##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM (NO FEE REQUIRED)
 For the transition period from                      to
 Commission File Number 1-13452
 
 PAXSON COMMUNICATIONS CORPORATION
 (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
 þ
 o o þ
 o þ
   Documents Incorporated By Reference




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TABLE OF CONTENTS
 PageItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    18Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    26Item 4. Submission of Matters to Vote of Security Holders
    
    
    26Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    26Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 8. Financial Statements and Supplementary Financial Data
    
    
    42Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    42Item 9A. Controls and Procedures
    
    
    42Item 9B. Other Information
    
    
    44Item 10. Directors and Executive Officers of the Registrant
    
    
    44Item 11. Executive Compensation
    
    
    44Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    44Item 13. Certain Relationships and Related Transactions
    
    
    44Item 14. Principal Accountant Fees and Services
    
    
    44Item 15. Exhibits and Financial Statement Schedules
    
    
    44Supplemental IndentureSupplemental IndentureFirst Amendment to Term Loss AgreementEmployment Agreement / Stephen P. AppelAmend. to Employment Agreement / Stephen P. AppelSubsidiaries of the CompanyConsent of Rachlin Cohen & Holtz LLPConsent of Ernst & Young LLPSection 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO CertificationSection 906 CFO Certification
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PART I
 
 ITEM 1. Business
 General
   Business Strategy
    
    
    rebranding our network to ifrom PAX TV, which we began on July 1, 2005;
    
    changing our corporate name to ION Media Networks, Inc., with associated changes in our
corporate logo and brand identity;
    
    significantly reducing our programming expenses by reducing our investments in new
original entertainment programming;
    
    phasing out our sales of commercial spot advertisements that are based on audience
ratings, and increasing our sales of spot advertisements that are not dependent upon
audience ratings, such as direct response advertising; and
    
    providing entertainment programming consisting of original entertainment programs we
previously aired on PAX TV, syndicated programming and programming of third parties who
have purchased from us the right to air their programming during specific time periods.
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i
 
    
    Airing entertainment programming from our library of original programming which we have
previously aired on the PAX TV network;
    
    Airing lower cost syndicated programming which we already possess the right to air or
that we purchase the right to air; and
    
    Selling blocks of air time to third parties who would air sports, entertainment or other
programming and sell their own commercial advertising spots during the programming.
    
    
    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 44.2% of our net revenue during the year ended
December 31, 2005.
    
    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 20.7% of our net revenue during the year ended
December 31, 2005.
    
    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 35.1% of our net revenue during the year ended December 31, 2005
(including 25.7% of our net revenue during such year which was derived from local and
national long form paid programming).
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Operating Strategy
  
    
    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 60
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 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 spot advertising decreased to 20.7% for the year ended December 31,
2005 from 32.6% for the year ended December 31, 2002 and the portion of our net revenues
which is derived from network and station long form paid programming increased to 69.9% for
the year ended December 31, 2005 from 46.4% for the year ended December 31, 2002.
    
    Maintain a Flexible Programming Strategy.An important element of our plan to improve
our business operations and cash flow is 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. As
part of the implementation of our new programming strategy, since July 1, 2005 we have
changed our network brand identity from PAX TV to i, to reflect our strategy of
providing a broadcast platform for producers and syndicators of entertainment programming
who desire to reach a national audience. We are not presently investing substantial
additional amounts in new original entertainment programming, but are pursuing a lower cost,
lower risk strategy which we expect to involve the following elements:
 
    
    Airing entertainment programming from our library of original programming which we
have previously aired on the PAX TV network;
    
    Airing lower cost syndicated programming which we already possess the right to air or
that we purchase the right to air; and
    
    Selling of blocks of air time to third parties who would air sports, entertainment or
other programming and sell their own commercial advertising spots during the
programming.
 We expect to continue to air substantially the same amount of entertainment programming as we
currently air, and to air this programming across our entire distribution system (i.e., on a
network basis). Some of this programming may, however, be provided by third parties who
purchase from us the right to air their programming on our distribution system.
    
    Implement New Sales Strategy.We have eliminated our sales of spot advertisements that
are based on audience ratings, which had been sold for us by our JSA partners and NBCU. All
of our sales of new advertising are now handled by our own employees. We expect more of our
revenues to be derived from the sale of spot advertisements that are not dependent upon
audience ratings, such as direct response advertising, and from the sale of blocks of
airtime to third party programmers.
    
    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.
    
    Provide Quality Entertainment Programming.We believe there is significant demand,
including from adult demographic groups which are attractive to advertisers, for quality
entertainment programming which is free of excessive violence, explicit sexual themes and
foul language. We own or have the right to air a substantial amount of this type of
programming which we expect to continue to air under our new programming strategy.
    
    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
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owned and operated stations and intend to explore the most effective use of digital broadcast
technology for each of our stations. We believe that we are able to provide a significant
broadband platform on which to broadcast digital television, including multiple television
networks. While future applications of this technology and the time frame within which the
transition to digital broadcasting will be completed are uncertain, we believe that with our
existing broadcast stations we are well positioned to take advantage of future digital
broadcasting opportunities.
 Joint Sales Agreements
   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
    
    
    
    7,375,530Los Angeles
    
    
    2
    
    
    KPXN
    
    
    30
    
    
    
    5,536,430Chicago
    
    
    3
    
    
    WCPX
    
    
    38
    
    
    
    3,430,790Philadelphia
    
    
    4
    
    
    WPPX
    
    
    61
    
    
    
    2,925,560
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##### Table of Contents



Market
    
    Station Call
    
    Broadcast
    
    Total Market TVMarket Name
    
    Rank (1)
    
    Letters
    
    Channel
    
    Households (1)Boston (Manchester)
    
    
    5
    
    
    WBPX
    
    
    68
    
    
    
    2,375,310Boston
    
    
    5
    
    
    WDPX
    
    
    58
    
    
    
    2,375,310Boston
    
    
    5
    
    
    WPXG
    
    
    21
    
    
    
    2,375,310San Francisco
    
    
    6
    
    
    KKPX
    
    
    65
    
    
    
    2,355,740Dallas
    
    
    7
    
    
    KPXD
    
    
    68
    
    
    
    2,336,140Washington D.C
    
    
    8
    
    
    WPXW
    
    
    66
    
    
    
    2,252,550Washington D.C
    
    
    8
    
    
    WWPX
    
    
    60
    
    
    
    2,252,550Atlanta
    
    
    9
    
    
    WPXA
    
    
    14
    
    
    
    2,097,220Houston
    
    
    10
    
    
    KPXB
    
    
    49
    
    
    
    1,938,670Detroit
    
    
    11
    
    
    WPXD
    
    
    31
    
    
    
    1,936,350Tampa
    
    
    12
    
    
    WXPX
    
    
    66
    
    
    
    1,710,400Seattle
    
    
    13
    
    
    KWPX
    
    
    33
    
    
    
    1,701,950Phoenix
    
    
    14
    
    
    KPPX
    
    
    51
    
    
    
    1,660,430Minneapolis
    
    
    15
    
    
    KPXM
    
    
    41
    
    
    
    1,652,940Cleveland
    
    
    16
    
    
    WVPX
    
    
    23
    
    
    
    1,541,780Miami
    
    
    17
    
    
    WPXM
    
    
    35
    
    
    
    1,522,960Denver
    
    
    18
    
    
    KPXC
    
    
    59
    
    
    
    1,415,180Sacramento
    
    
    19
    
    
    KSPX
    
    
    29
    
    
    
    1,345,820Orlando
    
    
    20
    
    
    WOPX
    
    
    56
    
    
    
    1,345,700Portland, OR
    
    
    23
    
    
    KPXG
    
    
    22
    
    
    
    1,099,890Indianapolis
    
    
    25
    
    
    WIPX
    
    
    63
    
    
    
    1,053,750Hartford
    
    
    28
    
    
    WHPX
    
    
    26
    
    
    
    1,013,350Raleigh-Durham
    
    
    29
    
    
    WFPX
    
    
    62
    
    
    
    985,200Raleigh-Durham
    
    
    29
    
    
    WRPX
    
    
    47
    
    
    
    985,200Nashville
    
    
    30
    
    
    WNPX
    
    
    28
    
    
    
    927,500Kansas City
    
    
    31
    
    
    KPXE
    
    
    50
    
    
    
    903,540Milwaukee
    
    
    33
    
    
    WPXE
    
    
    55
    
    
    
    880,390Salt Lake City
    
    
    36
    
    
    KUPX
    
    
    16
    
    
    
    810,830San Antonio
    
    
    37
    
    
    KPXL
    
    
    26
    
    
    
    760,410West Palm Beach
    
    
    38
    
    
    WPXP
    
    
    67
    
    
    
    751,930Grand Rapids
    
    
    39
    
    
    WZPX
    
    
    43
    
    
    
    731,630Birmingham
    
    
    40
    
    
    WPXH
    
    
    44
    
    
    
    716,520Norfolk
    
    
    42
    
    
    WPXV
    
    
    49
    
    
    
    704,810New Orleans(2)(3)
    
    
    43
    
    
    WPXL
    
    
    49
    
    
    
    672,150Memphis(2)(3)
    
    
    44
    
    
    WPXX
    
    
    50
    
    
    
    657,670Oklahoma City
    
    
    45
    
    
    KOPX
    
    
    62
    
    
    
    655,400Greensboro
    
    
    47
    
    
    WGPX
    
    
    16
    
    
    
    652,020Buffalo
    
    
    49
    
    
    WPXJ
    
    
    51
    
    
    
    644,430Louisville (2)(4)
    
    
    50
    
    
    WBNA
    
    
    21
    
    
    
    643,290Providence
    
    
    51
    
    
    WPXQ
    
    
    69
    
    
    
    639,590Jacksonville
    
    
    52
    
    
    WPXC
    
    
    21
    
    
    
    624,220Wilkes Barre
    
    
    54
    
    
    WQPX
    
    
    64
    
    
    
    588,540Albany
    
    
    55
    
    
    WYPX
    
    
    55
    
    
    
    552,250Knoxville
    
    
    59
    
    
    WPXK
    
    
    54
    
    
    
    516,180Tulsa
    
    
    61
    
    
    KTPX
    
    
    44
    
    
    
    510,480Lexington
    
    
    63
    
    
    WUPX
    
    
    67
    
    
    
    478,560Charleston, WV
    
    
    64
    
    
    WLPX
    
    
    29
    
    
    
    477,890Roanoke
    
    
    68
    
    
    WPXR
    
    
    38
    
    
    
    440,390Honolulu
    
    
    72
    
    
    KPXO
    
    
    66
    
    
    
    414,960Des Moines
    
    
    73
    
    
    KFPX
    
    
    39
    
    
    
    413,590Syracuse
    
    
    76
    
    
    WSPX
    
    
    56
    
    
    
    398,240Spokane
    
    
    78
    
    
    KGPX
    
    
    34
    
    
    
    389,630Cedar Rapids
    
    
    88
    
    
    KPXR
    
    
    48
    
    
    
    331,480Greenville-N. Bern
    
    
    105
    
    
    WEPX
    
    
    38
    
    
    
    271,130Greenville-N. Bern
    
    
    105
    
    
    WPXU
    
    
    35
    
    
    
    271,130Wausau
    
    
    134
    
    
    WTPX
    
    
    46
    
    
    
    182,620
 
 (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 2005.(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. 7




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Cable and Satellite Distribution.
 Our Network Affiliated Stations.
 Programming
 i,
  i
 
    
    Airing entertainment programming from our library of original programming which we have
previously aired on the PAX TV network;
    
    Airing lower cost syndicated programming which we already possess the right to air or
that we purchase the right to air; and
    
    Selling blocks of air time to third parties who would air sports, entertainment or other
programming and sell their own commercial advertising spots during the programming.
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Ratings
   Advertising
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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;
    
    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.
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Investment Agreement.
 
    
    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 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.
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Right to Purchase Mr. Paxsons Stock.
     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:
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
    
    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 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 new chief executive officer, and Dean M.
Goodman, our president and chief operating officer, in connection with these transactions).
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Management Changes.
 Settlement Agreement.
 Competition
  Audience.
  Advertising.
 Federal Regulation of Broadcasting
  License Issuance and Renewal.
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General Ownership Matters.
   Television National Ownership Rule.
   Television Duopoly Rule.
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Television/Newspaper Radio/Television Cross Ownership.
  Television Time Brokerage Agreements.
 Alien Ownership.
 Dual Network Rule.
 Programming and Operation.
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Equal Employment Opportunity Requirements.
 Cable Must Carry/Retransmission Consent Regulations.
   Satellite Carriage of Television Broadcast Signals.
 Digital Television Service.
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Proposed Changes.
 Employees
  Seasonality
  Trademarks and Service Marks
  Available Information
 www.ionmedianetworks.com
 
 ITEM 1A. Risk Factors
 Forward-Looking Statements and Associated Risks and Uncertainties
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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 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.
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We may lose a portion of our television distribution platform.
    If we fail to redeem our outstanding preferred stock by the scheduled redemption dates in the
fourth quarter of 2006, the holders will have the right to elect additional directors to our board
of directors and to thereby influence our management and policies.
  We may be unable to satisfy our obligations to repurchase our senior debt and our outstanding
preferred stock if we experience a change of control.
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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
    
    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.
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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.
     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.
  Failure to achieve and maintain effective internal control over financial reporting in accordance
with rules of the Securities and Exchange Commission promulgated under Section 404 of the
Sarbanes-Oxley Act could result in a loss of investor confidence in
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our financial reports, which could in turn have a material adverse effect on our business and the
price of our securities.
  We cannot assure you that we will successfully exploit our broadcast station groups digital
television platform.
  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.
   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;
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
    
    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.
  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.
 24




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##### Table of Contents



The appraised value of our television stations has declined during the past year, 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.
   
 Item 2. Properties
 i
   25




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##### Table of Contents



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
  2005
    
    2004High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    2.15
    
    
    $
    0.48
    
    
    $
    4.60
    
    
    $
    3.51Second Quarter
    
    
    1.56
    
    
    
    0.53
    
    
    
    4.00
    
    
    
    2.15Third Quarter
    
    
    0.65
    
    
    
    0.42
    
    
    
    3.30
    
    
    
    1.30Fourth Quarter
    
    
    1.15
    
    
    
    0.37
    
    
    
    1.74
    
    
    
    0.90
  Dividends
 26




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##### Table of Contents



Unregistered Sales of Equity Securities
  
 Item 6. Selected Financial Data
  For the Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(In thousands, except per share data)Statement of Operations Data:Net revenues
    
    $
    254,176
    
    
    $
    276,630
    
    
    $
    270,939
    
    
    $
    276,921
    
    
    $
    265,326Operating (loss) income (1)
    
    
    (22,150
    )
    
    
    (12,419
    )
    
    
    44,195
    
    
    
    (69,906
    )
    
    
    (150,129
    )Net loss (2)
    
    
    (235,670
    )
    
    
    (187,972
    )
    
    
    (76,213
    )
    
    
    (336,186
    )
    
    
    (205,545
    )Net loss attributable to common stockholders(3)
    
    
    (275,031
    )
    
    
    (245,735
    )
    
    
    (146,317
    )
    
    
    (446,285
    )
    
    
    (352,201
    )Basic and Diluted Loss Per Common Share:(4)Net loss
    
    $
    (3.94
    )
    
    $
    (3.61
    )
    
    $
    (2.14
    )
    
    $
    (6.88
    )
    
    $
    (5.46
    )Weighted average shares
outstanding  basic and diluted
    
    
    69,747
    
    
    
    68,139
    
    
    
    68,390
    
    
    
    64,849
    
    
    
    64,509Balance Sheet Data:Cash and cash equivalents
    
    $
    90,893
    
    
    $
    82,047
    
    
    $
    97,123
    
    
    $
    25,765
    
    
    $
    83,858Working capital (deficit) (5)
    
    
    (494,108
    )
    
    
    77,422
    
    
    
    67,132
    
    
    
    19,188
    
    
    
    57,871Total assets
    
    
    1,146,256
    
    
    
    1,224,305
    
    
    
    1,283,677
    
    
    
    1,276,619
    
    
    
    1,409,840Total debt
    
    
    1,122,283
    
    
    
    1,004,093
    
    
    
    925,608
    
    
    
    900,101
    
    
    
    529,180Total mandatorily redeemable preferred stock
    
    
    540,916
    
    
    
    471,355
    
    
    
    410,739
    
    
    
    354,498
    
    
    
    589,958Total mandatorily redeemable convertible preferred stock (6)
    
    
    777,521
    
    
    
    740,745
    
    
    
    684,067
    
    
    
    638,603
    
    
    
    574,202Total common stockholders deficit
    
    
    (1,594,095
    )
    
    
    (1,327,341
    )
    
    
    (1,089,845
    )
    
    
    (958,267
    )
    
    
    (515,520
    )Other Data:Cash flows provided by (used in) operating activities
    
    $
    3,047
    
    
    $
    (9,717
    )
    
    $
    32,916
    
    
    $
    (75,428
    )
    
    $
    (60,772
    )Cash flows provided by (used in) investing activities
    
    
    8,798
    
    
    
    (23,647
    )
    
    
    60,929
    
    
    
    (7,689
    )
    
    
    48,477Cash flows (used in) provided by financing activities
    
    
    (2,999
    )
    
    
    18,288
    
    
    
    (22,487
    )
    
    
    25,024
    
    
    
    44,790Program rights payments and deposits
    
    
    45,568
    
    
    
    67,682
    
    
    
    34,239
    
    
    
    116,243
    
    
    
    130,566Payments for cable distribution rights
    
    
    368
    
    
    
    123
    
    
    
    4,347
    
    
    
    9,286
    
    
    
    14,418Purchases of property and equipment
    
    
    15,336
    
    
    
    15,845
    
    
    
    26,732
    
    
    
    31,177
    
    
    
    35,213
 
 (1)
    
    Our results for 2005 include a restructuring charge in the amount of $30.9 million (see
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Restructuring) 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 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 reduction of $2.2 million 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 $4.6 million, $1.1 million, $41.3 27




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##### Table of Contents



million and $67.0 million in 2004, 2003, 2002 and 2001, respectively, a restructuring charge of
$2.2 million in 2002 and a restructuring credit in 2001 of $1.2 million.(2)
    
    Includes losses on extinguishment of debt of $54.1 million, $6.3 million, $17.6 million and
$9.9 million in 2005, 2004, 2002 and 2001, respectively. Net loss for 2005 also includes the
recognition of a $34.4 million income tax benefit in connection with the a 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.
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)
    
    2005 reflects mandatorily redeemable preferred stock of $540,916 that is 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)
    
    2005 includes mandatorily redeemable preferred stock in the amount of $154.8 million that is
required to be redeemed on December 31, 2006. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
 Overview:
 i
    
    
    rebranding our network to ifrom PAX TV, which we began on July 1, 2005;
    
    significantly reducing our programming expenses by reducing our investments in new
original entertainment programming;
    
    phasing out our sales of commercial spot advertisements that are based on audience
ratings, and increasing our sales of spot advertisements that are not dependent upon
audience ratings, such as direct response advertising; and
    
    providing entertainment programming consisting of original entertainment programs we
previously aired on PAX TV, syndicated programming and programming of third parties who have
purchased from us the right to air their programming during specific time periods.
 28




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##### Table of Contents




    
    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;
    
    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 2005 decreased 8.1% to $254.2 million compared to $276.6 million in 2004.
    
    Operating loss was $22.2 million in 2005 compared to $12.4 million in 2004. The 2005
operating loss reflects a restructuring charge of approximately $30.9 million (see
Restructuringbelow) and $7.5 million of increased program amortization expenses, partially
offset by $16.8 million of cash received from the settlement of an insurance claim and
reduced selling, general and administrative (SG&A) expenses. Included in the 2004 results
is a charge of $4.6 million to adjust certain programming to net realizable value resulting
from a change in expected usage of such programming, a $4.0 million adjustment to recognize
additional lease expense for lease arrangements that provide for escalating payments (of
which approximately $3.1 million pertained to periods prior to 2004), a $1.7 million
amortization expense charge for certain leasehold improvements to adjust their amortization
period to the shorter of their useful lives or the lease terms, a $3.0 million reduction in
music license fees resulting from the conclusion of a dispute and the commencement of a new
agreement with a music license organization and $3.3 million of insurance recoveries related
to our World Trade Center litigation.
    
    Net loss attributable to common stockholders was $275.0 million in 2005 compared to
$245.7 million in 2004. In addition to the items discussed above, the net loss attributable
to common stockholders in 2005 reflects a loss on the extinguishment of debt in the amount
of $54.1 million and the recording of an income tax benefit of $34.4 million in connection
with the tentative settlement reached with the IRS regarding the disposition of our radio
division in 1997 and our acquisition of television
 29




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##### Table of Contents



stations during the period following this disposition. The net loss attributable to common
stockholders in 2005 also reflects a net decrease in accrued dividends on our Series B
preferred stock, as compared to 2004, in the amount of $23.7 million as a result of our
comprehensive settlement with NBCU (see Item 1. Business  NBCU Relationshipabove). The net
loss attributable to common stockholders for 2004 includes all of the items described above,
$1.1 million in costs incurred in connection with a required adjustment of the dividend rate
on our Series B preferred stock, a loss on extinguishment of debt of $6.3 million resulting
from the refinancing of our senior credit facility in January 2004 and a $4.4 million
adjustment to recognize additional provision for income taxes resulting from a change in the
estimated state income tax rate that we expect to incur at the time of reversal of our
deferred taxes (of which approximately $4.0 million pertained to periods prior to 2004).
    
    Cash flow from operating activities increased to
$3.0 million in 2005, as compared to cash
used in operating activities of $9.7 million in 2004.
 Balance Sheet:
 Liquidity and Capital Resources )
  Sources of Cash:
  
    
    revenues from the sale of network long form paid programming, network spot advertising,
station long form paid programming and station spot advertising; and
 
    
    $16.8 million received in the settlement with our former insurer for the property damage,
business interruption and extra expense claims pertaining to the loss of our antenna,
transmitter and other broadcast equipment for our New York television station that were
destroyed upon the collapse of the World Trade Center on September 11, 2001.
  Key Company Performance Indicators:
  Outlook for 2006:
   30




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Critical Accounting Policies and Estimates
    31




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32




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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.
    Results of Continuing Operations
  33




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##### Table of Contents



Year ended December 31,2005
    
    
    %
    
    
    2004
    
    
    %
    
    
    2003
    
    
    %Net revenues (net of agency commissions)
    
    $
    254,176
    
    
    
    100.0
    
    
    $
    276,630
    
    
    
    100.0
    
    
    $
    270,939
    
    
    
    100.0Expenses:Programming and broadcast operations
    
    
    56,899
    
    
    
    22.4
    
    
    
    57,484
    
    
    
    20.8
    
    
    
    53,826
    
    
    
    19.9Program rights amortization
    
    
    61,091
    
    
    
    24.0
    
    
    
    53,616
    
    
    
    19.4
    
    
    
    51,082
    
    
    
    18.9Selling, general and administrative
    
    
    98,144
    
    
    
    38.6
    
    
    
    130,015
    
    
    
    47.0
    
    
    
    124,925
    
    
    
    46.1Depreciation and amortization
    
    
    38,793
    
    
    
    15.3
    
    
    
    43,664
    
    
    
    15.8
    
    
    
    42,983
    
    
    
    15.9Insurance recoveries
    
    
    (15,652
    )
    
    
    (6.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Time brokerage and affiliation fees
    
    
    4,580
    
    
    
    1.8
    
    
    
    4,466
    
    
    
    1.6
    
    
    
    4,403
    
    
    
    1.6Adjustment of programming to net realizable value
    
    
    
    
    
    
    
    
    
    
    4,645
    
    
    
    1.7
    
    
    
    1,066
    
    
    
    0.4Restructuring charges (credits)
    
    
    30,906
    
    
    
    12.2
    
    
    
    (5
    )
    
    
    (0.0
    )
    
    
    48
    
    
    
    0.0Total operating expenses
    
    
    274,761
    
    
    
    108.1
    
    
    
    293,885
    
    
    
    106.2
    
    
    
    278,333
    
    
    
    102.7(Loss) gain on sale or disposal of broadcast
and other assets
    
    
    (1,565
    )
    
    
    (0.6
    )
    
    
    4,836
    
    
    
    1.7
    
    
    
    51,589
    
    
    
    19.0Operating loss
    
    $
    (22,150
    )
    
    
    (8.7
    )
    
    $
    (12,419
    )
    
    
    (4.5
    )
    
    $
    44,195
    
    
    
    16.3Other Data:Program rights payments and deposits
    
    $
    45,568
    
    
    
    
    
    
    $
    67,682
    
    
    
    
    
    
    $
    34,239Payments for cable distribution rights
    
    
    368
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    4,347Purchases of property and equipment
    
    
    15,336
    
    
    
    
    
    
    
    15,845
    
    
    
    
    
    
    
    26,732Cash flows provided by (used in) operating activities
    
    
    3,047
    
    
    
    
    
    
    
    (9,717
    )
    
    
    
    
    
    
    32,916Cash flows provided by (used in) investing activities
    
    
    8,798
    
    
    
    
    
    
    
    (23,647
    )
    
    
    
    
    
    
    60,929Cash flows (used in) provided by financing activities
    
    
    (2,999
    )
    
    
    
    
    
    
    18,288
    
    
    
    
    
    
    
    (22,487
    )
 Years Ended December 31, 2005 and 2004
      34




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Restructuring
   1 4
 1 4
 Liquidity and Capital Resources
    35




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Liquidity and Capital Resources
 Years Ended December 31, 2004 and 2003
      36




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Liquidity and Capital Resources
   37




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1 4 3 4 1 4 3 4
  Restructuring
 38




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39




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Contractual Obligations and Commitments
  2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalTerm loans and senior secured notes
    
    $
    70
    
    
    $
    80
    
    
    $
    86
    
    
    $
    95
    
    
    
    45
    
    
    $
    1,130,000
    
    
    $
    1,130,376Obligations for program rights and
program rights commitments
    
    
    3,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,598Obligations to CBS
    
    
    7,664
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,664Obligations for cable distribution rights
    
    
    2,549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,549Other contractual obligations
    
    
    2,706
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    5,706Operating leases and employment agreements
    
    
    26,370
    
    
    
    20,530
    
    
    
    16,866
    
    
    
    12,979
    
    
    
    12,866
    
    
    
    95,550
    
    
    
    185,161Total
    
    $
    42,957
    
    
    $
    21,610
    
    
    $
    17,952
    
    
    $
    14,074
    
    
    $
    12,911
    
    
    $
    1,225,550
    
    
    $
    1,335,054
   Junior Exchangeable
    
    Convertible
    
    Series B ConvertiblePreferred Stock
    
    Preferred
    
    Preferred Stock141/4%(1)
    
    Stock 93/4%(2)
    
    11%(3)2006
    
    $
    609,879
    
    
    $
    171,029
    
    
    $
    689,3762007
    
    
    
    
    
    
    
    
    
    
    756,0442008
    
    
    
    
    
    
    
    
    
    
    822,7122009
    
    
    
    
    
    
    
    
    
    
    889,3792010
    
    
    
    
    
    
    
    
    
    
    956,047
 
 (1)
    
    Mandatorily redeemable on November 15, 2006(2)
    
    Mandatorily redeemable on December 31, 2006(3)
    
    Mandatorily redeemable on December 31, 2013 Touched
By An Angel Touched,
   40




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Touched Touched
 Touched Touched
 Amounts DueObligations to
    
    
    fromCBS
    
    
    Crown Media
    
    
    Net Amount2006
    
    $
    7,664
    
    
    $
    (1,711
    )
    
    $
    5,953Amount representing interest
    
    
    
    
    
    
    56
    
    
    
    56$
    7,664
    
    
    $
    (1,655
    )
    
    $
    6,009
  New Accounting Pronouncements
     
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  41




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Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital Resources)
  
 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
  42




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Managements Report on Internal Control Over Financial Reporting
  
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
 
    
    provide reasonable assurance that the transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
 
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
  Internal Control-Integrated Framework
   Report of Independent Registered Certified Public
Accountants.
 43




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information
  PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
     44




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibits3.1.1
    
    
    
    Certificate of Incorporation of the Company(2)3.1.6
    
    
    
    Certificate of Designation of the Companys 9 3/4% Series A Convertible Preferred Stock (5)3.1.7
    
    
    
    Certificate of Designation of the Companys 14 1/4% Cumulative Junior Exchangeable Preferred Stock (5)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 (21)3.1.9
    
    
    
    Certificate of Amendment to the Certificate of Incorporation of the Company (7)3.2
    
    
    
    Amended and Restated Bylaws of the Company (effective November 6, 2005) (16)4.4
    
    
    
    Amended and Restated Investment Agreement, dated as of November 7, 2005, by and between the Company
and NBC Universal, Inc. (16)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. (16)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 (16)4.4.3
    
    
    
    Form of Indenture with respect to the Companys 8% Exchange Debentures due 2009 (6)4.4.4
    
    
    
    Registration Rights Agreement, dated September 15, 1999, between the Company and National
Broadcasting Company, Inc. (6)4.4.5
    
    
    
    Registration Rights Agreement Letter Amendment, dated November 7, 2005, between the Company and NBC
Universal, Inc. (16)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 13 1/4% Exchange Debentures due 2006 (5)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 (18)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 20124.8
    
    
    
    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 (18)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 20134.9
    
    
    
    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 (18)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 Agent4.10
    
    
    
    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 (18)10.27
    
    
    
    Paxson Communications Corp. Profit Sharing Plan (1)10.157
    
    
    
    Paxson Communications Corporation 1996 Stock Incentive Plan (3)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 (4)10.187
    
    
    
    Option Agreement, dated November 14, 1997, by and between the Company and Flinn Broadcasting
Corporation for Television station WFBI-TV, Memphis, Tennessee (4)10.208.4
    
    
    
    Letter agreement setting forth terms of resignation of Lowell W. Paxson, dated November 7, 2005 (16)10.225
    
    
    
    Employment Agreement, dated as of November 7, 2005, between Dean M. Goodman and the Company (16)10.228
    
    
    
    Paxson Communications Corporation 1998 Stock Incentive Plan, as amended (7)10.231
    
    
    
    Amended and Restated Employment
Agreement, by and between the Company and Richard Garcia, effective as of January 1, 2004 (9)
 45




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibits10.231.1
    
    
    
    Amendment to Employment Agreement, dated February 9, 2005, between the Company and Richard Garcia (13)10.231.2
    
    
    
    Amendment to Employment Agreement, dated March 15, 2005, between the Company and Richard Garcia (12)10.231.3
    
    
    
    Amendment to Employment Agreement, dated January 23, 2006, between the Company and Richard Garcia (19)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 (10)10.232.1
    
    
    
    Amendment to Employment Agreement, dated February 9, 2005, between the Company and Adam K. Weinstein
(13)10.233
    
    
    
    Form of Indemnification Agreement by and between the Company and members of the Board of Directors of
the Company (11)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. (15)10.234.2
    
    
    
    First Amendment to Master Agreement, dated as of June 13, 2005, between the Company and The Christian
Network, Inc. (14)10.234.3
    
    
    
    Letter Agreement, dated June 13, 2005, between the Company and The Christian Network, Inc. (14)10.235
    
    
    
    Paxson Consulting and Noncompetition Agreement, dated as of November 7, 2005, among Lowell W. Paxson,
the Company and NBC Universal, Inc. (16)10.236
    
    
    
    Employment Agreement, dated as of November 7. 2005, between R. Brandon Burgess and the Company (16)10.237
    
    
    
    Settlement Agreement, dated November 7, 2005, between the Company and NBC Universal, Inc. (16)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 (16)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 (17)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. Appel10.243.1
    
    
    
    Amendment to Employment Agreement, dated January 23, 2006, between the Company and Stephen P. Appel10.244
    
    
    
    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 (16)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 (20)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 (20)14.1
    
    
    
    Code of Ethics and Business Conduct (8)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 Paxson Communications Corporation pursuant to Rule
13a-14 under the Securities Exchange Act of 1934, as amended31.2
    
    
    
    Certification by the Chief Financial Officer of Paxson Communications Corporation pursuant to Rule
13a-14 under the Securities Exchange Act of 1934, as amended32.1
    
    
    
    Certification by the Chief Executive Officer of Paxson Communications Corporation 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 Paxson Communications Corporation 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. 46




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##### Table of Contents



(2)
    
    Filed with the Companys Annual Report on Form 10-K, dated March 31, 1995 (Commission
File No. 1-13452), and incorporated herein by reference.(3)
    
    Filed with the Companys Registration Statement on Form S-8, filed January 22, 1997,
Registration No. 333-20163, and incorporated herein by reference.(4)
    
    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.(5)
    
    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.(6)
    
    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.(7)
    
    Filed with the Companys Quarterly Report on Form 10-Q, dated March 31, 2003, and
incorporated herein by reference.(8)
    
    Filed with the Companys Annual Report on Form 10-K, dated December 31, 2003, and
incorporated herein by reference.(9)
    
    Filed with the Companys Quarterly Report on Form 10-Q, dated June 30, 2004, and
incorporated herein by reference.(10)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
January 7, 2005, and incorporated herein by reference.(11)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
February 28, 2005, and incorporated herein by reference.(12)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
March 18, 2005, and incorporated herein by reference.(13)
    
    Filed with the Companys Annual Report on Form 10-K, dated December 31, 2004, and
incorporated herein by reference.(14)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
June 17, 2005, and incorporated herein by reference.(15)
    
    Filed with the Companys Quarterly Report on Form 10-Q, dated June 30, 2005, and
incorporated herein by reference.(16)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
November 7, 2005, and incorporated herein by reference.(17)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
December 21, 2005, and incorporated herein by reference.(18)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
January 6, 2006, and incorporated herein by reference.(19)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
January 23, 2006, and incorporated herein by reference.(20)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
February 28, 2006, and incorporated herein by reference.(21)
    
    Filed with the Companys Form 8-K, filed with the Securities and Exchange Commission on
March 16, 2006, and incorporated herein by reference.  47




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##### Table of Contents



SIGNATURES
  PAXSON COMMUNICATIONS
CORPORATIONBy:
    
    /s/ R. BRANDON BURGESSR. Brandon Burgess
Chief Executive
Officer (Principal Executive Officer)Date: March 22, 2006
  Signatures
    
    Title
    
    Date/s/ R. BRANDON BURGESS
    
    Chief Executive Officer and Director
    
    March 22, 2006R. Brandon Burgess
    
    (Principal Executive Officer)/s/ W. LAWRENCE PATRICK
    
    Chairman of the Board of Directors
    
    March 22, 2006W. Lawrence Patrick/s/ DEAN M. GOODMAN
    
    President, Chief Operating Officer and Director
    
    March 22, 2006/s/ RICHARD GARCIA
    
    Senior Vice President and
    
    March 22, 2006Richard Garcia
    
    Chief Financial Officer
(Principal Financial Officer)/s/ TAMMY G. HEDGE
    
    Vice President, Chief Accounting Officer and
    
    March 22, 2006Tammy G. Hedge
    
    Corporate Controller(Principal Accounting Officer)/s/ RAYMOND S. RAJEWSKI
    
    Director
    
    March 22, 2006Raymond S. Rajewski/s/ HENRY J. BRANDON, III
    
    Director
    
    March 22, 2006Henry J. Brandon, III
 48




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Report of Independent Registered Public Accounting Firm
    
    F-4Report of Independent Registered Public Accounting Firm
    
    F-5Consolidated Balance Sheets
    
    F-6Consolidated Statements of Operations
    
    F-7Consolidated Statements of Stockholders Deficit
    
    F-8Consolidated Statements of Cash Flows
    
    F-9Notes to Consolidated Financial Statements
    
    F-10Financial Statement Schedule  Valuation and Qualifying Accounts
    
    F-49
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
      F-2




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##### Table of Contents



Internal ControlIntegrated Framework Internal ControlIntegrated Framework
  /s/ RACHLIN COHEN & HOLTZ LLP
 
 F-3




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      /s/ RACHLIN COHEN & HOLTZ LLP
 
 F-4




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Ernst & Young LLP
Certified Public Accountants
 
 F-5




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(In thousands except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    90,893
    
    
    $
    82,047Short-term investments
    
    
    
    
    
    
    5,993Accounts receivable, net of allowance for doubtful accounts of $397 and $648, respectively
    
    
    17,510
    
    
    
    24,961Program rights
    
    
    18,630
    
    
    
    38,853Amounts due from Crown Media
    
    
    1,655
    
    
    
    9,885Deposits for programming letters of credit
    
    
    
    
    
    
    24,603Prepaid expenses and other current assets
    
    
    3,685
    
    
    
    3,119Total current assets
    
    
    132,373
    
    
    
    189,461Property and equipment, net
    
    
    93,080
    
    
    
    103,526Intangible assets:FCC license intangible assets
    
    
    845,592
    
    
    
    843,462Other intangible assets, net
    
    
    36,099
    
    
    
    40,448Program rights, net of current portion
    
    
    7,486
    
    
    
    19,581Amounts due from Crown Media, net of current portion
    
    
    
    
    
    
    1,655Investments in broadcast properties
    
    
    2,103
    
    
    
    2,205Assets held for sale
    
    
    2,227
    
    
    
    2,556Other assets, net
    
    
    27,296
    
    
    
    21,411Total assets
    
    $
    1,146,256
    
    
    $
    1,224,305LIABILITIES, MANDATORILY REDEEMABLE AND CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    40,140
    
    
    $
    40,500Accrued interest
    
    
    6,321
    
    
    
    16,073Accrued restructuring charges
    
    
    14,807
    
    
    
    Current portion of obligations for program rights
    
    
    3,398
    
    
    
    18,436Current portion of obligations to CBS
    
    
    7,664
    
    
    
    17,726Current portion of obligations for cable distribution rights
    
    
    2,549
    
    
    
    2,896Mandatorily redeemable preferred stock
    
    
    540,916
    
    
    
    Deferred revenue
    
    
    10,616
    
    
    
    16,344Current portion of notes payable
    
    
    70
    
    
    
    64Total current liabilities
    
    
    626,481
    
    
    
    112,039Accrued restructuring charges, net of current portion
    
    
    7,240
    
    
    
    Obligations for program rights, net of current portion
    
    
    
    
    
    
    1,703Obligations to CBS, net of current portion
    
    
    
    
    
    
    9,191Deferred revenue, net of current portion
    
    
    12,231
    
    
    
    6,898Deferred income taxes
    
    
    177,200
    
    
    
    194,706Term loans and notes payable, net of current portion
    
    
    1,122,213
    
    
    
    1,004,029Mandatorily redeemable preferred stock
    
    
    
    
    
    
    471,355Other long-term liabilities
    
    
    15,055
    
    
    
    10,980Total liabilities
    
    
    1,960,420
    
    
    
    1,810,901Mandatorily redeemable and convertible preferred stock
    
    
    777,521
    
    
    
    740,745Contingent common stock purchase obligation  Class B common stock
    
    
    2,410
    
    
    
    Commitments and contingencies (See Notes to Consolidated Financial Statements)Stockholders deficit:Class A
common stock, $0.001 par value; one vote per share; 215,000,000 shares authorized,
64,910,506 and 60,545,269 shares issued and outstanding
    
    
    65
    
    
    
    61Class 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, 77,500,000 shares authorized, no
shares issued and outstanding
    
    
    
    
    
    
    Common stock warrants and call option
    
    
    
    
    
    
    66,663Additional paid in capital
    
    
    617,873
    
    
    
    542,138Deferred stock-based compensation
    
    
    (11,486
    )
    
    
    (10,687
    )Accumulated deficit
    
    
    (2,200,555
    )
    
    
    (1,925,524
    )Total stockholders deficit
    
    
    (1,594,095
    )
    
    
    (1,327,341
    )Total liabilities, mandatorily redeemable and convertible preferred stock,
contingent common stock purchase obligation and stockholders deficit
    
    $
    1,146,256
    
    
    $
    1,224,305
  F-6




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands except share and per share data)NET REVENUES (net of agency commissions of $42,508,
$46,565 and $46,067, respectively)
    
    $
    254,176
    
    
    $
    276,630
    
    
    $
    270,939EXPENSES:Programming and broadcast operations (excluding
depreciation and amortization shown separately below
and including stock-based compensation of $1,029,
$1,012 and $1,872, respectively)
    
    
    56,899
    
    
    
    57,484
    
    
    
    53,826Program rights amortization
    
    
    61,091
    
    
    
    53,616
    
    
    
    51,082Selling, general and administrative (excluding depreciation
and amortization shown separately below and including
stock-based compensation of $8,559, $7,489 and
$10,894, respectively)
    
    
    98,144
    
    
    
    130,015
    
    
    
    124,925Depreciation and amortization
    
    
    38,793
    
    
    
    43,664
    
    
    
    42,983Insurance recoveries
    
    
    (15,652
    )
    
    
    
    
    
    
    Time brokerage and affiliation fees
    
    
    4,580
    
    
    
    4,466
    
    
    
    4,403Adjustment of programming to net realizable value
    
    
    
    
    
    
    4,645
    
    
    
    1,066Restructuring charges (credits), including stock-based
compensation of $1,120 in 2005
    
    
    30,906
    
    
    
    (5
    )
    
    
    48Total operating expenses
    
    
    274,761
    
    
    
    293,885
    
    
    
    278,333(Loss) gain on disposal of broadcast and other assets, net
    
    
    (1,565
    )
    
    
    4,836
    
    
    
    51,589Operating (loss) income
    
    
    (22,150
    )
    
    
    (12,419
    )
    
    
    44,195OTHER INCOME (EXPENSE):Interest expense
    
    
    (110,716
    )
    
    
    (94,192
    )
    
    
    (92,202
    )Dividends on mandatorily redeemable preferred stock
    
    
    (69,561
    )
    
    
    (60,616
    )
    
    
    (27,539
    )Interest income
    
    
    2,761
    
    
    
    2,811
    
    
    
    3,440Other income, net
    
    
    2,763
    
    
    
    
    
    
    
    341Loss on extinguishment of debt
    
    
    (54,127
    )
    
    
    (6,286
    )
    
    
    Gain on modification of program rights obligations
    
    
    864
    
    
    
    1,481
    
    
    
    2,103Loss before income taxes
    
    
    (250,166
    )
    
    
    (169,221
    )
    
    
    (69,662
    )Income tax benefit (provision)
    
    
    14,657
    
    
    
    (18,751
    )
    
    
    (6,551
    )Net loss before minority interest
    
    
    (235,509
    )
    
    
    (187,972
    )
    
    
    (76,213
    )Minority interest
    
    
    (161
    )
    
    
    
    
    
    
    Net loss
    
    
    (235,670
    )
    
    
    (187,972
    )
    
    
    (76,213
    )Dividends and accretion on redeemable and convertible
preferred stock
    
    
    (39,361
    )
    
    
    (57,763
    )
    
    
    (70,104
    )Net loss attributable to common stockholders
    
    $
    (275,031
    )
    
    $
    (245,735
    )
    
    $
    (146,317
    )Basic and diluted loss per common share
    
    $
    (3.94
    )
    
    $
    (3.61
    )
    
    $
    (2.14
    )Weighted average shares outstanding
    
    
    69,747,411
    
    
    
    68,139,205
    
    
    
    68,389,640
  F-7




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
 CommonStock
    
    
    Stock
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    AccumulatedWarrants
    
    
    Subscription
    
    
    Additional
    
    
    Stock-
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    and Call
    
    
    Notes
    
    
    Paid-In
    
    
    Based
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders
    
    
    ComprehensiveClass A
    
    
    Class B
    
    
    Option
    
    
    Receivable
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Loss
    
    
    Deficit
    
    
    Loss(In thousands)Balance at January 1, 2003
    
    $
    57
    
    
    $
    8
    
    
    $
    68,384
    
    
    $
    (747
    )
    
    $
    513,109
    
    
    $
    (2,460
    )
    
    $
    (1,533,472
    )
    
    $
    (3,146
    )
    
    $
    (958,267
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,213
    )
    
    
    
    
    
    
    (76,213
    )
    
    $
    (76,213
    )Unrealized gain on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,146
    
    
    
    3,146
    
    
    
    3,146Deferred stock option compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,314
    
    
    
    (27,314
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (73,067
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,607
    
    
    
    
    
    
    
    
    
    
    
    12,607Stock options exercised
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574Expiration of common stock warrants
    
    
    
    
    
    
    
    
    
    
    (1,721
    )
    
    
    
    
    
    
    1,721
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payment of
employee withholding taxes on exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,335
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,335
    )Reduction of stock subscription notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747Dividends and accretion on redeemable
and convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70,104
    )
    
    
    
    
    
    
    (70,104
    )Balance at December 31, 2003
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    8,236Restricted stock exchanged for options
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Dividends 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
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,666
    
    
    
    
    
    
    
    
    
    
    
    10,666Deferred stock-based compensation,
net of forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,465
    
    
    
    (11,465
    )
    
    
    
    
    
    
    
    
    
    
    Stock options exercised for
unvested shares
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Stock options exercised
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Canellation 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
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (235,670
    )
    
    
    
    
    
    
    (235,670
    )Balance at December 31, 2005
    
    $
    65
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    617,873
    
    
    $
    (11,486
    )
    
    $
    (2,200,555
    )
    
    $
    
    
    
    $
    (1,594,095
    )
  F-8




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Cash flows from operating activities:Net loss
    
    $
    (235,670
    )
    
    $
    (187,972
    )
    
    $
    (76,213
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    38,793
    
    
    
    43,664
    
    
    
    42,983Stock-based compensation
    
    
    9,588
    
    
    
    8,501
    
    
    
    12,766Loss on extinguishment of debt
    
    
    54,127
    
    
    
    6,286
    
    
    
    Non-cash restructuring charges
    
    
    1,823
    
    
    
    (5
    )
    
    
    48Program rights amortization
    
    
    61,091
    
    
    
    53,616
    
    
    
    51,082Adjustment of programming to net realizable value
    
    
    
    
    
    
    4,645
    
    
    
    1,066Payments for cable distribution rights
    
    
    (368
    )
    
    
    (123
    )
    
    
    (4,347
    )Non-cash barter revenue
    
    
    54
    
    
    
    (129
    )
    
    
    (66
    )Program rights payments and deposits
    
    
    (45,568
    )
    
    
    (67,682
    )
    
    
    (34,239
    )Provision for doubtful accounts
    
    
    (27
    )
    
    
    155
    
    
    
    (418
    )Deferred income tax (benefit) provision
    
    
    (17,506
    )
    
    
    19,425
    
    
    
    6,670Reserve on stock subscription notes receivable
    
    
    
    
    
    
    (407
    )
    
    
    (240
    )Loss (gain) on sale or disposal of broadcast and other assets, net
    
    
    1,565
    
    
    
    (4,836
    )
    
    
    (51,589
    )Equity in income of unconsolidated investment
    
    
    
    
    
    
    
    
    
    
    (80
    )Dividends and accretion on 14 1/4% mandatorily redeemable preferred stock
    
    
    69,561
    
    
    
    60,616
    
    
    
    27,539Amortization of debt discount
    
    
    55,227
    
    
    
    49,172
    
    
    
    43,660Gain on modification of program rights obligations
    
    
    (864
    )
    
    
    (1,481
    )
    
    
    (2,103
    )(Increase) decrease in operating assets:Accounts receivable
    
    
    7,445
    
    
    
    (1,834
    )
    
    
    9,697Amounts due from Crown Media
    
    
    9,885
    
    
    
    13,883
    
    
    
    4,404Prepaid expenses and other current assets
    
    
    (640
    )
    
    
    975
    
    
    
    (1,450
    )Other assets
    
    
    3,789
    
    
    
    6,514
    
    
    
    5,931Increase (decrease) in operating liabilities:Accounts payable and accrued liabilities
    
    
    (5,535
    )
    
    
    4,963
    
    
    
    5,210Accrued restructuring charges
    
    
    21,344
    
    
    
    
    
    
    
    Deferred revenue
    
    
    3,074
    
    
    
    
    
    
    
    Accrued interest
    
    
    (9,752
    )
    
    
    1,198
    
    
    
    254Obligations to CBS
    
    
    (18,389
    )
    
    
    (18,861
    )
    
    
    (7,649
    )Net cash provided by (used in) operating activities
    
    
    3,047
    
    
    
    (9,717
    )
    
    
    32,916Cash flows from investing activities:Decrease in short-term investments
    
    
    5,993
    
    
    
    6,955
    
    
    
    4,125Refund of (deposits for) programming letters of credit
    
    
    24,603
    
    
    
    (24,603
    )
    
    
    Purchases of property and equipment
    
    
    (15,336
    )
    
    
    (15,845
    )
    
    
    (26,732
    )Additions to intangible assets
    
    
    (4,122
    )
    
    
    
    
    
    
    Proceeds from sale of broadcast assets
    
    
    
    
    
    
    9,988
    
    
    
    83,332Proceeds from sale of property and equipment
    
    
    70
    
    
    
    28
    
    
    
    360Other
    
    
    (2,410
    )
    
    
    (170
    )
    
    
    (156
    )Net cash provided by (used in) investing activities
    
    
    8,798
    
    
    
    (23,647
    )
    
    
    60,929Cash flows from financing activities:Borrowings of long-term debt
    
    
    1,121,900
    
    
    
    365,000
    
    
    
    2,000Proceeds from the issuance of preferred stock
    
    
    2,500
    
    
    
    
    
    
    
    Repayments of long-term debt
    
    
    (1,102,988
    )
    
    
    (335,687
    )
    
    
    (20,152
    )Payments of loan origination costs
    
    
    (19,327
    )
    
    
    (11,441
    )
    
    
    (2,259
    )Payments of employee withholding taxes on exercises of stock options, net
    
    
    (8
    )
    
    
    
    
    
    
    (2,335
    )Expenses related to preferred stock restructuring
    
    
    (5,085
    )
    
    
    
    
    
    
    Proceeds from exercise of common stock options, net
    
    
    9
    
    
    
    3
    
    
    
    115Repayment of stock subscription notes receivable
    
    
    
    
    
    
    413
    
    
    
    144Net cash (used in) provided by financing activities
    
    
    (2,999
    )
    
    
    18,288
    
    
    
    (22,487
    )Increase (decrease) in cash and cash equivalents
    
    
    8,846
    
    
    
    (15,076
    )
    
    
    71,358Cash and cash equivalents, beginning of year
    
    
    82,047
    
    
    
    97,123
    
    
    
    25,765Cash and cash equivalents, end of year
    
    $
    90,893
    
    
    $
    82,047
    
    
    $
    97,123
  F-9




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Cash and Cash Equivalents
  Short-Term Investments
  Accounts Receivable
  Property and Equipment
  F-10




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Broadcasting towers and equipment
    
    4-30 yearsOffice furniture and equipment
    
    5-10 yearsBuildings and leasehold improvements
    
    7-40 yearsAircraft, vehicles and other
    
    5 years
  Intangible Assets
   Program Rights
   F-11




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Cable and Satellite Distribution Rights
 Intangible
Assets
  Investments in Broadcast Properties
   Long-Lived Assets
    F-12




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Derivative Financial Instruments
   Revenue Recognition
  Advertising Costs
  Concentrations of Credit Risk
  Time Brokerage Agreements
  Stock-Based Compensation
  F-13




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   For the Years Ended December 31,2005
    
    
    2004
    
    
    2003Net loss attributable to common stockholders
    
    $
    (275,031
    )
    
    $
    (245,735
    )
    
    $
    (146,317
    )Add: Stock-based compensation expense determined
under the intrinsic value method and included in
reported net loss
    
    
    10,708
    
    
    
    8,501
    
    
    
    12,766Deduct: Total stock-based compensation expense
determined under the fair value method
    
    
    (11,265
    )
    
    
    (8,632
    )
    
    
    (15,079
    )Pro forma net loss attributable to common stockholders
    
    
    (275,588
    )
    
    $
    (245,866
    )
    
    $
    (148,630
    )Basic and diluted net loss per share:As reported
    
    $
    (3.94
    )
    
    $
    (3.61
    )
    
    $
    (2.14
    )Pro forma
    
    $
    (3.95
    )
    
    $
    (3.61
    )
    
    $
    (2.17
    )
  For the Years Ended December 31,2005
    
    2004
    
    2003Risk-free rate of return
    
    3.6% to 4.1%
    
    2.6% to 3.9%
    
    2.8% to 3.4%Expected volatility
    
    74% to 94%
    
    72% to 74%
    
    78% to 79%Expected lives
    
    1 day, 1.5 years and 5 years (see Note 11)
    
    1 day
    
    1 day
 Income and Other Taxes
     Per Share Data
  F-14




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  2005
    
    
    2004
    
    
    2003Stock options outstanding
    
    
    18,565
    
    
    
    5,859
    
    
    
    3,129Class A common stock warrants, restricted Class A common stock
outstanding and Restricted Stock Units (see note 11)
    
    
    9,859
    
    
    
    32,321
    
    
    
    32,032Class A common stock reserved for issuance under convertible securities
    
    
    312,742
    
    
    
    40,712
    
    
    
    39,903341,166
    
    
    
    78,892
    
    
    
    75,064
   Use of Estimates
  New Accounting Pronouncements
    F-15




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   2. NBCU TRANSACTIONS
    
    
    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.
  F-16




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
       F-17




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
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
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:
 
    
    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. 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.
 F-18




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
      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
    )
    
    
    3402
    
    
    
    29,786
    
    
    
    703
    
    
    
    (8,444
    )
    
    
    22,047Stock-based compensation
expense
    
    
    
    
    
    
    1,120$
    30,906Less: current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,807
    )Restructuring accrual, net of current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,240
 F-19




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 4. CERTAIN TRANSACTIONS WITH RELATED AND OTHER PARTIES
  Lowell W. Paxson
    DP Media, Inc.
  F-20




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 The Christian Network, Inc.
  CNI Tax Indemnification Agreement.
 Network Operations Center.
 CNI Master Agreement.
    F-21




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Officer Loans
  5. PROPERTY AND EQUIPMENT:
  2005
    
    
    2004Broadcasting towers and equipment
    
    $
    244,572
    
    
    $
    233,235Office furniture and equipment
    
    
    16,565
    
    
    
    16,834Buildings and leasehold improvements
    
    
    22,094
    
    
    
    22,622Land and improvements
    
    
    1,232
    
    
    
    1,232Aircraft, vehicles and other
    
    
    4,123
    
    
    
    3,945288,586
    
    
    
    277,868Accumulated depreciation and amortization
    
    
    (195,506
    )
    
    
    (174,342
    )Property and equipment, net
    
    $
    93,080
    
    
    $
    103,526
    6. INTANGIBLE ASSETS
  2005
    
    
    2004Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable intangible assets:Cable and satellite distribution rights
    
    $
    127,740
    
    
    $
    (97,576
    )
    
    $
    127,793
    
    
    $
    (87,740
    )Other
    
    
    10,713
    
    
    
    (4,778
    )
    
    
    5,025
    
    
    
    (4,630
    )Indefinite lived intangible asset:FCC licenses
    
    
    845,592
    
    
    
    
    
    
    
    843,462
    
    
    
    $
    984,045
    
    
    $
    (102,354
    )
    
    $
    976,280
    
    
    $
    (92,370
    )
  F-22




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   2006
    
    $
    11,1432007
    
    
    10,8952008
    
    
    8,3962009
    
    
    1,7602010
    
    
    1,449
 7. PROGRAM RIGHTS
  2005
    
    
    2004Program rights
    
    $
    154,427
    
    
    $
    208,055Accumulated amortization
    
    
    (128,311
    )
    
    
    (149,621
    )26,116
    
    
    
    58,434Less: current portion
    
    
    (18,630
    )
    
    
    (38,853
    )Program rights, net
    
    $
    7,486
    
    
    $
    19,581
   Obligations forProgram
    
    
    Program RightsRights
    
    
    Commitments
    
    
    Total2006
    
    $
    3,398
    
    
    $
    200
    
    
    $
    3,598
  Touched By An Angel Touched
  Touched
 F-23




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Touched
 Touched Touched
 Amounts DueObligations to
    
    
    fromCBS
    
    
    Crown Media
    
    
    Net Amount2006
    
    $
    7,664
    
    
    $
    (1,711
    )
    
    $
    5,953Amount representing interest
    
    
    
    
    
    
    56
    
    
    
    56$
    7,664
    
    
    $
    (1,655
    )
    
    $
    6,009
  8. ASSETS HELD FOR SALE
   2005
    
    
    2004Intangible assets, net
    
    $
    
    
    
    $
    315Property and equipment, net
    
    
    2,227
    
    
    
    2,241$
    2,227
    
    
    $
    2,556
       9. SENIOR SECURED AND SENIOR SUBORDINATED NOTES
  F-24




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2005
    
    2004Term Loans due 2012, interest at LIBOR (4.53% at December 31, 2005) plus 3.25%
    
    $
    325,000
    
    
    
    Floating Rate First Priority Senior Secured Notes due 2012, interest at LIBOR
(4.53% at December 31, 2005) plus 3.25%
    
    
    400,000
    
    
    
    Floating Rate Second Priority Senior Secured Notes due 2013, interest at LIBOR
(4.53% at December 31, 2005) plus 6.25%
    
    
    405,000
    
    
    
    Senior Secured Floating Rate Notes due 2010, interest at LIBOR plus 2.75% (4.82%
at December 31, 2004)
    
    
    
    
    
    $
    365,00012 1/4% Senior Subordinated Discount Notes due 2009
    
    
    
    
    
    
    496,26310 3/4% Senior Subordinated Notes, due 2008
    
    
    
    
    
    
    200,000Other
    
    
    376
    
    
    
    4431,130,376
    
    
    
    1,061,706Less: discount on Floating Rate Second Priority Senior Secured Notes
    
    
    (8,093
    )Less: discount on Senior Subordinated Discount Notes
    
    
    
    
    
    
    (57,613
    )Less: current portion
    
    
    (70
    )
    
    
    (64
    )$
    1,122,213
    
    
    $
    1,004,029
  1 4 3 4
   F-25




---



##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Twelve Month Period Beginning July 15,2007
    
    
    102.0
    %2008
    
    
    101.0
    %2009 and thereafter
    
    
    100.0
    %
   Twelve Month Period Beginning January 15,2008
    
    
    102.0
    %2009
    
    
    101.0
    %2010 and thereafter
    
    
    100.0
    %
      F-26




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2006
    
    $
    702007
    
    
    802008
    
    
    862009
    
    
    952010
    
    
    45Thereafter
    
    
    1,130,000$
    1,130,376
  10. INCOME TAXES
  2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    
    
    
    $
    542
    
    
    $
    State
    
    
    (2,849
    )
    
    
    132
    
    
    
    119(2,849
    )
    
    
    674
    
    
    
    119Deferred:Federal
    
    
    59,546
    
    
    
    35,080
    
    
    
    14,513State
    
    
    8,887
    
    
    
    9,020
    
    
    
    1,244Change in valuation allowance
    
    
    (50,927
    )
    
    
    (63,525
    )
    
    
    (22,427
    )17,506
    
    
    
    (19,425
    )
    
    
    (6,670
    )Total benefit (provision) for income taxes
    
    $
    14,657
    
    
    $
    (18,751
    )
    
    $
    (6,551
    )
  2005
    
    
    2004Deferred tax assets:Net operating loss carryforwards
    
    $
    451,620
    
    
    $
    362,300Programming
    
    
    1,163
    
    
    
    9,621Deferred compensation
    
    
    27,329
    
    
    
    23,915Deferred interest expense
    
    
    
    
    
    
    43,290Other
    
    
    12,330
    
    
    
    3,627492,442
    
    
    
    442,753Deferred tax asset valuation allowance
    
    
    (484,989
    )
    
    
    (434,062
    )Net deferred tax assets
    
    
    7,453
    
    
    
    8,691Deferred tax liabilities:Basis difference on FCC licenses no longer amortized for financial reporting
purposes under SFAS 142
    
    
    (177,200
    )
    
    
    (194,706
    )Basis difference on other fixed assets and certain other intangible assets
    
    
    (7,453
    )
    
    
    (8,691
    )Net deferred tax liability
    
    $
    (177,200
    )
    
    $
    (194,706
    )
  F-27




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2005
    
    
    2004
    
    
    2003Tax benefit at U.S. federal statutory tax rate
    
    $
    63,268
    
    
    $
    38,199
    
    
    $
    14,743State income tax benefit, net of federal tax
    
    
    7,683
    
    
    
    4,344
    
    
    
    1,264Effect of increase in state tax rate on net deferred liabilities
    
    
    1,604
    
    
    
    4,864
    
    
    
    State taxes resulting from Section 1031 settlement
    
    
    (2,782
    )
    
    
    
    
    
    
    Disqualified original issue discount
    
    
    (3,202
    )
    
    
    (2,832
    )
    
    
    (2,451
    )Non-deductible items
    
    
    (263
    )
    
    
    (264
    )
    
    
    (247
    )Valuation allowance
    
    
    (50,927
    )
    
    
    (63,525
    )
    
    
    (22,427
    )Tax benefit of disposed FCC license intangible
    
    
    
    
    
    
    
    
    
    
    3,078Other
    
    
    (724
    )
    
    
    463
    
    
    
    (511
    )Benefit (provision) for income taxes
    
    $
    14,657
    
    
    $
    (18,751
    )
    
    $
    (6,551
    )
     F-28




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
     11. STOCK INCENTIVE PLANS
     F-29




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
     2005
    


    2004
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding, beginning of year
    
    
    5,336,713
    
    
    $
    0.49
    
    
    
    2,606,686
    
    
    $
    2.70
    
    
    
    9,103,336
    
    
    $
    5.88Granted
    
    
    17,498,583
    
    
    
    0.80
    
    
    
    4,316,000
    
    
    
    0.01
    
    
    
    7,529,409
    
    
    
    0.04Forfeited
    
    
    (363,551
    )
    
    
    1.06
    
    
    
    (915,625
    )
    
    
    4.88
    
    
    
    (6,410,350
    )
    
    
    7.25Exercised
    
    
    (4,429,571
    )
    
    
    0.01
    
    
    
    (670,348
    )
    
    
    0.01
    
    
    
    (7,615,709
    )
    
    
    0.04Outstanding, end of year
    
    
    18,042,174
    
    
    
    0.89
    
    
    
    5,336,713
    
    
    
    0.49
    
    
    
    2,606,686
    
    
    
    2.70Weighted average fair value of options granted during the year
    
    
    
    
    
    $
    0.68
    
    
    
    
    
    
    $
    1.64
    
    
    
    
    
    
    $
    3.72
   F-30




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 WeightedNumber
    
    
    Average
    
    
    NumberOutstanding
    
    
    Remaining
    
    
    Exercisable atDecember 31,
    
    
    Contractual
    
    
    December 31,Exercise Prices
    
    2005
    
    
    Life
    
    
    2005$0.01
    
    
    523,996
    
    
    
    3.4
    
    
    
    523,996$0.42
    
    
    8,333,334
    
    
    
    6.8
    
    
    
    0$1.00
    
    
    360,000
    
    
    
    0.6
    
    
    
    360,000$1.25
    
    
    8,333,333
    
    
    
    6.8
    
    
    
    0$2.11
    
    
    2,500
    
    
    
    1.3
    
    
    
    2,500$3.42
    
    
    454,011
    
    
    
    0.9
    
    
    
    454,011$7.25
    
    
    35,000
    
    
    
    2.4
    
    
    
    35,00018,042,174
    
    
    
    
    
    
    
    1,375,507
   2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding, beginning of year
    
    
    522,500
    
    
    $
    3.04
    
    
    
    522,500
    
    
    $
    3.04
    
    
    
    2,322,500
    
    
    $
    8.62Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,800,000
    )
    
    
    10.24Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    522,500
    
    
    
    3.04
    
    
    
    522,500
    
    
    
    3.04
    
    
    
    522,500
    
    
    
    3.04Weighted average fair value of options granted during the year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  WeightedAverageRemainingNumber
    
    
    Contractual
    
    
    NumberExercise Price
    
    Outstanding
    
    
    Life
    
    
    Exercisable$2.85
    
    
    500,000
    
    
    
    0.6
    
    
    
    500,000$7.25
    
    
    22,500
    
    
    
    6.0
    
    
    
    22,500522,500
    
    
    
    
    
    
    
    522,500
  F-31




---



##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 12. MANDATORILY REDEEMABLE PREFERRED STOCK
   F-32




---



##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 14 1/4% Junior
    
    
    93/4%
    
    
    11% Series BExchangeable
    
    
    Convertible
    
    
    ConvertiblePreferred
    
    
    Preferred
    
    
    ExchangeableStock
    
    
    Stock
    
    
    Preferred Stock
    
    
    TotalMandatorily redeemable and convertible
preferred stock:Balance at January 1, 2003
    
    $
    354,498
    
    
    $
    114,320
    
    
    $
    524,283
    
    
    $
    993,101Accretion
    
    
    596
    
    
    
    499
    
    
    
    
    
    
    
    1,095Accrual of cumulative dividends
    
    
    24,044
    
    
    
    11,765
    
    
    
    33,200
    
    
    
    69,009Reclassification as a liability on July 1, 2003
    
    
    (379,138
    )
    
    
    
    
    
    
    
    
    
    
    (379,138
    )Balance at December 31, 2003
    
    
    
    
    
    
    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
    
    
    $
    777,521Mandatorily redeemable preferred stock:Balance at July 1, 2003
    
    $
    379,138Reclassification of unamortized issuance
costs on July 1, 2003
    
    
    4,062Accrual of cumulative dividends from
July 1, 2003 thorugh December 31, 2003
    
    
    27,539Balance at December 31, 2003
    
    
    410,739Accrual of cumulative dividends
    
    
    60,616Balance at December 31, 2004
    
    
    471,355Accrual of cumulative dividends
    
    
    69,561Balance at December 31, 2005
    
    $
    540,916Aggregated liquidation preference and
accumulated dividends at
December 31, 2005
    
    $
    540,916
    
    
    $
    155,323
    
    
    $
    622,709
    
    
    $
    1,318,948
 1 4 3 4
 14 1/4% Junior Exchangeable Preferred Stock
  F-33




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   9 3/4% Convertible Preferred Stock
    11% Series B Convertible Preferred Stock
    F-34




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Series B ConvertiblePreferred StockAt December 31,
    
    11%2006
    
    $
    689,3762007
    
    
    756,0442008
    
    
    822,7122009
    
    
    889,3792010
    
    
    956,047
 Covenants Under Preferred Stock
  13. COMMON STOCK AND COMMON STOCK WARRANTS
      F-35




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
  Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses.
 Investments in broadcast properties.
 Long-term debt.
 Mandatorily redeemable securities.
 2005
    
    
    200414 1/4% Junior Exchangeable Preferred
    
    $
    470,597
    
    
    $
    346,4469 3/4% Convertible Preferred
    
    
    108,369
    
    
    
    77,58211% Series B Convertible Preferred
    
    
    622,709
    
    
    
    600,703$
    1,201,675
    
    
    $
    1,024,731
 15. COMMITMENTS AND CONTINGENCIES
 Leases
  2006
    
    $
    19,5482007
    
    
    16,6792008
    
    
    15,3312009
    
    
    12,9792010
    
    
    12,866Thereafter
    
    
    95,550$
    172,953
  F-36




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Employment Agreements
  Investment Commitments
  Routine Litigation
  F-37




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 16. SUPPLEMENTAL CASH FLOW INFORMATION
  For the Years ending December 31,2005
    
    
    2004
    
    
    2003Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    58,087
    
    
    $
    36,906
    
    
    $
    41,883Cash paid for income taxes
    
    $
    297
    
    
    $
    250
    
    
    $
    1,053Non-cash operating, investing and financing activities:Programming received in a settlement
    
    $
    
    
    
    $
    
    
    
    $
    1,000Amortization of debt discount
    
    $
    55,227
    
    
    $
    49,172
    
    
    $
    43,660Dividends accrued on redeemable and convertible preferred stock
    
    $
    33,770
    
    
    $
    56,175
    
    
    $
    69,009Discount accretion on redeemable and convertible securities
    
    $
    506
    
    
    $
    503
    
    
    $
    1,095Stock option exercise proceeds and withholding taxes remitted
through withholding of shares received upon exercise
    
    $
    
    
    
    $
    
    
    
    $
    2,359Reduction of stock subscription notes receivable through
offset of deferred and other compensation
    
    $
    
    
    
    $
    37
    
    
    $
    770
 17. COMPREHENSIVE LOSS
  Net loss
    
    $
    (76,213
    )Unrealized gain on interest rate swap
    
    
    3,146Comprehensive loss
    
    $
    (73,067
    )
 18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
  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
    
    
    
    75,446(Loss) gain on sale or disposal of
broadcast and other assets, net
    
    
    (965
    )
    
    
    (33
    )
    
    
    (510
    )
    
    
    (57
    )Operating income (loss)
    
    $
    (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
 F-38




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
      For the 2004 Quarters EndedDecember 31(2)(4)
    
    
    September 30(3)
    
    
    June 30
    
    
    March 31(2)(In thousands except share and per share data)NET REVENUES
    
    $
    69,587
    
    
    $
    65,872
    
    
    $
    69,877
    
    
    $
    71,294Expenses, excluding depreciation and
amortization
    
    
    67,383
    
    
    
    57,754
    
    
    
    61,908
    
    
    
    63,176Depreciation and amortization
    
    
    11,440
    
    
    
    10,527
    
    
    
    11,437
    
    
    
    10,260Total expenses
    
    
    78,823
    
    
    
    68,281
    
    
    
    73,345
    
    
    
    73,436(Loss) gain on sale or disposal of
broadcast and other assets, net
    
    
    (1,164
    )
    
    
    42
    
    
    
    6,067
    
    
    
    (109
    )Operating (loss) income
    
    $
    (10,400
    )
    
    $
    (2,367
    )
    
    $
    2,599
    
    
    $
    (2,251
    )Net loss attributable to common stockholders
    
    $
    (78,694
    )
    
    $
    (58,034
    )
    
    $
    (48,776
    )
    
    $
    (60,231
    )Basic and diluted loss per common share
    
    $
    (1.15
    )
    
    $
    (0.85
    )
    
    $
    (0.72
    )
    
    $
    (0.89
    )Weighted average common shares outstanding
    
    
    68,511,860
    
    
    
    68,372,183
    
    
    
    68,134,814
    
    
    
    67,540,702Stock price(1)High
    
    $
    1.74
    
    
    $
    3.30
    
    
    $
    4.00
    
    
    $
    4.60Low
    
    $
    0.90
    
    
    $
    1.30
    
    
    $
    2.15
    
    
    $
    3.51
 
 (1)
    
    The Companys Class A common stock is listed on the American Stock Exchange under the symbol
PAX.(2)
    
    In first quarter of 2004, the Company recorded an insurance reimbursement of $1.1 million as
insurance recoveries in other income in the consolidated statements of operations. In the
fourth quarter of 2004, the Company reclassified the insurance recoveries received in the
first quarter to selling, general and administrative expenses in order to offset 2004 expenses
incurred in connection with litigation over the extent of the Companys insurance coverage. F-39




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 (3)
    
    Includes a charge of $4.6 million for an adjustment of programming to net realizable value
resulting from a change in estimated future advertising revenues expected to be generated by
certain programming as a result of a change in expected usage of such programming, a $3.0
million reduction in music license fees resulting from the conclusion of a dispute and the
commencement of a new agreement with a music license organization, and $1.1 million in costs
incurred in connection with a required adjustment of the dividend rate with respect to the
Companys Series B preferred stock held by NBCU.(4)
    
    In the fourth quarter of 2004, the Company recorded an adjustment in the amount of $4.0
million in order to recognize additional lease expense for lease arrangements that provided
for escalating lease payments and a $4.9 million adjustment to recognize additional provisions
for income taxes resulting from a change in the state income tax
rate used to determine the provision and a $1.7 million amortization expense charge for certain
leasehold improvements to adjust their amortization period to the shorter of their useful lives
or the lease term. 19. SUBSEQUENT EVENTS
      F-40




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
   CONDENSED CONSOLIDATING BALANCE SHEETS:
 As of December 31, 2005 (in thousands)Wholly Owned
    
    
    
    
    
    
    Consolidating
    
    
    ConsolidatedParent Company
    
    
    Subsidiaries
    
    
    PMC
    
    
    Adjustments
    
    
    GroupAssetsCurrent assets
    
    $
    122,596
    
    
    $
    9,580
    
    
    $
    1,659
    
    
    $
    (1,462
    )
    
    $
    132,373Receivable from wholly owned subsidiaries
    
    
    891,601
    
    
    
    
    
    
    
    
    
    
    
    (891,601
    )
    
    
    Intangible assets, net
    
    
    46,446
    
    
    
    835,245
    
    
    
    
    
    
    
    
    
    
    
    881,691Property, equipment and other assets, net
    
    
    36,421
    
    
    
    87,380
    
    
    
    
    
    
    
    8,391
    
    
    
    132,192Total assets
    
    $
    1,097,064
    
    
    $
    932,205
    
    
    $
    1,659
    
    
    $
    (884,672
    )
    
    $
    1,146,256Liabilities, Mandatorily Redeemable and Convertible
Preferred Stock, Contingent stock purchase obligation and Stockholders DeficitCurrent liabilities
    
    $
    603,300
    
    
    $
    23,143
    
    
    $
    1,500
    
    
    $
    (1,462
    )
    
    $
    626,481Deferred income taxes
    
    
    177,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,200Accrued restructuring charges
    
    
    
    
    
    
    7,240
    
    
    
    
    
    
    
    
    
    
    
    7,240Long term debt, net of current portion
    
    
    1,122,213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,122,213Notes payable to Parent Company
    
    
    
    
    
    
    891,601
    
    
    
    
    
    
    
    (891,601
    )
    
    
    Other long-term liabilities
    
    
    8,515
    
    
    
    18,612
    
    
    
    
    
    
    
    159
    
    
    
    27,286Total liabilities
    
    
    1,911,228
    
    
    
    940,596
    
    
    
    1,500
    
    
    
    (892,904
    )
    
    
    1,960,420Mandatorily redeemable and
convertible preferred stock
    
    
    777,521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    777,521Contingent stock purchase obligation
    
    
    2,410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,410Commitments and contingencies
Stockholders deficit
    
    
    (1,594,095
    )
    
    
    (8,391
    )
    
    
    159
    
    
    
    8,232
    
    
    
    (1,594,095
    )Total liabilities, mandatorily redeemable and
convertible preferred stock,
and stockholders deficit
    
    $
    1,097,064
    
    
    $
    932,205
    
    
    $
    1,659
    
    
    $
    (884,672
    )
    
    $
    1,146,256
 F-41




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Twelve Months Ended December 31, 2005 (in thousands)Wholly Owned
    
    
    
    
    
    
    Consolidating
    
    
    ConsolidatedParent Company
    
    
    Subsidiaries
    
    
    PMC
    
    
    Adjustments
    
    
    GroupNET REVENUES
    
    $
    165,645
    
    
    $
    88,531
    
    
    $
    161
    
    
    $
    (161
    )
    
    $
    254,176Expenses:Programming and broadcast operations
    
    
    12,282
    
    
    
    44,617
    
    
    
    
    
    
    
    
    
    
    
    56,899Program rights amortization
    
    
    61,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,091Selling, general and administrative
    
    
    59,907
    
    
    
    38,398
    
    
    
    
    
    
    
    (161
    )
    
    
    98,144Depreciation and amortization
    
    
    13,251
    
    
    
    25,542
    
    
    
    
    
    
    
    
    
    
    
    38,793Insurance recoveries
    
    
    (15,652
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,652
    )Restructuring charges
    
    
    4,498
    
    
    
    26,408
    
    
    
    
    
    
    
    
    
    
    
    30,906Other operating expenses
    
    
    
    
    
    
    4,580
    
    
    
    
    
    
    
    
    
    
    
    4,580Total operating expenses
    
    
    135,377
    
    
    
    139,545
    
    
    
    
    
    
    
    (161
    )
    
    
    274,761Loss on sale or disposal of broadcast and
other assets, net
    
    
    (295
    )
    
    
    (1,270
    )
    
    
    
    
    
    
    
    
    
    
    (1,565
    )Operating income (loss)
    
    
    29,973
    
    
    
    (52,284
    )
    
    
    161
    
    
    
    
    
    
    
    (22,150
    )Other income (expense):Interest expense
    
    
    (3,298
    )
    
    
    (107,418
    )
    
    
    
    
    
    
    
    
    
    
    (110,716
    )Dividends on mandatorily redeemable
preferred stock
    
    
    (69,561
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,561
    )Loss on extinguishment of debt
    
    
    (54,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54,127
    )Other income (expense), net
    
    
    7,091
    
    
    
    (703
    )
    
    
    
    
    
    
    
    
    
    
    6,388Equity in losses of consolidated subsidiaries
    
    
    (160,405
    )
    
    
    
    
    
    
    
    
    
    
    160,405
    
    
    
    Loss before income taxes
    
    
    (250,327
    )
    
    
    (160,405
    )
    
    
    161
    
    
    
    160,405
    
    
    
    (250,166
    )Income tax provision
    
    
    14,657
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,657Net loss before minority interest
    
    
    (235,670
    )
    
    
    (160,405
    )
    
    
    161
    
    
    
    160,405
    
    
    
    (235,509
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    (161
    )Net loss
    
    
    (235,670
    )
    
    
    (160,405
    )
    
    
    161
    
    
    
    160,244
    
    
    
    (235,670
    )Dividends and accretion on redeemable and
convertible preferred stock
    
    
    (39,361
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,361
    )Net loss attributable to common stockholders
    
    $
    (275,031
    )
    
    $
    (160,405
    )
    
    $
    161
    
    
    $
    160,244
    
    
    $
    (275,031
    )
 F-42




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
 Twelve Months Ended December 31, 2005 (in thousands)Wholly Owned
    
    
    
    
    
    
    Consolidating
    
    
    ConsolidatedParent Company
    
    
    Subsidiaries
    
    
    PMC
    
    
    Adjustments
    
    
    GroupNet cash (used in) provided by operating activities
    
    $
    (9,319
    )
    
    $
    12,169
    
    
    $
    197
    
    
    $
    
    
    
    $
    3,047Cash flows from investing activities:Decrease in short term investments
    
    
    5,993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,993Refund of programming letters of credit
    
    
    24,603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,603Increase in restricted cash
    
    
    (2,410
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,410
    )Purchases of property and equipment
    
    
    (5,283
    )
    
    
    (10,053
    )
    
    
    
    
    
    
    
    
    
    
    (15,336
    )Proceeds from sale of broadcast assets
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Acquisition of intangible assets
    
    
    (2,000
    )
    
    
    (2,122
    )
    
    
    
    
    
    
    
    
    
    
    (4,122
    )Net cash provided by (used in) investing activities
    
    
    20,973
    
    
    
    (12,175
    )
    
    
    
    
    
    
    
    
    
    
    8,798Cash flows from financing activities:Repayments of long-term debt
    
    
    (1,102,988
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,102,988
    )Borrowings of long-term debt
    
    
    1,121,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,121,900Payment of
loan origination costs
    
    
    (19,327
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,327
    )Expenses
related to preferred stock restructuring
    
    
    (5,085
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,085
    )Proceeds from the issuance of preferred stock
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Payments of employee withholding taxes on
exercise of stock options, net
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Proceeds from exercise of common stock options, net
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Net cash used in financing activities
    
    
    (2,999
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,999
    )Increase (decrease) in cash and cash equivalents
    
    
    8,655
    
    
    
    (6
    )
    
    
    197
    
    
    
    
    
    
    
    8,846Cash and cash equivalents, beginning of period
    
    
    82,015
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    82,047Cash and cash equivalents, end of period
    
    $
    90,670
    
    
    $
    26
    
    
    $
    197
    
    
    $
    
    
    
    $
    90,893
 F-43




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING BALANCE SHEETS:
 As of December 31, 2004Wholly Owned
    
    
    Consolidating
    
    
    ConsolidatedParent Company
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    Group(In thousands)AssetsCurrent assets
    
    $
    177,900
    
    
    $
    11,561
    
    
    $
    
    
    
    $
    189,461Receivable from wholly owned subsidiaries
    
    
    891,601
    
    
    
    
    
    
    
    (891,601
    )
    
    
    Intangible assets, net
    
    
    50,790
    
    
    
    833,120
    
    
    
    
    
    
    
    883,910Investment in and advances to wholly
owned subsidiaries
    
    
    33,837
    
    
    
    
    
    
    
    (33,837
    )
    
    
    Property, equipment and other assets, net
    
    
    50,003
    
    
    
    100,931
    
    
    
    
    
    
    
    150,934Total assets
    
    $
    1,204,131
    
    
    $
    945,612
    
    
    $
    (925,438
    )
    
    $
    1,224,305Liabilities, Mandatorily Redeemable and
Convertible Preferred Stock and
Stockholders DeficitCurrent liabilities

    
    $
    102,792
    
    
    $
    9,247
    
    
    $
    
    
    
    $
    112,039Deferred income taxes
    
    
    194,706
    
    
    
    
    
    
    
    
    
    
    
    194,706Senior secured and senior subordinated
notes, net of current portion
    
    
    1,004,029
    
    
    
    
    
    
    
    
    
    
    
    1,004,029Notes payable to Parent Company
    
    
    
    
    
    
    891,601
    
    
    
    (891,601
    )
    
    
    Mandatorily redeemable preferred stock
    
    
    471,355
    
    
    
    
    
    
    
    
    
    
    
    471,355Other long-term liabilities
    
    
    17,845
    
    
    
    10,927
    
    
    
    
    
    
    
    28,772Total liabilities
    
    
    1,790,727
    
    
    
    911,775
    
    
    
    (891,601
    )
    
    
    1,810,901Mandatorily redeemable and convertible
preferred stock
    
    
    740,745
    
    
    
    
    
    
    
    
    
    
    
    740,745Commitments and contingencies
Stockholders deficit
    
    
    (1,327,341
    )
    
    
    33,837
    
    
    
    (33,837
    )
    
    
    (1,327,341
    )Total liabilities, mandatorily
redeemable and convertible preferred
stock, and stockholders deficit
    
    $
    1,204,131
    
    
    $
    945,612
    
    
    $
    (925,438
    )
    
    $
    1,224,305
 F-44




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
 Twelve Months Ended December 31, 2004Wholly Owned
    
    
    Consolidating
    
    
    ConsolidatedParent Company
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    Group(In thousands)NET REVENUES
    
    $
    168,252
    
    
    $
    108,378
    
    
    $
    
    
    
    $
    276,630Expenses:Programming and broadcast operations
    
    
    13,873
    
    
    
    43,611
    
    
    
    
    
    
    
    57,484Program Rights Amortization
    
    
    53,616
    
    
    
    
    
    
    
    
    
    
    
    53,616Selling, general and administrative
    
    
    68,901
    
    
    
    61,114
    
    
    
    
    
    
    
    130,015Adjustment of programming to net realizable value
    
    
    4,645
    
    
    
    
    
    
    
    
    
    
    
    4,645Other operating expense
    
    
    
    
    
    
    4,461
    
    
    
    
    
    
    
    4,461Depreciation and amortization
    
    
    13,545
    
    
    
    30,119
    
    
    
    
    
    
    
    43,664Total operating expenses
    
    
    154,580
    
    
    
    139,305
    
    
    
    
    
    
    
    293,885Gain on sale or disposal of broadcast and other
assets, net
    
    
    817
    
    
    
    4,019
    
    
    
    
    
    
    
    4,836Operating income (loss)
    
    
    14,489
    
    
    
    (26,908
    )
    
    
    
    
    
    
    (12,419
    )Other income (Expense):Interest expense
    
    
    12,957
    
    
    
    (107,149
    )
    
    
    
    
    
    
    (94,192
    )Dividends on mandatorily redeemable preferred stock
    
    
    (60,616
    )
    
    
    
    
    
    
    
    
    
    
    (60,616
    )Other income, net
    
    
    4,280
    
    
    
    12
    
    
    
    
    
    
    
    4,292Loss on extinguishment of debt
    
    
    (6,286
    )
    
    
    
    
    
    
    
    
    
    
    (6,286
    )Equity in losses of consolidated subsidiaries
    
    
    (134,045
    )
    
    
    
    
    
    
    134,045
    
    
    
    (Loss) income before income taxes
    
    
    (169,221
    )
    
    
    (134,045
    )
    
    
    134,045
    
    
    
    (169,221
    )Income tax provision
    
    
    (18,751
    )
    
    
    
    
    
    
    
    
    
    
    (18,751
    )Net (loss) income
    
    
    (187,972
    )
    
    
    (134,045
    )
    
    
    134,045
    
    
    
    (187,972
    )Dividends and accretion on redeemable and
convertible preferred stock
    
    
    (57,763
    )
    
    
    
    
    
    
    
    
    
    
    (57,763
    )Net (loss) income attributable to common stockholders
    
    $
    (245,735
    )
    
    $
    (134,045
    )
    
    $
    134,045
    
    
    $
    (245,735
    )
 F-45




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
 Twelve Months Ended December 31, 2004WhollyParent
    
    
    Owned
    
    
    Consolidating
    
    
    ConsolidatedCompany
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    Group(In thousands)Net cash (used in) provided by operating activities
    
    $
    (21,411
    )
    
    $
    11,694
    
    
    $
    
    
    
    $
    (9,717
    )Cash flows from investing activities:Decrease in short term investments
    
    
    6,955
    
    
    
    
    
    
    
    
    
    
    
    6,955Deposits for programming letters of credit
    
    
    (24,603
    )
    
    
    
    
    
    
    
    
    
    
    (24,603
    )Purchases of property and equipment
    
    
    (4,320
    )
    
    
    (11,525
    )
    
    
    
    
    
    
    (15,845
    )Proceeds from sales of broadcast properties
    
    
    9,988
    
    
    
    
    
    
    
    
    
    
    
    9,988Proceeds from sale of broadcast towers and property and
equipment
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Other
    
    
    
    
    
    
    (170
    )
    
    
    
    
    
    
    (170
    )Net cash used in investing activities
    
    
    (11,952
    )
    
    
    (11,695
    )
    
    
    
    
    
    
    (23,647
    )Cash flows from financing activities:Borrowings of long-term debt
    
    
    365,000
    
    
    
    
    
    
    
    
    
    
    
    365,000Repayments of long-term debt
    
    
    (335,687
    )
    
    
    
    
    
    
    
    
    
    
    (335,687
    )Payments of loan origination costs
    
    
    (11,441
    )
    
    
    
    
    
    
    
    
    
    
    (11,441
    )Proceeds from exercise of common stock options, net
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Repayment of stock subscription notes receivable
    
    
    413
    
    
    
    
    
    
    
    
    
    
    
    413Net cash provided by financing activities
    
    
    18,288
    
    
    
    
    
    
    
    
    
    
    
    18,288Increase (decrease) in cash and cash equivalents
    
    
    (15,075
    )
    
    
    (1
    )
    
    
    
    
    
    
    (15,076
    )Cash and cash equivalents, beginning of period
    
    
    97,090
    
    
    
    33
    
    
    
    
    
    
    
    97,123Cash and cash equivalents, end of period
    
    $
    82,015
    
    
    $
    32
    
    
    $
    
    
    
    $
    82,047
 F-46




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
 Twelve Months Ended December 31, 2003WhollyParent
    
    
    Owned
    
    
    Consolidating
    
    
    ConsolidatedCompany
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    Group(In thousands)NET REVENUES
    
    $
    169,086
    
    
    $
    101,853
    
    
    $
    
    
    
    $
    270,939Expenses:Programming and broadcast operations
    
    
    15,979
    
    
    
    37,847
    
    
    
    
    
    
    
    53,826Program Rights Amortization
    
    
    51,082
    
    
    
    
    
    
    
    
    
    
    
    51,082Selling, general and administrative
    
    
    63,830
    
    
    
    61,095
    
    
    
    
    
    
    
    124,925Other operating expense
    
    
    1,001
    
    
    
    4,516
    
    
    
    
    
    
    
    5,517Depreciation and amortization
    
    
    7,751
    
    
    
    35,232
    
    
    
    
    
    
    
    42,983Total operating expenses
    
    
    139,643
    
    
    
    138,690
    
    
    
    
    
    
    
    278,333Gain on sale or disposal of broadcast and other assets, net
    
    
    9,921
    
    
    
    41,668
    
    
    
    
    
    
    
    51,589Operating income
    
    
    39,364
    
    
    
    4,831
    
    
    
    
    
    
    
    44,195Other income (Expense):Interest expense
    
    
    (91,698
    )
    
    
    (504
    )
    
    
    
    
    
    
    (92,202
    )Dividends on mandatorily redeemable preferred stock
    
    
    (27,539
    )
    
    
    
    
    
    
    
    
    
    
    (27,539
    )Other income, net
    
    
    5,803
    
    
    
    81
    
    
    
    
    
    
    
    5,884Equity in income of consolidated subsidiaries
    
    
    4,408
    
    
    
    
    
    
    
    (4,408
    )
    
    
    (Loss) income before income taxes
    
    
    (69,662
    )
    
    
    4,408
    
    
    
    (4,408
    )
    
    
    (69,662
    )Income tax provision
    
    
    (6,551
    )
    
    
    
    
    
    
    
    
    
    
    (6,551
    )Net (loss) income
    
    
    (76,213
    )
    
    
    4,408
    
    
    
    (4,408
    )
    
    
    (76,213
    )Dividends and accretion on redeemable and convertible
preferred stock
    
    
    (70,104
    )
    
    
    
    
    
    
    
    
    
    
    (70,104
    )Net (loss) income attributable to common stockholders
    
    $
    (146,317
    )
    
    $
    4,408
    
    
    $
    (4,408
    )
    
    $
    (146,317
    )
 F-47




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
 Twelve Months Ended December 31, 2003WhollyParent
    
    
    Owned
    
    
    Consolidating
    
    
    ConsolidatedCompany
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    Group(In thousands)Net cash (used in) provided by operating activities
    
    $
    7,517
    
    
    $
    25,399
    
    
    $
    
    
    
    $
    32,916Cash flows from investing activities:Decrease in short term investments
    
    
    4,125
    
    
    
    
    
    
    
    
    
    
    
    4,125Purchases of property and equipment
    
    
    (1,487
    )
    
    
    (25,245
    )
    
    
    
    
    
    
    (26,732
    )Proceeds from sales of broadcast properties
    
    
    83,332
    
    
    
    
    
    
    
    
    
    
    
    83,332Proceeds from sale of broadcast towers and property and equipment
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    360Other
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (156
    )Net cash provided by (used in) investing activities
    
    
    86,330
    
    
    
    (25,401
    )
    
    
    
    
    
    
    60,929Cash flows from financing activities:Borrowings of long-term debt
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Repayments of long-term debt
    
    
    (20,152
    )
    
    
    
    
    
    
    
    
    
    
    (20,152
    )Payments of loan origination costs
    
    
    (2,259
    )
    
    
    
    
    
    
    
    
    
    
    (2,259
    )Proceeds from exercise of common stock options, net
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Payments of employee income taxes on exercise of common stock
options
    
    
    (2,335
    )
    
    
    
    
    
    
    
    
    
    
    (2,335
    )Repayment of stock subscription notes receivable
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    144Net cash used in financing activities
    
    
    (22,487
    )
    
    
    
    
    
    
    
    
    
    
    (22,487
    )Increase (decrease) in cash and cash equivalents
    
    
    71,360
    
    
    
    (2
    )
    
    
    
    
    
    
    71,358Cash and cash equivalents, beginning of period
    
    
    25,730
    
    
    
    35
    
    
    
    
    
    
    
    25,765Cash and cash equivalents, end of period
    
    $
    97,090
    
    
    $
    33
    
    
    $
    
    
    
    $
    97,123
 F-48




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##### Table of Contents



PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 SCHEDULE II
 PAXSON COMMUNICATIONS CORPORATION
 
 VALUATION AND QUALIFYING ACCOUNTS
 For the Three Years Ended December 31, 2005
 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)For the year ended December 31, 2005:Allowance 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)
    
    $
    2For the year ended December 31, 2003:Allowance for doubtful accounts
    
    $
    2,100
    
    
    $
    (418
    )
    
    $
    
    
    
    $
    (592
    )(1)
    
    $
    1,090Deferred tax assets valuation allowance
    
    $
    348,110
    
    
    $
    22,427
    (2)
    
    $
    
    
    
    $
    
    
    
    $
    370,537Restructuring reserves
    
    $
    1,522
    
    
    $
    48
    
    
    $
    
    
    
    $
    (1,425
    )(3)
    
    $
    145
 
 (1)
    
    Write off of uncollectible receivables.(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 10). F-49