-14
    under the Securities Exchange Act of 1934, as amended 74




---



##### Table of Contents



ExhibitNumber



Description of Exhibits32
.1



Certification by the Chief
    Executive Officer of ION Media Networks, Inc. pursuant to
    18 U.S.C. Section 1350 as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200232
.2



Certification by the Chief
    Financial Officer of ION Media Networks, Inc. pursuant to
    18 U.S.C. Section 1350 as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     (1)
    
    Filed with the Companys Registration Statement on
    Form S-4,
    filed September 26, 1994, Registration
    No. 33-84416,
    and incorporated herein by reference.(2)
    
    Filed with the Companys Registration Statement on
    Form S-8,
    filed January 22, 1997, Registration
    No. 333-20163,
    and incorporated herein by reference.(3)
    
    Filed with the Companys Annual Report on
    Form 10-K,
    dated December 31, 1997 (Commission File
    No. 1-13452),
    and incorporated herein by reference.(4)
    
    Filed with the Companys Registration Statement on
    Form S-4,
    as amended, filed July 23, 1998, Registration
    No. 333-59641,
    and incorporated herein by reference.(5)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    September 24, 1999 (Commission File
    No. 1-13452),
    and incorporated herein by reference.(6)
    
    Filed with the Companys Quarterly Report on
    Form 10-Q,
    dated March 31, 2003, and incorporated herein by reference.(7)
    
    Filed with the Companys Annual Report on
    Form 10-K,
    dated December 31, 2003, and incorporated herein by
    reference.(8)
    
    Filed with the Companys Quarterly Report on
    Form 10-Q,
    dated June 30, 2004, and incorporated herein by reference.(9)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    January 7, 2005, and incorporated herein by reference.(10)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    February 28, 2005, and incorporated herein by reference.(11)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    March 18, 2005, and incorporated herein by reference.(12)
    
    Filed with the Companys Annual Report on
    Form 10-K,
    dated December 31, 2004, and incorporated herein by
    reference.(13)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    June 17, 2005, and incorporated herein by reference.(14)
    
    Filed with the Companys Quarterly Report on
    Form 10-Q,
    dated June 30, 2005, and incorporated herein by reference.(15)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    November 7, 2005, and incorporated herein by reference.(16)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    December 21, 2005, and incorporated herein by reference.(17)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    January 6, 2006, and incorporated herein by reference.(18)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    January 23, 2006, and incorporated herein by reference.(19)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    February 28, 2006, and incorporated herein by reference.(20)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    March 16, 2006, and incorporated herein by reference. 75




---



##### Table of Contents



(21)
    
    Filed with the Companys Annual Report on
    Form 10-K,
    dated December 31, 2005, and incorporated herein by
    reference.(22)
    
    Filed with the Companys Quarterly Report on
    Form 10-Q,
    dated June 30, 2006, and incorporated herein by reference.(23)
    
    Filed with the Companys Registration Statement on
    Form S-8,
    filed on August 18, 2006, Registration
    No. 333-136717,
    and incorporated herein by reference.(24)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    October 23, 2006, and incorporated herein by reference.
    Certain confidential information contained in the document has
    been omitted and filed separately with the Securities and
    Exchange Commission pursuant to
    Rule 24b-2
    of the Securities Exchange Act of 1934, as amended.(25)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    November 7, 2006, and incorporated herein by reference.(26)
    
    Filed with the Companys
    Form 8-K,
    filed with the Securities and Exchange Commission on
    December 11, 2006, and incorporated herein by reference.   76




---



##### Table of Contents



SIGNATURES
      By:
    /s/  R.
    BRANDON BURGESS          Signatures

Title

Date/s/  R.
    BRANDON
    BURGESSR.
    Brandon Burgess

Chief Executive Officer, President
    and Director (Principal Executive Officer)

March 30, 2007/s/  W.
    LAWRENCE
    PATRICKW.
    Lawrence Patrick

Chairman of the Board of Directors

March 30, 2007/s/  RICHARD
    GARCIARichard
    Garcia

Senior Vice President and
    Chief Financial Officer
    (Principal Financial Officer)

March 30, 2007/s/  CURTIS
    L. BRANDONCurtis
    L. Brandon

Vice President 
    Controller
    (Principal Accounting Officer)

March 30, 2007/s/  HENRY
    J.
    BRANDON, IIIHenry
    J. Brandon, III

Director

March 30, 2007/s/  RAYMOND
    S. RAJEWSKIRaymond
    S. Rajewski

Director

March 30, 2007/s/  FREDERICK
    M. R. SMITHFrederick
    M. R. Smith

Director

March 30, 2007/s/  WILLIAM
    A. ROSKINWilliam
    A. Roskin

Director

March 30, 2007/s/  LUCILLE
    S. SALHANYLucille
    S. Salhany

Director

March 30, 2007  77




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND
 FINANCIAL
    STATEMENT SCHEDULE
  PageReport of
    Independent Registered Public Accounting Firm


79Report of
    Independent Registered Public Accounting Firm


80Consolidated
    Balance Sheets


81Consolidated
    Statements of Operations


82Consolidated
    Statements of Stockholders Deficit


83Consolidated
    Statements of Cash Flows


84Notes to
    Consolidated Financial Statements


85Financial Statement
    Schedule  Valuation and Qualifying Accounts


120  78




---



##### Table of Contents



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             RACHLIN COHEN & HOLTZ LLP
    79




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           
     80




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands exceptshare data)ASSETSCurrent assets:Cash and cash equivalents

$
58,601


$
90,893Accounts receivable, net of
    allowance for doubtful accounts of $271 and $397, respectively


13,533



17,510Program rights


3,573



18,630Amounts due from Crown Media






1,655Prepaid expenses and other current
    assets


5,159



3,685Total current assets


80,866



132,373Property and equipment, net


76,768



93,080Intangible assets:FCC license intangible assets


844,150



845,592Other intangible assets, net


24,944



36,099Program rights, net of current
    portion






7,486Other assets, net


30,259



31,626Total assets

$
1,056,987


$
1,146,256LIABILITIES, MANDATORILY
    REDEEMABLE AND CONVERTIBLE PREFERRED STOCK, CONTINGENT COMMON
    STOCK AND STOCK OPTION PURCHASE OBLIGATIONS AND
    STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued
    liabilities

$
27,201


$
50,353Accrued interest


24,604



6,321Current portion of accrued
    restructuring charges


869



14,807Obligations for program rights


3,991



3,398Mandatorily redeemable preferred
    stock


620,020



540,916Deferred revenue


10,274



10,616Current portion of notes payable


75



70Total current liabilities


687,034



626,481Accrued restructuring charges, net
    of current portion






7,240Deferred revenue, net of current
    portion


9,832



12,231Deferred income taxes


196,843



177,200Term loans and notes payable, net
    of current portion


1,123,272



1,122,213Other long-term liabilities


22,561



15,055Total liabilities


2,039,542



1,960,420Mandatorily redeemable and
    convertible preferred stock


860,406



777,521Contingent Class B common
    stock and stock option purchase obligations


6,910



2,410Commitments and contingencies (See
    Notes to Consolidated Financial Statements)Stockholders deficit:Class A common stock,
    $0.001 par value; one vote per share; 505,000,000 and
    215,000,000 shares authorized, 65,040,728 and
    64,910,506 shares issued and outstanding


65



65Class B common stock,
    $0.001 par value; ten votes per share;
    35,000,000 shares authorized and 8,311,639 shares
    issued and outstanding


8



8Class C non-voting common
    stock, $0.001 par value, 317,000,000 and
    77,500,000 shares authorized, no shares issued and
    outstanding






Additional paid-in capital


612,276



617,873Deferred stock-based compensation






(11,486
)Accumulated deficit


(2,457,184
)


(2,200,555
)Accumulated other comprehensive loss


(5,036
)


Total stockholders deficit


(1,849,871
)


(1,594,095
)Total liabilities, mandatorily
    redeemable and convertible preferred stock, contingent common
    stock and stock option purchase obligations and
    stockholders deficit

$
1,056,987


$
1,146,256    81




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2006


2005


2004(In thousands except share and per share data)NET REVENUES (net of agency
    commissions)

$
228,896


$
254,176


$
276,630EXPENSES:Programming and broadcast
    operations (excluding depreciation and amortization shown
    separately below and including stock-based compensation of $119,
    $1,029 and $1,012, respectively)


53,725



56,899



57,484Program rights amortization
    (including adjustments of programming assets to net realizable
    value of $3,170, $- and $4,645, respectively)


32,083



61,091



58,261Selling, general and
    administrative (excluding depreciation and amortization shown
    separately below and including stock-based compensation of
    $10,270, $8,559 and $7,489, respectively)


70,254



98,144



130,015Depreciation and amortization


36,332



38,793



43,664Insurance recoveries






(15,652
)


Time brokerage fees


4,580



4,580



4,466Restructuring (credits) charges,
    including stock-based compensation of $1,120 in 2005


(7,032
)


30,906



(5
)Total operating expenses


189,942



274,761



293,885(Loss) gain on sale or disposal of
    broadcast and other assets, net


(1,694
)


(1,565
)


4,836Operating income (loss)


37,260



(22,150
)


(12,419
)OTHER INCOME (EXPENSE):Interest expense


(112,755
)


(110,716
)


(94,192
)Dividends on mandatorily
    redeemable preferred stock


(79,104
)


(69,561
)


(60,616
)Loss on extinguishment of debt






(54,127
)


(6,286
)Equity in loss of unconsolidated
    investment


(1,774
)






Interest income


3,086



2,761



2,811Other (expense) income, net


(1,010
)


3,627



1,481Loss before income taxes


(154,297
)


(250,166
)


(169,221
)Income tax (provision) benefit


(19,422
)


14,657



(18,751
)Net loss before minority interest


(173,719
)


(235,509
)


(187,972
)Minority interest


(25
)


(161
)


Net loss


(173,744
)


(235,670
)


(187,972
)Dividends and accretion on
    redeemable and convertible preferred stock


(82,885
)


(39,361
)


(57,763
)Net loss attributable to common
    stockholders

$
(256,629
)

$
(275,031
)

$
(245,735
)Basic and diluted loss per common
    share

$
(3.53
)

$
(3.94
)

$
(3.61
)Weighted average shares outstanding


72,772,037



69,747,411



68,139,205    82




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS DEFICIT
  CommonStock





Deferred





AccumulatedWarrants


Additional


Stock-





Other


TotalCommon Stock


and Call


Paid-In


Based


Accumulated


Comprehensive


Stockholders


ComprehensiveClass A


Class B


Option


Capital


Compensation


Deficit


Loss


Deficit


Loss(In thousands)Balance at January 1, 2004

$
63


$
8


$
66,663


$
540,377


$
(17,167
)

$
(1,679,789
)

$



$
(1,089,845
)Net loss






















(187,972
)






(187,972
)Deferred stock option compensation














1,756



(1,756
)










Stock-based compensation


















8,236











8,236Stock options exercised


1











2















3Restricted stock exchanged for
    options


(3
)










3















Dividends and accretion on
    redeemable and convertible preferred stock






















(57,763
)






(57,763
)Balance at December 31, 2004


61



8



66,663



542,138



(10,687
)


(1,925,524
)






(1,327,341
)Net loss






















(235,670
)






(235,670
)Deferred stock option compensation














11,465



(11,465
)










Stock-based compensation


















10,666











10,666Stock options exercised for
    unvested shares


2











(11
)














(9
)Stock options exercised


2











28















30Cancellation of common stock
    warrants










(66,663
)


66,663















Contingent common stock purchase
    obligation














(2,410
)














(2,410
)Dividends and accretion on
    redeemable and convertible preferred stock






















(39,361
)






(39,361
)Balance at December 31, 2005


65



8







617,873



(11,486
)


(2,200,555
)






(1,594,095
)Stock-based compensation














10,389















10,389Adoption of SFAS No. 123R














(11,486
)


11,486











Net loss






















(173,744
)






(173,744
)

$
(173,744
)Unrealized loss on interest rate
    swap


























(5,036
)


(5,036
)


(5,036
)Dividends and accretion on
    redeemable

































$
(178,780
)and convertible preferred stock






















(82,885
)






(82,885
)Contingent stock option purchase
    obligation














(4,500
)














(4,500
)Balance at December 31, 2006

$
65


$
8


$



$
612,276


$



$
(2,457,184
)

$
(5,036
)

$
(1,849,871
)    83




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Years Ended December 31,2006


2005


2004(In thousands)Cash flows from operating
    activities:Net loss

$
(173,744
)

$
(235,670
)

$
(187,972
)Adjustments to reconcile net loss
    to net cash (used in) provided by operating activities:Depreciation and amortization


36,332



38,793



43,664Stock-based compensation


10,389



9,588



8,501Loss on extinguishment of debt






54,127



6,286Non-cash restructuring charges


723



1,823



(5
)Program rights amortization


32,083



61,091



58,261Payments for cable distribution
    rights






(368
)


(123
)Non-cash barter revenue


(98
)


54



(129
)Program rights payments and deposits


(8,892
)


(45,568
)


(67,682
)Obligations to CBS


(7,418
)


(18,389
)


(18,861
)Provision for doubtful accounts


(26
)


(27
)


155Deferred income tax (benefit)
    provision


19,643



(17,506
)


19,425Reserve on stock subscription notes
    receivable










(407
)Loss (gain) on sale or disposal of
    broadcast and other assets, net


1,694



1,565



(4,836
)Equity in loss of unconsolidated
    investment


1,774







Dividends and accretion on
    141/4%
    mandatorily redeemable preferred stock


79,104



69,561



60,616Amortization of debt discount


1,139



55,227



49,172Gain on modification of program
    rights obligations






(864
)


(1,481
)(Increase) decrease in operating
    assets:Accounts receivable


4,092



7,445



(1,834
)Amounts due from Crown Media


1,655



9,885



13,883Prepaid expenses and other current
    assets


(1,474
)


(640
)


975Other assets


3,993



3,789



6,514Increase (decrease) in operating
    liabilities:Accounts payable and accrued
    liabilities


(7,667
)


(5,535
)


4,963Accrued restructuring charges


(21,901
)


21,344



Deferred revenue


(2,741
)


3,074



Accrued interest


18,283



(9,752
)


1,198Net cash (used in) provided by
    operating activities


(13,057
)


3,047



(9,717
)Cash flows from investing
    activities:Decrease in short-term investments






5,993



6,955Refund of (deposits for)
    programming letters of credit






24,603



(24,603
)Purchases of property and equipment


(13,089
)


(15,336
)


(15,845
)Additions to intangible assets


(2,802
)


(4,122
)


Investment in joint venture


(2,400
)






Proceeds from sale of broadcast
    assets










9,988Proceeds from sale of property and
    equipment


622



70



28Other






(2,410
)


(170
)Net cash (used in) provided by
    investing activities


(17,669
)


8,798



(23,647
)Cash flows from financing
    activities:Borrowings of long-term debt






1,121,900



365,000Proceeds from the issuance of
    preferred stock






2,500



Repayments of long-term debt


(74
)


(1,102,988
)


(335,687
)Payments of loan origination costs


(1,500
)


(19,327
)


(11,441
)Payments of employee withholding
    taxes on exercises of stock options, net






(8
)


Expenses related to preferred stock
    restructuring






(5,085
)


Proceeds from exercise of common
    stock options, net


8



9



3Repayment of stock subscription
    notes receivable










413Net cash (used in) provided by
    financing activities


(1,566
)


(2,999
)


18,288(Decrease) increase in cash and
    cash equivalents


(32,292
)


8,846



(15,076
)Cash and cash equivalents,
    beginning of year


90,893



82,047



97,123Cash and cash equivalents, end of
    year

$
58,601


$
90,893


$
82,047    84




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    NATURE OF
    THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES          1 4 3 4
 85




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Cash and
    Cash Equivalents
    Accounts
    Receivable
    Property
    and Equipment
    Broadcasting towers and equipment


4-30 yearsOffice furniture and equipment


5-10 yearsBuildings and leasehold
    improvements


7-40 yearsVehicles and other


5 years     Indefinite-lived
    intangible Assets
   86




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Program
    Rights
        Cable and
    Satellite Distribution Rights
     87




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Long-Lived
    Assets
        Derivative
    Financial Instruments
    Revenue
    Recognition
   88




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Advertising
    Costs
    Concentrations
    of Credit Risk
    Time
    Brokerage Agreements
    Stock-Based
    Compensation
      2005


2004Net loss attributable to common
    stockholders

$
(275,031
)

$
(245,735
)Add: Stock-based compensation
    expense determined under the intrinsic value method and included
    in reported net loss


10,708



8,501Deduct: Total stock-based
    compensation expense determined under the fair value method


(11,265
)


(8,632
)Pro forma net loss attributable to
    common stockholders


(275,588
)

$
(245,866
)Basic and diluted net loss per
    share:As reported

$
(3.94
)

$
(3.61
)Pro forma

$
(3.95
)

$
(3.61
)  89




---



##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005

2004Risk-free rate of return

3.6% to 4.1%

2.6% to 3.9%Expected volatility

74% to 94%

72% to 74%Expected lives

1 day, 1.5 years and
    5 years (see Note 12)

1 day     Income
    and Other Taxes
        Per Share
    Data
      2006


2005


2004Stock options


17,927



18,565



5,859Class A common stock
    warrants, restricted Class A common stock outstanding and
    Restricted Stock Units (see note 12)


10,100



9,859



32,321Class A common stock reserved
    for issuance under convertible securities


313,469



312,742



40,712341,496



341,166



78,892     Comprehensive
    Loss
   90




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Use of
    Estimates
    New
    Accounting Pronouncements
           91




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            2.
    NBCU
    TRANSACTIONS   92




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       
    NBCU and the Company amended the terms of NBCUs investment
    in the Company, including the terms of the Series B
    preferred stock NBCU holds;
    Mr. Paxson granted NBCU the right to purchase all shares of
    the Companys common stock held by him and his affiliates
    and resigned as a director and officer of the Company;
    NBCU agreed that it or its transferee of the right to purchase
    Mr. Paxsons shares will make a tender offer for all
    outstanding shares of Class A common stock of the Company
    if it exercises or transfers its right to purchase
    Mr. Paxsons shares or transfers a control block of
    its Series B preferred stock;
    NBCU agreed to return a portion of its Series B preferred
    stock to the Company if its right to purchase
    Mr. Paxsons shares is not exercised, which either
    NBCU or the Company will distribute to the holders of the
    Companys Class A common stock other than
    Mr. Paxson;
    The Company agreed to purchase all of its common stock held by
    Mr. Paxson in the event NBCUs right to purchase
    expires unexercised or fails to close within a prescribed time
    frame;
    The Company issued $188.6 million of additional preferred
    stock to NBCU in full satisfaction of its obligations for
    accrued and unpaid dividends on its preferred stock held by NBCU
    through September 30, 2005 (which aggregated
    $288.6 million as of that date); and
    NBCU and the Company settled all pending litigation and
    arbitration proceedings between them.   93




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            94




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    NBCU or a permitted transferee of the Call Right or NBCUs
    Series B preferred stock is required to conduct an offer
    (the Tender Offer) to purchase all outstanding
    shares of the Companys Class A common stock (other
    than shares held by the Paxson Stockholders and shares issued
    after the effective date of the agreement that were not issued
    pursuant to pre-existing contractual obligations) at a price of
    $1.25 per share, increasing at an annual rate of 10% from
    October 1, 2005 through the date of the commencement of the
    Tender Offer, concurrently with the earliest to occur of:
    The effectiveness of a transfer of the Call Right by NBCUS
    affiliate to a permitted transferee;
    The exercise of the Call Right; and
    The transfer by NBCUs affiliate of a number of shares of
    Series B preferred stock that, on an as-converted basis,
    together with any shares of Series B preferred stock
    previously transferred by the NBCU affiliate, represents in
    excess of 50% of the total voting power of the outstanding
    voting stock of the Company.
    If the Tender Offer does not occur, NBCU will deliver to the
    Company shares of the Series B preferred stock with an
    aggregate liquidation preference plus accrued and unpaid
    dividends equal to $105 million plus 10% per annum
    from October 1, 2005, and the Company will distribute to
    all holders of its Class A common stock, other than the
    Paxson Stockholders and certain other holders of shares issued
    after the effective date of the agreement, on a pro rata basis,
    shares of Series B preferred stock (or another series of
    preferred stock hereafter created with substantially identical
    economic rights) with an aggregate liquidation preference equal
    to the amount of the preferred stock surrendered by NBCU. If
    NBCU becomes obligated to deliver shares of Series B
    preferred stock to the Company for this purpose, and the
    distribution of such shares to the holders of Class A
    common stock would violate any of the Companys existing
    debt instruments, NBCU is obligated to (i) amend the terms
    of the Series B preferred stock so that it is not
    exchangeable for convertible debentures prior to April 18,
    2010 and to amend the terms of the convertible debentures and
    the indenture under which they may be issued to provide that the
    maturity date of the convertible debentures will not be prior to
    April 19, 2010, or (ii) deliver the shares of
    Series B preferred stock to the transfer agent for the
    Companys common stock with instructions to distribute such
    shares directly to the holders of the Class A common stock
    as described above.
    The Company shall grant stock-based compensation awards with
    respect to 24 million shares of Class A common stock
    to selected members of the Companys management within
    18 months after the effective date of the agreement.    3.
    CERTAIN
    TRANSACTIONS WITH RELATED AND OTHER PARTIES    Lowell W.
    Paxson
   95




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        The
    Christian Network, Inc.
  not-for-profit
 96




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   CNI Tax Indemnification Agreement.
  Network Operations Center.
  CNI Master Agreement.
       97




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Officer
    Loans
    4.
    TERM
    LOANS AND NOTES PAYABLE    2006


2005Term Loans due 2012, interest at
    LIBOR (5.36% at December 31, 2006) plus 3.25%

$
325,000


$
325,000Floating Rate First Priority
    Senior Secured Notes due 2012, interest at LIBOR (5.36% at
    December 31, 2006) plus 3.25%


400,000



400,000Floating Rate Second Priority
    Senior Secured Notes due 2013, interest at LIBOR (5.36% at
    December 31, 2006) plus 6.25%


405,000



405,000Other


302



3761,130,302



1,130,376Less: discount on Floating Rate
    Second Priority Senior Secured Notes


(6,955
)


(8,093
)Less: current portion


(75
)


(70
)$
1,123,272


$
1,122,213     1 4 3 4
 98




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Twelve Month Period Beginning July 15,2007


102.0
%2008


101.0
%2009 and thereafter


100.0
%    99




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Twelve Month Period Beginning January 15,2008


102.0
%2009


101.0
%2010 and thereafter


100.0
%           2007

$
752008


862009


952010


462011


Thereafter


1,130,000$
1,130,302    100




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    MANDATORILY
    REDEEMABLE PREFERRED STOCK    93/4%


11% Series BConvertible


ConvertiblePreferred


ExchangeableStock


Preferred Stock


TotalMandatorily redeemable and
    convertible preferred stock:Balance at January 1, 2004

$
126,584


$
557,483


$
684,067Accretion


503







503Accrual of cumulative dividends


12,955



43,220



56,175Balance at December 31, 2004


140,042



600,703



740,745Accretion


506







506Issuance of additional preferred
    stock






2,500



2,500Accrual of cumulative dividends


14,264



19,506



33,770Balance at December 31, 2005


154,812



622,709



777,521Accretion


510







510Accrual of cumulative dividends


15,707



66,668



82,375Balance and aggregated liquidation
    preference, including accumulated dividends at December 31,
    2006

$
171,029


$
689,377


$
860,406   141/4%
    JuniorExchangeablePreferredStockMandatorily redeemable
    preferred stock:Balance at January 1, 2004

$
410,739Accrual of cumulative dividends


60,616Balance at December 31, 2004


471,355Accrual of cumulative dividends


69,561Balance at December 31, 2005


540,916Accrual of cumulative dividends


79,104Balance and aggregated liquidation
    preference, including accumulated dividends at December 31,
    2006

$
620,020   1 4 3 4
  1 4
 101




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3 4
  141/4%
    Junior Exchangeable Preferred Stock
  1 4 1 4
    93/4% Convertible
    Preferred Stock
    3 4
   102




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11%
    Series B Convertible Preferred Stock
          Series B ConvertiblePreferred StockAt December 31,

11%2007

$
756,0442008


822,7122009


889,3792010


956,0472011

$
1,022,715   6.
    DERIVATIVE
    FINANCIAL INSTRUMENTS   103




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      7.
    PROPERTY
    AND EQUIPMENT:    2006


2005Broadcasting towers and equipment

$
238,169


$
244,572Office furniture and equipment


16,881



16,565Buildings and leasehold
    improvements


26,009



22,094Land and improvements


1,250



1,232Aircraft, vehicles and other


1,959



4,123284,268



288,586Accumulated depreciation and
    amortization


(207,500
)


(195,506
)Property and equipment, net

$
76,768


$
93,080      104




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      8.
    INTANGIBLE
    ASSETS    2006


2005Gross





GrossCarrying


Accumulated


Carrying


AccumulatedAmount


Amortization


Amount


AmortizationAmortizable intangible assets:Cable and satellite distribution
    rights

$
127,740


$
(107,342
)

$
127,740


$
(97,576
)Other


10,713



(6,167
)


10,713



(4,778
)Indefinite lived intangible asset:FCC licenses


844,150







845,592



$
982,603


$
(113,509
)

$
984,045


$
(102,354
)       2007

$
10,8892008


8,3902009


1,7592010


1,4492011

$
1,426   9.
    PROGRAM
    RIGHTS    2006


2005Program rights

$
159,943


$
154,427Accumulated amortization


(156,370
)


(128,311
)3,573



26,116Less: current portion


(3,573
)


(18,630
)Program rights, net

$



$
7,486  105




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Obligations for


ProgramProgram


RightsRights


Commitments


Total$
3,991


$
8,533


$
12,524     Touched By An Angel (Touched 2002/2003
    10.
    RESTRUCTURING    
    Terminated its joint sales agreements (JSAs) other
    than those with NBCU, effective June 30, 2005;
    exercised its right to terminate all of its network affiliation
    agreements, effective June 30, 2005;
    suspended, by mutual agreement, its network and national sales
    agency agreements with NBCU and each of its JSAs with
    NBCU; and
    reduced personnel by 68 employees.  non-network
 106




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        AmountsBalance


Charged to








BalanceDecember 31,


Costs and





Cash


December 31,2005


Expenses


Accretion


Payments


2006Contractual obligations and other
    costs

$
21,707


$
(7,037
)

$
723


$
(14,529
)

$
864Employee termination costs


340



5







(340
)


5$
22,047


$
(7,032
)

$
723


$
(14,869
)

$
869   AmountsBalance


Charged to








BalanceDecember 31,


Costs and





Cash


December 31,2004


Expenses


Accretion


Payments


2005Contractual obligations and other
    costs

$
2


$
26,351


$
703


$
(5,349
)

$
21,707Employee termination costs






3,435







(3,095
)


340$
2



29,786


$
703


$
(8,444
)


22,047Stock-based compensation expense






1,120$
30,906Less: current portion


















(14,807
)Long term portion

















$
7,240  107




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    INCOME
    TAXES    2006


2005


2004Current:Federal

$



$



$
542State


221



(2,849
)


132221



(2,849
)


674Deferred:Federal


21,300



59,546



35,080State


3,346



8,887



9,020Change in valuation allowance


(44,289
)


(50,927
)


(63,525
)(19,643
)


17,506



(19,425
)Total (provision) benefit for
    income taxes

$
(19,422
)

$
14,657


$
(18,751
)     2006


2005Deferred tax assets:Net operating loss carryforwards

$
492,238


$
451,620Programming


3,392



1,163Deferred compensation


31,464



27,329Deferred interest expense


4,412



Other


4,730



12,330536,236



492,442Deferred tax asset valuation
    allowance


(531,259
)


(484,989
)Deferred tax assets, net of
    valuation allowance


4,977



7,453Deferred tax liabilities:Basis difference on FCC licenses
    not amortized for financial reporting purposes


(196,843
)


(177,200
)Basis difference on other fixed
    assets and certain other intangible assets


(4,977
)


(7,453
)Net deferred tax liability

$
(196,843
)

$
(177,200
)  108




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Tax benefit at U.S. federal
    statutory tax rate

$
26,327


$
63,268


$
38,199State income tax benefit, net of
    federal tax


3,264



7,683



4,344Effect of increase in state tax
    rate on net deferred liabilities


(406
)


1,604



4,864State taxes resulting from
    Section 1031 settlement






(2,782
)


Disqualified original issue
    discount


(1,239
)


(3,202
)


(2,832
)Non-deductible items


(3,637
)


(263
)


(264
)Valuation allowance


(44,289
)


(50,927
)


(63,525
)Other


558



(724
)


463(Provision) benefit for income
    taxes

$
(19,422
)

$
14,657


$
(18,751
)          109




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              12.
    STOCK
    INCENTIVE PLANS     110




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Vesting of stock options

$
5,524Vesting of Restricted Stock Units


4,446Vesting of restricted Class A
    common stock


419$
10,389       Stock
    Options
     111




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Non-Qualified OptionsOptions Granted Under Stock Incentive Plans


Granted Outside of Stock Incentive PlansWeighted





WeightedAverage





AverageNumber of


Exercise


Number of


ExerciseOptions


Price


Options


PriceOutstanding, January 1, 2006


18,042,174


$
0.89



522,500


$
3.04Granted














Cancelled


(797,677
)


2.32



(500,000
)


2.85Exercised


(6,416
)


0.01







Outstanding, December 31, 2006


17,238,081



0.83



22,500



7.25Weighted average fair value of
    options granted during the year





$







$
     WeightedNumber


Average


IntrinsicOutstanding


Remaining


ValueDecember 31,


Contractual


December 31,Exercise Prices

2006


Life


2006(In thousands)$0.01


515,914



2.4$0.42


333,334



5.9$1.25


333,333



5.9$2.11


2,500



0.3$3.42


18,000



0.4$7.25


22,500



5.0$7.25


35,000



1.4Total


1,260,581






$
279     Restricted
    Stock Units
   112




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Restricted
    Common Stock
      13.
    COMMON
    STOCK AND COMMON STOCK WARRANTS      14.
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS   113




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash and cash equivalents, accounts receivable, accounts
    payable and accrued expenses.
  Term loans and notes payable.
  Term Loans

$
329,469First Priority Notes


409,000Second Priority Notes


425,250$
1,163,719   Mandatorily redeemable securities.
  2006


2005141/4%
    Junior Exchangeable Preferred

$
466,301


$
470,59793/4% Convertible
    Preferred


74,193



108,36911% Series B Convertible
    Preferred


689,377



622,709$
1,229,871


$
1,201,675   15.
    COMMITMENTS
    AND CONTINGENCIES  Leases
    2007

$
18,5672008


16,5622009


13,5892010


13,2822011


11,573Thereafter


83,312$
156,885    114




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Employment
    Agreements
    Investment
    Commitments
    Routine
    Litigation
   115




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   16.
    SUPPLEMENTAL
    CASH FLOW INFORMATION    For the Years Ending December 31,2006


2005


2004Supplemental disclosures of cash
    flow information:Cash paid for interest

$
88,928


$
58,087


$
36,906Cash paid for income taxes

$
2,731


$
297


$
250Non-cash investing and financing
    activities:Dividends accrued on redeemable
    and convertible preferred stock

$
82,375


$
33,770


$
56,175Discount accretion on redeemable
    and convertible securities

$
510


$
506


$
503Reduction of stock subscription
    notes receivable through offset of deferred and other
    compensation

$



$



$
37   17.
    INVESTMENT
    IN JOINT VENTURE  start-up
      18.
    QUARTERLY
    RESULTS OF OPERATIONS (UNAUDITED):   116




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the 2006 Quarters EndedDecember 31(4)


September 30(3)


June 30(2)


March 31(In thousands except share and per share data)NET REVENUES

$
60,897


$
53,338


$
53,945


$
60,716Expenses, excluding depreciation
    and amortization


34,705



40,697



36,204



42,004Depreciation and amortization


9,522



9,071



8,705



9,034Total expenses


44,227



49,768



44,909



51,038Gain (loss) on sale or disposal of
    property and equipment, net


2



(1,615
)


(2
)


(79
)Operating income

$
16,672


$
1,955


$
9,034


$
9,599Net loss attributable to common
    stockholders

$
(58,505
)

$
(72,731
)

$
(64,426
)

$
(60,967
)Basic and diluted loss per common
    share

$
(0.80
)

$
(1.00
)

$
(0.89
)

$
(0.84
)Weighted average common shares
    outstanding


72,916,850



72,738,269



72,726,137



72,704,936Stock price(1)High

$
0.83


$
1.00


$
0.94


$
0.98Low

$
0.40


$
0.78


$
0.83


$
0.87     (1)
    
    The Companys Class A common stock is listed on the
    American Stock Exchange under the symbol ION.(2)
    
    In the second quarter of 2006, a contract that no longer
    provides any economic benefit to the Company as a result of the
    2005 restructuring (see Note 10) was amended, reducing
    the estimated amount due under the contract by approximately
    $7.2 million. As a result, the Company reduced its
    restructuring accrual by this amount and recorded a
    corresponding credit to restructuring charges in its statement
    of operations. The second quarter of 2006 also includes expenses
    of $6.6 million to write down to net realizable value and
    reduce the amortizable lives of certain programming.(3)
    
    In the third quarter of 2006, the Company recorded additional
    expenses of $1.6 million to reduce the amortizable lives of
    certain programming, and a charge of approximately
    $1.3 million related to the obsolescence and disposal of
    some of its property and equipment.(4)
    
    In the fourth quarter of 2006, the Company recorded a
    $2.1 million reduction in music license fees resulting from
    a retroactive revision to the fee structure employed by a music
    license organization.  117




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  For the 2005 Quarters EndedDecember 31(5)


September 30(4)


June 30(3)


March 31(2)(In thousands except share and per share data)NET REVENUES

$
63,241


$
59,355


$
63,270


$
68,310Expenses, excluding depreciation
    and amortization


52,858



69,753



46,863



66,494Depreciation and amortization


10,749



8,973



10,119



8,952Total expenses


63,607



78,726



56,982



75,446Loss on sale or disposal of
    broadcast and other assets, net


(965
)


(33
)


(510
)


(57
)Operating (loss) income

$
(1,331
)

$
(19,404
)

$
5,778


$
(7,193
)Net loss attributable to common
    stockholders

$
(32,200
)

$
(105,204
)

$
(41,750
)

$
(95,877
)Basic and diluted loss per common
    share

$
(0.45
)

$
(1.51
)

$
(0.60
)

$
(1.40
)Weighted average common shares
    outstanding


71,499,612



69,485,376



69,243,242



68,684,198Stock price(1)High

$
1.15


$
0.65


$
1.56


$
2.15Low

$
0.37


$
0.42


$
0.53


$
0.48     (1)
    
    The Companys Class A common stock is listed on the
    American Stock Exchange under the symbol ION.(2)
    
    In the first quarter of 2005, the Company recorded
    $14.8 million of dividends pertaining to the period
    September 15, 2004 through December 31, 2004 in
    connection with an April 29, 2005 court ruling that the
    dividend rate on the Companys Series B preferred
    stock be increased from 16.2% to 28.3% effective
    September 15, 2004 (see Notes 2 and 5).(3)
    
    In the second quarter of 2005, the Company settled an insurance
    claim and received cash of $16.8 million, which was
    recorded as a reduction in operating expenses (see Note 5).
    In addition, the Company reached a tentative settlement with the
    IRS regarding the disposition of its radio division in 1997 and
    its acquisition of television stations during the period
    following this disposition in a manner that the Company believed
    would qualify these transactions as a like kind
    exchange under Section 1031 of the Internal Revenue Code.
    As a result of the tentative settlement, the Company recorded an
    income tax benefit of $34.4 million (see Note 11).
    Also in the second quarter of 2005, the Company recorded
    additional depreciation expense of approximately
    $1.2 million due to the shortened amortizable lives of
    certain leasehold improvements at JSA locations in connection
    with the termination of the related JSA agreements (see
    Note 10).(4)
    
    In the third quarter of 2005, the Company recorded a
    restructuring charge of $24.3 million, which consisted
    primarily of the recognition of a liability for costs that will
    continue to be incurred under the remaining term of a contract
    that no longer provides any economic benefit to the Company (see
    Note 10).(5)
    
    On November 7, 2005, the Company issued to NBCU
    $188.6 million of aggregate liquidation preference
    Series B preferred stock in full satisfaction of the
    Companys obligations for accrued and unpaid dividends on
    the Series B preferred stock through September 30,
    2005, which aggregated $288.6 million as of that date,
    based on the aforementioned 28.3% dividend rate (see
    Notes 2 and 5). As a result, in the fourth quarter of 2005,
    the Company reduced its accrued dividends, and increased net
    income attributable to common stockholders, by
    $94.9 million, net of expenses incurred in connection with
    the restructuring of the terms of the Series B preferred
    stock. Also in the fourth quarter of 2005, the Company recorded
    stock-based compensation of $5.3 million related to the
    accelerated vesting of stock options as a result of the
    transactions described in Note 2 and $0.8 million of
    additional depreciation expense in connection with increases to
    property and equipment 118




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##### Table of Contents



ION MEDIA
    NETWORKS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  resulting from the recognition of certain tax liabilities. In
    addition, the Company recorded a charge of approximately
    $1.0 million related to the obsolescence and disposal of
    some of its property and equipment.  19.
    SUBSEQUENT
    EVENTS      1 4
   119




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##### Table of Contents



SCHEDULE II
  ION MEDIA
    NETWORKS, INC.
    VALUATION AND QUALIFYING ACCOUNTS
    For the Three Years Ended December 31, 2006
  Column A


Column B


Column C


Column D


Column EAdditionsChargedBalance at


to CostsBeginning


and








Balance atof Year


Expenses


Other


Deductions


End of Year(In thousands)December 31, 2006: For the
    year endedAllowance for doubtful accounts

$
397


$
(26
)





$
(100
)(1)

$
271Deferred tax assets valuation
    allowance

$
484,989


$
46,270






$



$
531,259Restructuring reserves

$
22,047


$
(6,309
)(5)





$
(14,869
)(3)

$
869December 31, 2005: For the
    year endedAllowance for doubtful accounts

$
648


$
(27
)

$



$
(224
)(1)

$
397Deferred tax assets valuation
    allowance

$
434,062


$
88,093
(2)





$
(37,166
)(4)

$
484,989Restructuring reserves

$
2


$
30,489


$



$
(8,444
)(3)

$
22,047For the year ended
    December 31, 2004:Allowance for doubtful accounts

$
1,090


$
155


$



$
(597
)(1)

$
648Deferred tax assets valuation
    allowance

$
370,537


$
63,525
(2)

$



$



$
434,062Restructuring reserves

$
145


$
(5
)

$



$
(138
)(3)

$
2     (1)
    
    Write off of uncollectible receivables, net of recoveries.(2)
    
    Valuation allowance for net deferred tax assets due to
    uncertainty surrounding the Companys utilization of future
    tax benefits.(3)
    
    Cash payments of contractual and lease obligations and
    termination benefits.(4)
    
    Reduction due to the utilization of net operating losses
    resulting from the tentative settlement with the IRS (see
    Note 11).(5)
    
    Reflects the amendment to a contractual obligation (see
    Note 10). 120