===============================================================================
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the fiscal year ended December 31, 2003

                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 (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                                59-3212788
   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
   incorporation or organization)

            601 CLEARWATER PARK ROAD, WEST PALM BEACH, FLORIDA 33401
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (561) 659-4122

Securities Registered Pursuant to Section 12(b) of the Act:

                                                     NAME OF EXCHANGE
         TITLE OF EACH CLASS                        ON WHICH REGISTERED
         -------------------                        -------------------
Class A Common Stock, $0.001 par value            American Stock Exchange

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X|

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

    Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No |_|

    The aggregate market value of common stock held by non-affiliates of the
registrant as of March 19, 2004 is $169,948,000 computed by reference to the
closing price for such shares on the American Stock Exchange.

    The number of shares outstanding of each of the registrant's classes of
common stock, as of March 19, 2004 was: 63,473,488 shares of Class A Common
Stock, $0.001 par value, and 8,311,639 shares of Class B Common Stock, $0.001
par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

    Parts of the definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders to be held on May 21, 2004.

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<PAGE>

<TABLE>

                                TABLE OF CONTENTS
<CAPTION>
                                                                                                                     Page
<S>               <C>                                                                                                <C>
Item 1.           Business...........................................................................................  3
Item 2.           Properties......................................................................................... 28
Item 3.           Legal Proceedings.................................................................................. 29
Item 4.           Submission of Matters to a Vote of Security Holders................................................ 29
Item 5.           Market for Registrant's Common Equity and Related
                  Stockholder Matters................................................................................ 29
Item 6.           Selected Financial Data............................................................................ 30
Item 7.           Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 30
Item 7A.          Quantitative and Qualitative Disclosures About Market Risk......................................... 46
Item 8.           Financial Statements and Supplementary Data........................................................ 47
Item 9.           Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............... 47
Item 9A.          Controls and Procedures............................................................................ 47
Item 10.          Directors and Executive Officers of the Registrant................................................. 48
Item 11.          Executive Compensation............................................................................. 48
Item 12.          Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
                    Matters.......................................................................................... 48
Item 13.          Certain Relationships and Related Transactions..................................................... 48
Item 14.          Principal Accountant Fees and Services............................................................. 48
Item 15.          Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 48
</TABLE>

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<PAGE>



                                     PART I

ITEM 1. BUSINESS

GENERAL

    We are a network television broadcasting company which owns and operates
the largest broadcast television station group in the United States, as measured
by the number of television households in the markets our stations serve. We
currently own and operate 61 broadcast television stations (including three
stations we operate under time brokerage agreements), all of which carry PAX TV,
including stations reaching all of the top 20 U.S. markets and 40 of the top 50
U.S. markets. We operate PAX TV, a network that provides programming seven days
per week, 24 hours per day, and reaches approximately 96 million homes, or 89%
of prime time television households in the U.S., through our broadcast
television station group, and pursuant to distribution arrangements with cable
and satellite distribution systems and our broadcast station affiliates. PAX
TV's entertainment programming principally consists of shows originally
developed by us and shows that have appeared previously on other broadcast
networks which we have purchased the right to air. The balance of PAX TV's
programming consists of long form paid programming (principally infomercials)
and public interest programming. We have obtained audience ratings and share,
market rank and television household data set forth in this report from the most
recent information available from Nielsen Media Research. We do not assume
responsibility for the accuracy or completeness of this data.

    We derive our revenues from the sale of network spot advertising time,
network long form paid programming and station advertising:

    o Network Spot Advertising. We sell commercial air time to advertisers who
      want to reach the entire nationwide PAX TV viewing audience with a single
      advertisement. Most of our network spot advertising is sold under advance,
      or "upfront," commitments to purchase advertising time which are obtained
      before the beginning of our PAX TV entertainment programming season.
      Network spot advertising rates are significantly affected by audience
      ratings and our ability to reach audience demographics that are desirable
      to advertisers. Higher ratings generally will enable us to charge higher
      rates to advertisers. Our network spot advertising revenue represented
      approximately 21% of our revenue during the year ended December 31, 2003.

    o Network Long Form Paid Programming. We sell air time for long form paid
      programming, consisting primarily of infomercials, during broadcasting
      hours when we are not airing PAX TV entertainment programming or public
      interest programming. Our network long form paid programming represented
      approximately 41% of our revenue during the year ended December 31, 2003.

    o Station Advertising. We sell commercial air time 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. Station advertising rates are affected by
      ratings and local market conditions. Our station advertising sales
      represented approximately 38% of our revenue during the year ended
      December 31, 2003 (including 21% of our revenue during such year which was
      derived from local and national long form paid programming).

    Beginning in January 2003, we modified our programming schedule by replacing
entertainment programming during the hours of 1 p.m. to 5 p.m. and 11:30 p.m. to
midnight, Monday through Friday, and 5 p.m. to 6 p.m. and 11 p.m. to midnight,
Saturday and Sunday, with long form paid programming. As a result, the
percentage of our revenues derived from long form paid programming has increased
from 47% in the year ended December 31, 2002, to 62% in the year ended December
31, 2003. We expect to continue to derive more than half of our revenues from
long form paid programming for the foreseeable future.

    Commencing in the fourth quarter of 1999, we began entering into joint
sales agreements, or JSAs, with owners of broadcast stations in markets served
by our stations. After implementation of a JSA, we no longer employ our own
on-site station sales staff. The JSA partner provides station spot and long form
advertising sales management and representation for our stations and in about
half our stations we integrate and co-locate our station operations with those
of our JSA partners. To date, we have entered into JSAs for 47 of our 61 owned
and operated television stations.

    Our primary operating expenses include selling, general and administrative
expenses, depreciation and amortization expenses, programming expenses, employee
compensation and costs associated with cable and satellite distribution, ratings
services and promotional advertising. Programming amortization is a significant
expense and is affected by several factors, including the mix of syndicated
versus lower cost original programming as well as the frequency with which
programs are aired.

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<PAGE>

     We believe that our business model benefits from many of the favorable
attributes of both traditional television networks and network-affiliated
television station groups. Similar to traditional television networks, we
provide advertisers with nationwide reach through our extensive television
distribution system. We own and operate most of our distribution system and,
therefore, we receive advertising revenue from the entire broadcast day
(consisting of both entertainment and long form paid programming), unlike
traditional networks, which receive advertising revenue only from commercials
aired during network programming hours. In addition, because of the size and
centralized operations of our station group, we are able to achieve economies of
scale with respect to our programming, promotional, research, engineering,
accounting and administrative expenses which we believe enable us to have lower
per station expenses than those of a typical network-affiliated station.

EXPLORATION OF STRATEGIC ALTERNATIVES
     We believe that absent significant improvement in our ratings and revenues,
our business operations are unlikely to provide sufficient cash flow to support
our debt service and preferred stock dividend requirements. In September 2002,
we engaged Bear, Stearns & Co. Inc. and in August 2003 we engaged Citigroup
Global Markets Inc. to act as our financial advisors to assess our business
plan, capital structure and future capital needs, and to explore strategic
alternatives for our company. These strategic alternatives may include the sale
of all or part of our assets, finding a strategic partner for our company who
would provide the financial resources to enable us to redeem, restructure or
refinance our debt and preferred stock, or finding a third party to acquire our
company through a merger or other business combination or through a purchase of
our equity securities.

BUSINESS STRATEGY
     Our principal business objective is to maximize our cash flow through
maintaining an efficient operating structure while we explore strategic
alternatives for our business. To materially increase our revenues, we believe
we would need to significantly improve the audience ratings of our entertainment
programming, which in turn would require us to invest substantial resources in
the acquisition and development of additional entertainment programming. We have
pursued a strategy of reducing our programming and other operating expenses in
order to improve our cash flow, conserve our financial resources and maintain
our liquidity while we explore strategic alternatives to address the issues
facing our business, and are therefore not currently investing substantial
additional amounts in new entertainment programming. In January 2003, we
significantly reduced the amount of entertainment programming aired on PAX TV,
and replaced it with long form paid programming, consisting principally of
infomercials.

OPERATING STRATEGY
     While we explore strategic alternatives as discussed above, the principal
components of our operating strategy are:

     o 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
       seek to attract viewers and establish a nationally recognized brand by
       offering quality entertainment programming. We have developed original
       entertainment programming for PAX TV at lower costs than those typically
       incurred by other broadcast networks for original entertainment
       programming by employing cost efficient development, financing and
       production techniques.

     o 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 ten 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 promote PAX TV entertainment programming and each of our television
       stations by utilizing a centralized advertising and promotional program.
       We also 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, except for local news and syndicated programming provided
       by JSA partners, each station offers substantially the same programming
       schedule.

     o Improve Local Television Station Operations through Joint Sales
       Agreements. We have sought to improve the operations of our local
       stations by entering into JSAs with respect to 47 of our stations,
       including JSAs between 42 of our stations and stations owned by National
       Broadcasting Company, Inc., or NBC, or independently owned NBC
       affiliated stations. Substantially all of those stations are currently
       operating under the terms of the JSAs. Generally, JSAs are for ten-year
       terms. Substantially all JSA partners have the right to terminate the JSA
       upon a sale by the JSA partner of its station that is the subject of the
       JSA. Each JSA typically provides for the JSA partner to serve as

                                      4
<PAGE>

       our exclusive sales representative to sell our station advertising,
       enabling our station to benefit from the strength of the JSA partner's
       sales organization and existing advertiser relationships. In about half
       of our JSA arrangements, we have co-located many of our station
       operations with those of the JSA partner, seeking to reduce our costs
       through operating efficiencies and economies of scale, including the
       elimination of redundant owned and leased facilities and staffing. Our
       JSA partner may provide local news and syndicated programming,
       supplementing and enhancing our station's programming lineup.

     o Expand and Improve PAX TV Distribution. We intend to continue to expand
       our television distribution system through the addition of affiliated
       broadcast television stations and cable systems. We intend to expand our
       distribution to reach as many U.S. television households as possible in a
       cost efficient manner. We continue 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.

     o Develop Our Broadcast Station Group's Digital Television Platform. Our
       owned and operated station group gives us a significant platform for
       digital broadcasting. We are continuing the construction of our digital
       broadcast facilities and intend to explore the most effective use of
       digital broadcast technology for each of our stations. Upon completion of
       the construction of our digital facilities, we believe that we will be
       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 complete are uncertain, we
       believe that with our existing broadcast stations we are well positioned
       to take advantage of future digital broadcasting opportunities.

     o Continue Airing Long Form Paid Programming. We air a substantial amount
       of long form paid programming as we believe this provides us with a
       stable revenue base as we continue to develop the PAX TV network's
       entertainment programming. In January 2003, we increased our inventory of
       air time available for long form paid programming by approximately 42% by
       shifting 26.5 hours per week of non-prime time PAX TV network
       entertainment programming to long form paid programming. We determined
       that we could sell this air time for long form paid programming at higher
       rates than the rates at which we were selling spot advertising time in
       these time periods. The portion of our revenues which is derived from
       network advertising decreased from 33% for the year ended December 31,
       2002 to 21% for the year ended December 31, 2003 and the portion of our
       revenues which is derived from network and station long form paid
       programming increased from 47% for the year ended December 31, 2002 to
       62% for the year ended December 31, 2003. This reduction in our network
       entertainment programming, which consisted principally of syndicated
       programs, also has enabled us to reduce our programming costs. We expect
       to periodically review and adjust the amount of air time we sell for long
       form paid programming in order to take advantage of opportunities that
       may arise for us to increase our advertising revenue.

DISTRIBUTION

     We distribute PAX TV through a television distribution system comprised of
our owned and operated broadcast television stations, cable television systems
in various markets not served by a PAX TV station, satellite television
providers and independently owned PAX TV affiliated broadcast stations.
According to Nielsen our programming currently reaches 89% of U.S. television
households (approximately 96 million homes).

     We seek to reach as many U.S. television households as possible in a cost
efficient manner. In evaluating opportunities to increase our television
distribution, we consider factors such as the attractiveness of specific
geographic markets and their audience demographics to potential television
advertisers, the degree to which the increased distribution would improve our
nationwide audience reach or upgrade our distribution in a market in which we
already operate, and the effect of any changes in our distribution on our
national ownership position under the Communications Act of 1934, as amended,
which we refer to as the Communications Act, and the rules and regulations of
the Federal Communications Commission, which we refer to as the FCC, restricting
the ownership of attributable interests in television stations. We have
increased the number of U.S. television households which can receive our
programming by entering into agreements with cable system operators and
satellite television providers under which they carry our programming on a
designated channel of their cable system or satellite service.

     Our Owned and Operated Television Stations. We currently own and operate 61
broadcast television stations (including three stations we operate under time
brokerage agreements, or TBAs), all of which carry PAX TV, including stations
reaching all of the top 20 U.S. markets and 40 of the top 50 U.S. markets. Our
owned and operated station group

                                       5

<PAGE>
reaches approximately 64% of U.S. prime time television households, according to
Nielsen. Our ownership of the stations providing most of our television
distribution enables us to receive advertising revenue from each station's
entire broadcast day and to achieve operating efficiencies typically not enjoyed
by network affiliated television stations. As nearly all of our owned and
operated stations operate in the "ultra high frequency," or UHF, portion of the
broadcast spectrum, only half of the number of television households they reach
are counted against the national ownership cap under the Communications Act. By
exercising our rights under the Communications Act to require cable television
system operators to carry the broadcast signals of our owned and operated
stations, we reach many more television households in each station's designated
market area, or DMA, than we would if our stations were limited to transmitting
their broadcast signals over the airwaves.

     We operate three stations (WPXL, New Orleans; WPXX, Memphis; and WBNA,
Louisville) pursuant to time brokerage agreements, or TBAs, with the station
owners. Under these agreements, we provide the station with PAX TV programming
and retain the advertising revenues from the sale of advertising time during
substantially all of our PAX TV programming hours, in the case of WPXL and WPXX,
and during half of our PAX TV programming hours, in the case of WBNA. We have
options to acquire two of these stations (WPXL and WPXX) and a right of first
refusal to acquire the third (WBNA). The owners of the two stations for which we
have options have the right to require us to purchase these stations at any time
after January 1, 2005 through December 31, 2006.

     The table below provides information about our owned and operated stations
(including stations we operate pursuant to TBAs). Upon completion of the pending
sale transaction noted in the table, we will own and operate 60 stations, all
which will carry PAX TV, including stations reaching all of the top 20 U.S.
markets and 40 of the top 50 markets.

<TABLE>
<CAPTION>
                               Market   Station Call   Broadcast   Total Market TV
     Market Name              Rank(1)     Letters      Channel      Households(2)      JSA Partner(3)
     -----------              -------  ------------   ----------  -----------------    --------------
<S>                             <C>       <C>          <C>           <C>                  <C>
     New York . . . . . . . . .  1        WPXN          31           7,376,330            NBC
     Los Angeles . . . . . . . . 2        KPXN          30           5,402,260            NBC
     Chicago . . . . . . . . . . 3        WCPX          38           3,399,460            NBC
     Philadelphia . . . . . . .  4        WPPX          61           2,874,330            NBC
     San Francisco . . . . . . . 5        KKPX          65           2,440,920            NBC
     Boston (3 stations) . . . . 6        WBPX          68           2,391,830            --
     Dallas . . . . . . . . . .  7        KPXD          68           2,255,970            NBC
     Washington D.C . . . . . .  8        WPXW          66           2,224,070            NBC
     Washington D.C . . . . . .  8        WWPX          60           2,224,070            NBC
     Atlanta . . . . . . . . . . 9        WPXA          14           2,035,060            Gannett Co., Inc.
     Detroit . . . . . . . . . .10        WPXD          31           1,923,230            --
     Houston . . . . . . . . . .11        KPXB          49           1,848,770            Belo Corp.
     Seattle . . . . . . . . . .12        KWPX          33           1,685,480            Belo Corp.
     Tampa . . . . . . . . . . .13        WXPX          66           1,644,270            Media General, Inc.
     Minneapolis . . . . . . . .14        KPXM          41           1,635,650            Gannett Co., Inc.
     Phoenix . . . . . . . . . .15        KPPX          51           1,561,760            Gannett Co., Inc.
     Cleveland . . . . . . . . .16        WVPX          23           1,542,970            Gannett Co., Inc.
     Miami . . . . . . . . . . .17        WPXM          35           1,510,740            NBC
     Denver . . . . . . . . . . 18        KPXC          59           1,399,100            Gannett Co., Inc.
     Sacramento . . . . . . . . 19        KSPX          29           1,278,430            Hearst-Argyle Television, Inc.
     Orlando . . . . . . . . . .20        WOPX          56           1,263,900            Hearst-ArgyleTelevision, Inc.
     Portland, OR . . . . . . . 24        KPXG          22           1,073,210            Belo Corp.
     Indianapolis . . . . . . . 25        WIPX          63           1,038,370            Dispatch Broadcast Group
     Hartford . . . . . . . . . 27        WHPX          26           1,001,320            NBC
     Raleigh-Durham . . . . . . 29        WFPX          62           947,750              NBC
     Raleigh-Durham . . . . . . 29        WRPX          47           947,750              NBC
     Nashville . . . . . . . .  30        WNPX          28           904,380              --
     Kansas City . . . . . . .  31        KPXE          50           875,090              Scripps Howard Broadcasting Company
     Milwaukee . . . . . . . .  33        WPXE          55           871,490              Journal Broadcast Group, Inc.
     Salt Lake City . . . . . . 36        KUPX          16           786,030              --
     San Antonio . . . . . . .  37        KPXL          26           736,240              Clear Channel Broadcasting, Inc.
     Grand Rapids . . . . . . . 38        WZPX          43           724,290              LIN Television Corp.
</TABLE>


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<PAGE>

<TABLE>
<S>                           <C>         <C>           <C>          <C>                  <C>
     West Palm Beach . . . . . .39        WPXP          67           709,290              Scripps Howard Broadcasting Company
     Birmingham . . . . . . . . 40        WPXH          44           697,570              NBC
     Norfolk . . . . . . . . .  41        WPXV          49           693,660              LIN Television Corp.
     New Orleans(4) (5) . . . . 42        WPXL          49           665,190              Hearst-Argyle Television, Inc.
     Memphis(4) (5) . . . . . . 43        WPXX          50           662,280              Raycom America, Inc.
     Buffalo . . . . . . . . .  44        WPXJ          51           647,920              Gannett Co., Inc.
     Oklahoma City . . . . . .  45        KOPX          62           647,390              The New York Times Company
     Greensboro . . . . . . . . 46        WGPX          16           645,430              Hearst-Argyle Television, Inc.
     Providence . . . . . . . . 48        WPXQ          69           635,610              NBC
     Louisville(4) (6) . . . .  50        WBNA          21           624,470              --
     Jacksonville-Brunswick . . 52        WPXC          21           598,070              Post-Newsweek Stations, Inc.
     Wilkes Barre . . . . . . . 53        WQPX          64           590,100              The New York Times Company
     Albany . . . . . . . . . . 55        WYPX          55           542,670              Hubbard Broadcasting, Inc.
     Tulsa . . . . . . . . . .  60        KTPX          44           505,000              Scripps Howard Broadcasting Company
     Knoxville . . . . . . . .  61        WPXK          54           499,040              Raycom America, Inc.
     Charleston, WV . . . . . . 63        WLPX          29           495,190              --
     Lexington . . . . . . . .  65        WUPX          67           466,980              --
     Roanoke . . . . . . . . .  66        WPXR          38           450,090              Media General, Inc.
     Honolulu . . . . . . . . . 72        KPXO          66           412,190              --
     Des Moines . . . . . . . . 73        KFPX          39           404,580              The New York Times Company
     Syracuse . . . . . . . . . 79        WSPX          56           384,290              Raycom America, Inc.
     Spokane . . . . . . . . .  80        KGPX          34           381,820              KHQ, Incorporated
     Shreveport(7) . . . . . .  81        KPXJ          21           379,880              KTBS, Inc.
     Cedar Rapids . . . . . . . 88        KPXR          48           328,060              --
     Greenville-N. Bern . . .  103        WEPX          38           270,560              --
     Greenville-N. Bern . . . .103        WPXU          35           270,560              --
     Wausau . . . . . . . . .  134        WTPX          46           178,910              --
</TABLE>

     ------------------

      (1) Market rank is based on the number of television households in the
          television market or Designated Market Area, or "DMA," as used by
          Nielsen, effective as of September 2003.

      (2) Refers to the number of television households in the DMA as estimated
          by Nielsen, effective as of September 2003.

      (3) Indicates the company with which we have entered into a JSA for the
          station.

      (4) Station is independently owned and is operated by us under a time
          brokerage agreement.

      (5) 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, 2005 through December 31, 2006.

      (6) We have a right of first refusal to acquire the station.

      (7) Station is subject to a pending sale transaction.

     Cable and Satellite Distribution. In order to increase the distribution
of our programming, we have entered into carriage agreements with the nation's
largest cable multiple system operators, as well as with other cable system
operators and satellite television providers. These cable and satellite system
operators carry our programming on a designated channel of their service. These
carriage agreements enable us to reach television households in markets not
served by our owned or affiliated stations. Our carriage agreements with cable
system operators generally required us to pay an amount based upon television
households reached. Our carriage agreements with satellite television providers
allow the satellite provider to sell and retain the advertising revenue from a
portion of the non-network advertising time during PAX TV programming hours.
Some of our carriage agreements with cable operators also provide this form of
compensation to the cable operator. We do not pay compensation for reaching
households in DMAs already served by our broadcast stations, even though the
cable operator may provide our programming to these households because we have
exercised our "must carry" rights under the Communications Act. We believe that
the ability to view our programming on one of the lower numbered channel
positions

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<PAGE>
(generally below channel 21) on a cable system improves the likelihood
that viewers will watch our programming, and we have successfully negotiated
favorable channel positions with most of the cable system operators and
satellite television providers with whom we have carriage agreements. Through
cable and satellite distribution, we reach approximately 17% of U.S. prime time
television households in DMAs not already served by a PAX TV station.

     Our PAX TV Affiliated Stations. To increase the distribution of PAX TV, we
have entered into affiliation agreements with stations in markets where we do
not otherwise own or operate a broadcast station. These stations include full
power and low power television stations. Each affiliation agreement gives the
particular station the right to broadcast PAX TV programming, or portions of it,
in the station's market. Although the majority of the affiliation agreements
provide for the distribution of PAX TV prime time entertainment programming,
some affiliates do not carry all of our PAX TV prime time entertainment
programming. In addition, some affiliates do not air PAX TV programming in the
exact time patterns that the programming is broadcast on our network because of
issues related to their specific markets. Our affiliation agreements provide us
with additional distribution of our PAX TV programming without the expense of
acquiring a station or paying compensation to cable system operators in the
markets reached. Under our affiliation agreements, we are not required to pay
cash compensation to the affiliate, and the affiliate is entitled to sell and
retain the revenue from all or a portion of the non-network advertising time
during the PAX TV programming hours. We have affiliation agreements with respect
to 54 television stations which reach approximately 8% of U.S. prime time
television households.

PROGRAMMING

     We operate PAX TV, a network that provides programming seven days per week,
24 hours per day. During our PAX TV entertainment programming hours, which are
between 5:00 p.m. and 11:30 p.m., local time, Monday through Friday, and 6:00
p.m. and 11:00 p.m., Saturday and Sunday, we offer entertainment programs that
are free of excessive violence, explicit sexual themes and foul language. We
produce original shows to air primarily during PAX TV's prime time hours. The
balance of our PAX TV entertainment lineup consists of syndicated programs and a
limited amount of entertainment and sports programming on a market-by-market
basis.

     Since our launch, we have sought to develop our original PAX TV
programming, as our operating experience with PAX TV has shown that quality
original programs can generate higher ratings and deliver a greater return to
us, in terms of advertising revenues, than syndicated programs of comparable
cost. In March 2004 we entered into an agreement with NBC under which NBC will
consult with us on the development, production and programming of
scripted and unscripted television series, games shows and specials. We have
developed original entertainment programming for PAX TV at lower costs than
those typically incurred by other broadcast networks for original entertainment
programming. We have done this by employing cost efficient development and
production techniques, such as the development of program concepts without the
use of pilots, and by entering into production arrangements with foreign
production companies through which we are able to share production costs, gain
access to lower cost production labor and participate in tax incentives. In
addition, we attempt to pre-sell the foreign and other distribution rights to
our original PAX TV programming and thereby recover a significant portion of the
program's production costs, while retaining all of the domestic rights. Our
agreements for syndicated programming generally entitle us to exclusive
nationwide distribution rights over our entire television distribution system
for a fixed cost, without regard to the number of households that receive our
programming.

     During hours when we are not broadcasting entertainment programming, our
stations broadcast long form paid programming, consisting primarily of
infomercials, which are shows produced at no cost to us to market and sell
products and services through viewer direct response, and paid religious
programming. Pursuant to an agreement with The Christian Network, Inc., or CNI,
our broadcast stations carry CNI's programming between the hours of 1:00 a.m.
and 6:00 a.m., seven days per week. For additional details on our relationship
with CNI, see "Certain Relationships and Related Transactions."

     Under many of our JSAs, the JSA partner provides our station with evening
local news broadcasts, which we believe enhances our station's appeal to viewers
and advertisers. This news programming may be a rebroadcast of the JSA partner's
news in a different time slot or a news broadcast produced for PAX TV.

RATINGS
     The advertising revenues from our PAX TV entertainment programming are
largely dependent upon the popularity of our programming, in terms of audience
ratings, and the attractiveness of our PAX TV viewing audience to advertisers.
Higher ratings generally will enable us to charge higher rates to advertisers.
Nielsen, one of the leading providers of national audience measuring services,
has grouped all television stations in the country into approximately 210 DMAs
that
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are ranked in size according to the number of television households, and
periodically publishes data on estimated audiences for the television stations
in the various DMAs. The estimates are expressed in terms of the percentage of
the total potential audience in the market viewing a station (the station's
"Rating") and of the percentage of the audience actually watching television
(the station's "Share"). Nielsen provides this data on the basis of total
television households and selected demographic groupings in the DMA.

     Some viewer demographic groups are more attractive to advertisers than
others, such as adults of working age who typically have greater purchasing
power than other viewer demographic groups. Many products and services are
targeted to consumers with specific demographic characteristics, and a viewer
demographic group containing a concentration of these types of consumers
generally will be more attractive to advertisers. Based on our experiences with
PAX TV, advertisers often will pay higher rates to advertise during programming
that reaches demographic groups that are targeted by that advertiser. A
significant component of our entertainment programming strategy is to develop
and air programming that will increase PAX TV's ratings among certain
demographic groups, including the group consisting of women from ages 25-54.

ADVERTISING

     We offer advertisers the opportunity to reach PAX TV's nationwide viewing
audience with a single commercial, which we refer to as network advertising, and
to target specific geographical markets airing our programming, which we refer
to as local and national advertising.

     We sell commercial air time to advertisers who want to reach the entire
nationwide PAX TV viewing audience with a single advertisement. Most of our
network spot advertising is sold under advance, or "upfront," commitments to
purchase advertising time, which are obtained before the beginning of our PAX TV
entertainment programming season. NBC serves as our exclusive sales
representative to sell most of our network spot advertising. Network spot
advertising represented approximately 33% of our revenue during the year ended
December 31, 2002 and 21% of our revenue during the year ended December 31,
2003. The central programming signal through which we supply our programming to
our stations and to cable and satellite viewers includes advertising, generally
of a direct response nature, which reaches our cable and satellite viewers
(during both PAX TV entertainment programming and other viewing hours) in
markets not served by our stations during time that is otherwise allocated to
station spot advertising, and which reaches viewers in local markets during
unsold station spot advertising time. We include the revenue from this
advertising in our network advertising revenues.

     We also sell commercial air time to local and national advertisers who want
to reach our viewing audience in specific geographic markets in which we
operate. These advertisers may be local businesses or regional or national
advertisers who want to target their advertising in these markets. NBC provides
national advertising sales services for a majority of our stations. In markets
in which our stations are operating under JSAs, our JSA partner serves as our
exclusive sales representative to sell our local station advertising. For
stations for which NBC does not provide national account representation, our JSA
partner performs this function. Our local sales force sells this advertising in
markets without JSAs. Our station advertising represented approximately 35% of
our revenue during the year ended December 31, 2002 and 38% of our revenue
during the year ended December 31, 2003 (including 15% and 21%, respectively, of
our revenue during such year which was derived from local and national long form
paid programming).

     Our advertising rates are typically negotiated and based upon:

       o economic and market conditions;

       o the size of the market in which a station operates;

       o a program's popularity among the viewers that an advertiser wishes to
         attract;

       o the number of advertisers competing for a time slot;

       o the availability of alternative advertising media in the market area;

       o the demographic composition of the market served by the station;

       o development of projects, features and programs that tie advertiser
         messages to programming; and

       o quarterly "sweeps" performance ratings which measure household tuning
         and demographic audience estimates in all 210 Nielsen TV markets.

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<PAGE>

     We also sell long form paid programming, consisting primarily of
infomercials. This programming may appear on our entire PAX TV network or it may
be aired only in specific markets. Network and regional paid programming time is
sold by our national long form sales team. Local paid programming may be sold by
our national sales team or by the local sales team at each station.

NBC RELATIONSHIP

     On September 15, 1999, we entered into an investment agreement with NBC
under which wholly-owned subsidiaries of NBC purchased shares of our Series B
preferred stock and warrants to purchase shares of our common stock for an
aggregate purchase price of $415 million. At the same time, a wholly-owned
subsidiary of NBC entered into an agreement with Mr. Paxson and entities
controlled by Mr. Paxson, under which the NBC subsidiary was granted the right
to purchase all, but not less than all, of the 8,311,639 shares of our Class B
common stock beneficially owned by Mr. Paxson.

     Series B Preferred Stock. Under the investment agreement, a wholly-owned
subsidiary of NBC acquired $415 million aggregate liquidation preference of our
Series B preferred stock. This security accrues cumulative dividends at an
annual rate of 8% and is convertible, subject to adjustment under the terms of
the Series B preferred stock, into 31,896,032 shares of our Class A common stock
at an initial conversion price of $13.01 per share ($17.48 per share as of
December 31, 2003). On September 15, 2004, the rate at which dividends accrue on
the Series B preferred stock will be adjusted to a market rate, determined by a
nationally recognized independent investment firm chosen by us, at which the
Series B preferred stock would trade at its liquidation preference. The shares
of Series B preferred stock are exchangeable, in whole or in part, at the option
of the holders, into convertible debentures ranking on a parity with our other
subordinated indebtedness subject, with respect to any exchange before January
1, 2007, to the exchange being permitted under the terms of our debt and
preferred stock instruments. The maturity date of the convertible debentures
into which the shares of Series B preferred stock are exchangeable is December
31, 2009.

     Warrant A and Warrant B. A wholly-owned subsidiary of NBC also acquired a
warrant ("Warrant A") to purchase up to 13,065,507 shares of Class A common
stock at an exercise price of $12.60 per share, and a warrant ("Warrant B") to
purchase from us up to 18,966,620 shares of Class A common stock at an exercise
price equal to the average of the closing sale prices of the Class A common
stock for the 45 consecutive trading days ending on the trading day immediately
preceding the warrant exercise date, provided that the average price shall not
be more than 17.5% higher or 17.5% lower than the six month trailing average
closing sale price. The warrants are exercisable until September 2009, subject
to various conditions and limitations. In addition:

       o Warrant B may not be exercised before the exercise in full of Warrant
         A; and

       o Warrant B may not be exercised to the extent that, after giving effect
         to the exercise, Mr. Paxson would no longer constitute our "single
         majority stockholder" unless Warrant B is exercised in full and at the
         same time NBC exercises its right to purchase all the shares of our
         Class B common stock held by Mr. Paxson.

     Right to Purchase Class B Common Stock. Concurrently with entering into the
Investment Agreement and issuing the Series B preferred stock and Warrants A and
B to subsidiaries of NBC, a wholly-owned subsidiary of NBC entered into an
agreement with Mr. Paxson and entities controlled by Mr. Paxson, under which the
NBC subsidiary was granted the right to purchase all, but not less than all, of
the 8,311,639 shares of our Class B common stock beneficially owned by Mr.
Paxson. This right is exercisable through September 15, 2009, and may not be
exercised before the exercise in full of Warrant A and Warrant B.

     These shares of Class B common stock are entitled to ten votes per share on
all matters submitted to a vote of our stockholders and are convertible into an
equal number of shares of Class A common stock. The purchase price per share of
Class B common stock is equal to the higher of:

       o the average of the closing sale prices of the Class A common stock for
         the 45 consecutive trading days ending on the trading day immediately
         preceding the exercise of NBC's call right, provided that the average
         price shall not be more than 17.5% higher or 17.5% lower than the six
         month trailing average closing sale prices; and

       o $20.00 per share.

     The owners of the shares that are subject to the call right have agreed not
to transfer those shares before September 15, 2005, and not to convert those
shares into any of our other securities, including shares of Class A common
stock. NBC's exercise of the call right is subject to compliance with applicable
provisions of the Communications Act and the rules and regulations of the FCC.

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<PAGE>

     Optional Redemption by NBC. On November 13, 2003, NBC notified us that it
was exercising its right under its investment agreement with us to demand that
we redeem or arrange for a third party to acquire (the "Redemption"), by payment
in cash, all 41,500 outstanding shares of our Series B Convertible Exchangeable
Preferred Stock held by NBC. The aggregate redemption price payable in respect
of the 41,500 preferred shares, including accrued dividends thereon, was
approximately $557.5 million as of December 31, 2003.

     We will have up to one year after November 13, 2003 to consummate the
Redemption. If at any time during the one year redemption period, the terms of
our outstanding debt and preferred stock do not prohibit the Redemption and we
have sufficient funds on hand to consummate the Redemption, we must consummate
the Redemption at that time. NBC may not exercise Warrant A and Warrant B (which
represent the right to purchase an aggregate of 32,032,127 shares of our Class A
common stock) or its right to purchase shares of Class B common stock
beneficially owned by Lowell W. Paxson, our Chairman of the Board and Chief
Executive Officer, during the one year redemption period.

     If we do not effect the Redemption within one year after November 13, 2003,
NBC will again be permitted to exercise Warrant A and Warrant B and its right to
acquire Mr. Paxson's Class B common stock, and generally will be permitted to
transfer, without restriction, any of our securities acquired by it, its right
to acquire Mr. Paxson's Class B common stock, the contractual rights with
respect to the NBC investment agreement and its other rights under the related
transaction agreements, provided that Warrant A, Warrant B and the right to
acquire Mr. Paxson's Class B common stock will expire, to the extent
unexercised, 30 days after any such transfer. If NBC transfers any of our
securities or its right to acquire Mr. Paxson's Class B common stock, the
transferee will remain subject to the terms and conditions of such securities,
including those limitations on exercise described above.

     Default Redemption by NBC. NBC also has the right to require that we redeem
any Series B preferred stock and Class A common stock issued upon conversion of
the Series B preferred stock then held by NBC upon the occurrence of various
events of default (a "Default Redemption"). If NBC exercises this right, we will
have up to 180 days to consummate the redemption. If at any time during the 180
day redemption period, the terms of our outstanding debt and preferred stock do
not prohibit the redemption and we have sufficient funds on hand to consummate
the redemption, we must consummate the redemption at that time. NBC may not
exercise Warrant A, Warrant B or its right to purchase shares of Class B common
stock beneficially owned by Mr. Paxson during the 180 day redemption period.

     Should we fail to effect a Default Redemption within 180 days after NBC has
exercised its right to require us to redeem its securities, NBC will have 180
days within which to exercise Warrant A and Warrant B and its right to acquire
Mr. Paxson's Class B common stock, and generally will be permitted to transfer,
without restriction, any of our securities acquired by it, its right to acquire
Mr. Paxson's Class B common stock, the contractual rights described below, and
its other rights under the related transaction agreements, provided that Warrant
A, Warrant B and the right to acquire Mr. Paxson's Class B common stock shall
expire, to the extent unexercised, 30 days after any such transfer. If NBC does
not effect any of these transactions within the 180 day period, we will have the
right, for 30 days, to redeem NBC's securities. If we do not effect a redemption
during this period, NBC will have the right to require us to effect, at our
option, either a public sale or a liquidation of our company and may participate
as a bidder in any such transaction. If the highest bid in any public sale of
our company would be insufficient to pay NBC the redemption price of its
securities, NBC will have a right of first refusal to purchase our company for
the highest bid amount. If the highest bid in any public sale would be
sufficient to pay NBC the redemption price of its securities, the investment
agreement requires us to accept the bid. NBC will not be permitted to exercise
Warrant A, Warrant B or its right to acquire Mr. Paxson's Class B common stock
during the public sale or liquidation process.

     Inability to Effect a Redemption Requested by NBC. Our ability to effect
any redemption is restricted by the terms of our outstanding debt and preferred
stock. Were NBC to exercise its right to demand that we redeem its Series B
preferred stock, in order to be able to do so we would need not only to raise
sufficient cash to fund payment of the redemption price, but also to obtain the
consents of the holders of our outstanding debt and preferred stock or repay,
redeem or refinance these securities in a manner that obviated the need to
obtain the consents of the holders. Alternatively, we would need to identify a
third party willing to purchase NBC's Series B preferred stock directly from NBC
or to enter into a merger, acquisition or other transaction with us as a result
of which NBC's Series B preferred stock would be redeemed or acquired.

     Optional Redemption by the Company. Beginning on September 15, 2004, we
have the right, at any time, to redeem any or all of our outstanding Series B
preferred stock at a redemption price per share equal to the higher of (i) the
liquidation preference of $10,000 per share plus accrued and unpaid dividends,
and (ii) the product of 80% of the average of the closing sale prices of the
Class A common stock for the ten consecutive trading days ending on the trading
day immediately preceding our notice to NBC exercising the optional redemption,
and the number of shares of Class A common stock into which a share of Series B
preferred stock is convertible (approximately 768.58 shares of Class A

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<PAGE>

common stock as of December 31, 2003).

     If we elect to redeem a portion of our outstanding Series B preferred
stock, we are required to declare and pay, in full, all of the accumulated and
unpaid dividends on the Series B preferred stock. As of December 31, 2003,
accumulated and unpaid dividends on the Series B preferred stock aggregated
approximately $142.5 million.

     Consent Rights. The investment agreement also provides that we must obtain
the consent of NBC for various actions, including:

       o approval of annual budgets;

       o expenditures materially in excess of budgeted amounts;

       o material acquisitions of programming;

       o material amendments to our certificate of incorporation or bylaws;

       o material asset sales or purchases, including, in some cases, sales of
         our television stations;

       o business combinations where we would not be the surviving corporation
         or as a result of which we would experience a change of control;

       o issuances or sales of any capital stock, with some exceptions;

       o certain affiliate transactions;

       o stock splits or recombinations;

       o any increase in the size of our board of directors other than any
         increase resulting from provisions of our outstanding preferred stock
         of up to two additional directors; and

       o 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.

     Miscellaneous Rights. In connection with its investment in us, we also
granted NBC various rights with respect to our broadcast television operations,
including:

       o the right to require the conversion of our television stations to NBC
         network affiliates, subject to various conditions;

       o a right of first refusal on proposed sales of television stations; and

       o the right to require our television stations to carry NBC network
         programming that is preempted by NBC network affiliates.

     Stockholders Agreement. We also entered into a stockholders agreement
with NBC, Mr. Paxson and entities controlled by Mr. Paxson under which we are
permitted (but not required) to nominate persons named by NBC for election to
our board of directors upon request by NBC if NBC determines that its nominees
are permitted under the Communications Act and FCC rules to serve on our board.
Mr. Paxson and his affiliates agreed to vote their shares of common stock in
favor of the election of those persons as our directors. As part of the outcome
of the proceedings that we initiated, which are described below, the FCC
determined in 2002 that any NBC nominated director must not be an NBC employee
and must be a person who would reasonably be expected to act independently on
all matters. The stockholders agreement further provides that we will not,
without the prior written consent of NBC, enter into certain agreements or adopt
certain plans which would be breached or violated upon the acquisition of our
securities by NBC or its affiliates or would otherwise restrict or impede the
ability of NBC or its affiliates to acquire additional shares of our capital
stock.

     Registration Rights. We also granted NBC demand and piggyback registration
rights with respect to the shares of Class A common stock issuable upon:

     o conversion of the Series B preferred stock;

     o conversion of the debentures for which the Series B preferred stock is
       exchangeable;

     o exercise of the warrants; or

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<PAGE>

     o conversion of the Class B common stock.

     Operational Arrangements. In connection with these transactions, we
entered into a number of business arrangements with NBC. As part of these
arrangements and our relationship with NBC:

     o NBC provides network advertising sales, marketing and network research
       services for PAX TV;

     o NBC provides national advertising sales services for a majority of our
       stations; and

     o NBC has provided some of its programming, including movies and sporting
       events, for broadcast on PAX TV.

     We have entered into JSAs with NBC with respect to 14 of our stations
serving 12 markets also served by an NBC owned and operated station, and with 28
independently owned NBC affiliated stations serving our markets. Under the JSAs,
the NBC stations sell all non-network advertising of our stations and receive
commission compensation for those sales, and each of our stations may carry one
hour per day of NBC syndicated programming, subject to compliance with our
entertainment programming content standards.

     Arbitration and FCC Proceedings. In December 2001, we commenced a binding
arbitration proceeding against NBC in which we asserted that NBC breached its
agreements with us and breached its fiduciary duty to us and to our
shareholders. We asserted that NBC's proposed acquisition of Telemundo
Communications Group, Inc. ("Telemundo Group") (which was completed in April
2002) violates the terms of the agreements governing the investment and
partnership between us and NBC. In September 2002, the arbitrator ruled against
us on all of our claims, denying us any of the relief we had sought with respect
to what we believed to be NBC's wrongful actions. Accordingly, the provisions of
our agreements with NBC remain in effect without change.

     We also made two filings with the FCC, one of which requested a declaratory
ruling as to whether conduct by NBC, including NBC's influence and apparent
control over certain members of our board of directors selected by NBC (all of
whom have since resigned from our board), caused NBC to have an attributable
interest in us in violation of FCC rules or infringed upon our rights as an FCC
license holder. The second FCC filing sought to deny FCC approval of NBC's
acquisition of the Telemundo Group's television stations. In an opinion and
order adopted April 9, 2002, the FCC granted approval of NBC's applications for
consent to the transfer to NBC of control of the Telemundo Group television
stations, denied our petition to deny these applications, and granted in part
and denied in part our request for a declaratory ruling. The FCC found that the
placement of NBC employees on our board and the subsequent actions of these
persons in their capacity as our directors, including a finding that one such
director was protecting NBC's interests and not acting as an independent member
of our board, resulted in NBC having an attributable interest in us in violation
of the FCC's multiple ownership rules. The FCC determined that admonishment was
the appropriate remedy and further inquiry was not necessary. The FCC further
indicated that should NBC choose to exercise its rights to nominate new members
of our board of directors, the FCC would require that such persons not be NBC
employees or agents but persons who would reasonably be expected to act
independently in all future matters concerning our company.

COMPETITION

     We compete for audience and advertisers and our television stations are
located in highly competitive markets and face strong competition on all levels.

     Audience. Television stations compete for audience share principally on the
basis of program popularity, as measured and reported by Nielsen Media Research,
the primary audience measurement service used for buying and selling advertising
time. Audience size, as reflected by Nielsen ratings, has a direct effect on
advertising rates. Our PAX TV programming competes for audience share in all of
our markets with the programming offered by other broadcast networks, local and
national cable networks and non-network affiliated television stations. We
believe our stations also compete for audience share in their respective markets
on the basis of their channel positions on the cable systems which carry our
programming, and that the ability to view our programming on the lower numbered
channel positions (generally below channel 21) generally improves the likelihood
that viewers will watch our programming.

     Our stations also compete for audience share with other forms of
entertainment programming, including home entertainment systems and direct
broadcasting satellite video distribution services which transmit programming
directly to homes equipped with special receiving antennas and tuners. Further
advances in technology may increase competition for household audiences.

     Advertising. PAX TV competes for advertising revenues principally with
other broadcast and cable television networks and to some degree with other
nationally distributed advertising media, such as print publications. During the
annual "up front" process, broadcast and cable networks and nationally
syndicated program suppliers seek to obtain advance

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<PAGE>

commitments from advertisers to purchase commercial air time, and competition
occurs principally on the basis of the advertisers' perception of the
anticipated popularity (i.e., ratings) of programming for the upcoming broadcast
season, the demographic groups to which the programming is expected to appeal,
and the anticipated economics of supply and demand for advertising time during
the course of the new season, also known as the "scatter" market.

     Our television stations also compete for advertising revenues with other
television stations in their respective markets, as well as with other
advertising media, such as newspapers, radio stations, magazines, outdoor
advertising, transit advertising, yellow page directories, direct mail and local
cable systems. Competition for advertising dollars at the television station
level occurs primarily within individual markets. Some national advertisers may
be more interested in buying groups or markets, either on a regional basis that
align to products' distribution patterns, or among larger markets, such as the
top 50, as those markets represent approximately two-thirds of the nation's
television households. We believe owning and operating stations located
primarily in the top 50 markets is more attractive to national advertisers with
broad-based distribution of products and services. Generally, a television
station in one market does not compete with stations in other market areas.

FEDERAL REGULATION OF BROADCASTING

      The FCC regulates television broadcast stations under the Communications
Act. The following is a brief summary of certain provisions of the
Communications Act and the rules of the FCC.

      License Issuance and Renewal. The Communications Act provides that a
broadcast station license may be granted to an applicant if the public interest,
convenience and necessity will be served thereby, subject to certain
limitations. Television broadcast licenses generally are granted and renewed for
a period of eight years. Interested parties including members of the public may
file petitions to deny a license renewal application but competing applications
for the license will not be accepted unless the current licensee's renewal
application is denied. The FCC is required to grant a license renewal
application if it finds that the licensee (1) has served the public interest,
convenience and necessity; (2) has committed no serious violations of the
Communications Act or the FCC's rules; and (3) has committed no other violations
of the Communications Act or the FCC's rules which would constitute a pattern of
abuse. Our licenses are subject to renewal at various times between 2004 and
2007.

      General Ownership Matters. The Communications Act requires the prior
approval of the FCC for the assignment of a broadcast license or the transfer of
control of a corporation or other entity holding a license. In determining
whether to approve such an assignment or transfer of control, the FCC considers,
among other things, the financial and legal qualifications of the prospective
assignee or transferee, including compliance with rules limiting the common
ownership of certain attributable interests in broadcast, cable and newspaper
properties.

      The FCC's multiple ownership rules may limit the acquisitions and
investments that we may make or the investments that others may make in us. The
FCC generally applies its ownership limits to attributable interests held by an
individual, corporation, partnership or other association or entity. In the case
of corporations holding or controlling broadcast licenses, the interests of
officers, directors and those who, directly or indirectly, have the right to
vote five percent or more of the corporation's stock are generally attributable.
The FCC treats all partnership and limited liability company interests as
attributable, except for those interests that are insulated under FCC rules and
policies. For insurance companies, certain regulated investment companies and
bank trust departments that hold stock for investment purposes only, stock
interests become attributable with the ownership of 20% or more of the voting
stock of the corporation holding or controlling broadcast licenses.

      Under the FCC's "single majority shareholder" exception, the FCC generally
does not treat any minority voting shareholder as attributable if one person or
entity (such as Mr. Paxson in the case of our company) holds more than 50% of
the combined voting power of the common stock of a company holding or
controlling broadcast licenses. The FCC currently is considering whether to
retain, modify, or eliminate this exception in a pending rulemaking proceeding.
We cannot predict at this time the rules that the FCC may adopt or how the new
rules might affect the single majority shareholder exception as it applies to
the ownership of television stations.

      The FCC treats as attributable debt and equity interests that, when
combined, exceed 33% of a station licensee's total assets, which is defined as
the total amount of debt and equity capital, if the party holding the equity and
debt interests (1) supplies more than 15% of the station's total weekly
programming or (2) has an attributable interest in another media entity, whether
television, radio or newspaper, in the same market. Non-voting equity, loans,
and insulated interests count toward the 33% equity/debt threshold.
Non-conforming interests acquired before November 7, 1996, are permanently

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<PAGE>

grandfathered for purposes of the equity/debt rules and thus do not constitute
attributable ownership interests.

     Television National Ownership Rule. On June 2, 2003, the FCC adopted
new rules governing, among other things, national and local ownership of
television broadcast stations and cross-ownership of television broadcast
stations with radio broadcast stations and newspapers serving the same market.
The new rules would change the regulatory framework within which television
broadcasters hold, acquire and transfer broadcast stations. Numerous parties
have asked the FCC to reconsider portions of its decision and other parties have
sought judicial review. On September 3, 2003, the U. S. Court of Appeals for the
Third Circuit issued an order staying the effectiveness of the new media
ownership rules pending its review of the FCC's action. Argument on the merits
of the underlying appeal of the FCC's order was held on February 11, 2004.
Further, legislation regarding indecent broadcasts has recently been passed by
the House of Representatives. The bill on indecent broadcasts that has been
introduced in the Senate would also result in the suspension of the
effectiveness of the FCC's newly adopted ownership rule changes for a period of
one year, with the prior rules remaining in effect during the one year period.
The legislation would require the United States General Accounting Office to
conduct a study during that one year period to determine whether any
relationship exists between the horizontal and vertical consolidation of media
companies and the number of violations (and complaints regarding violations) of
indecency prohibitions under applicable laws and regulations.

     Among other things, the FCC's new rules would have increased the
percentage of the nation's television households that may be served by
television broadcast stations in which the same person or entity has an
attributable interest from 35% to 45% of national television households. The
Consolidated Appropriations Act of 2004, which became law on January 23, 2004,
directed the FCC to increase this percentage to 39% of national television
households and allows an entity that acquires licensees in excess of 39% two
years to come into compliance with the new cap. The enactment of the 39% cap
mooted the FCC's proposed 45% cap. The Third Circuit has not ruled on whether
the Consolidated Appropriations Act of 2004 mooted any other issues before it.
This act also provides that the FCC shall conduct a quadrennial, rather than
biennial, review of its ownership rules. The new rules also relax FCC
restrictions on local television ownership and on cross-ownership of television
stations with radio stations or newspapers in the same market. In general, these
new rules would reduce the regulatory barriers to the acquisition of an interest
in our television stations by various industry participants who already own
television stations, radio stations, or newspapers.

     In assessing compliance with the national ownership caps, the FCC
counts each UHF station as serving only half of the television households in its
market. This "UHF Discount" is intended to take into account that UHF stations
historically have provided less effective coverage of their markets than VHF
stations. All of our television stations are UHF stations and, without the UHF
Discount, we would not meet the old 35% national coverage cap, the 45% cap that
was proposed by the FCC or the 39% cap that is now in effect under the recently
enacted Consolidated Appropriations Act of 2004. In its June 2, 2003 decision,
the FCC concluded that the future transition to digital television may eliminate
the need for a UHF Discount. For that reason, the FCC provided that the UHF
Discount will "sunset"--i.e., expire--for the top four broadcast networks (ABC,
NBC, CBS, and Fox) on a market-by-market basis as the digital transition is
completed, unless otherwise extended by the FCC. The FCC also announced,
however, that it will examine in a future review (as noted above, the FCC is
required to conduct such reviews on a quadrennial basis under the Consolidated
Appropriations Act of 2004) whether to include in this sunset provision the UHF
television stations owned by other networks and group owners, which would
include our television stations.

      Since the FCC's adoption of the new rules, in addition to the legislation
enacting the 39% cap, separate legislation has been introduced in Congress to
prohibit the application of the UHF Discount to UHF stations sold after June 2,
2003, to sunset the UHF Discount in 2008 for all UHF stations, to prohibit the
cross ownership of newspapers and television stations in the same market and to
nullify in their entirety the rule changes adopted by the FCC. Further, several
parties have filed petitions urging the FCC to eliminate the UHF Discount
altogether. On February 19, 2004, the FCC announced that it is seeking public
comment regarding the effect of the Consolidated Appropriations Act of 2004 on
the FCC's authority to modify or eliminate the UHF Discount.

      Television Duopoly Rule. The FCC's television duopoly rule permits a party
to own two television stations without regard to signal contour overlap if each
station is located in a separate designated market area, or DMA. A party may own
two television stations in the same DMA so long as (1) at least eight
independently owned and operating full-power commercial and non-commercial
television stations remain in the market at the time of acquisition and (2) at
least one of the two stations is not among the four top-ranked stations in the
market based on audience share. Without regard to the number of independently
owned television stations or "media voices," the FCC permits television
duopolies within the same DMA so long as the stations' Grade B service contours
do not overlap. Satellite stations that are authorized to rebroadcast the
programming of a "parent" station located in the same DMA are also exempt from
the duopoly rule. On April 2, 2002, the U.S. Court of Appeals for the District
of Columbia Circuit reversed the FCC's decision establishing an eight "media
voice" standard for same-market television duopolies. The court remanded the
proceeding to the FCC to consider whether it should include in its definition of
"media voices" other media (i.e., newspapers, radio, and cable). The court also
suggested that, on remand, the FCC may decide to adjust the numerical limit of
eight.


                                       15
<PAGE>


      On June 2, 2003 the FCC adopted new rules governing, among other things,
the number of television stations a party may own in the same DMA. Under the new
rules, a party would be permitted to have an attributable interest in up to two
television stations in the same DMA, provided there were between five and 17
television stations in the DMA and provided that only one of the duopoly
stations was among the top four television stations in the market in terms of
audience share. Duopolies would not be permitted in markets with fewer than five
television stations. In markets with 18 or more television stations, a party
would be permitted to own up to three television stations in a DMA, only one of
which may be among the top four in terms of audience share. The new rules would
also eliminate the contour overlap rule for television. The "media voice" test
would be eliminated and the number of television stations in a market would be
calculated by counting all full-power commercial and noncommercial television
stations located within a given DMA. Neither cable channels, Class A television
stations, low power television stations, television translator stations nor dark
or non-operational stations would be included in the count. Satellite television
stations would also be excluded from the count, if the parent and satellite
station were located within the same DMA.

      The effectiveness of these new rules has been stayed by the order of the
U.S. Court of Appeals for the Third Circuit described above.

      Television/Newspaper Radio/Television Cross Ownership. On June 2, 2003,
the FCC removed the newspaper-broadcast and radio-television cross-ownership
prohibitions and replaced them with a new set of "cross-media limits." The FCC
continued, however, to prohibit common ownership of daily newspapers and
broadcast stations, and television/radio combinations in markets with three or
fewer television stations. In markets having between four and eight television
stations, the new rules would limit ownership to one of the following
combinations: (1) a daily newspaper, one television station and up to half of
the radio station limit for the market; (2) a daily newspaper, no television
station and up to the radio station limit for the market; or (3) two television
stations (if allowable under the new rules), no daily newspaper, and up to the
radio station limit for the market. In markets having nine or more television
stations the cross-media limits would be eliminated completely and only the new
local television and local radio ownership rules would apply. Under the new
rules, noncommercial television stations would be included in the station count.

      The effectiveness of these new rules has been stayed by the order of the
U.S. Court of Appeals for the Third Circuit described above.

      Television Time Brokerage and Joint Sales Agreements. Over the past few
years, a number of television stations, including certain of our television
stations, have entered into agreements commonly referred to as time brokerage
agreements and joint sales agreements. Under these agreements, separately owned
and licensed stations agree to function cooperatively subject to the
requirements of antitrust laws and compliance with the FCC's rules and policies,
including the requirement that each party maintain independent control over the
programming and operations of its own station. The FCC's attribution and
television duopoly rules apply to time brokerage agreements in which one station
brokers more than 15% of the broadcast time per week of another station in the
same DMA with an overlapping Grade B contour.

      A joint sales agreement, or "JSA," is an arrangement by which a brokering
station provides advertising sales services, but not programming, for another
station in the market. In its June 2, 2003 decision, the FCC stated that it
intends in the future to begin a rule making proceeding to consider whether to
treat a television licensee's JSA to sell the advertising time of another
television station in the same market as the equivalent of ownership of that
station for purposes of the FCC's local television ownership rules. The FCC may
adopt rules affecting these arrangements that could adversely affect our current
station operations under existing JSAs. We cannot predict what rules the FCC
will adopt or what effect any new rules are likely to have.

      Alien Ownership. Under the Communications Act, no FCC broadcast license
may be held by a corporation of which more than one-fifth of its capital stock
is owned or voted by aliens or their representatives or by a foreign government
or its representative, or by any corporation organized under the laws of a
foreign country (collectively "Aliens"). Furthermore, the Communications Act
provides that no FCC broadcast license may be granted to any corporation
controlled by any other corporation of which more than one-fourth of its capital
stock is owned of record or voted by Aliens if the FCC should find that the
public interest would be served by the refusal of the license.

      Dual Network Rule. FCC rules permit the combination of television
broadcast networks, except for a combination of any two of the four major
networks (ABC, CBS, Fox or NBC). The FCC retained the current rule in its June
2, 2003 report and order.



                                       16
<PAGE>

      Programming and Operation. The Communications Act requires broadcasters to
present programming that responds to community problems, needs and interests and
to maintain records demonstrating its responsiveness. Stations also must follow
rules that regulate, among other things, obscene and indecent broadcasts,
sponsorship identification, the advertising of contests and lotteries and
technical operations, including limits on radio frequency radiation.

      The FCC's rules limit the amount of advertising in television programming
designed for children 12 years of age and under. The FCC effectively requires
that television broadcast stations air specified amounts of programming during
specified time periods that serve the educational and informational needs of
children 16 years of age and under.

      The Communications Act and FCC rules also regulate the broadcasting of
political advertisements by television stations. Stations must provide
"reasonable access" for the purchase of time by legally qualified candidates for
federal office and "equal opportunities" for the purchase of equivalent amounts
of comparable broadcast time by opposing candidates for the same elective
office. Before primary and general elections, legally qualified candidates for
elective office may be charged no more than the station's "lowest unit charge"
for the same class of advertisement, length of advertisement and daypart.

      In March 2002, Congress enacted the Bipartisan Campaign Reform Act of 2002
("BCRA") (also known as the McCain-Feingold campaign finance bill). In December
2003, the U.S. Supreme Court upheld the BCRA, including provisions which affect
broadcasters. The BCRA modifies the regulation of certain aspects of political
campaign fundraising and expenditures, and imposes new restrictions on the
broadcast of "issue advertisements." In addition, Congress previously has
considered and may in the future consider amending the political advertising
laws by changing the statutory definition of "lowest unit charge" in a manner
which would require television stations to sell time to federal political
candidates at lower rates. We are unable to predict whether additional changes
to the political broadcasting laws will be enacted, or what effect, if any,
these changes might have upon our business.

      Equal Employment Opportunity Requirements. Existing FCC rules require all
broadcast station employment units with five or more full-time employees to
comply with certain general and specific recruitment, outreach, and reporting
requirements. All broadcast licensees must refrain from engaging in employment
discrimination based on race, color, religion, national origin or sex (with a
limited exception for religious broadcasters). The FCC is considering applying
these rules to part-time positions.

      Cable "Must Carry"/Retransmission Consent Regulations. Under the
Communications Act, every local commercial television broadcast station must
elect once every three years to require a cable system to carry the station
subject to certain exceptions, or to negotiate for retransmission consent to
carry the station. A station's "must carry" rights are not absolute, and their
exercise depends on variables such as the number of activated channels on a
cable system, the location and size of a cable system, the amount of duplicative
programming on the station, and the quality of the station's signal at the cable
system's headend. Alternatively, if a broadcaster chooses to exercise
retransmission consent rights, it can prohibit cable systems from carrying its
signal or grant the cable system consent to retransmit the broadcast signal for
a fee or other consideration. Our television stations have generally elected the
"must carry" alternative. Our elections of retransmission or "must carry" status
will continue until the next election period, which commences on January 1,
2006.

      In an ongoing rulemaking proceeding, the FCC is considering rules to
govern the obligations of cable television systems to carry the analog and
digital television signals of local television stations or to obtain
retransmission consent to carry those signals during and following the
transition from analog to digital broadcasting. In an initial order in the
proceeding, the FCC tentatively concluded that broadcasters would not be
entitled to mandatory carriage of both their analog and digital signals and that
broadcasters with multiple digital video programming streams would be required
to designate a single, primary video stream eligible for mandatory carriage.
Alternatively, television licensees may negotiate with cable television systems
for carriage of their digital signal in addition to their analog signal under
retransmission consent.

      Under retransmission consent agreements, some of our television stations
are also carried as distant signals on cable systems that are located outside of
those stations' markets. Cable systems generally must remit a compulsory license
royalty fee to the United States Copyright Office to carry television stations
in distant markets. We have filed a request with the Copyright Office to change
our stations' status under the compulsory license from "independent" to
"network" signals. If the Copyright Office grants our request, certain cable
systems may transmit our stations at reduced royalty rates.


                                       17
<PAGE>


We cannot determine when the Copyright Office will act on this request, or
whether we will receive a favorable ruling.

      Satellite Carriage of Television Broadcast Signals. Under the Satellite
Home Viewer Improvement Act of 1999, which we refer to as SHVIA, a satellite
carrier must obtain retransmission consent before carrying a television station,
and a satellite carrier delivering the signal of any local television station is
required to carry all television stations licensed to the carried station's DMA.
The SHVIA will expire at the end of 2004. Legislation introduced in January 2004
proposes to extend the SHVIA for an additional five years. The FCC rules
implementing SHVIA are similar to the must-carry and retransmission consent
rules that apply to cable television systems. Our PAX TV signal currently is
carried on satellite systems under agreements we negotiated with the satellite
television providers, which allow the satellite provider to sell and retain the
advertising revenues from a portion of the non-network advertising time during
PAX TV programming hours and which require the carriage of some of our
television stations in certain circumstances.

      Digital Television Service. The FCC has adopted rules for the
implementation of digital television, or DTV, service, a technology which is
intended to improve the quality of television broadcast signals. The FCC
allotted a second channel for DTV operations to each broadcaster who held a
license or a construction permit for a full service television station on April
3, 1997. Each such licensee and permittee must return one of its two channels at
the end of the DTV transition period currently scheduled to end on December 31,
2006. The transition period could be extended in certain areas depending
generally on the level of DTV market penetration or if the FCC or Congress
changes the schedule. Except for certain stations operating analog facilities in
the 700 MHz spectrum band that have been allotted a digital channel in the 700
MHz spectrum band, the FCC has established a schedule by which broadcasters must
begin DTV service absent extenuating circumstances that may affect individual
stations.

      Under the FCC's digital television transition rules a station will be in
compliance with its build-out requirement, without constructing the full
authorized facilities, so long as, by May 1, 2002, it constructed digital
facilities capable of serving its community of license with a signal of
requisite strength. The date by which digital facilities replicating a station's
analog service area must be constructed will be set by the FCC at a later date.
The FCC, by order released September 17, 2001, authorized analog stations
operating in the 700 MHz spectrum band that have entered into voluntary
agreements with future users of the 700 MHz spectrum resulting in the surrender
of the analog 700 MHz channel to continue broadcasting their analog signal on
the channel assigned for digital service and to delay the institution of digital
service until December 31, 2005, or later than December 31, 2005 if it can be
demonstrated that less than 70% of the television households in the station's
market are capable of receiving digital broadcast signals. Broadcasters given a
digital channel allocation within the 700 MHz band may forego the use of that
channel for digital service until December 31, 2005, or later than December 31,
2005, if it can be demonstrated that less than 70% of the television households
in the station's market are capable of receiving digital broadcast signals.
Broadcasters left with a single-channel allotment as a result of clearing the
700 MHz spectrum band will retain the interference protection associated with
their digital television channel allotment for a period of 31 months after
beginning to transmit in digital.

      The FCC has adopted rules permitting DTV licensees to offer "ancillary or
supplementary services" on their DTV channels, so long as such services are
consistent with the FCC's DTV standards, do not derogate required DTV services,
and are regulated in the same manner as similar non-DTV services. The FCC's
rules require that DTV licensees pay a fee (based on revenues) for any
subscription-based services that are provided. The FCC has commenced a
proceeding to consider additional public interest obligations for television
stations as they transition to digital broadcast television operation. The FCC
is considering various proposals that would require DTV stations to use digital
technology to increase program diversity, political discourse, access for
disabled viewers and emergency warnings and relief. If these proposals are
adopted, our stations may be required to increase their current level of public
interest programming, which generally does not generate as much revenue from
commercial advertisers.

      Proposed Changes. Congress and the FCC have under consideration, and may
in the future adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect our operation, ownership
and profitability of our company and our television broadcast stations. We
cannot predict what other matters may be considered in the future, nor can we
judge in advance what effect, if any, the implementation of any of these
proposals or changes might have on our business.

EMPLOYEES

     As of December 31, 2003, we had 461 full-time employees and 39 part-time
employees. None of our employees are

                                       18
<PAGE>

represented by labor unions. We consider our relations with our employees to be
good.

SEASONALITY

     Seasonal revenue fluctuations are common within the television broadcasting
industry and result primarily from fluctuations in advertising expenditures. We
believe that generally television advertisers spend relatively more for spot
advertising in the second and fourth calendar quarters of each year, spend
relatively less for spot advertising during the first calendar quarter and spend
the least for spot advertising in the third calendar quarter. We believe that
generally television advertisers spend relatively more for long form paid
programming in the first and fourth calendar quarters of each year, spend
relatively less for long form paid programming in the second calendar quarter
and spend the least for long form paid programming in the third calendar
quarter.

TRADEMARKS AND SERVICE MARKS

     We have 19 registered trademarks and service marks (13 in the United States
and 6 in Mexico) and pending applications for registration of another 38
trademarks and service marks (30 in the United States, 3 in Canada and 5 in
Mexico). We do not own any patents or have any pending patent applications.

AVAILABLE INFORMATION

     Our internet website address is "www.pax.tv". We make available free of
charge through our internet website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission. Prior to March
3, 2003, we made these reports and amendments available through a third party
provider which, under certain circumstances, charged a fee for access to those
reports and amendments.

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS AND UNCERTAINTIES

     This Report contains "forward-looking statements" that reflect our current
views with respect to future events. All statements in this Report other than
those that are simply statements of historical facts are generally
forward-looking statements. These statements are based on our current
assumptions and analysis, which we believe to be reasonable, but are subject to
numerous risks and uncertainties that could cause actual results to differ
materially from our expectations. All forward-looking statements in this Report
are made only as of the date of this Report, and we do not undertake to update
these forward-looking statements, even though circumstances may change in the
future.

     Among the significant risks and uncertainties which could cause actual
results to differ from those anticipated in our forward-looking statements or
could otherwise adversely affect our business or financial condition are those
described below.

We have a high level of indebtedness and are subject to restrictions imposed by
the terms of our indebtedness and preferred stock.

     We are highly leveraged. As of December 31, 2003 we had total
indebtedness of $925.6 million, approximately $336.1 million of which would have
been senior secured indebtedness, and redeemable preferred stock with an
aggregate redemption value of approximately $1.1 billion (approximately
$968.2 million of which would have been exchangeable, under certain
circumstances, into senior subordinated indebtedness). We may incur limited
amounts of additional indebtedness to finance capital expenditures and for
certain other corporate purposes. Our ability to incur indebtedness will be
subject to restrictions in the terms of the indentures governing our senior
secured notes and our senior subordinated notes, as well as the terms of our
outstanding preferred stock. The level of our indebtedness and redeemable
preferred stock has important consequences to us, including that most of our
cash flow from operations must be dedicated to debt service and will not be
available for other purposes. Many of our competitors currently operate on a
less leveraged basis and may have significantly greater operating and financing
flexibility than us. The indentures and the preferred stock contain covenants
that restrict, among other things, our ability to incur additional indebtedness,
incur liens, make investments, pay dividends or make other restricted payments,
consummate asset sales, consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of our
assets. Currently, these covenants prevent us from incurring additional
indebtedness other than limited amounts of certain types of permitted
indebtedness (e.g., purchase money indebtedness), although certain refinancings
of existing debt are permitted. These restrictions could limit our ability to
obtain future financing, make acquisitions or needed capital expenditures,
withstand a future downturn in our business or the economy in general, conduct
operations or otherwise take

                                       19
<PAGE>


advantage of business opportunities that may arise. If we were unable to service
our indebtedness or satisfy our dividend or redemption obligations with respect
to our outstanding preferred stock, we would be forced to adopt an alternative
strategy that may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing our indebtedness or
seeking additional equity capital. There is no assurance that any of these
strategies could be effected on satisfactory terms, if at all.

We have a history of operating losses and negative cash flow and we may not
become profitable in the future.

     We have incurred losses from continuing operations in each fiscal year
since our inception. As a result of these net losses, for the years ended
December 31, 2003, 2002 and 2001, our earnings were insufficient to cover our
combined fixed charges and preferred stock dividend requirements by
approximately $139.8 million, $255.5 million and $342.2 million, respectively.
We expect to continue to experience net losses in the foreseeable future,
principally due to interest charges on outstanding debt (and the debentures into
which our outstanding preferred stock can be exchanged, if issued), dividends on
outstanding preferred stock, and non-cash charges for depreciation and
amortization expense related to fixed assets. Future net losses could be greater
than those we have experienced in the past.

     Our cash flow from operations has been insufficient to cover our operating
expenses, debt service requirements and other cash commitments in each of our
last five fiscal years. We have financed our operating cash requirements, as
well as our capital needs, during these periods with the proceeds of asset sales
and financing activities, including the issuance of preferred stock and
additional borrowings. We may not be able to generate sufficient operating cash
flow in the future to pay our debt service and preferred stock dividend
requirements and may not be able to obtain sufficient additional financing to
meet such requirements on terms acceptable to us, or at all.

     We believe that absent significant improvement in our ratings and revenues,
our business operations are unlikely to provide sufficient cash flow to support
our debt service and preferred stock dividend requirements. We have engaged
Bear, Stearns & Co. Inc. and Citigroup Global Markets Inc. to act as our
financial advisors to assess our business plan, capital structure and future
capital needs, and to explore strategic alternatives for our company. These
strategic alternatives may include the sale of all or part of our assets,
finding a strategic partner for our company who would provide the financial
resources to enable us to redeem, restructure or refinance our debt and
preferred stock, or finding a third party to acquire our company through a
merger or other business combination or through a purchase of our equity
securities. See "Forward-Looking Statements and Associated Risks and
Uncertainties--The outcome of our exploration of strategic alternatives is
uncertain."

PAX TV may not be successful as a broadcast television network.

     We launched our PAX TV entertainment programming on August 31, 1998, and
are now in our sixth network broadcasting season. Our own experiences, as well
as the experiences of other new broadcast television networks during the past
decade, indicate that it requires a substantial period of time and the
commitment of significant financial, managerial and other resources to gain
market acceptance of a new television network by viewing audiences and
advertisers to a sufficient degree that the new network can attain
profitability. Although we believe that our approach is unique among broadcast
television networks, in that we own and operate stations reaching most of the
television households that can receive PAX TV, our business model is unproven
and to date has not been successful. In January 2003, we significantly reduced
the number of entertainment programming hours per week on PAX TV and began
airing long form paid programming during these hours. PAX TV may not gain
sufficient market acceptance to be profitable or otherwise be successful.

If the audience ratings of our entertainment programming were to continue to
decline, or the rates at which we are able to sell long form paid programming
were to decline, our advertising revenue could decrease.

     Advertising revenues constitute substantially all of our operating
revenues. Our ability to generate advertising revenues depends upon our ability
to sell our inventory of air time for long form paid programming at acceptable
rates and, with respect to entertainment programming, to provide programming
which attracts sufficient numbers of viewers in desirable demographic groups to
generate audience ratings that advertisers will find attractive. Long form paid
programming rates are dependent upon a number of factors, including our
available inventory of air time, the viewing public's interest in the products
and services being marketed through long form paid programming, and economic
conditions generally. Our revenues from the sale of air time for long form paid
programming may decline. Our entertainment programming has not attracted
sufficient targeted viewership or achieved sufficiently favorable ratings to
enable us to generate enough


                                       20
<PAGE>

advertising revenues to be profitable. Our ratings have declined since we
increased the amount of long form paid programming on PAX TV in January 2003.
Our ratings may continue to decline, which would adversely affect that portion
of our advertising revenues derived from the sale of commercial spots during our
entertainment programming. We incur production, talent and other ancillary costs
to produce original entertainment programs. Our original entertainment
programming may not generate advertising revenues in excess of our programming
and other costs.

We may lose a portion of the PAX TV network's distribution platform.

     A number of our carriage agreements in markets where we do not own a
television station place restrictions on the type of programming that we may
broadcast on the local cable system. In certain cases, local cable operators
have notified us that we are exceeding the number of hours of infomercial
programming that we may broadcast on the operator's system. We are currently in
discussions with these local cable operators to remove the restrictions. If we
are unsuccessful in negotiating the elimination of these restrictions, we may be
required to distribute additional entertainment programming over these cable
systems in order to remain in compliance with our carriage agreements, or face
the possibility of termination of these carriage agreements. We believe that we
have the ability to provide additional entertainment programming to these
systems at a negligible cost. Our revenues could decrease, however, if we were
required to replace infomercials with additional entertainment programming.

The results of operations of our stations which operate under joint sales
agreements substantially depend on the performance of our JSA partners.

     The performance of our stations operating under JSAs depends to a
substantial degree on the performance of our JSA partners, over which we have no
control. In addition, if we elect to terminate a JSA in a particular market, we
may incur significant costs to transfer the JSA to another broadcast television
station operator or to resume operating the station ourselves.

If advertisers have to pay higher residual payments to the members of the
actors' guilds that they use in spot advertisements on our network, advertisers
may reduce or discontinue their advertising on our network.

     Approximately 33% of our 2002 revenues and 21% of our 2003 revenues were
derived from network commercial spot advertisements aired on PAX TV. We believe
substantially all of our network spot advertisements were produced by
advertisers or their advertising agencies using performers who are members of
the Screen Actors Guild and the American Federation of Television and Radio
Artists. When commercials are aired on broadcast and cable television networks,
the performers are entitled to residual payments from the advertisers, which are
determined under collective bargaining agreements between the guilds and the
advertising community. Under the current guild agreements, the residual payments
required to be paid by advertisers in connection with advertisements aired on
cable networks are substantially lower than the residuals required to be paid in
connection with advertising aired on broadcast networks. To date, we believe
that a substantial portion of the network spot advertising time on PAX TV was
purchased by advertisers under the assumption that the residual payment
obligations incurred in connection with airing these spots were to be calculated
under the rates applicable to cable networks, not those applicable to other
broadcast networks. The current guild agreements include provisions establishing
residual rates that are applicable to network advertisements aired on PAX TV and
that are substantially lower than the rates applicable to broadcast networks but
still higher, in most circumstances, than the rates applicable to cable
networks. As a result of this development, some advertisers have informed us
that our network advertising spots are no longer as attractive as those of cable
networks because of the relatively higher residual payments applicable to PAX
TV. Because of these higher residual payments, some advertisers may be unwilling
to purchase advertising time on PAX TV unless we lower our rates or otherwise
provide financial compensation to them. We are unable to predict the magnitude
of the effect of this development on our network spot advertising revenues.

Change of Control.

     In the event of a "change of control" (as defined in the indentures
governing our outstanding senior secured notes and senior subordinated notes),
we will be required to offer to purchase all of the outstanding notes at a price
equal to 101% (or 100% in the case of the senior secured notes, with respect to
any change of control occurring on or after January 15, 2006) of the principal
amount or accreted value, as the case may be, thereof. In the event of a "change
of control" (as defined with respect to our outstanding preferred stock), we
will be required to offer to purchase all of the shares of these preferred
stocks then outstanding at 101% (100% for the Series A preferred stock) of the
then effective liquidation preference thereof, plus accumulated and unpaid
dividends. Generally, under these instruments a change of control will be

                                       21
<PAGE>


deemed to have occurred if any person, other than Mr.Paxson and his affiliates
or, with respect to the senior secured notes and senior subordinated notes, NBC
and its affiliates, acquires control of a majority of the voting power of our
outstanding capital stock or acquires more than one-third of the outstanding
voting power and possesses voting power in excess of that possessed by Mr.
Paxson and his affiliates (or, with respect to the senior secured notes and
senior subordinated notes, NBC and its affiliates), or there is a merger and we
are not the surviving corporation and our stockholders do not own at least a
majority of the outstanding common stock of the surviving corporation. Our
repurchase of our outstanding senior subordinated notes or the redemption of any
of our preferred stock upon a change of control could also cause a default under
the senior secured notes indenture. We can provide no assurance that in the
event of a change of control, we will have access to sufficient funds or will be
contractually permitted under the terms of our outstanding debt to repay our
outstanding senior secured notes and senior subordinated notes or pay the
required purchase price for any shares of preferred stock tendered by holders.
Were this to occur, we could be required to seek third party financing to the
extent we did not have sufficient available funds to meet our purchase
obligations, and we can provide no assurance that we would be able to obtain
this financing on favorable terms or at all.

NBC's exercise of its rights to exert significant influence upon our operations
could adversely affect our business.

     As a result of our agreements with NBC, NBC is in a position to exert
significant influence over our management and policies and to prevent us from
taking actions which our management may otherwise desire to take. NBC may have
interests that differ from those of our other stockholders and debtholders. We
must obtain NBC's consent for:

       o approval of annual budgets;

       o expenditures materially in excess of budgeted amounts;

       o material acquisitions of programming;

       o material amendments to our certificate of incorporation or bylaws;

       o material asset sales or purchases, including sales of our television
         stations which are located in the top twenty DMAs;

       o business combinations where we would not be the surviving corporation
         or as a result of which we would experience a change of control;

       o issuances or sales of any capital stock, with some exceptions;

       o stock splits or recombinations;

       o any increase in the size of our board of directors other than an
         increase resulting from provisions of our outstanding preferred stock
         of up to two additional directors; and

       o 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.


     We may not be able to redeem our securities held by NBC that NBC has
demanded that we redeem and this could have adverse consequences for us.

     On November 13, 2003, NBC exercised its right to demand that we redeem, or
arrange for a third party to acquire, all of the shares of our Series B
preferred stock held by NBC, at a price equal to the aggregate liquidation
preference thereof plus accrued and unpaid dividends, which as of December 31,
2003, totaled $557.5 million. Should we fail to effect a redemption within one
year after November 13, 2003, NBC will be permitted to transfer, without
restriction, any of our securities acquired by it, its right to acquire Mr.
Paxson's Class B common stock, its contractual rights with respect to our
business, and its other rights under the related transaction agreements. Our
ability to effect any redemption is restricted by the terms of our outstanding
debt and preferred stock. Further, we do not currently have sufficient funds to
pay the redemption price for these securities. In order to comply with NBC's
redemption demand, we expect that we will need to repay, refinance or otherwise
restructure the majority of our outstanding indebtedness and preferred stock and
raise sufficient liquidity to enable us to pay the required redemption price.
Alternatively we may find a third party willing to purchase those securities at
the required redemption price. If we were unable to complete a redemption, we
would be unable to prevent NBC from transferring its interest in our company to
a third party selected by NBC in its discretion, which could have a material
adverse effect upon us.


                                       22
<PAGE>

NBC's demand for redemption may have an adverse effect upon our operating
relationships with NBC.

     We have significant operating relationships with NBC which have been
developed since NBC's investment in us in September 1999. NBC serves as our
exclusive sales representative to sell most of our PAX TV network advertising
and is the exclusive national sales representative for most of our stations. We
have entered into JSAs with stations owned by or affiliated with NBC with
respect to 42 of our television stations. Each JSA typically provides for our
JSA partner to serve as our exclusive sales representative to sell our local
station advertising and for many of our station's operations to be integrated
and co-located with those of the JSA partner. If NBC ceases to hold an
investment in our securities, NBC and the NBC affiliates will have the ability
to elect to terminate the agreements under which these operating relationships
have been implemented. Should NBC or the NBC affiliates elect to terminate these
agreements, we could be required to incur significant costs to resume performing
the advertising sales and other operating functions currently performed by NBC
and our JSA partners, including the expense of re-establishing office and studio
facilities separate from those of the JSA partners, or to transfer performance
of these functions to another broadcast television station operator. Our network
and station revenues could also be adversely affected by the disruption of our
advertising sales efforts that could result from the unwinding of the JSAs. The
unwinding or termination of some or all of our JSAs could have a materially
adverse effect upon us. We are unable to predict the effect, if any, that NBC's
demand that we redeem our securities held by it may have upon our current
operating relationships with NBC. We would expect, however, that NBC would seek
to terminate these relationships if it were to cease holding an investment in
our securities.

The adjustment to the dividend rate on our Series B preferred stock that will
occur in September 2004 could have adverse consequences for our business.

     On September 15, 2004, the rate at which dividends accrue on our Series B
preferred stock, all of which is held by NBC, will be adjusted to a market rate,
determined by a nationally recognized independent investment banking firm chosen
by us, at which the Series B preferred stock would trade at its liquidation
preference. As described in greater detail above under "Forward-Looking
Statements and Associated Risks and Uncertainties--We have a high level of
indebtedness and are subject to restrictions imposed by the terms of our
indebtedness and preferred stock," a material increase in the dividend rate on
our Series B preferred stock resulting from this adjustment process could have
material adverse consequences for us.

The outcome of our exploration of strategic alternatives is uncertain.

     We have engaged Bear, Stearns & Co. Inc. and Citigroup Global Markets Inc.
to act as our financial advisors and explore strategic alternatives for our
company. These strategic alternatives may include the sale of all or part of our
assets, finding a strategic partner for our company who would provide the
financial resources to enable us to redeem, restructure or refinance our debt
and preferred stock, or finding a third party to acquire our company through a
merger or other business combination or acquisition of our equity securities.
Our ability to pursue strategic alternatives is subject to various limitations
and issues which we may be unable to control. A strategic transaction will, in
most circumstances, require that we seek the consent of, or refinance, redeem or
repay, NBC and the other holders of our preferred stock, as well as the holders
of our senior and subordinated debt. FCC regulations may limit the type of
strategic alternatives we may pursue and the parties with whom we may pursue
strategic alternatives. In addition, our ability to pursue a strategic
alternative will be dependent upon the attractiveness of our assets and business
plan to potential new transaction parties. Among other things, potential
transaction parties may find unattractive our capital structure and high level
of indebtedness, our carriage of the PAX TV programming and the overnight
programming provided by The Christian Network, Inc., and certain of our
television stations serving major television markets. Our relatively low tax
basis in our television station assets (resulting in part from the Section 1031
like kind exchange discussed below) is a significant factor to be considered in
structuring any potential transactions involving sales of a material portion of
our television station assets, and may make certain types of transactions less
attractive or not viable. Potential transaction parties may believe our stations
and other assets to be less valuable than as shown in prior appraisals we have
obtained. We may be prevented from consummating a strategic transaction due to
any of these and other factors, or we may incur significant costs to terminate
obligations and commitments with respect to, or receive less consideration in a
strategic transaction as a result of, these and other factors. We may not be
successful in our efforts to find or effectuate strategic alternatives for our
company.

We could be subject to a material tax liability if the IRS successfully
challenges our position regarding the 1997 disposition of our radio division.

     We structured the disposition of our radio division in 1997 and our
acquisition of television stations during the period following this disposition
in a manner that we believed would qualify these transactions as a "like kind"
exchange under Section 1031 of the Internal Revenue Code and would permit us to
defer recognizing for income tax purposes up to



                                       23
<PAGE>

approximately $333 million of gain. The IRS has examined our 1997 tax return and
has issued us a "30-day letter" proposing to disallow all of our gain deferral.
We have filed our protest to this determination with the IRS appeals division,
but we cannot predict the outcome of this matter at this time, and we may not
prevail. In addition, the "30-day letter" offered an alternative position that,
in the event the IRS is unsuccessful in disallowing all of the gain deferral,
approximately $62 million of the $333 million gain deferral will be disallowed.
We have filed a protest to this alternative determination as well. We may not
prevail with respect to this alternative determination. Should the IRS
successfully challenge our position and disallow all or part of our gain
deferral, because we had net operating losses in the years subsequent to 1997 in
excess of the amount of the deferred gain, we would not be liable for any tax
deficiency, but could be liable for interest on the tax liability for the period
prior to the carryback of our net operating losses. We have estimated the amount
of interest for which we could be held liable to be approximately $16.6 million
should the IRS succeed in disallowing all of the deferred gain. If the IRS were
successful only in disallowing part of the gain under its alternative position,
we estimate we would be liable for only a nominal amount of interest.

We could be adversely affected by actions of the FCC, the 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.

     On June 2, 2003, the FCC adopted new rules governing, among other
things, national and local ownership of television broadcast stations and
cross-ownership of television broadcast stations with radio broadcast stations
and newspapers serving the same market. The new rules would change the
regulatory framework within which television broadcasters hold, acquire and
transfer broadcast stations. Numerous parties have asked the FCC to reconsider
portions of its decision and other parties have sought judicial review. On
September 3, 2003, the U. S. Court of Appeals for the Third Circuit issued an
order staying the effectiveness of the new media ownership rules pending its
review of the FCC's action. Argument on the merits of the underlying appeal of
the FCC's order was held on February 11, 2004. Further, legislation regarding
indecent broadcasts has recently been passed by the House of Representatives.
The bill on indecent broadcasts that has been introduced in the Senate would
also result in the suspension of the effectiveness of the FCC's newly adopted
ownership rule changes for a period of one year, with the prior rules remaining
in effect during the one year period. The legislation would require the United
States General Accounting Office to conduct a study during that one year period
to determine whether any relationship exists between the horizontal and vertical
consolidation of media companies and the number of violations (and complaints
regarding violations) of indecency prohibitions under applicable laws and
regulations.

     Among other things, the FCC's new rules would have increased the
percentage of the nation's television households that may be served by
television broadcast stations in which the same person or entity has an
attributable interest from 35% to 45% of national television households. The
Consolidated Appropriations Act of 2004, which became law on January 23, 2004,
directed the FCC to increase this percentage to 39% of national television
households and allows an entity that acquires licensees in excess of 39% two
years to come into compliance with the new cap. The enactment of the 39% cap
mooted the FCC's proposed 45% cap. The Third Circuit has not ruled on whether
the Consolidated Appropriations Act of 2004 mooted any other issues before it.
This act also provides that the FCC shall conduct a quadrennial, rather than
biennial, review of its ownership rules. The new rules also relax FCC
restrictions on local television ownership and on cross-ownership of television
stations with radio stations or newspapers in the same market. In general, these
new rules would reduce the regulatory barriers to the acquisition of an interest
in our television stations by various industry participants who already own
television stations, radio stations, or newspapers.

     In assessing compliance with the national ownership caps, the FCC
counts each UHF station as serving only half of the television households in its
market. This "UHF Discount" is intended to take into account that UHF stations
historically have provided less effective coverage of their markets than VHF
stations. All of our television stations are UHF stations and, without the UHF
Discount, we would not meet the old 35% national coverage cap, the 45% cap that
was proposed by the FCC or the 39% cap that is now in effect under the recently
enacted Consolidated Appropriations Act of 2004. In its June 2, 2003 decision,
the FCC concluded that the future transition to digital television may eliminate
the need for a UHF Discount. For that reason, the FCC provided that the UHF
Discount will "sunset"--i.e., expire--for the top four broadcast networks (ABC,
NBC, CBS, and Fox) on a market-by-market basis as the digital transition is
completed, unless otherwise extended by the FCC. The FCC also announced,
however, that it will examine in a future review (as noted above, the FCC is
required to conduct such reviews on a quadrennial basis under the Consolidated
Appropriations Act of 2004) whether to include in this sunset provision the UHF
television stations owned by other networks and group owners, which would
include our television stations.

     Since the FCC's adoption of the new rules, in addition to the
legislation enacting the 39% cap, separate legislation has been introduced in
Congress to prohibit the application of the UHF Discount to UHF stations sold
after June 2, 2003, to sunset the UHF Discount in 2008 for all UHF stations, to
prohibit the cross ownership of newspapers and television stations in the same
market and to nullify in their entirety the rule changes adopted by the FCC.
Further, several parties have filed petitions urging the FCC to eliminate the
UHF Discount altogether. On February 19, 2004, the FCC announced that it is
seeking public comment regarding the effect of the Consolidated Appropriations
Act of 2004 on the FCC's authority to modify or eliminate the UHF Discount. We
cannot predict whether any pending legislation ultimately will be adopted or


                                       24
<PAGE>

whether any petitions for reconsideration or judicial review of the FCC's
decision of June 2, 2003 or for elimination of the UHF Discount will result in
significant changes to the ownership rules. A further rollback of the nationwide
television ownership cap, the prohibition of newspaper and television cross
ownership by Congress, any further limitation on the ability of a party to own
two television stations without regard to signal contour overlap if each station
is located in a separate designated market area, or action by the FCC or
Congress affecting the availability of the UHF Discount, may adversely affect
the opportunities we might have for sale of our television broadcast stations to
those television group owners and major television broadcast networks that
otherwise would be the most likely purchasers.

     Also, in its June 2, 2003 decision, the FCC stated that it intends in
the future to begin a rule making proceeding to consider whether to treat a
television licensee's joint sales agreement to sell the advertising time of
another television station in the same market as the equivalent of ownership of
that station for purposes of the FCC's local television ownership rules. A joint
sales agreement, or "JSA," is an arrangement by which a brokering station
provides advertising sales services, but not programming, for another station in
the market. We have entered into JSAs for 47 of our television stations, 42 of
which are with NBC owned or affiliated stations in our markets. The FCC may
adopt rules affecting these arrangements that could adversely affect our current
operations under existing JSAs. If a rule adopted by the FCC effectively
precludes the continuation of our current arrangements, it may be necessary for
us to renegotiate aspects of our current relationships. Also, if a new FCC rule
were to require that we terminate a JSA in a particular market, we may incur
significant costs to transfer the JSA to another broker or to resume operation
of the station without the sales and other services of a JSA broker. We cannot
predict what rules the FCC will adopt or what effect any new rules are likely to
have upon our operations and our present relationship with NBC and NBC's
affiliates.

We are required by the FCC to abandon the analog broadcast service of 23 of our
full power stations occupying the 700 MHz spectrum and may suffer adverse
consequences if we are unable to secure alternative distribution on reasonable
terms.

     We hold FCC licenses for full power stations which are authorized to
broadcast over either an analog or digital signal on channels 52-69 ("the 700
MHz band"), a portion of the broadcast spectrum that is currently allocated to
television broadcasting by the FCC. As part of the nationwide transition from
analog to digital broadcasting, the 700 MHz band is in the process of being
transitioned to use by new wireless and public safety entities. A federal
statute requires that, after December 31, 2006, or the date on which 85% of
television households in a television market are capable of receiving digital
services, incumbent broadcasters must surrender analog signals and broadcast
only on their allotted digital frequency. In some cases, broadcasters, including
our company, have been given a digital channel allocation within the 700 MHz
band of spectrum. During this transition these new wireless and public safety
entities are permitted to operate in the 700 MHz band provided they do not
interfere with incumbent or allotted analog and digital television operations.
The FCC has conducted spectrum auctions to select the future users of portions
of the 700 MHz band. Four such auctions have been completed in which future
users were selected for 18 MHz of spectrum on channels 54, 55 and 59 and six MHz
of spectrum on portions of channels 60, 62, 65 and 67. In addition, the FCC has
set aside channels 63-64 and 68-69 for use by public safety entities. On June
19, 2002, Congress passed the Auction Reform Act of 2002 temporarily postponing
an auction for commercial uses of 30 MHz of spectrum in portions of channels
60-62 and 65-67. In January 2003 the FCC commenced rulemaking proceedings in
which it is considering aspects of the implementation of this 2006 statutory
deadline for completion of the digital transition. Issues such as interference
protection, rights of incumbent broadcasters and broadcasters' ability to modify
authorized facilities are being addressed in these proceedings. These
proceedings remain pending. We cannot predict when we will abandon, by private
agreement, or as required by law, the broadcast service of our stations
occupying the 700 MHz spectrum. We could suffer adverse consequences if we are
unable to secure alternative simultaneous distribution of both the analog and
digital signals of those stations on reasonable terms and conditions. We cannot
now predict the impact, if any, on our business of the abandonment of our
broadcast television service in the 700 MHz spectrum.

We cannot assure you that we will successfully develop our broadcast station
group's digital television platform.

     We have commenced construction of our digital broadcasting facilities
and intend to explore the most effective use of digital broadcast technology for
each of our stations. We cannot assure you, however, that we will derive
commercial benefits from the development of our digital broadcasting capacity.
Although we believe that proposed alternative and supplemental uses of our
analog and digital spectrum will continue to grow in number, the viability and
success of each


                                       25
<PAGE>

proposed alternative or supplemental use of spectrum involves a
number of contingencies and uncertainties. We cannot predict what future actions
the FCC or Congress may take with respect to regulatory control of these
activities or what effect these actions would have on us.

We are dependent upon our senior management team and key personnel and the loss
of any of them could materially and adversely affect us.

     Our business depends upon the efforts, abilities and expertise of our
executive officers and other key employees, including Mr. Paxson, our Chairman
and Chief Executive Officer. We cannot assure you that we will be able to retain
the services of any of our key executives. If any of these executive officers
were to leave our employment, our operating results could be adversely affected.

We operate in a very competitive business environment.

     We compete for audience share and advertising revenues with other providers
of television programming. Our PAX TV entertainment programming competes for
audience share and advertising revenues with the programming offered by other
broadcast and cable networks, and also competes for audience share and
advertising revenues in our stations' respective market areas with the
programming offered by non-network affiliated television stations. Our ability
to compete successfully for audience share and advertising revenues depends upon
the popularity of our entertainment programming with viewing audiences in
demographic groups that advertisers desire to reach. Our ability to provide
popular programming depends upon many factors, including our ability to
correctly gauge audience tastes and accurately predict which programs will
appeal to viewing audiences, to produce original programs and purchase the right
to air syndicated programs at costs which are not excessive in relation to the
advertising revenue generated by the programming, and to fund marketing and
promotion of our programming to generate sufficient viewer interest. Many of our
competitors have greater financial and operational resources than we do which
may enable them to compete more effectively for audience share and advertising
revenues. All of the existing television broadcast networks and most of the
cable networks have been operating for a longer period than we have been
operating PAX TV, and therefore have more experience in network television
operations than we have which may enable them to compete more effectively.

     Our television stations also compete for audience share with other forms of
entertainment programming, including home entertainment systems and direct
broadcast satellite video distribution services which transmit programming
directly to homes equipped with special receiving antennas and tuners. Further
advances in technology may increase competition for household audiences. Our
stations also compete for advertising revenues with other television stations in
their respective markets, as well as with other advertising media, such as
newspapers, radio stations, magazines, outdoor advertising, transit advertising,
yellow page directories, direct mail and local cable systems. We cannot assure
you that our stations will be able to compete successfully for audience share or
that we will be able to obtain or maintain significant advertising revenue.

     The television broadcasting industry faces continual technological change
and innovation, the possible rise in popularity of competing entertainment and
communications media, and governmental restrictions or actions of federal
regulatory bodies, including the FCC and the Federal Trade Commission, any of
which could have a material effect on our operations.

We may be adversely affected by changes in the television broadcasting industry
or a general deterioration in economic conditions.

     The profitability of our television stations is subject to various
factors that influence the television broadcasting industry as a whole,
including:

       o the condition of the U.S. economy;

       o changes in audience tastes;

       o changes in priorities of advertisers;

       o new laws and governmental regulations and policies;

                                       26
<PAGE>

       o changes in broadcast technical requirements;

       o technological changes;

       o proposals to eliminate the tax deductibility of expenses incurred by
         advertisers;

       o changes in the law governing advertising by candidates for political
         office; and

       o changes in the willingness of financial institutions and other lenders
         to finance television station acquisitions and operations.

     We cannot predict which, if any, of these or other factors might have a
significant effect on the television broadcasting industry in the future, nor
can we predict what effect, if any, the occurrence of these or other events
might have on our operations. Generally, advertising expenditures tend to
decline during economic recession or downturn. Consequently, our revenues are
likely to be adversely affected by a recession or downturn in the U.S. economy
or other events or circumstances that adversely affect advertising activity. Our
operating results in individual geographic markets also could be adversely
affected by local regional economic downturns. Seasonal revenue fluctuations are
common in the television broadcasting industry and result primarily from
fluctuations in advertising expenditures by local retailers.

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.

     Our television operations are subject to significant regulation by the FCC
under the Communications Act of 1934. A television station may not operate
without the authorization of the FCC. Approval of the FCC is required for the
issuance, renewal and transfer of station operating licenses. In particular, our
business depends upon our ability to continue to hold television broadcasting
licenses from the FCC, which generally have a term of eight years. Our station
licenses are subject to renewal at various times between 2004 and 2007. Third
parties may challenge our license renewal applications. Although we have no
reason to believe that our licenses will not be renewed in the ordinary course,
we cannot assure you that our licenses or the licenses owned by the
owner-operators of the stations with which we have JSAs will be renewed. The
non-renewal or revocation of one or more of our primary FCC licenses could have
a material adverse effect on our operations.

     The Communications Act of 1934 empowers the FCC to regulate other aspects
of our business, in addition to imposing licensing requirements. For example,
the FCC has the authority to:

       o determine the frequencies, location and power of our broadcast
         stations,

       o regulate the equipment used by our stations,

       o adopt and implement regulations and policies concerning the ownership
         and operation of our television stations, and

       o impose penalties on us for violations of the Communications Act of 1934
         or FCC regulations.

     Our failure to observe FCC or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures or the
revocation of a license.

     Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations, and policies regarding a wide variety of
matters that could, directly or indirectly, affect the operation and ownership
of our broadcast properties. Relaxation and proposed relaxation of existing
cable ownership rules and broadcast multiple ownership and cross-ownership rules
and policies by the FCC and other changes in the FCC's rules following passage
of the Telecommunications Act of 1996 have affected and may continue to affect
the competitive landscape in ways that could increase the competition we face,
including competition from larger media, entertainment and telecommunications
companies, which may have greater access to capital and resources. We are unable
to predict the effect that any such laws, regulations or policies may have on
our operations.

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.

     Under the 1992 Cable Act, each broadcast station is required to elect,
every three years, to either require cable

                                       27
<PAGE>

television system operators in their local market to carry their signals, which
we refer to as "must carry" rights, or to prohibit cable carriage or condition
it upon payment of a fee or other consideration. By electing the "must carry"
rights, a broadcaster can demand carriage on a specified channel on cable
systems within its market. These "must carry" rights are not absolute, and under
some circumstances, a cable system may decline to carry a given station. Our
television stations elected "must carry" on local cable systems for the three
year election period which commenced January 1, 2003. The required election date
for the next three year election period commencing January 1, 2006, will be
October 1, 2005. If the law were changed to eliminate or materially alter "must
carry" rights, our business could be adversely affected.

     The FCC is developing rules to govern the obligations of cable television
systems to carry local television stations during and following the transition
from analog to digital television broadcasting. The FCC tentatively concluded
that a television broadcast station would not be entitled to mandatory carriage
of both the station's analog signal and its digital signal, and would not be
entitled to mandatory carriage of its digital signal unless it first gives up
its analog signal. Furthermore, the FCC tentatively concluded that a broadcaster
with multiple digital programming streams would be required to designate the
primary video stream eligible for mandatory carriage. If the FCC maintains its
current position, mandatory carriage rights for digital signals would be
accorded only to those television stations operating solely with a digital
signal. Broadcasters operating with both analog and digital signals nevertheless
could negotiate with cable television systems for carriage of their digital
signal. We cannot predict what final rules the FCC ultimately will adopt or what
effect those rules will have on our business.

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.

     We have had appraisals of certain of our assets, including our broadcast
television stations, prepared by independent valuation firms from time to time.
Each appraisal was prepared in accordance with certain procedures and
methodologies set forth therein. In general, appraisals represent the analysis
and opinion of each of the appraisers as of their respective dates, subject to
the assumptions and limitations set forth in the appraisal. An appraisal may not
be indicative of the present or future values of our assets upon liquidation or
resale. Although appraisals are based upon a number of estimates and assumptions
that are considered reasonable by the appraiser issuing such appraisal, these
estimates and assumptions are subject to significant business, economic,
competitive and regulatory uncertainties and contingencies, many of which are
beyond our control or the ability of the appraisers to accurately asses and
estimate, and are based upon assumptions with respect to future business
decisions and conditions which are subject to change. The opinions of value set
forth in any appraisal and the actual values of the assets appraised therein
will vary, and those variations may be material. 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. Prospective investors in our securities, including the
exchangeable preferred stock, should not place undue reliance on the appraisals.

The occurrence of extraordinary events may substantially decrease the use of and
demand for advertising and may decrease our revenues.

    Because our programming consists principally of entertainment programming
and long form paid programming which markets and sells products and services,
the occurrences of extraordinary events which generally divert attention from
entertainment programming in favor of news based programming or which negatively
affect the United States economy generally and reduce the demand for the
products and services marketed through long form programming, may adversely
affect the market for television advertising and our revenues.

ITEM 2. PROPERTIES

     Our corporate headquarters is located in West Palm Beach, Florida. We have
a satellite up-link facility through which we supply our central programming
feed, including PAX TV, to satellite transmitters which relay the signal to our
stations. Our satellite up-link facility is located on leased property in
Clearwater, Florida.

     Each of our stations has a facility in the market in which it operates at
which the central programming feed is received and retransmitted in its market.
Each of our stations broadcasts its signal from a transmission tower or antenna
situated on a transmitter site. Each station also has an office and studio and
related broadcasting equipment. For about half of our stations with respect to
which we have entered into JSA's, we have vacated or expect to vacate the leased
studio and office facilities of our stations as we co-locate our operations with
those of our JSA partner. We generally lease our broadcast transmission towers
and own substantially all of the equipment used in our broadcasting operations.
Our tower leases have expiration dates that range generally from two to twenty
years. We do not anticipate any difficulties in renewing those leases that
expire within the next several years or in leasing other space, if required.

     Our antenna, transmitter and other broadcast equipment for our New York
television station (WPXN) were destroyed upon the collapse of the World Trade
Center on September 11, 2001. We are currently broadcasting from a tower located
on the Empire State Building in Manhattan. We are continuing to evaluate several
alternatives to improve our signal through transmission from other locations. We
expect, however, that it could take several years to replace the signal we


                                       28
<PAGE>
enjoyed at the World Trade Center location with a comparable signal. We have
property and business interruption insurance coverage to mitigate the losses
sustained, although the extent of coverage of such insurance is currently being
litigated.

     We believe our existing facilities are adequate for our current and
anticipated future needs. No single property is material to
our overall operations.

ITEM 3. LEGAL PROCEEDINGS

    We are involved in litigation from time to time in the ordinary course of
our business. We believe the ultimate resolution of these matters will not have
a material effect on our financial position or results of operations or cash
flows.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of security holders during the fourth
quarter of the period covered by this report.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our Class A common stock is listed on the American Stock Exchange under the
symbol PAX. The following table sets forth, for the periods indicated, the high
and low sales price per share for our Class A common stock.

                                                 2003                2002
                                                 ----                ----
                                            HIGH     LOW        HIGH    LOW
                                            ----    -----      ------   -----
First Quarter............................  $2.65    $1.94      $13.00   $8.50
Second Quarter...........................   6.59     2.43       11.49    5.50
Third Quarter............................   6.37     3.91        6.15    2.10
Fourth Quarter...........................   6.00     3.67        3.29    2.03

    On March 19, 2004, the closing sale price of our Class A common stock on the
American Stock Exchange was $3.85 per share. As of that date, there were
approximately 553 holders of record of the Class A common stock.

    We have not paid cash dividends and do not intend for the foreseeable future
to declare or pay any cash dividends on any classes of common stock and intend
to retain earnings, if any, for the future operation and expansion of our
business. Any determination to declare or pay dividends will be at the
discretion of our board of directors and will depend upon our future earnings,
results of operations, financial condition, capital requirements, contractual
restrictions under our debt instruments, considerations imposed by applicable
law and other factors deemed relevant by our board of directors. In addition,
the terms of the indentures governing our outstanding senior secured notes and
senior subordinated notes and our outstanding preferred stock contain
restrictions on the declaration of dividends with respect to our common stock.

    As of December 31, 2003, the following shares of Class A common stock were
authorized for issuance under equity compensation plans:

<TABLE>
<CAPTION>

                                          NUMBER OF SECURITIES WEIGHTED-AVERAGE    NUMBER OF SECURITIES
                                            TO BE ISSUED UPON  EXERCISE PRICE OF  REMAINING AVAILABLE FOR
                                               EXERCISE OF        OUTSTANDING      FUTURE ISSUANCE UNDER
                                               OUTSTANDING         OPTIONS,      EQUITY COMPENSATION PLANS
                                            OPTIONS, WARRANTS      WARRANTS        [EXCLUDING SECURITIES
 PLAN CATEGORY                                 AND RIGHTS         AND RIGHTS      REFLECTED IN COLUMN(a)]
--------------                           ---------------------  ----------------  -----------------------
 <S>                                           <C>               <C>                   <C>
Equity compensation plans approved
   by security holders..................         2,606,686         $  3.72               3,488,774
Equity compensation plans not
   approved by security holders (1).....           522,500         $  3.04                      --
                                              -------------                             ----------
           Total........................         3,129,186         $  3.61               3,488,774
                                              ============                              ==========
</TABLE>

                                       29
<PAGE>

     (1) A narrative description of the material terms of these plans is set
forth in Note 13 -- STOCK INCENTIVE PLANS, to our consolidated financial
statements which are set forth elsewhere in this report.


ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth our consolidated financial data as of and
for each of the years in the five year period ended December 31, 2003. This
information is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements and the notes thereto which are
included elsewhere in this report. The following data, insofar as it relates to
each of the years presented, has been derived from annual financial statements,
including the consolidated balance sheets at December 31, 2003 and 2002, and the
related consolidated statements of operations and of cash flows for each of the
three years in the period ended December 31, 2003, and notes thereto appearing
elsewhere herein. All financial information set forth below reflects the
restatement of our financial statements as discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Restatements of
Financial Information" and Notes 1 and 2 to the Consolidated Financial
Statements (in thousands, except per share data):

<TABLE>
<CAPTION>


                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                         -------------------------------------------------------------
                                                             2003         2002        2001         2000        1999
                                                         ------------ ----------- ------------- ------------ ---------
                                                                      (RESTATED)   (RESTATED)  (RESTATED)   (RESTATED)

<S>                                                      <C>          <C>          <C>         <C>           <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues......................................     $   317,006  $   321,896  $  308,806  $   315,936   $ 248,362
Less: agency commissions............................         (46,067)     (44,975)    (43,480)     (44,044)    (34,182)
                                                         -----------  -----------  -----------  ----------- -----------
Net revenues........................................         270,939      276,921     265,326      271,892     214,180
Operating income (loss).............................          44,195      (69,906)   (150,129)    (155,946)   (171,140)
Net loss............................................         (76,213)    (336,186)   (205,545)    (169,176)   (137,764)
Net loss attributable to common stockholders (a)....        (146,317)    (446,285)   (352,201)    (381,980)   (291,971)

BASIC AND DILUTED LOSS PER COMMON SHARE: (b)
Net loss............................................     $     (2.14) $     (6.88) $    (5.46) $     (6.01)  $   (4.73)
Weighted average shares outstanding-- basic and diluted       68,390       64,849      64,509       63,515      61,738

BALANCE SHEET DATA:
Cash and cash equivalents...........................     $    97,123  $    25,765  $   83,858  $    51,363  $  125,189
Working capital.....................................          67,132       19,188      57,871       74,298     237,855
Total assets........................................       1,283,677    1,276,619   1,409,840    1,552,603   1,717,726
Total debt..........................................         925,608      900,101     529,180      405,476     388,421
Total mandatorily redeemable preferred stock........         410,739      354,498     589,958      574,587     509,928
Total mandatorily redeemable convertible preferred stock     684,067      638,603     574,202      505,802     439,879
Total common stockholders' (deficit) equity.........      (1,089,845)    (958,267)   (515,520)    (175,503)    111,658

OTHER DATA:
Cash flows provided by (used in) operating activities    $    32,916  $   (75,428) $  (60,772) $   (76,036) $ (181,808)
Cash flows provided by (used in) investing activities         60,929       (7,689)     48,477      (12,784)   (160,508)
Cash flows (used in) provided by financing activities        (22,487)      25,024      44,790       14,994     418,065
Program rights payments and deposits................          34,239      116,243     130,566      128,288     125,916
Payments for cable distribution rights..............           4,347        9,286      14,418       10,727      30,713
Capital expenditures................................          26,732       31,177      35,213       25,110      34,609
</TABLE>

----------

     a) Includes dividends and accretion on redeemable preferred stock.

     b) 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.


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

INTRODUCTION

Overview:

     We are a network television broadcasting company which owns and operates
the largest broadcast television station

                                       30
<PAGE>

group in the U.S., as measured by the number of television households in the
markets our stations serve. We currently own and operate 61 broadcast television
stations (including three stations we operate under time brokerage agreements),
which reach all of the top 20 U.S. markets and 40 of the top 50 U.S. markets. We
operate PAX TV, a network that provides programming seven days per week, 24
hours per day, and reaches approximately 96 million homes, or 89% of prime time
television households in the U.S., through our broadcast television station
group, and pursuant to distribution arrangements with cable and satellite
distribution systems and our broadcast station affiliates. PAX TV's
entertainment programming principally consists of shows originally developed by
us and shows that have appeared previously on other broadcast networks which we
have purchased the right to air. The balance of PAX TV's programming consists of
long form paid programming (principally infomercials) and public interest
programming.

     Our primary operating expenses include selling, general and administrative
expenses, depreciation and amortization expenses, programming expenses, employee
compensation and costs associated with cable and satellite distribution, ratings
services and promotional advertising. Programming amortization is a significant
expense and is affected by several factors, including the mix of syndicated
versus lower cost original programming as well as the frequency with which
programs are aired.

     We believe that absent significant improvement in our ratings and revenues,
our business operations are unlikely to provide sufficient cash flow to support
our debt service and preferred stock dividend requirements. In September 2002,
we engaged Bear, Stearns & Co. Inc. and in August 2003, we engaged Citigroup
Global Markets Inc. to act as our financial advisors to assess our business
plan, capital structure and future capital needs, and to explore strategic
alternatives for our company. These strategic alternatives may include the sale
of all or part of our assets, finding a strategic partner for our company who
would provide the financial resources to enable us to redeem, restructure or
refinance our debt and preferred stock, or finding a third party to acquire our
company through a merger or other business combination or through a purchase of
our equity securities. See "Forward-Looking Statements and Associated Risks and
Uncertainties--The outcome of our exploration of strategic alternatives is
uncertain."

Restatements of Financial Information:

     From 1997 through 2000, we acquired several television stations in
transactions structured as the purchase of the outstanding stock of the entity
owning the station. In each of these transactions, we failed to establish the
proper deferred tax liability for the difference between the book basis and tax
basis of the acquired station's FCC license as required under SFAS No. 109,
"Accounting for Income Taxes." Further, in connection with our analysis of prior
acquisitions, we determined that in certain acquisitions we had understated the
value of FCC licenses. Additionally, we determined that goodwill should not have
been recorded for certain acquisitions that were fundamentally purchases of
assets.  We have  corrected  this matter by  reclassifying  $54.5  million  from
goodwill to FCC license  intangible  assets. Set forth below are the restatement
adjustments  included in the  restatement  of our  previously  issued  financial
statements.

     The recording of deferred tax liabilities resulting from the stock
acquisitions described above has resulted in additional FCC license intangible
assets amounting to approximately $28.3 million. The increased amount of our FCC
license intangible assets has resulted in additional amortization expense of
approximately $1.0 million in the year ended December 31, 2001 ($2.3 million in
the period from January 1, 1997 through December 31, 2000). Effective January 1,
2002, we adopted SFAS No. 142 "Accounting for Goodwill and Other Intangible
Assets" at which time indefinite-lived intangible assets were no longer
amortized.

     The deferred tax liabilities associated with these additional FCC
license intangible assets has, in periods subsequent to the respective
acquisition, resulted in the realization of previously unrecognized deferred tax
assets (generated by net operating losses) as we considered the reversal of
deferred tax liabilities related to FCC license intangible assets as a source of
future taxable income in assessing the realization of deferred tax assets up
until the adoption of SFAS


                                       31
<PAGE>

No. 142. The realization of deferred tax assets has resulted in a deferred tax
benefit of $28.3 million in the period from January 1, 1997 through December 31,
2000.

     The increased amount of our FCC license intangible assets resulting from
these acquisitions has been considered in the determination of any gain or loss
upon the disposition of the related assets. As a result, we have recognized
additional losses on the sale of broadcast assets of approximately $0.7 million
in the year ended December 31, 2001 ($1.7 million in the period from January 1,
1997 through December 31, 2000).

     In each case in which an acquisition was consummated at a time when we had
unrecognized deferred tax assets (resulting from net operating losses), the
recording of deferred tax liabilities resulting from the stock acquisitions has
resulted in their realization. The realization of these additional deferred tax
assets had no effect on our financial statements until the adoption of SFAS No.
142. However, upon the adoption of SFAS No. 142 in the first quarter of 2002, we
no longer amortized our FCC license intangible assets. Under previous accounting
standards, these assets were being amortized over 25 years. Although the
provisions of SFAS No. 142 stipulate that indefinite-lived intangible assets are
no longer amortized, we are required under SFAS No. 109 "Accounting for Income
Taxes", to recognize deferred tax liabilities and assets for temporary
differences related to the FCC license intangible assets and the tax-deductible
portion of these assets. Because indefinite-lived intangible assets were no
longer amortized for financial reporting purposes under SFAS No. 142, the
related deferred tax liabilities will not reverse until some indeterminate
future period should the FCC license intangible assets become impaired or be
disposed of. Therefore the reversal of deferred tax liabilities related to the
FCC license intangible assets was no longer considered a source of future
taxable income in assessing the realization of deferred tax assets. As a result,
upon adoption of SFAS No. 142 in the first quarter of 2002, we have recorded an
additional provision for income taxes in connection with the deferred tax
liabilities resulting from stock acquisitions of approximately $32.3 million.

     We have restated our previously issued financial statements to correct
the items described in the preceding paragraphs. The cumulative effect of the
aforementioned adjustments is a decrease in our accumulated deficit as of
December 31, 2000 of $24.3 million, from ($759.3) million, as originally
reported, to ($735.0) million, as restated. We have determined that it would be
appropriate to restate our 2002 and 2001 financial statements, and to restate
the financial information previously reported in the first quarter of 2002.
Unless otherwise specifically noted, the financial information in this Form 10-K
reflects the 2001 restatement, the 2002 restatement, and the first quarter 2002
restatement. For information concerning the restatement of our quarterly results
of operations, see Note 19 of our consolidated financial statements included
elsewhere herein. The following sets forth the condensed consolidated balance
sheet as of December 31, 2002 and the condensed consolidated statements of
operations for 2002 and 2001 as originally reported and as restated (in
thousands, except per share data):
<TABLE>
<CAPTION>

                                                                         AS OF DECEMBER 31, 2002
                                                                AS ORIGINALLY
                                                                 REPORTED (1)    ADJUSTMENTS   AS RESTATED
                                                                -------------    -----------   -----------

<S>                                                               <C>               <C>        <C>
          ASSETS
           Current assets........................................ $  124,984                   $  124,984
           Intangible assets, net................................    877,203       $22,523        899,726
           Property, equipment and other assets, net.............    251,909                      251,909
                                                                   ---------        ------      ---------
             Total assets........................................ $1,254,096       $22,523     $1,276,619
                                                                   =========        ======      =========

        LIABILITIES, MANDATORILY REDEEMABLE
           PREFERRED  STOCK AND STOCKHOLDERS' DEFICIT
           Current liabilities................................... $  105,796                   $  105,796
           Deferred income taxes.................................    136,286       $32,325        168,611
           Senior subordinated notes and bank financing,
              net of current portion.............................    896,957                      896,957
           Other long-term liabilities...........................     70,421                       70,421
                                                                   ---------        ------      ---------
                 Total liabilities...............................  1,209,460        32,325      1,241,785
                                                                   ---------        ------      ---------
           Mandatorily redeemable and convertible preferred stock    993,101                      993,101
                                                                   ---------                    ---------
           Total stockholders' deficit...........................   (948,465)       (9,802)      (958,267)
                                                                   ---------        ------      ---------
           Total liabilities, mandatorily redeemable and
             stockholders' deficit............................... $1,254,096       $22,523     $1,276,619
                                                                   =========        ======      =========
</TABLE>

           (1) After considering reclassifications to conform to the 2003
               presentation.

                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                                              FOR THE YEAR ENDED DECEMBER 31, 2002
                                                                          -------------------------------------------
                                                                          AS ORIGINALLY
                                                                           REPORTED (1)    ADJUSTMENTS    AS RESTATED
                                                                          -------------    -----------    -----------
       <S>                                                                 <C>              <C>           <C>
        REVENUES:
          Revenues..............................................           $   321,896                    $   321,896
          Less: agency commissions..............................               (44,975)                       (44,975)
                                                                           -----------                    -----------
          Net revenues..........................................               276,921                        276,921
                                                                           -----------                    -----------

        OPERATING EXPENSES:
          Expenses, excluding depreciation and amortization.....               311,204                        311,204
          Depreciation and amortization.........................                58,529                         58,529
                                                                           -----------                    -----------
                  Total operating expenses......................               369,733                        369,733
                                                                           -----------                    -----------
        Gain on sale or disposal of broadcast and other assets, net             22,906                         22,906
                                                                           -----------                    -----------
        Operating loss..........................................               (69,906)                       (69,906)
        Other expense, net......................................               (97,007)                       (97,007)
        Income tax provision....................................              (136,948)    $(32,325)         (169,273)
                                                                           -----------      -------       -----------
        Net loss................................................              (303,861)     (32,325)         (336,186)
        Dividends and accretion on redeemable and convertible
           preferred stock......................................              (110,099)                      (110,099)
                                                                           ------------     -------       -----------
        Net loss attributable to common stockholders............           $  (413,960)    $(32,325)      $  (446,285)
                                                                           ===========      =======       ===========
        Basic and diluted loss per common share.................           $     (6.38)    $  (0.50)      $     (6.88)
                                                                           ===========      =======       ===========
        Weighted average shares outstanding.....................            64,849,068                     64,849,068
                                                                           ===========                    ===========
</TABLE>

         (1) After considering reclassifications to conform to the 2003
             presentation.

<TABLE>
<CAPTION>
                                                                              FOR THE YEAR ENDED DECEMBER 31, 2001
                                                                          -------------------------------------------
                                                                          AS ORIGINALLY
                                                                           REPORTED (1)    ADJUSTMENTS    AS RESTATED
                                                                          -------------    -----------    -----------
       <S>                                                                 <C>              <C>           <C>
        REVENUES:
          Revenues..............................................           $   308,806                    $    308,806
          Less: agency commissions..............................               (43,480)                        (43,480)
                                                                           ------------                   ------------
          Net revenues..........................................               265,326                         265,326
                                                                           ------------                   ------------

        OPERATING EXPENSES:
          Expenses, excluding depreciation and amortization.....               326,810                         326,810
          Depreciation and amortization.........................                96,248       $1,031             97,279
                                                                           ------------      ------       ------------
                  Total operating expenses......................               423,058        1,031            424,089
                                                                           ------------      ------       ------------
        Gain on sale or disposal of broadcast and other assets, net              9,366         (732)             8,634
                                                                           ------------      ------       ------------
        Operating loss..........................................              (148,366)      (1,763)          (150,129)
        Other expense ..........................................               (55,296)                        (55,296)
        Income tax provision....................................                  (120)                           (120)
                                                                           ------------      ------       ------------
        Net loss................................................              (203,782)      (1,763)          (205,545)
        Dividends and accretion on redeemable and convertible
           preferred stock......................................              (146,656)                       (146,656)
                                                                           ------------      ------        ------------
        Net loss attributable to common stockholders............           $  (350,438)     $(1,763)       $  (352,201)
                                                                           ===========       ======        ===========
        Basic and diluted loss per common share.................           $     (5.43)     $ (0.03)       $     (5.46)
                                                                           ===========       ======        ===========
        Weighted average shares outstanding.....................            64,508,761                      64,508,761
                                                                           ===========                     ===========
</TABLE>

         (1) After considering reclassifications to conform to the 2003
             presentation.

                                       33
<PAGE>

Financial Performance:

     o   Gross revenues in 2003 decreased 1.5% to $317.0 million compared to
         $321.9 million in 2002. Net revenues in 2003 decreased 2.2% to $270.9
         million compared to $276.9 million in 2002. Excluding the impact of
         sold stations, both gross and net revenues in 2003 would have been
         relatively unchanged when compared with gross and net revenues in 2002.

     o   Operating income in 2003 increased by $114.1 million to $44.2 million
         compared to an operating loss of $69.9 million in 2002.

     o   Net loss attributable to common stockholders was $146.3 million in 2003
         compared to a net loss attributable to common stockholders of $446.3
         million in 2002. The net loss in 2002 includes additional tax expense
         of $168.6 million to increase our deferred tax asset valuation
         allowance resulting from the adoption of SFAS No. 142, "Goodwill and
         Other Intangible Assets."

     o   Cash flow from operating activities was $32.9 million in 2003, an
         improvement of $108.3 million compared to negative $75.4 million in
         2002.


Balance Sheet:

     Our cash, cash equivalents and short-term investments increased during the
year by $67.2 million to $110.1 million as of December 31, 2003. Our total debt,
which primarily comprises three series of notes, increased $25.5 million during
the year to $925.6 million as of December 31, 2003. Additionally, we have three
series of mandatorily redeemable preferred stock currently outstanding with an
aggregate redemption value of $1.1 billion as of December 31, 2003. Two series
of the notes require us to make periodic cash interest payments on a current
basis. Interest on the third series of notes accretes until July 2006, at which
time we will be obligated to make cash interest payments on a current basis. All
series of preferred stock accrue dividends but do not require current cash
dividend payments. None of these instruments matures or requires mandatory
principal repayments until the fourth quarter of 2006.

     During 2003 we issued letters of credit to support our obligation to pay
for certain original programming. We expect to continue to issue letters of
credit in 2004. The settlement of such letters of credit generally occurs during
the first quarter of the year. As a result of this strategy, our programming
payments may be higher in the first quarter of the year compared to the other
three quarters of the year.

Sources of Cash:

     Our principal sources of cash in 2003 were:

     o   revenues from the sale of network long form paid programming, network
         spot advertising, station long form paid programming and station spot
         advertising; and

     o   $83.3 million in proceeds from the sale of broadcast assets,
         principally consisting of television stations.

     We expect our principal sources of cash in 2004 to consist of:

     o   revenues from the sale of network long form paid programming, network
         spot advertising, station long form paid programming and station spot
         advertising; and

     o   $10.0 million in proceeds from our remaining planned television station
         sale.

Key Company Performance Indicators:


                                       34

<PAGE>


     We use a number of key performance indicators to evaluate and manage our
business. One of the key indicators related to the performance of our long form
paid programming is long form advertising rates. These rates can be affected by
the number of television outlets through which long form advertisers can air
their programs, weather patterns which can affect viewing levels, and new
product introductions. We monitor early indicators such as how new products are
performing and our ability to increase or decrease rates for given time slots.

     Program ratings are one of the key indicators related to our network spot
business. As more viewers watch our programming, our ratings increase which can
increase our revenues. The commitments we obtain from advertisers in the "up
front" market are a leading indicator of the potential performance of our
network spot revenues. As the year progresses, we monitor pricing in the scatter
market to determine where network spot advertising rates are trending.
Cost-per-thousand ("CPM's") refers to the price of reaching 1,000 television
viewing households with an advertisement. CPM trends and comparisons to
competitors' CPM's can be used to determine pricing power and the appeal of the
audience demographic that we are delivering to advertisers.

     In order to evaluate our local market performance, we examine ratings as
well as our cost per point, which is the price we charge an advertiser to reach
one percent of the total television viewing households in a station's DMA, as
measured by Nielsen. We also examine the percentage of the market advertising
revenue that our local stations are receiving compared to the share of the
market ratings that we are delivering. The economic health of a particular
region or certain industries that are concentrated in a particular region can
affect the amount being spent on local television advertising.

Factors Expected to Affect our Performance in 2004:

     During 2003, we demonstrated significant improvements in cash flow from
operating activities and an increase in total cash, cash equivalents and
short-term investments. The increase in our total cash, cash equivalents and
short-term investments was primarily due to the sale of certain television
stations. We have one remaining planned station sale which is expected to close
during the second quarter of 2004. We have no current plans to continue to
increase the total amount of cash, cash equivalents and short-term investments
on our balance sheet through asset sales during 2004. Additionally, we do not
anticipate that we will generate sufficient cash flows from operating activities
to cover our anticipated capital expenditures for the year ending December 31,
2004. Accordingly, our total cash, cash equivalents and short-term investments
as of December 31, 2003 is not expected to increase as it did in 2003 and is
expected to decrease during the course of 2004.

     The broadcasting industry will be affected in 2004 by spending on
political advertising and during the Olympic games. Typically, years that
contain political and Olympic advertising show strong performance for television
spot advertising for the industry in general. While we are not a direct
beneficiary of a material amount of political advertising, we expect to benefit
from the decrease in advertising inventory generally available in the local
marketplace. Conversely, the broadcast of the Olympics in August 2004 could
cause lower ratings due to strong competition from Olympic programming. The
potential for lower ratings and the possibility that non-Olympics advertisers
may suspend their typical advertising programs during the Olympics could
negatively affect our business.

     The U.S. economic environment also affects the performance of our business,
since our business is dependent in part on cyclical advertising rates. An
improving economy, led by increases in consumer confidence, could benefit us by
leading advertisers to increase their spending.

Outlook for 2004:

     In order for us to improve ratings and revenues in 2004, we would need
to market and air programming that attracts additional viewers, increase our
CPM's through delivery of more attractive viewing demographics or realize
increases in long form paid programming rates. As long form programming is not
currently in a high growth cycle, we expect that our revenues in this segment
for 2004 will be relatively unchanged when compared to 2003. As a result of the
restructuring we commenced in the fourth quarter of 2002, we believe that our
ability to further reduce costs is limited. In fact, we expect that we will
experience increases in operating expenses during 2004 resulting from increased
utility costs to broadcast our digital television signal and other contractual
increases in operating expenses. During 2004, we also do not anticipate that we
will have the benefit of a reduction in expenses related to certain beneficial
legal settlements, similar to those that we received during the year ended
December 31, 2003.


                                       35
<PAGE>
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. We believe the most
significant estimates involved in preparing our financial statements include
estimates related to the net realizable value of our programming rights, barter
revenue recognition, estimates used in accounting for leases and estimates
related to the impairment of long-lived assets and FCC licenses. We base our
estimates on historical experience and various other assumptions we believe are
reasonable. Actual results could differ from those estimates.

     We consider the accounting policies described below to be critical since
they have the greatest effect on our reported financial condition and results of
operations and they require significant estimates and judgments.

     We carry programming rights assets on our balance sheet at the lower of
unamortized cost or net realizable value. We periodically evaluate the net
realizable value of our program rights based on anticipated future usage of
programming and the anticipated future ratings and related advertising revenues.
We evaluate the net realizable value of our programming rights by aggregating
the program costs and related estimated future revenues for each programming
daypart. If estimated future revenues are insufficient to recover the
unamortized cost of the programming assets in each daypart, we record an
adjustment to write down the value of our assets to net realizable value. We
also evaluate whether future revenues will be sufficient to recover the cost of
programs we are committed to purchase in the future, and if estimated future
revenues are insufficient, we accrue a loss related to our programming
commitments. Our estimates of future advertising revenues are based upon our
actual revenues generated currently, adjusted for estimated revenue growth
assumptions. If market conditions were to deteriorate, we may not achieve our
estimated future revenues, which could result in future write downs to net
realizable value and accrued losses on programming commitments.

     We have made judgments and estimates in connection with some of our leasing
transactions regarding the estimated useful lives of the assets subject to
lease, as well as the discount rates used to estimate the present value of
future lease payments. These judgments and estimates have led us to conclude
that these leases should be accounted for as operating leases. Had we used
different judgments and estimates, these leases may have been classified as
capital leases. The terms of our senior notes indenture, senior subordinated
notes indentures and outstanding preferred stock restrict our ability to incur
indebtedness, including our ability to enter into capital leases.

     We review our long-lived assets for possible impairment whenever events or
changes in circumstances indicate that, based on estimated undiscounted future
cash flows, the carrying amount of the assets may not be fully recoverable. If
our analysis indicates that a possible impairment exists, we are required to
then estimate the fair value of the asset determined either by third party
appraisal or estimated discounted future cash flows. In addition, our FCC
licenses are tested for impairment at least annually by comparing the estimated
fair values with the recorded amount on an aggregate basis as a single unit of
accounting since we operate PAX TV as a single asset, a consolidated
distribution platform. We believe that we have made reasonable estimates and
judgments in determining whether our long-lived assets and FCC licenses have
been impaired. If, however, there were a material change in our determination of
fair values or if there were a material change in the conditions or
circumstances influencing fair value, we could be required to recognize an
impairment charge. In addition, it is possible that the estimated life of
certain long-lived assets will be reduced significantly in the near term because
of the anticipated industry migration from analog to digital broadcasting. If
and when we become aware of such a reduction of useful lives, depreciation
expense will be adjusted prospectively to ensure assets are fully depreciated
upon migration.

     We recognize revenues as commercial spots and long form paid programming
are aired and ratings guarantees to advertisers are achieved. We recognize a
liability for shortfalls in ratings guarantees based on information obtained
from third party sources and by using our judgment and best estimates.

     We carry accounts receivable at the amount we believe to be collectible. We
use our judgment and best estimates in determining the amount of accounts
receivable we believe to be uncollectible. The amounts of accounts receivable
that ultimately become uncollectible could vary materially from our estimates.

     We have entered into agreements with cable system operators to improve
channel positioning on certain cable systems. For agreements with specified
termination dates, we amortize amounts paid over the term of the agreement using
the straight line method. For agreements with no specified termination date, we
amortize amounts paid on a straight line basis

                                       36

<PAGE>

over their estimated useful lives.

     We depreciate property and equipment over their estimated useful lives
using the straight line method. We periodically evaluate the potential time
frame in which certain equipment may become obsolete as a result of the FCC
mandated conversion from analog to digital to determine whether accelerated
depreciation is necessary. We have not determined whether accelerated
depreciation should be used to depreciate any of our property and equipment and
we continue to depreciate our property and equipment over their estimated useful
lives.

     We account for employee stock-based compensation using the intrinsic value
method.

     We have investments in certain broadcast properties, including purchase
options in entities owning television stations. We review our investments in
broadcast properties for possible impairment whenever events or changes in
circumstances indicate that the carrying value of these assets may not be
recoverable. If our analysis indicates that a possible impairment exists, we are
required to estimate the fair value of the asset based either on a third party
appraisal or estimated discounted future cash flows. We believe we have made
reasonable estimates and judgments in determining whether our investments in
broadcast properties are impaired.

     We structured the disposition of our radio division in 1997 and our
acquisition of television stations during the period following this disposition
in a manner that we believed would qualify these transactions as a "like kind"
exchange under Section 1031 of the Internal Revenue Code and would permit us to
defer recognizing for income tax purposes up to approximately $333 million of
gain. The IRS has examined our 1997 tax return and has issued us a "30-day
letter" proposing to disallow all of our gain deferral. We have filed our
protest to this determination with the IRS appeals division, but we cannot
predict the outcome of this matter at this time, and we may not prevail. In
addition, the "30-day letter" offered an alternative position that, in the event
the IRS is unsuccessful in disallowing all of the gain deferral, approximately
$62 million of the $333 million gain deferral will be disallowed. We have filed
a protest to this alternative determination as well. We may not prevail with
respect to this alternative determination. Should the IRS successfully challenge
our position and disallow all or part of our gain deferral, because we had net
operating losses in the years subsequent to 1997 in excess of the amount of the
deferred gain, we would not be liable for any tax deficiency, but could be
liable for interest on the tax liability for the period prior to the carryback
of our net operating losses. We have estimated the amount of interest for which
we could be held liable to be approximately $16.6 million as of December 31,
2003 should the IRS succeed in disallowing all of the deferred gain. If the IRS
were successful only in disallowing part of the gain under its alternative
position, we estimate we would be liable for only a nominal amount of interest.

RESULTS OF CONTINUING OPERATIONS

     The following table sets forth net revenues, the components of operating
expenses with percentages of net revenues, and other operating data for the
periods presented (in thousands):

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31
                                                      2003         %       2002        %        2001         %
                                                   ----------    -----  ----------   -----  -----------    -----
                                                                        (RESTATED)          (RESTATED)
<S>                                                <C>           <C>    <C>          <C>    <C>            <C>
 Gross revenues..........................          $  317,006           $  321,896          $  308,806
 Less: agency commissions................             (46,067)             (44,975)            (43,480)
                                                   ----------           ----------          ----------
 Net revenues............................             270,939    100.0     276,921   100.0     265,326     100.0
                                                   ----------           ----------          ----------
 Expenses:
   Programming and broadcast operations..              51,954     19.2      51,204    18.5      43,030      16.2
   Program rights amortization...........              51,082     18.9      77,980    28.2      84,808      32.0
   Selling, general and administrative...             110,976     41.0     132,305    47.8     119,427      45.0
   Business interruption insurance proceeds                --       --      (1,617)   (0.6)         --       --
   Time brokerage and affiliation fees...               4,403      1.6       4,079     1.5       3,621       1.4
   Stock-based compensation..............              12,766      4.7       3,810     1.4      10,161       3.8
   Adjustment of programming to net
 realizable value........................               1,066      0.4      41,270    14.9      66,992      25.2

   Restructuring charges (credits).......                  48       --       2,173     0.8      (1,229)     (0.5)
   Reserve for state taxes...............               3,055      1.1          --     --           --       --
   Depreciation and amortization.........              42,983     15.9      58,529    21.1      97,279      36.7
                                                   ----------           ----------          ----------
          Total operating expenses.......             278,333    102.7     369,733   133.5     424,089     159.8
                                                   ----------           ----------          ----------
 Gain on sale or disposal of broadcast and
    other assets, net....................              51,589     19.0      22,906     8.3       8,634       3.3
                                                   ----------           ----------          ----------
 Operating income (loss).................          $   44,195     16.3  $  (69,906)  (25.2) $ (150,129)    (56.6)
                                                   ==========           ==========          ==========
 Other Data:
 Cash flows provided by (used in)
 operating activities....................          $   32,916           $  (75,428)         $  (60,772)
 Cash flows provided by (used in) investing
   activities............................              60,929               (7,689)             48,477
 Cash flows (used in) provided by financing
   activities............................             (22,487)              25,024              44,790
 Program rights payments and deposits....              34,239              116,243             130,566
 Payments for cable distribution rights..               4,347                9,286              14,418
 Capital expenditures....................              26,732               31,177              35,213
</TABLE>

                                       37
<PAGE>

YEARS ENDED DECEMBER 31, 2003 AND RESTATED RESULTS OF OPERATIONS FOR 2002

     Gross revenues decreased 1.5% to $317.0 million for the year ended December
31, 2003 versus $321.9 million for the year ended December 31, 2002. This
decrease is primarily attributable to the sale of certain television stations.

     Programming and broadcast operations expenses were $51.9 million during the
year ended December 31, 2003, compared with $51.2 million in 2002. This increase
is primarily due to higher tower rent and utilities expense in connection with
our digital television build-out. Program rights amortization expense was $51.1
million during the year ended December 31, 2003 compared with $78.0 million in
2002. The decrease is primarily due to the modification of our programming
schedule in January 2003 whereby we replaced daytime entertainment programming
with long form paid programming for which we have no programming cost and due to
the sub-licensing of Touched By An Angel to Crown Media described below.
Selling, general and administrative expenses were $111.0 million during the year
ended December 31, 2003 compared with $132.3 in 2002. The decrease is primarily
a result of cost cutting measures including headcount reductions in connection
with the fourth quarter 2002 restructuring activities described below, lower
legal expenses primarily resulting from completion, in 2002, of the NBC
arbitration matter and a charge recorded in 2002 in connection with the
postponement of the 700 MHz spectrum auction. In addition, during the first
quarter of 2003, we received approximately $2.2 million from NBC to settle a
pending dispute regarding digital television signal interference at our
television station WPXM, serving the Miami-Fort Lauderdale, Florida market. This
settlement was recorded as a reduction of our selling, general and
administrative expenses. Additionally, we reduced our bad debt reserve by
approximately $1.5 million because of the decrease in our receivables that
resulted from our shift in 2003 to more prepaid long form advertising.

     During the year ended December 31, 2003, we recognized an adjustment of
programming to net realizable value totaling $1.1 million resulting from our
decision to no longer air an original game show production. In 2003, we recorded
a reserve for state taxes related to current and prior periods in the amount of
$3.1 million in connection with a tax liability related to certain states in
which we have operations. Depreciation and amortization expense was $43.0
million during the year ended December 31, 2003 compared with $58.5 million in
2002. This decrease is due to the sale of broadcast assets and our determination
to amortize our remaining cable distribution rights over the remaining term of
the underlying agreements. In 1998, we began entering into cable distribution
agreements for periods generally up to ten years in markets where we do not own
a television station. Certain of these cable distribution agreements also
provided us with some level of promotional advertising to be run at the
discretion of the cable operator, primarily during the first few years to
support the launch of the PAX TV network on the cable systems. We had been
amortizing these assets on an accelerated basis, which gave effect to the
advertising component included in these agreements. The remaining unamortized
cost, which was being amortized over seven years, will be amortized over the
remaining contractual life of the agreements. In 2003, we determined that we had
previously over-amortized certain of these assets and recorded a $6.9 million
reduction of amortization expense. The decrease in depreciation and amortization
expense was offset, in part, by an impairment charge in the amount of $5.4
million recorded in 2003 in connection with a purchase option on a television
station. This impairment existed in periods prior to 2003.

     In May 2003, we completed the sale of our television station KAPX, serving
the Albuquerque, New Mexico market, for $20.0 million resulting in a pre-tax
gain of approximately $12.3 million. In April 2003, we completed the sale of our
television stations WMPX, serving the Portland-Auburn, Maine market, and WPXO,
serving the St. Croix, U.S. Virgin Islands market, for an aggregate of $10.0
million resulting in a pre-tax gain of approximately $3.1 million. In April
2003, we completed the sale of our limited partnership interest in television
station WWDP, serving the Boston, Massachusetts market, for approximately $13.8
million resulting in a pre-tax gain of approximately $9.9 million. In February
2003, we completed the sale of our television station KPXF, serving the Fresno,
California market, for $35.0 million resulting in a pre-tax gain of
approximately $26.6 million.

     In October 2003, we granted 3,598,750 options under our 1998 Stock
Incentive Plan, as amended (the "Plan"), to purchase one share of our Class A
common stock at an exercise price of $0.01 per share to certain employees and
directors.


                                       38

<PAGE>

The options provided for a one business day exercise period. All holders of the
options exercised their options and received Class A common stock subject to
vesting restrictions. The awards included retention grants totaling 2,278,000
shares which will vest in their entirety at the end of a five year period. Of
the remaining awards, 1,000,750 will vest ratably over a three year period and
320,000 will vest ratably over a five year period. The option grants resulted in
non-cash stock based compensation expense of approximately $18.3 million, which
will be recognized on a straight-line basis over the vesting period of the
awards. For the year ended December 31, 2003, we recognized approximately $1.5
million in stock based compensation expense in connection with these grants.
Approximately $5.7 million will be recognized in 2004, and the remaining $11.1
million will be recognized between 2005 and 2008.

     In January 2003, we consummated a stock option exchange offer under which
we granted to holders who tendered their eligible options in the exchange offer
new options under the Plan to purchase one share of our Class A common stock for
each two shares of our Class A common stock issuable upon the exercise of
tendered options, at an exercise price of $0.01 per share. Because the terms of
the new options provided for a one business day exercise period, all holders who
tendered their eligible options in the exchange offer exercised their new
options promptly after the issuance of those new options. Approximately 5.5
million options issued under our stock option plans and 1.8 million non
qualified options issued in addition to the options granted under our stock
option plans were tendered in the exchange offer and approximately 2.6 million
new shares of Class A common stock were issued upon exercise of the new options,
net of approximately 1.0 million shares of Class A common stock withheld, in
accordance with the Plan's provisions, at the holders' elections to cover
withholding taxes and the option exercise price totaling approximately $2.4
million. The stock option exchange resulted in a non-cash stock-based
compensation expense of approximately $8.6 million, of which approximately $8.5
million related to vested and unvested shares issued upon exercise of the new
options was recognized in the year ended December 31, 2003 and the remaining
$0.1 million will be recognized on a straight-line basis over the remaining
vesting period of the modified awards. In addition, the remaining deferred stock
compensation expense associated with the original stock option awards totaling
approximately $2.5 million at December 31, 2002 associated with tendered options
is being recognized on a straight-line basis over the remaining vesting period
of the modified awards ($2.3 million recognized in the year ended December 31,
2003).

     Interest expense for the year ended December 31, 2003 increased to $92.2
million from $85.2 million in 2002. The increase is primarily due to higher
accretion on our 12 1/4% senior subordinated discount notes. Dividends on
mandatorily redeemable preferred stock resulted from the classification of our
14 1/4% Junior Exchangeable Preferred Stock as a liability in accordance with
SFAS 150. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--New Accounting Pronouncements" for additional discussion
of SFAS 150 and its effect on the classification of our mandatorily redeemable
preferred stock. Interest income for the year ended December 31, 2003 increased
to $3.4 million from $2.4 million in 2002. The increase is primarily due to
higher average cash and short-term investment balances in 2003 resulting from
proceeds from asset sales.


RESTATED RESULTS OF OPERATIONS: YEARS ENDED DECEMBER 31, 2002 AND 2001

     Gross revenues increased 4.2% to $321.9 million for the year ended December
31, 2002 from $308.8 million for 2001. This increase is primarily attributable
to higher station and network advertising revenues. Television station revenues
increased 9% primarily due to increased television spot advertising revenues in
our local markets and favorable results from our JSA agreements. Network spot
revenues increased 5% and network long form revenues increased 1% compared to
2001 primarily due to increased distribution of PAX-TV.

     Our revenues during the years ended December 31, 2002 and 2001 were
negatively affected by the temporary loss and continued impairment of the
broadcast signal of our New York television station when our antenna,
transmitter and other broadcast equipment were destroyed upon the collapse of
the World Trade Center on September 11, 2001. We are currently broadcasting from
a tower located on the Empire State Building in Manhattan, and are continuing to
evaluate several alternatives to improve our signal through transmission from
other locations. We expect, however, that it could take several years to replace
the signal we enjoyed at the World Trade Center location with a comparable
signal. The loss of a significant portion of our over-the-air viewership in the
New York market has had a negative effect on our revenues as a result of lower
ratings for the PAX TV network and our station serving the New York market. We
have property and business interruption insurance coverage to mitigate the
losses sustained. Insurance recoveries are recognized in the period they become
probable of collection and can be reasonably estimated. During 2002, we received
$4.3 million of insurance proceeds, $2.7 million of which related to
property/extra expense and $1.6 million related to business interruption. We are
involved in litigation with our insurer over these matters and are presently
unable to estimate the amount of additional insurance proceeds we will receive,
if any.


                                       39

<PAGE>

     Programming and broadcast operations expenses were $51.2 million during the
year ended December 31, 2002 compared with $43.0 million in 2001. This increase
is primarily due to higher music license fees and tower rent expense for
previously owned towers that we sold in 2001. Program rights amortization
expense was $78.0 million during the year ended December 31, 2002 compared with
$84.8 million for 2001. The decrease is due to a greater mix of lower cost
original programming as compared with 2001 as well as the lower carrying value
of our programming assets resulting from net realizable value adjustments.
Selling, general and administrative expenses were $132.3 million during the year
ended December 31, 2002 compared with $119.4 million for 2001. The increase is
primarily due to legal costs associated with the NBC arbitration and the 700 MHz
spectrum auction, higher advertising expenses associated with the launch of our
2002/2003 broadcast season and higher insurance costs. Stock-based compensation
expense was $3.8 million during the year ended December 31, 2002 compared with
$10.2 million for 2001. This decrease is due to a reduction in options vesting
in the year ended December 31, 2002 compared with 2001. The programming rights
adjustment to net realizable value described below was $41.3 million during the
year ended December 31, 2002 compared with $67.0 million for 2001. Depreciation
and amortization expense was $58.5 million during the year ended December 31,
2002 compared with $97.3 million for 2001. This decrease is due primarily to the
adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," ("SFAS 142") which requires that goodwill and
intangible assets with indefinite lives, including FCC license intangible
assets, be tested for impairment annually rather than amortized over time. As a
result of the new accounting standard, our amortization expense is now
significantly lower as we no longer amortize our FCC license intangible assets.

     During 2002 we issued options to purchase shares of Class A common stock to
certain members of management and employees under our stock compensation plans.
As of December 31, 2002, there were 9,103,336 options outstanding under these
plans. In addition to these options, we granted options to purchase 2,322,500
shares of Class A common stock to members of senior management and others. In
connection with option grants, we recognized stock-based compensation expense of
approximately $3.8 million and $10.2 million in 2002 and 2001, respectively.

     As previously described, in January 2003, we modified our programming
schedule by reducing the number of hours of entertainment programming on the PAX
TV network primarily during the daytime period and replacing such hours with
long form paid programming. As a result of this change, we no longer plan to air
certain syndicated and original programs. Therefore, we revised our estimate of
the future advertising revenues to be generated related to these programs and
recognized a charge of approximately $38.4 million in the fourth quarter of 2002
related to these programming assets. Additionally, as further described below,
in the second quarter of 2002 we recorded a $2.9 million accrued programming
loss related to programming commitments for Touched By An Angel.

     In 2001, we adjusted our estimate of the anticipated future usage of
Touched By An Angel and certain other syndicated programs and the related
advertising revenues expected to be generated and recognized a charge of
approximately $67.0 million related to the net realizable value of these
programming assets and related programming commitments. The charge included a
$22.2 million accrued loss related to programming commitments for future seasons
of Touched By An Angel. As further described below, in 2002 we sublicensed the
programming rights to Touched By An Angel to the Hallmark Channel.

     Interest expense for the year ended December 31, 2002 increased to $85.2
million from $49.7 million in 2001. The increase is primarily due to a greater
level of senior debt due to our refinancings in July 2001 and January 2002 and
borrowings to fund capital expenditures. At December 31, 2002, total long-term
debt and senior subordinated notes were $900.1 million compared with $529.2
million as of December 31, 2001. Although the July 2001 and January 2002
refinancings reduced our overall cost of capital, the refinancings increased our
debt and reduced our preferred stock, and as a result our interest expense
increased in 2002. Interest income for the year ended December 31, 2002
decreased to $2.4 million from $4.5 million in 2001. The decrease is due to
lower cash and investment balances and lower interest rates.

     During the year ended December 31, 2002, we sold our television station
WPXB serving the Merrimack, New Hampshire market to NBC for $26 million and
realized a pre-tax gain of approximately $24.5 million.

     As further described below, during 2002 we recorded an increase in our
deferred tax asset valuation allowance totaling approximately $168.6 million
resulting from changes in accounting for the amortization of our FCC license
intangible assets upon adoption of SFAS 142.

RESTRUCTURING ACTIVITIES

     During the fourth quarter of 2002, we adopted a plan to consolidate certain
of our operations, reduce personnel and modify our programming schedule in order
to significantly reduce our cash operating expenditures. In connection with this
plan, we recorded a restructuring charge of approximately $2.6 million in the
fourth quarter of 2002 consisting of $2.2


                                       40

<PAGE>

million in termination benefits for 95 employees and $0.4 million in costs
associated with exiting leased properties and the consolidation of certain
operations. Through December 31, 2003, we have paid $2.1 million in termination
benefits to 94 employees and paid $0.5 million of lease termination and other
costs. We have accounted for these costs pursuant to SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" which we early adopted in
the fourth quarter of 2002. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred as opposed to when there is a commitment to a restructuring plan as set
forth under EITF 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity" which has been nullified under
SFAS No. 146. As such, we will recognize additional restructuring costs as they
are incurred.

INCOME TAXES

     Upon adoption of SFAS No. 142 on January 1, 2002, we no longer amortize our
FCC license intangible assets. Under previous accounting standards, these assets
were being amortized over 25 years. Although the provisions of SFAS 142
stipulate that indefinite-lived intangible assets and goodwill are not
amortized, we are required under FASB Statement No. 109, "Accounting for Income
Taxes" ("SFAS 109"), to recognize deferred tax liabilities and assets for
temporary differences related to the FCC license intangible assets and the
tax-deductible portion of these assets. Prior to the adoption of SFAS 142, we
considered our deferred tax liabilities related to the FCC license intangible
assets as a source of future taxable income in assessing the realization of our
deferred tax assets. Because indefinite-lived intangible assets and goodwill are
no longer amortized for financial reporting purposes under SFAS 142, the related
deferred tax liabilities will not reverse until some indeterminate future period
should the FCC license intangible assets become impaired or be disposed of.
Therefore, the reversal of deferred tax liabilities related to FCC license
intangible assets is no longer considered a source of future taxable income in
assessing the realization of deferred tax assets. As a result of this accounting
change, we were required to record an increase in our deferred tax asset
valuation allowance totaling approximately $158.2 million during the first
quarter of 2002. In addition, we continue to record increases in our valuation
allowance based on increases in the deferred tax liabilities and assets for
temporary differences related to the FCC license intangible assets.

     We structured the disposition of our radio division in 1997 and our
acquisition of television stations during the period following this disposition
in a manner that we believed would qualify these transactions as a "like kind"
exchange under Section 1031 of the Internal Revenue Code and would permit us to
defer recognizing for income tax purposes up to approximately $333 million of
gain. The IRS has examined our 1997 tax return and has issued us a "30-day
letter" proposing to disallow all of our gain deferral. We have filed our
protest to this determination with the IRS appeals division, but we cannot
predict the outcome of this matter at this time, and we may not prevail. In
addition, the "30-day letter" offered an alternative position that, in the event
the IRS is unsuccessful in disallowing all of the gain deferral, approximately
$62 million of the $333 million gain deferral will be disallowed. We have filed
a protest to this alternative determination as well. We may not prevail with
respect to this alternative determination. Should the IRS successfully challenge
our position and disallow all or part of our gain deferral, because we had net
operating losses in the years subsequent to 1997 in excess of the amount of the
deferred gain, we would not be liable for any tax deficiency, but could be
liable for interest on the tax liability for the period prior to the carryback
of our net operating losses. We have estimated the amount of interest for which
we could be held liable as of December 31, 2003 to be approximately $16.6
million should the IRS succeed in disallowing all of the deferred gain. If the
IRS were successful in disallowing only part of the gain under its alternative
position, we estimate we would be liable for only a nominal amount of interest.

LIQUIDITY AND CAPITAL RESOURCES

     Our primary capital requirements are to fund capital expenditures for our
television properties, programming rights payments and debt service payments.
Our primary sources of liquidity are our cash on hand and our net working
capital. As of December 31, 2003, we had $110.1 million in cash and cash
equivalents and short-term investments and we had working capital of
approximately $67.1 million. During the year ended December 31, 2003, our cash
and cash equivalents and short-term investments increased by approximately $67.2
million due primarily to proceeds from the asset sales described below. We
believe that our cash on hand as well as cash provided by future operations, net
working capital and the proceeds from the remaining planned asset sale referred
to below will provide the liquidity necessary to meet our obligations and
financial commitments through at least the next twelve months. If we were unable
to complete the identified asset sale or our financial results were not as
anticipated, we may be required to seek to sell additional assets or raise
additional funds through the offering of equity securities in order to generate
sufficient cash to meet our liquidity needs. We can provide no assurance that we
would be successful in selling assets or raising additional funds if this were
to occur.


                                       41

<PAGE>


     Cash provided by (used in) operating activities was approximately $32.9
million, $(75.4) million and $(60.8) million for the years ended December 31,
2003, 2002 and 2001, respectively. These amounts reflect cash generated or used
in connection with the operation of PAX TV, including the related programming
rights and cable distribution rights payments and interest payments on our debt.
The improvement for the year ended December 31, 2003 is due to improved
operating results from the modification of our programming schedule and other
restructuring activities as well as reduced programming payments in the period.
In addition, our accounts receivable have declined significantly as a result of
our increased revenue contribution from long form advertising, which is
generally paid in advance.

     Cash provided by (used in) investing activities was approximately $60.9
million, $(7.7) million and $48.5 million for the years ended December 31, 2003,
2002 and 2001, respectively. These amounts include proceeds from the sale of
broadcast assets, capital expenditures and short term investment transactions.
During the year ended December 31, 2003, we raised $83.3 million in proceeds
from the sale of broadcast assets in completion of our liquidity plan to raise
$100 million. These asset sales included the sale of our television station
KPXF, serving the Fresno, California market, to Univision Communications, Inc.
for $35.0 million, which we completed in February 2003; the sale of our
television stations WMPX, serving the Portland-Auburn, Maine market, and WPXO,
serving the St. Croix, U.S. Virgin Islands market for an aggregate purchase
price of $10.0 million, which we completed in April 2003; the sale of our
limited partnership interest in television station WWDP, serving the Boston,
Massachusetts market, for approximately $13.8 million, which we completed in
April 2003; and the sale of our television station KAPX, serving the
Albuquerque, New Mexico market, for approximately $20.0 million, which we
completed in May 2003. We realized aggregate pre-tax gains of approximately
$51.9 million on these 2003 sales. In addition, we have signed a definitive
agreement to sell the assets of our television station KPXJ, serving the
Shreveport, Louisiana market, for $10.0 million. The sale of KPXJ is expected to
close in the first half of 2004. The Company has an option to purchase the
assets of two television stations serving the Memphis and New Orleans markets
for an aggregate purchase price of $40.0 million of which $4.0 million was paid
for the option to purchase these stations. The owners of these stations also
have the right to require the Company to purchase these stations at any time
after January 1, 2005 through December 31, 2006. These stations are currently
operating under TBAs with the Company.

     Cash (used in) provided by financing activities was $(22.5) million, $25.0
million and $44.8 million for the years ended December 31, 2003, 2002 and 2001,
respectively. These amounts include the proceeds from borrowings to fund capital
expenditures and proceeds from stock option exercises, net of principal
repayments. Also included are payments of employee withholding taxes on option
exercises in connection with the January 2003 stock option exchange offer and
proceeds from the January 2002 and July 2001 refinancings described below, as
well as the related principal repayments, redemption premiums, preferred stock
redemptions and refinancing costs.

     Capital expenditures, which consist primarily of digital conversion costs
and purchases of broadcast equipment for our television stations, were
approximately $26.7 million in 2003, $31.2 million in 2002 and $35.2 million in
2001. The FCC mandated that each licensee of a full power broadcast television
station that was allotted a second digital television channel in addition to the
current analog channel, complete the construction of digital facilities capable
of serving its community of license with a signal of requisite strength by May
2002. Those digital stations that were not operating by the May 2002 date
requested extensions of time from the FCC which have been granted with limited
exceptions. Despite the current uncertainty that exists in the broadcasting
industry with respect to standards for digital broadcast services, planned
formats and usage, we have complied and intend to continue to comply with the
FCC's timing requirements for the construction of digital television facilities
and the broadcast of digital television services. We have commenced our
migration to digital broadcasting in certain of our markets and will continue to
do so throughout the required time period. We currently own or operate 37
stations broadcasting in digital (in addition to broadcasting in analog). With
respect to our remaining stations, we have received construction permits from
the FCC and will be completing the buildout on twelve stations during 2004, we
are awaiting construction permits from the FCC with respect to six of our
television stations and six of our television stations have not received a
digital channel allocation and therefore will not be converted until the end of
the digital transition. Because of the uncertainty as to standards, formats and
usage, we cannot currently predict with reasonable certainty the amount or
timing of the expenditures we will likely have to make to complete the digital
conversion of our stations. We currently anticipate, however, that we will spend
at least an additional $13 million over the next two to three years to complete
the conversion. We will likely fund these expenditures from cash on hand and
proceeds from our remaining planned asset sale.

     During 2002, we sold our television station WPXB, serving the Merrimack,
New Hampshire market, to NBC for $26 million and realized a pre-tax gain of
approximately $24.5 million. During 2001, we sold our interests in five
television stations for aggregate consideration of $31.9 million and realized
pre-tax gains of approximately $11.6 million.


                                       42

<PAGE>

     During 2001, we acquired the assets of three television stations for total
consideration of $30.8 million, of which $16.1 million was paid in prior years,
and we paid $1.0 million to acquire the minority interest in a station acquired
in 1998.

     In December 2001, we completed the sale and leaseback of certain of our
tower assets for aggregate proceeds of $34.0 million. This transaction resulted
in a gain of approximately $5.2 million which has been deferred and is being
recognized over the lease term as a reduction of rent expense. As part of the
transaction, we entered into operating leases related to both our analog and
digital antennas at these facilities for terms of up to 20 years. Annual rent
expense over the lease term is approximately $4.0 million. For certain tower
assets with a net book value of approximately $2.7 million as of December 31,
2003, we were unable to transfer title or assign leases to the buyer at closing.
We are in the process of transferring title and assigning leases to the buyer.
In the interim, we entered into management agreements with the buyer on terms
consistent with the operating leases.

     In January 2002, we completed an offering of senior subordinated discount
notes due in 2009. Gross proceeds of the offering totaled approximately $308.3
million and were used to refinance our 12 1/2% exchange debentures due 2006,
which were issued in exchange for the outstanding shares of our 12 1/2%
exchangeable preferred stock on January 14, 2002, and to pay costs related to
the offering. The notes were sold at a discounted price of 62.132% of the
principal amount at maturity, which represents a yield to maturity of 12 1/4%.
Interest on the notes will be payable in cash semi-annually beginning on July
15, 2006. The senior subordinated discount notes are guaranteed by our
subsidiaries. We recognized a loss due to early extinguishment of debt totaling
approximately $17.6 million in the first quarter of 2002 resulting primarily
from the redemption premium and the write-off of unamortized debt costs
associated with the repayment of the 12 1/2% exchange debentures.

     On July 12, 2001, we completed a $560 million financing consisting of a
$360 million senior credit facility and $200 million of 10 3/4% senior
subordinated notes due 2008. Proceeds from the initial funding under the senior
credit facility and the 10 3/4% senior subordinated notes offering were used to
repay all of our indebtedness and obligations under our previously existing
credit facilities, which were scheduled to mature in June 2002, to redeem our
11 5/8% senior subordinated notes and our 12% redeemable preferred stock and to
pay redemption premiums, fees and expenses in connection with the refinancing.
The 10 3/4% senior subordinated notes are due in 2008 and interest on the notes
is payable on January 15 and July 15 of each year. In 2001, we recognized a loss
related to early extinguishment of debt totaling approximately $9.9 million
resulting primarily from the write-off of unamortized debt costs related to the
refinanced indebtedness and the redemption premium and costs associated with the
repayment of the 11 5/8% senior subordinated notes.

    On January 12, 2004, we completed a private offering of $365.0 million of
senior secured floating rate notes. The senior notes bear interest at the rate
of LIBOR plus 2.75% per year and will mature on January 10, 2010. We may redeem
the senior notes at any time at specified redemption prices. The senior notes
are secured by substantially all of our assets. In addition, a substantial
portion of the senior secured notes are unconditionally guaranteed, on a joint
and several senior secured basis, by all of our subsidiaries. The indenture
governing the senior secured notes contains certain covenants which, among other
things, restrict the incurrence of additional indebtedness, the payment of
dividends, transactions with related parties, certain investments and transfers
or sales of certain assets. The proceeds from the offering were used to repay in
full the outstanding indebtedness under our senior credit facility described
below, pre-fund letters of credit supported by the revolving credit portion of
the Company's previously existing senior credit facility and pay fees and
expenses incurred in connection with the transaction.

     The $360.0 million senior credit facility that was refinanced with the
proceeds of the January 2004 offering consisted of a $25.0 million revolving
credit facility maturing June 2006, a $50.0 million Term A facility maturing
December 2005, of which $49.8 million was outstanding at December 31, 2003
($48.0 million as of December 31, 2002), and a $285.0 million Term B facility
maturing June 2006, of which $277.9 million was outstanding at December 31, 2003
($280.7 million as of December 31, 2002). The revolving credit facility was
available for general corporate purposes. We used the Term A portion of the
facility to fund the majority of our capital expenditures in 2002. The interest
rate under the bank facility, as amended, was LIBOR plus 3.25% or Base Rate (as
defined) plus 2.25% at our option. At December 31, 2003 and 2002, there was $8.0
million and $25.0 million, respectively, in borrowings outstanding under the
revolving credit facility and $16.6 million in outstanding letters of credit as
of December 31, 2003 (no letters of credit were outstanding at December 31,
2002).

    In connection with the senior credit facility, we entered into a variable to
fixed interest rate swap in the notional amount of $144.0 million to hedge the
impact of interest rate changes on a portion of our variable rate indebtedness.
The interest


                                       43

<PAGE>

rate swapped matured on October 15, 2003 and was not renewed. The fixed rate
under the swap was 3.64% (6.89% including the spread over LIBOR under our senior
credit facility) and variable rates were indexed to LIBOR.

     The terms of the indentures governing our senior notes and senior
subordinated notes contain covenants limiting our ability to incur additional
indebtedness except for refinancing indebtedness. The certificates of
designation of two of our outstanding series of preferred stock contain similar
covenants.

     We structured the disposition of our radio division in 1997 and our
acquisition of television stations during the period following this disposition
in a manner that we believe would qualify these transactions as a "like kind"
exchange under Section 1031 of the Internal Revenue Code and would permit us to
defer recognizing for income tax purposes up to approximately $333 million of
gain. The IRS has examined our 1997 tax return and has issued to us a "30-day
letter" proposing to disallow all of our gain deferral. We have filed our
protest to this determination with the IRS appeals division, but cannot predict
the outcome of this matter at this time, and may not prevail. In addition, the
"30-day letter" offered us an alternative position that, in the event the IRS is
unsuccessful in disallowing all of the gain deferral, approximately $62 million
of the $333 million gain deferral will be disallowed. We filed a protest to this
alternative determination as well. We may not prevail with respect to this
alternative determination. Should the IRS successfully challenge our position
and disallow all or part of our gain deferral, because we had net operating
losses in the years subsequent to 1997 in excess of the amount of the deferred
gain, we would not be liable for any tax deficiency, but could be liable for
interest on the tax liability for the period prior to the carryback of our net
operating losses. We have estimated the amount of interest for which we could be
held liable to be approximately $16.6 million should the IRS succeed in
disallowing all of the deferred gain. If the IRS were successful in disallowing
only part of the gain under its alternative position, we estimate we would be
liable for only a nominal amount of interest.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

    As of December 31, 2003, we were obligated under the terms of our credit
agreement, indentures, programming contracts, cable distribution agreements and
operating lease agreements and employment contracts as of December 31, 2003 to
make future payments as follows (in thousands):

<TABLE>
<CAPTION>
                                          2004      2005       2006         2007       2008     THEREAFTER     TOTAL
                                       --------   --------   ---------   ---------   --------   ----------   -----------
<S>                                    <C>        <C>        <C>         <C>         <C>        <C>          <C>
Senior subordinated notes and bank
financing (1)...................       $     61   $     65   $      71   $      79   $200,086   $ 832,031    $ 1,032,393
Obligations for program rights and
program rights commitments......         47,500      6,810       1,092          --         --          --         55,402
Obligations to CBS..............         19,556     18,513       9,191          --         --          --         47,260
Cable agreements................          2,494        283          --          --         --          --          2,777
Operating leases and
  employment contracts..........         18,055     17,098      16,828      16,380     13,676     111,931        193,968
                                       --------   --------   ---------   ---------   --------   ---------    -----------
                                       $ 87,666   $ 42,769   $  27,182   $  16,459   $213,762   $ 943,962    $ 1,331,800
                                       ========   ========   =========   =========   ========   =========    ===========
</TABLE>

(1)      After considering the terms of the January 2004 refinancing of the
         senior credit facility.


     See the accompanying consolidated financial statements for a summary of the
redemption features of our mandatorily redeemable preferred stock.

    As of December 31, 2003, obligations for programming rights and program
rights commitments require collective payments by the Company of approximately
$55.4 million as follows (in thousands):

                               OBLIGATIONS FOR
                                   PROGRAM        PROGRAM RIGHTS
                                   RIGHTS           COMMITMENTS       TOTAL
                               ---------------    --------------      -----
2004.......................       $35,382            $12,118         $47,500
2005.......................         6,810                 --           6,810
2006.......................         1,092                 --           1,092
                                  -------            -------         -------
                                  $43,284            $12,118         $55,402
                                  =======            =======         =======

     On August 1, 2002, we entered into agreements with a subsidiary of CBS
Broadcasting, Inc. ("CBS") and Crown Media United States, LLC ("Crown Media") to
sublicense our rights to broadcast the television series Touched By An Angel
("Touched") to Crown Media for exclusive exhibition on the Hallmark Channel,
commencing September 9, 2002.


                                       44

<PAGE>


Under the terms of the agreement with Crown Media, we are to receive
approximately $47.4 million from Crown Media, $38.6 million of which will be
paid over a three-year period that commenced in August 2002 and the remaining
$8.8 million, for the 2002/2003 season, is to be paid over a three-year period
that commenced in August 2003. In addition, the agreement with Crown Media
provides that Crown Media is obligated to sublicense from the Company future
seasons of Touched should CBS renew the series. As further described below, CBS
did not renew Touched for the 2003/2004 season.

     Under the terms of our agreement with CBS, we remain obligated to CBS for
amounts due under our pre-existing license agreement, less estimated programming
cost savings of approximately $15 million. As of December 31, 2003, amounts due
or committed to CBS totaled approximately $47.3 million. The transaction
resulted in a gain of approximately $4 million, which is being deferred over the
term of the Crown Media agreement.

     We have a significant concentration of credit risk with respect to the
amounts due from Crown Media under the sublicense agreement. As of December 31,
2003, the maximum amount of loss due to credit risk that we would sustain if
Crown Media failed to perform under the agreement totaled approximately $25.4
million, representing the present value of amounts due from Crown Media. Under
the terms of the sublicense agreement, we have the right to terminate Crown
Media's rights to broadcast Touched if Crown Media fails to make timely payments
under the agreement. Therefore, should Crown Media fail to perform under the
agreement, we could regain our exclusive rights to broadcast Touched on PAX TV
pursuant to our existing licensing agreement with CBS.

     Under our agreement with CBS, we were required to license future seasons of
Touched from CBS upon the series being renewed by CBS. Under our sublicense
agreement with Crown Media, Crown Media was obligated to sublicense such future
seasons from us. Our financial obligation to CBS for future seasons exceeded the
sublicense fees to be received from Crown Media, resulting in accrued
programming losses to the extent the series was renewed in future seasons.
During the second quarter of 2002, upon the decision by CBS to renew Touched for
the 2002/2003 season, we became obligated to license the 2002/2003 season,
resulting in an accrued programming loss of approximately $10.7 million. This
amount was offset in part by a decrease in our estimated loss on the 2001/2002
season of approximately $7.8 million, resulting in a net accrued programming
loss of $2.9 million. The change in estimate for the 2001/2002 season was due to
the sublicensing agreement with Crown Media and a lower number of episodes
produced than previously estimated. In 2003, CBS determined that it would not
renew Touched for the 2003/2004 season.

     Our obligations to CBS for Touched will be partially funded through the
sub-license fees from Crown Media. As of December 31, 2003, our obligation to
CBS and our receivable from Crown Media related to Touched are as follows (in
thousands):


                                    OBLIGATIONS
                                        TO        AMOUNTS DUE FROM
                                        CBS          CROWN MEDIA     NET AMOUNT
                                    -----------   ----------------   ----------
2004.............................     $19,556          $(15,800)      $ 3,756
2005.............................      18,513           (10,439)        8,074
2006.............................       9,191            (1,711)        7,480
                                      -------          --------       -------
                                       47,260           (27,950)       19,310
Amount representing interest.....          --             2,527         2,527
                                      -------          --------       -------
                                      $47,260          $(25,423)      $21,837
                                      =======          ========       =======


As of December 31, 2003, obligations for cable distribution rights require
collective payments by us of approximately $2.5 million in 2004 and $0.3 million
in 2005.

NEW ACCOUNTING PRONOUNCEMENTS

    Effective January 1, 2003, we adopted SFAS No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Among other matters, SFAS No. 145 rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt" which required gains
and losses from extinguishments of debt to be classified as extraordinary items,
net of related income taxes. As a result, debt extinguishments used as part of
an entity's risk management strategy no longer meet the criteria for
classification as extraordinary items. In connection with our July 2001 and
January 2002 refinancings, we recognized losses due to early extinguishment of
debt amounting to $9.9 million and $17.6 million, respectively, resulting
primarily from redemption premiums and the write-off of unamortized debt costs
associated with each refinancing. This loss was classified as an extraordinary
item in our previously issued financial statements. Because of the adoption of
SFAS No. 145 in 2003, we have reclassified this loss to other income (expense)
in the consolidated statements of operations.


                                       45

<PAGE>


    In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 supersedes Emerging Issues Task
Force Issue No. 94-3. SFAS No. 146 requires that the liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred, not at the date of an entity's commitment to an exit or disposal plan.
The provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002. We early adopted the provisions of SFAS No.
146 in the fourth quarter of 2002.

    In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for companies that voluntarily change to a fair value-based method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Currently, we account for stock option plans under the intrinsic value
method of APB Opinion No. 25. The provisions of SFAS No. 148 are effective for
fiscal years ending after December 15, 2002. We have adopted the disclosure
provisions of SFAS No. 148 as of December 31, 2002. We do not intend to change
our accounting policy with regard to stock based compensation and there was no
impact on our financial position, results of operations or cash flows upon
adoption of SFAS No.148.

    In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003) "Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin ("ARB") No. 51" ("FIN 46"). FIN 46 clarifies the
application of ARB No. 51 to certain entities in which the equity investors do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Application of FIN
46 is required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Application by public entities for all other types of entities is required
in financial statements for periods ending after March 15, 2004. The adoption of
FIN 46 is not expected to have any impact on our financial position, results of
operations or cash flows.

    In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 requires liability
classification for mandatorily redeemable equity instruments not convertible
into common stock such as the Company's 14 1/4% Junior Exchangeable Preferred
Stock. SFAS No. 150 is effective immediately with respect to instruments entered
into or modified after May 31, 2003 and as to all other instruments that exist
as of the beginning of the first interim financial reporting period beginning
after June 15, 2003. We adopted SFAS No. 150 effective July 1, 2003. Upon
adoption, we recorded a deferred asset for the unamortized issuance costs and
recorded a liability for the mandatorily redeemable preferred stock balance
related to its 14 1/4% Junior Exchangeable Preferred Stock. In addition, the
amortization of the issuance costs and the dividends related to the 14 1/4%
Junior Exchangeable Preferred Stock are being recorded as interest expense
beginning July 1, 2003 versus the recording of these costs as dividends and
accretion on redeemable preferred stock in prior periods. Restatement of prior
periods is not permitted upon adoption of SFAS No. 150. Our 9 3/4% Series A
Convertible Preferred Stock and 8% Series B Convertible Exchangeable Preferred
Stock are not affected by the provisions of SFAS No. 150 because of their equity
conversion features.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The tables below provide information about our market sensitive financial
instruments and constitute "forward-looking statements." All items described are
non-trading.

    Our primary market risk exposure is changing interest rates. We manage
interest rate risks through the use of a combination of fixed and floating rate
debt. We use interest rate swaps to adjust interest rate exposures when
appropriate,


                                       46

<PAGE>

based upon market conditions. Expected maturity dates for variable rate debt and
interest rate swaps in the tables below are based upon contractual maturity
dates, after giving effect to the January 2004 refinancing of the senior credit
facility. Average interest rates on variable rate debt and average variable
rates under interest rate swaps are based on implied forward rates in the yield
curve at the reporting date.

    Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment. The fair value of variable rate debt approximates the carrying value
since interest rates are variable and thus approximate current market rates. The
fair value of interest rate swaps is determined from dealer quotations and
represents the discounted future cash flows through maturity or expiration using
current rates. The fair value is effectively the amount we would pay or receive
to terminate the agreements.

    At December 31, 2003 we had $335.6 million of floating rate indebtedness
outstanding under our senior credit facility, excluding letters of credit, which
are not subject to interest rate risk. As discussed in further detail in "Item
7- Management's Discussion and Analysis of Results of Operations and Financial
Condition - Liquidity and Capital Resources", we refinanced the senior credit
facility with the proceeds of our January 2004 offering of $365 million senior
secured floating rates notes. The table below reflects the balance of the senior
credit facility at December 31, 2003, after giving effect to the interest rate
and maturity date applicable to the new senior secured floating rate notes. The
senior secured floating rate notes bear interest at a rate of LIBOR plus 2.75%
per year, with the LIBOR rate being reset quarterly. The senior secured floating
rate notes mature in January 2010. Additionally, at December 31, 2003, we had
$0.5 million of floating rate indebtedness outstanding under a mortgage for our
headquarters building. The mortgage bears interest at a rate of the U.S.
Treasury Index for Five Year Notes plus 2.85% per year, reset once every five
years. The final maturity date for the mortgage is June 2010.


<TABLE>
<CAPTION>
                                                                                                                    FAIR VALUE
                                                    EXPECTED MATURITY DATE                                         DECEMBER 31,
DECEMBER 31, 2003         2004         2005         2006         2007        2008      THEREAFTER     TOTAL            2003
                          ----         ----         ----         ----        ----      ----------     -----        ------------
 (IN THOUSANDS)
<S>                       <C>          <C>          <C>          <C>         <C>        <C>          <C>             <C>
Variable rate debt....    $  61        $  65        $  71        $  79       $  86      $335,768     $336,130        $336,130
  Average interest
   rates.............      9.59%        8.63%        7.66%        7.66%       7.66%        6.76%
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                    FAIR VALUE
                                                    EXPECTED MATURITY DATE                                         DECEMBER 31,
DECEMBER 31, 2002         2003         2004         2005         2006        2007      THEREAFTER     TOTAL            2002
                          ----         ----         ----         ----        ----      ----------     -----        ------------
 (IN THOUSANDS)
<S>                     <C>           <C>          <C>         <C>           <C>         <C>         <C>             <C>
Variable rate debt....  $  3,144      $3,385       $50,199     $297,247      $  78       $ 230       $354,283        $354,283
  Average interest
  rates...............      4.74%       5.62%         6.46%        7.42%      7.86%       7.86%
Interest rate swap....   144,000          --            --           --         --          --        144,000          (3,146)
  Average pay rate....      6.89%
  Average receive rate      4.64%
</TABLE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

    The response to this item is submitted in a separate section of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of December 31, 2003 we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures. This evaluation
was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that as of December 31, 2003 our disclosure controls
and procedures are effective in timely alerting them to material information
required to be included in our periodic SEC reports. It should be noted that the
design of any system of


                                       47

<PAGE>

controls is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.

         Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure. In addition, we reviewed our internal control
over financial reporting and have determined that we had a material weakness
relating to the analysis, documentation, and application of appropriate
accounting principles for certain significant transactions consummated between
1997 and 2000. A material weakness is a reportable condition in which the design
or operation of one or more internal control components does not reduce to a
relatively low level the risk that misstatements caused by error or fraud, in
amounts that would be material in relation to the financial statements being
audited, may occur and not be detected within a timely period by employees in
the normal course of performing their assigned functions. The transactions in
question include but are not limited to:

     1.     The acquisition of several television stations in transactions
            structured as purchases of the outstanding stock of the entities
            owning the stations; and

     2.     The contractual rights relating to cable and satellite distribution
            agreements entered into for the purpose of gaining distribution for
            the PAX-TV network.

     We have examined the historical accounting for these transactions and
believe that our financial statements now reflect the appropriate accounting in
accordance with generally accepted accounting principles. Furthermore, we
believe that we now have in place personnel with the appropriate levels of
financial expertise to properly analyze, document and apply the appropriate
accounting principles to future complex or significant transactions.

     Other than correcting the material control weakness identified above,
there were no other changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 under the Exchange Act that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement being filed by the
Company for the Annual Meeting of Stockholders to be held on May 21, 2004.

ITEM 11. EXECUTIVE COMPENSATION

    Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 21, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

    Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 21, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 21, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

    Information required by this item is incorporated by reference from the
definitive Proxy Statement being filed by the Company for the Annual Meeting of
Stockholders to be held on May 21, 2004.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a) The following documents are filed as part of the report:


                                       48

<PAGE>


    1. The financial statements filed as part of this report are listed
separately in the Index to Consolidated Financial Statements and Financial
Statement Schedule on page F-1 of this report.

    2. The Financial Statement Schedule filed as part of this report is listed
separately in the Index to Consolidated Financial Statements and Financial
Statement Schedule on page F-1 of this report.

    3. For Exhibits see Item 15(c), below. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit hereto is
listed in Exhibits Nos. 10.27, 10.28, 10.157, 10.207, 10.208, 10.208.1,
10.208.2, 10.224, 10.225, 10.226, 10.227, and 10.228 of Item 15(c) below.

    (b) Reports on Form 8-K.

The Company submitted to the Securities and Exchange Commission a Current Report
on Form 8-K, dated November 12, 2003, disclosing the Company's financial results
for the third quarter ended September 30, 2003. This Form 8-K was furnished
pursuant to Item 9, "Regulation FD Disclosure," of Form 8-K and not filed.

    The Company filed a Form 8-K, dated November 13, 2003, under Item 5. "Other
Events" reporting that the Company received notice from NBC that NBC has
exercised its redemption right under its investment agreement with the Company
with respect to the Company's Series B Convertible Exchangeable Preferred Stock
held by NBC.

    The Company filed a Form 8-K, dated December 10, 2003, under Item 5. "Other
Events" reporting the audited consolidated financial statements of the Company
as of, and for the nine month period ended on, September 30, 2003, together with
the report of the Company's independent certified public accountants, Ernst &
Young LLP.


The Company submitted to the Securities and Exchange Commission a Current Report
on Form 8-K, dated December 10, 2003, disclosing that the Company had commenced
a private offering of senior secured floating rate notes. This Form 8-K was
furnished pursuant to Item 9, "Regulation FD Disclosure," of Form 8-K and not
filed.


    (c) List of Exhibits:

    EXHIBIT
     NUMBER                           DESCRIPTION OF EXHIBITS
    -------         -----------------------------------------------------------
     3.1.1   --     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 (7)
     3.1.7   --     Certificate of Designation of the Company's 13 1/4%
                    Cumulative Junior Exchangeable Preferred Stock (7)
     3.1.8   --     Certificate of Designation of the Company's 8% Series B
                    Convertible Exchangeable Preferred Stock (8)
     3.1.9   --     Certificate of Amendment to the Certificate of Incorporation
                    of the Company (17)
     3.2     --     Bylaws of the Company (11)
     4.4     --     Investment Agreement, dated as of September 15, 1999, by and
                    between the Company and National Broadcasting Company, Inc.
                    (8)
     4.4.1   --     Stockholder Agreement, dated as of September 15, 1999, among
                    the Company, National Broadcasting Company, Inc., Lowell W.
                    Paxson, Second Crystal Diamond Limited Partnership and
                    Paxson Enterprises, Inc. (8)
     4.4.2   --     Class A Common Stock Purchase Warrant, dated September 15,
                    1999, with respect to up to 13,065,507 shares of Class A
                    Common Stock (8)
     4.4.3   --     Class A Common Stock Purchase Warrant, dated September 15,
                    1999, with respect to up to 18,966,620 shares of Class A
                    Common Stock (8)
     4.4.5   --     Form of Indenture with respect to the Company's 8% Exchange
                    Debentures due 2009 (8)
     4.4.6   --     Registration Rights Agreement, dated September 15, 1999,
                    between the Company and National Broadcasting Company, Inc.
                    (8)
     4.5     --     Indenture, dated as of June 10, 1998, by and between the
                    Company, the


                                       49

<PAGE>

                    Guarantors named therein and the Bank of New York, as
                    Trustee, with respect to the New Exchange Debentures (7)

     4.6     --     Indenture, dated as of July 12, 2001, among the Company, the
                    Subsidiary Guarantors party thereto, and The Bank of New
                    York, as Trustee, with respect to the Company's 10 3/4%
                    Senior Subordinated Notes due 2008 (12)
     4.7     --     Amended and Restated Credit Agreement, dated as of May 5,
                    2003, among the Company, the Lenders party thereto, the
                    Issuers party thereto, Citicorp USA, Inc., as administrative
                    agent for the Lenders and the Issuers and as collateral
                    agent for the Secured Parties, Union Bank of California,
                    N.A., as syndication agent for the Lenders and the Issuers,
                    and General Electric Capital Corporation, as documentation
                    agent for the Lenders and the Issuers (16)
     4.7.1   --     Amendment No. 1, dated as of September 19, 2003, between the
                    Company and Citicorp USA, Inc., as administrative agent for
                    the Lenders and the Issuers and as collateral agent for the
                    Secured Parties (18)
     4.8     --     Indenture, dated as of January 14, 2002, among the Company,
                    the Subsidiary Guarantors party thereto, and The Bank of New
                    York, as Trustee, with respect to the Company's 12 1/4%
                    Senior Subordinated Discount Notes due 2009 (14)
     4.9     --     Indenture, dated as of January 12, 2004, among the Company,
                    the Subsidiary Guarantors party thereto, and The Bank of New
                    York, as Trustee, with respect to the Company's Senior
                    Secured Floating Rate Notes due 2010
     10.27   --     Paxson Communications Corp. Profit Sharing Plan (1)
     10.28   --     Paxson Communications Corp. Stock Incentive Plan (1)
     10.83.1 --     Facility Lease Agreement, dated as of July 1, 2003, by and
                    between the Company and The Christian Network, Inc. (18)
     10.157  --     Paxson Communications Corporation 1996 Stock Incentive Plan
                    (4)
     10.183  --     Stock Purchase Agreement, dated September 9, 1997, by and
                    among Channel 46 of Tucson, Inc., Paxson Communications of
                    Tucson-46, Inc. and Sungilt Corporation, Inc. (5)
     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 (6)
     10.187  --     Option Agreement, dated November 14, 1997, by and between
                    the Company and Flinn Broadcasting Corporation for
                    Television station WFBI-TV, Memphis, Tennessee (6)
     10.193  --     Programming Agreement, dated August 11, 1998, by and between
                    Paxson Communications of Chicago-38, Inc. and Christian
                    Communications of Chicagoland Inc. (6)
     10.207  --     Agreement, dated December 16, 2002, by and between the
                    Company and Jeffrey Sagansky (15)
     10.208  --     Employment Agreement, dated October 16, 1999, by and between
                    the Company and Lowell W. Paxson (9)
     10.208.1--     Amendment to Employment Agreement, dated as of December 16,
                    2002, by and between the Company and Lowell W. Paxson (15)
     10.208.2--     Amendment No. 2 to Employment Agreement, dated as of January
                    15, 2004 between the Company and Lowell W. Paxson
     10.209  --     Asset Purchase Agreement, dated November 21, 1999, by and
                    between the Company and DP Media, Inc. (9)
     10.209.1--     Restated and Amended Asset Purchase Agreement, dated
                    November 21, 1999, by and between Paxson Communications
                    Corporation and DP Media (10)
     10.210  --     Asset Purchase Agreement dated April 30, 1999, by and
                    between DP Media of Boston, Inc. and Boston University
                    Communications, Inc. for television stations WABU (TV),
                    Boston, MA WZBU (TV), Vineyard Haven, MA WNBU (TV), Concord,
                    NH and Low Power television station W67BA (TV) Dennis, MA
                    (9)
     10.217  --     Indenture, dated as of July 12, 2001, among the Company, the
                    Subsidiary Guarantors party thereto, and The Bank of New
                    York, as Trustee, with respect to the Company's 10 3/4%
                    Senior Subordinated Notes due 2008 (incorporated by
                    reference to Exhibit 4.6) (12)
     10.218  --     Registration Rights Agreement, dated July 12, 2001, among
                    the Company, the Subsidiary Guarantors party thereto, and
                    Salomon Smith Barney Inc., Merrill Lynch, Pierce, Fenner &
                    Smith, Incorporated, CIBC World Markets Corp. and Bear,


                                       50

<PAGE>

                    Stearns & Co. Inc., as Initial Purchasers (13)
     10.219  --     First Supplemental Indenture, dated as of August 2, 2001, by
                    and among the Company, S&E Network, Inc., the Subsidiary
                    Guarantors party thereto, and The Bank of New York, as
                    Trustee (13)
     10.220  --     Purchase Agreement, dated June 29, 2001, among by the
                    Company, the Subsidiary Guarantors party thereto, and
                    Salomon Smith Barney Inc., Merrill Lynch, Pierce, Fenner &
                    Smith, Incorporated, CIBC World Markets Corp. and Bear,
                    Stearns & Co. Inc., as Initial Purchasers (14)
     10.221  --     Indenture, dated as of January 14, 2002, among the Company,
                    the Subsidiary Guarantors party thereto, and The Bank of New
                    York, as Trustee, with respect to the Company's 12 1/4%
                    Senior Subordinated Discount Notes due 2009 (incorporated by
                    reference to Exhibit 4.8) (14)
     10.222  --     Registration Rights Agreement, dated January 14, 2002, among
                    the Company, the Subsidiary Guarantors party thereto, and
                    Salomon Smith Barney Inc., UBS Warburg LLC, Bear, Stearns &
                    Co. Inc. and Credit Suisse First Boston Corporation, as
                    Representatives of the Initial Purchasers (14)
     10.223  --     Purchase Agreement, dated January 7, 2002, among by the
                    Company, the Subsidiary Guarantors party thereto, and
                    Salomon Smith Barney Inc., UBS Warburg LLC, Bear, Stearns &
                    Co. Inc., and Credit Suisse First Boston Corporation, as
                    representatives of the Initial Purchasers (14)
     10.224  --     Amended and Restated Employment Agreement, by and between
                    the Company and Anthony L. Morrison, effective January 1,
                    2004
     10.225  --     Amended and Restated Employment Agreement, by and between
                    the Company and Dean M. Goodman, effective January 1, 2004
     10.226  --     Amended and Restated Employment Agreement, by and between
                    the Company and Thomas E. Severson, Jr., effective January
                    1, 2004
     10.227  --     Amended and Restated Employment Agreement, by and between
                    the Company and Seth A. Grossman, effective January 1, 2004
     10.228  --     Paxson Communications Corporation 1998 Stock Incentive Plan,
                    as amended (16)
     10.229  --     Indenture, dated as of January 12, 2004, among the Company,
                    the Subsidiary Guarantors party thereto, and The Bank of
                    New York, as Trustee, with respect to the Company's Senior
                    Secured Floating Rate Notes due 2010 (incorporated by
                    reference to Exhibit 4.9)
     10.230  --     Purchase Agreement, dated January 5, 2004, among the
                    Company, the Subsidiary Guarantors party thereto, and
                    Citigroup Global Markets Inc., Bear, Stearns & Co. Inc., and
                    CIBC World Markets Corp., as representatives of the Initial
                    Purchasers
     14.1    --     Code of Ethics and Business Conduct
     21      --     Subsidiaries of the Company
     23.1    --     Consent of Ernst & Young LLP
     23.2    --     Consent of PricewaterhouseCoopers LLP
     31.1    --     Certification by the Chief Executive Officer of Paxson
                    Communications Corporation pursuant to Rule 13a-14 under the
                    Securities Exchange Act of 1934, as amended
     31.2    --     Certification by the Chief Financial Officer of Paxson
                    Communications Corporation pursuant to Rule 13a-14 under the
                    Securities Exchange Act of 1934, as amended
     32.1    --     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 2002
     32.2    --     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
     99.1    --     Tax Exemption Savings Agreement, dated May 15, 1994, between
                    the Company and The Christian Network, Inc. (3)
----------

   (1)   Filed with the Company's Registration Statement on Form S-4, filed
         September 26, 1994, Registration No. 33-84416, and incorporated herein
         by reference.

   (2)   Filed with the Company's Annual Report on Form 10-K, dated March 31,
         1995, and incorporated herein by reference.


                                       51

<PAGE>

   (3)   Filed with the Company's Registration Statement on Form S-1, as
         amended, filed January 26, 1996, Registration No. 333-473, and
         incorporated herein by reference.

   (4)   Filed with the Company's Registration Statement on Form S-8, filed
         January 22, 1997, Registration No. 333-20163, and incorporated herein
         by reference.

   (5)   Filed with the Company's Quarterly Report on Form 10-Q, dated September
         30, 1997, and incorporated herein by reference.

   (6)   Filed with the Company's Annual Report on Form 10-K, dated December 31,
         1997, and incorporated herein by reference.

   (7)   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.

   (8)   Filed with the Company's Form 8-K dated September 15, 1999 and
         incorporated herein by reference.

   (9)   Filed with the Company's Annual Report on Form 10-K, dated December 31,
         1999, and incorporated herein by reference.

   (10)  Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
         2000, and incorporated herein by reference.

   (11)  Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
         2001, and incorporated herein by reference.

   (12)  Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
         2001, and incorporated herein by reference.

   (13)  Filed with the Company's Registration Statement on Form S-4, as
         amended, filed September 10, 2001, Registration No. 333-69192, and
         incorporated herein by reference.

   (14)  Filed with the Company's Annual Report on Form 10-K, dated December 31,
         2001, and incorporated herein by reference.

   (15)  Filed with the Company's Annual Report on Form 10-K, dated December 31,
         2002, and incorporated herein by reference.

   (16)  Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
         2003, and incorporated herein by reference.

   (17)  Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
         2003, and incorporated herein by reference.

   (18)  Filed with the Company's Quarterly Report on Form 10-Q, dated September
         30, 2003, and incorporated herein by reference.

         (d) The financial statement schedule filed as part of this report is
             listed separately in the Index to Financial Statements beginning on
             page F-1 of this report.


                                       52

<PAGE>



                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of West Palm
Beach, State of Florida, on March 31, 2004.

                                   PAXSON COMMUNICATIONS
                                   CORPORATION


                                   By:    /s/ LOWELL W. PAXSON
                                      -----------------------------------------
                                              Lowell W. Paxson
                                         Chairman of the Board and
                                          Chief Executive Officer
                                       (Principal Executive Officer)

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

              SIGNATURES                                         TITLE                                DATE
              ----------                                         -----                                ----
<S>                                  <C>                                                        <C>
/s/ LOWELL W. PAXSON                 Chairman of the Board, Director and Chief Executive        March 31, 2004
---------------------------------    Officer (Principal Executive Officer)
           Lowell W. Paxson

/s/ THOMAS E. SEVERSON, JR           Senior Vice President and Chief Financial Officer          March 31, 2004
---------------------------------    (Principal Financial Officer)
       Thomas E. Severson, Jr.

/s/ RICHARD GARCIA                   Vice President, Chief Accounting Officer and               March 31, 2004
---------------------------------    Corporate Controller (Principal Accounting Officer)
            Richard Garcia

/s/ BRUCE L. BURNHAM                 Director                                                   March 31, 2004
---------------------------------
           Bruce L. Burnham

/s/ JAMES L. GREENWALD               Director                                                   March 31, 2004
---------------------------------
          James L. Greenwald

/s/ JOHN E. OXENDINE                 Director                                                   March 31, 2004
---------------------------------
           John E. Oxendine

/s/ HENRY J. BRANDON                 Director                                                   March 31, 2004
---------------------------------
           Henry J. Brandon
</TABLE>


                                       53

<PAGE>



                        PAXSON COMMUNICATIONS CORPORATION

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
Report of Independent Certified Public Accountants.................................    F-2
Report of Independent Certified Public Accountants.................................    F-3
Consolidated Balance Sheets........................................................    F-4
Consolidated Statements of Operations..............................................    F-5
Consolidated Statements of Changes in Stockholders' Deficit........................    F-6
Consolidated Statements of Cash Flows..............................................    F-7
Notes to Consolidated Financial Statements.........................................    F-8
Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts........    F-47
</TABLE>












                                      F-1


<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
of Paxson Communications Corporation:

     We have audited the accompanying consolidated balance sheet of Paxson
Communications Corporation as of December 31, 2003, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paxson
Communications Corporation at December 31, 2003 and the consolidated results of
its operations and its cash flows for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

     As discussed in Note 14 to the consolidated financial statements, effective
July 1, 2003, the Company changed its method of accounting for mandatorily
redeemable preferred stock.



                                                           /s/ Ernst & Young LLP

Fort Lauderdale, Florida
March 26, 2004, except for the second paragraph
of Note 20 as to which the date is
March 31, 2004













                                      F-2
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
of Paxson Communications Corporation:

     In our opinion, the consolidated financial statements referred to under
Item 15(a)(1) on page 45 and listed in the accompanying index on page F-1
present fairly, in all material respects, the financial position of Paxson
Communications Corporation and its subsidiaries at December 31, 2002, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule referred to under Item 15(a)(2) on page 45 and
listed in the accompanying index on page F-1 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     As described in Note 2, the Company has restated its consolidated balance
sheet as of December 31, 2002, and the related consolidated statements of
operations, of stockholders' deficit and of cash flows for the years ended
December 31, 2002 and 2001.

     As described in Note 1, during 2002 the Company ceased amortizing its
indefinite lived intangible assets.

/s/ PricewaterhouseCoopers LLP

Miami, Florida
March 27, 2003, except for Note 2 and the first paragraph of Note 11, which are
as of March 29, 2004



                                      F-3
<PAGE>
                                            PAXSON COMMUNICATIONS CORPORATION
                                               CONSOLIDATED BALANCE SHEETS
                                             (in thousands except share data)
<TABLE>
<CAPTION>
                                                                                                               DECEMBER 31,
                                                                                                            2003          2002
                                                                                                       -------------  ------------
ASSETS                                                                                                                  (RESTATED)
<S>                                                                                                    <C>             <C>
Current assets:
  Cash and cash equivalents.................................................................           $      97,123   $     25,765
  Short-term investments....................................................................                  12,948         17,073
  Accounts receivable, net of allowance for doubtful accounts of $1,090 and $2,100,
     respectively...........................................................................                  24,357         31,898
  Program rights............................................................................                  41,659         33,998
  Amounts due from Crown Media..............................................................                  13,883         11,239
  Prepaid expenses and other current assets.................................................                   4,406          5,011
                                                                                                       -------------  -------------
         Total current assets...............................................................                 194,376        124,984
Property and equipment, net.................................................................                 120,841        127,061
Intangible assets:
 FCC license intangible assets..............................................................                 843,140        847,374
 Other intangible assets, net...............................................................                  50,814         52,352
Program rights, net of current portion......................................................                  28,640         35,972
Amounts due from Crown Media, net of current portion........................................                  11,540         18,769
Investments in broadcast properties.........................................................                   2,736          8,777
Assets held for sale........................................................................                   7,301         33,582
Other assets, net...........................................................................                  24,289         27,748
                                                                                                       -------------  -------------
Total assets................................................................................           $   1,283,677   $  1,276,619
                                                                                                       =============  =============
LIABILITIES, MANDATORILY REDEEMABLE AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued liabilities..................................................           $      39,303   $     36,074
  Accrued interest..........................................................................                  14,875         14,621
  Current portion of obligations for program rights.........................................                  35,382         21,475
  Current portion of obligations to CBS.....................................................                  19,556         15,664
  Current portion of obligations for cable distribution rights..............................                   2,494          5,246
  Deferred revenue..........................................................................                  15,573          9,572
  Current portion of bank financing.........................................................                      61          3,144
                                                                                                        -------------  ------------
         Total current liabilities..........................................................                 127,244        105,796
Obligations for program rights, net of current portion......................................                   7,902          6,800
Obligations to CBS, net of current portion..................................................                  27,704         30,025
Obligations for cable distribution rights, net of current portion...........................                     283            733
Deferred revenue, net of current portion....................................................                   6,898          9,210
Deferred income taxes.......................................................................                 175,281        168,611
Senior subordinated notes and bank financing, net of current portion........................                 925,547        896,957
Mandatorily redeemable preferred stock......................................................                 410,739             --
Other long-term liabilities.................................................................                   7,857         23,653
                                                                                                        -------------  ------------
         Total liabilities..................................................................               1,689,455      1,241,785
                                                                                                        -------------  ------------
Mandatorily redeemable and convertible preferred stock......................................                 684,067        993,101
                                                                                                        -------------  ------------
Commitments and contingencies

Stockholders' deficit:
    Class A common stock, $0.001 par value; one vote per share; 215,000,000
      shares authorized and 63,131,125 and 56,568,827 shares issued and outstanding.........                      63             57
    Class 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              8
  Common stock warrants and call option.....................................................                  66,663         68,384
  Stock subscription notes receivable.......................................................                      --           (747)
  Additional paid-in capital................................................................                 540,377        513,109
  Deferred stock option compensation........................................................                 (17,167)        (2,460)
  Accumulated deficit.......................................................................              (1,679,789)    (1,533,472)
  Accumulated other comprehensive loss......................................................                      --         (3,146)
                                                                                                       --------------  ------------
         Total stockholders' deficit........................................................              (1,089,845)      (958,267)
                                                                                                       --------------  ------------
Total liabilities, mandatorily redeemable and convertible preferred stock and stockholders'
   deficit.......................................................................                      $   1,283,677   $  1,276,619
                                                                                                       =============   ============
</TABLE>

                 The accompanying notes are an integral part of
                     the consolidated financial statements.

                                      F-4
<PAGE>
                                        PAXSON COMMUNICATIONS CORPORATION
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (in thousands except share and per share data)
<TABLE>
<CAPTION>
                                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                                              2003           2002            2001
                                                                          ------------   ------------    ------------
                                                                                         (RESTATED)      (RESTATED)
<S>                                                                       <C>            <C>             <C>
        REVENUES:
          Gross revenues........................................          $    317,006   $    321,896    $    308,806
          Less: agency commissions..............................               (46,067)       (44,975)        (43,480)
                                                                          ------------   ------------    ------------
          Net revenues..........................................               270,939        276,921         265,326
                                                                          ------------   ------------    ------------
        EXPENSES:
          Programming and broadcast operations (excluding
             stock-based compensation of $1,872, $575 and
             $1,113)............................................                51,954         51,204          43,030
          Program rights amortization...........................                51,082         77,980          84,808
          Selling, general and administrative (excluding
             stock-based compensation of $10,894, $3,235 and
             $9,048)............................................               110,976        132,305         119,427
          Business interruption insurance proceeds..............                    --         (1,617)             --
          Time brokerage and affiliation fees...................                 4,403          4,079           3,621
          Stock-based compensation..............................                12,766          3,810          10,161
          Adjustment of programming to net realizable value.....                 1,066         41,270          66,992
          Restructuring charges (credits).......................                    48          2,173          (1,229)
          Reserve for state taxes...............................                 3,055             --              --
          Depreciation and amortization.........................                42,983         58,529          97,279
                                                                          ------------   ------------    ------------
                  Total operating expenses......................               278,333        369,733         424,089
                                                                          ------------   ------------    ------------
        Gain on sale or disposal of broadcast and other assets, net             51,589         22,906           8,634
                                                                          ------------   ------------    ------------
        Operating income (loss).................................                44,195        (69,906)       (150,129)
                                                                          ------------   ------------    ------------
        OTHER INCOME (EXPENSE):
          Interest expense......................................               (92,202)       (85,214)        (49,722)
          Dividends on mandatorily redeemable preferred stock...               (27,539)            --              --
          Interest income.......................................                 3,440          2,363           4,538
          Other income (expense), net...........................                   341          1,876          (1,141)
          Loss on extinguishment of debt........................                    --        (17,552)         (9,903)
          Gain on modification of program rights obligations ...                 2,103          1,520             932
                                                                          ------------   ------------    ------------
        Loss before income taxes................................               (69,662)      (166,913)       (205,425)
        Income tax provision....................................                (6,551)      (169,273)           (120)
                                                                          ------------   ------------    ------------
        Net loss................................................               (76,213)      (336,186)       (205,545)
        Dividends and accretion on redeemable and convertible
           preferred stock......................................               (70,104)      (110,099)       (146,656)
                                                                          ------------   ------------    ------------
        Net loss attributable to common stockholders............          $   (146,317)  $   (446,285)   $   (352,201)
                                                                          ============   =============   ============
        Basic and diluted loss per common share.................          $      (2.14)  $      (6.88)   $      (5.46)
                                                                          ============   =============   ============
        Weighted average shares outstanding.....................            68,389,640     64,849,068      64,508,761
                                                                          ============   =============   ============
</TABLE>
                 The accompanying notes are an integral part of
                     the consolidated financial statements.

                                      F-5
<PAGE>
                                  PAXSON COMMUNICATIONS CORPORATION
                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                            (IN THOUSANDS)
<TABLE>
<CAPTION>
                                      COMMON
                                       STOCK      STOCK                                        ACCUMULATED
                       COMMON STOCK   WARRANTS SUBSCRIPTION ADDITIONAL   DEFERRED                  OTHER       TOTAL
                     ---------------- AND CALL    NOTES      PAID-IN   STOCK OPTION ACCUMULATED COMPREHEN- STOCKHOLDERS' COMPREHEN-
                     CLASS A  CLASS B  OPTION  RECEIVABLE    CAPITAL   COMPENSATION   DEFICIT   SIVE LOSS    DEFICIT     SIVE LOSS
                     -------- ------- -------- ------------ ---------- ------------ ----------- ---------- ------------- ----------
<S>                   <C>     <C>     <C>        <C>        <C>          <C>         <C>          <C>       <C>          <C>
Balance at
 December 31,
 2000 as
 originally
 reported...........  $  56   $   8   $ 68,384   $  (1,270) $  499,304   $  (6,999)  $  (759,272)       --  $  (199,789)        --
Adjustments to
 opening
 stockholders'
 deficit ...........                                                                      24,286                 24,286
                     -------- ------- -------- ------------ ---------- ------------  ----------- ---------- ------------- ---------
Balance at
 December 31, 2000
 (restated)..........    56       8     68,384      (1,270)    499,304      (6,999)     (734,986)       --     (175,503)
Comprehensive loss:
 Net loss............                                                                   (205,545)              (205,545) $(205,545)
Unrealized loss on
 interest rate
 swap................                                                                               (1,350)      (1,350)    (1,350)
                                                                                                                         ----------
 Comprehensive
  loss...............                                                                                                    $(206,895)
                                                                                                                         ----------
Deferred stock
 option
 compensation........                                            9,699      (9,699)                                  --
Stock-based
 compensation .......                                                       10,161                               10,161
Stock options
 exercised ..........                                            3,191                                            3,191
Repayment of stock
 subscription notes
 receivable..........                                  182                                                          182
Dividends on
 redeemable and
 convertible
 preferred stock.....                                                                   (117,056)              (117,056)
Accretion on
 redeemable
 preferred stock.....                                                                    (29,600)               (29,600)
                     -------- ------- -------- ------------ ---------- ------------  ----------- ---------- ------------- ---------
Balance at
 December 31,
 2001 (restated).....    56       8     68,384      (1,088)    512,194      (6,537)   (1,087,187)   (1,350)    (515,520)
Comprehensive loss:
 Net loss............                                                                   (336,186)              (336,186) $(336,186)
 Unrealized loss on
  interest rate
  swap...............                                                                               (1,796)      (1,796)    (1,796)
                                                                                                                         ----------
 Comprehensive
  loss...............                                                                                                    $(337,982)
                                                                                                                         ----------
Deferred stock
 option.............
 Compensation........                                             (267)        267                                   --
Stock-based
 compensation .......                                                        3,810                                3,810
Stock options
 exercised ..........     1                                      1,182                                            1,183
Interest on stock
  subscription
  notes receivable...                                 (489)                                                        (489)
Reserve on stock
 subscription notes
 receivable..........                                  830                                                          830
Dividends on
 redeemable and
 convertible
 preferred stock.....                                                                    (88,373)               (88,373)

Accretion on
 redeemable
 preferred stock.....                                                                    (21,726)               (21,726)
                     -------- ------- -------- ------------ ---------- ------------ ------------ ---------- ------------ ----------
Balance at
 December 31, 2002
 (restated)..........    57       8     68,384        (747)    513,109      (2,460)   (1,533,472)   (3,146)    (958,267)
Comprehensive loss:
 Net loss............                                                                    (76,213)               (76,213) $ (76,213)
 Unrealized gain on
  interest
  rate swap..........                                                                                3,146        3,146      3,146
                                                                                                                         ----------
 Comprehensive
  loss...............                                                                                                    $ (73,067)
                                                                                                                         ---------
Deferred stock
 option..............
 Compensation........                                           27,314     (27,314)                                  --
Stock-based
 compensation........                                                       12,607                               12,607
Stock options
 exercised...........     6                                        568                                              574
Expiration 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                                                          747
Dividends on
 redeemable and
 convertible
 preferred stock.....                                                                    (69,009)               (69,009)

Accretion on
 redeemable
 preferred stock.....                                                                     (1,095)                (1,095)
                     -------- ------- -------- ------------ ---------- ------------ ------------ ---------- ------------
Balance at
 December 31, 2003... $  63   $   8   $ 66,663          --   $ 540,377   $ (17,167)  $(1,679,789) $     --  $(1,089,845)
                     ======== ======= ======== ============ ========== ============ ============ ---------- ------------
</TABLE>

                 The accompanying notes are an integral part of
                     the consolidated financial statements.

                                      F-6
<PAGE>

                                            PAXSON COMMUNICATIONS CORPORATION
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (in thousands)
<TABLE>
<CAPTION>
                                                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                                              ----------------------------------------
                                                                                   2003         2002          2001
                                                                              ------------- ------------  ------------
                                                                                             (RESTATED)    (RESTATED)
<S>                                                                           <C>           <C>           <C>
              Cash flows from operating activities:
                Net loss....................................................  $    (76,213) $   (336,186) $  (205,545)
                Adjustments to reconcile net loss to net cash provided by
                (used in)
                  operating activities:
                  Depreciation and amortization.............................        42,983        58,529       97,279
                  Stock-based compensation..................................        12,766         3,810       10,161
                  Loss on extinguishment of debt............................            --        17,552        9,903
                  Non-cash restructuring charge.............................            48           486       (1,229)
                  Program rights amortization...............................        51,082        77,980       84,808
                  Adjustment of programming to net realizable value.........         1,066        41,270       66,992
                  Payments for cable distribution rights....................        (4,347)       (9,286)     (14,418)
                  Non-cash barter revenue...................................           (66)         (659)      (2,168)
                  Program rights payments and deposits......................       (34,239)     (116,243)    (130,566)
                  Provision for doubtful accounts...........................          (418)         (126)       2,119
                  Deferred income tax provision.............................         6,670       168,611           --
                  Reserve on stock subscription notes receivable............          (240)          830           --
                  Gain on sale or disposal of broadcast and other assets,
                   net......................................................       (51,589)      (22,906)      (8,634)
                  Equity in income of unconsolidated investment.............           (80)         (460)          --
                  Dividends and accretion on 14% mandatorily redeemable
                   preferred stock..........................................        27,540            --           --
                  Accretion on senior subordinated discount notes...........        43,660        37,480           --
                  Gain on modification of program rights obligations........        (2,103)       (1,520)        (932)
                  Gain on insurance recoveries..............................            --        (1,697)          --
                  Changes in assets and liabilities:
                    Decrease in restricted cash and short-term
                       investments..........................................            --            --       13,729
                    Decrease in accounts receivable.........................         9,697         1,418        2,657
                    Decrease in amounts due from Crown Media................         4,404         3,221           --
                    (Increase) decrease in prepaid expenses and other
                       current assets.......................................        (1,450)          354         (959)
                    Decrease in other assets................................         5,930         7,842        6,531
                    Increase in accounts payable and accrued
                       Liabilities..........................................         5,210         4,809        4,744
                    Increase (decrease) in accrued interest.................           254          (599)       4,756
                    Decrease in obligations to CBS..........................        (7,649)       (9,938)          --
                                                                              ------------  ------------  -----------
                       Net cash provided by (used in) operating activities..        32,916       (75,428)     (60,772)
                                                                              ------------  ------------  -----------
              Cash flows from investing activities:
                Decrease (increase) in short-term investments...............         4,125        (4,923)      37,851
                Acquisitions of broadcasting properties.....................            --          (265)     (15,679)
                Increase in investments in broadcast properties.............           (24)           --           --
                Purchases of property and equipment.........................       (26,732)      (31,177)     (35,213)
                Proceeds from sales of broadcast assets.....................        83,332        26,647       27,122
                Proceeds from sale of broadcast towers and property and
                  equipment.................................................           360           143       34,396
                Proceeds from insurance recoveries..........................            --         2,722           --
                Other.......................................................          (132)         (836)          --
                                                                              ------------  ------------  -----------
                       Net cash provided by (used in) investing
                         activities.........................................        60,929        (7,689)      48,477
                                                                              ------------  ------------  -----------
              Cash flows from financing activities:
                Borrowings of long-term debt................................         2,000       336,338      539,767
                Repayments of long-term debt................................       (20,152)       (2,898)    (416,924)
                Redemption of preferred stock...............................            --            --      (59,102)
                Redemption of 12% exchange debentures......................             --      (284,410)          --
                Payment of loan origination costs...........................        (2,259)      (10,886)     (13,787)
                Preferred stock dividends...................................            --            --       (3,783)
                Debt extinguishment premium and costs.......................            --       (14,302)      (4,754)
                Payments of employee withholding taxes on exercise
                  of common stock options...................................        (2,335)           --           --
                Proceeds from exercise of common stock options, net.........           115         1,182        3,191
                Repayment of stock subscription notes receivable............           144            --          182
                                                                              ------------  ------------ ------------
                       Net cash (used in) provided by financing activities..       (22,487)       25,024       44,790
                                                                              ------------  ------------ ------------
              Increase (decrease) in cash and cash equivalents..............        71,358       (58,093)      32,495
              Cash and cash equivalents, beginning of year..................        25,765        83,858       51,363
                                                                              ------------  ------------ ------------
              Cash and cash equivalents, end of year........................  $     97,123  $     25,765  $    83,858
                                                                              ============  ============ ============
</TABLE>

                 The accompanying notes are an integral part of
                     the consolidated financial statements.

                                      F-7
<PAGE>

                        PAXSON COMMUNICATIONS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     Paxson Communications Corporation (the "Company"), a Delaware corporation,
was organized in 1993. The Company owns and operates television stations
nationwide, and on August 31, 1998, launched PAX TV. PAX TV is the brand name
for the programming that the Company broadcasts through its owned, operated and
affiliated television stations, and through certain cable television system
owners and satellite television providers.

     The Company believes that unless its ratings and revenues improve
significantly, its business operations are unlikely to provide sufficient cash
flow to support the Company's debt service and preferred stock dividend
requirements. The Company has engaged Bear Stearns & Co. Inc. and Citigroup
Global Markets Inc. to act as its financial advisors and explore strategic
alternatives for the Company. These strategic alternatives may include the sale
of all or part of the Company's assets, finding a strategic partner for the
Company who would provide the financial resources to enable the Company to
redeem, restructure or refinance the Company's debt and preferred stock, or
finding a third party to acquire the Company through a merger or other business
combination or acquisition of the Company's equity securities. The Company's
ability to pursue strategic alternatives is subject to various limitations and
issues which the Company may be unable to control (see Note 17).

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.

     The consolidated financial statements for the years ended December 31, 2002
and 2001 have been restated. All information in the notes to the consolidated
financial statements referring to 2002 and 2001 financial information give
effect to the aforementioned restatements (See Note 2).

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include highly liquid investments with original
maturities of three months or less and are stated at cost.

SHORT-TERM INVESTMENTS

     Short-term investments consist of marketable government securities with
original maturities of one year or less. All short-term investments are
classified as trading and are recorded at fair value based upon quoted market
prices.

ACCOUNTS RECEIVABLE

     The Company carries accounts receivable at the amount it believes to be
collectible. Accordingly, the Company provides allowances for accounts
receivable it believes to be uncollectible based on managements best estimates.
The amounts of accounts receivable that ultimately become uncollectible could
vary significantly from the Company's estimates.

PROPERTY AND EQUIPMENT

     Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of assets, are capitalized at cost and
depreciated using the straight line method over their estimated useful lives as
follows (see Note 7):

Broadcasting towers and equipment.............................    4-30 years
Office furniture and equipment................................    5-10 years
Buildings and leasehold improvements..........................    10-40 years
Aircraft, vehicles and other..................................    5 years


                                     F-8
<PAGE>

     Leasehold improvements are depreciated using the straight-line method over
the shorter of the lease term or the estimated useful life of the related asset.
Maintenance, repairs, and minor replacements are charged to expense as incurred.

INTANGIBLE ASSETS

     The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, Goodwill and Other Intangible Assets effective January 1, 2002. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. Under SFAS No. 142, goodwill and intangible assets that
have indefinite lives are not amortized but rather are tested at least annually
for impairment. Intangible assets that have finite useful lives continue to be
amortized over their estimated useful lives. Under SFAS No. 142, the Company no
longer amortizes its FCC license intangible assets (which the Company believes
have an indefinite life). Under previous accounting standards, these assets were
being amortized over 25 years. The Company tests its FCC license intangible
assets for impairment by comparing the estimated fair value of these assets,
based upon an independent appraisal, with their recorded amounts on an aggregate
basis as a single unit of accounting since the Company operates PAX TV as a
single asset, a consolidated distribution platform. No FCC license intangible
asset impairment loss was recognized upon adoption. However, due to the deferred
tax consequences of SFAS No. 142, the Company was required to increase its
deferred tax asset valuation allowance in 2002. In addition, the Company tested
its FCC license intangible assets for impairment as of December 31, 2003 and
2002 by comparing the estimated fair value of these assets, based upon an
independent appraisal, with their recorded amount. No impairment charge was
required as a result of this testing.

     The following table shows the effect on net loss attributable to common
stockholders and net loss per share for the year ended December 31, 2001 had the
Company adopted SFAS No. 142 on January 1, 2001 (in thousands, except per share
data):

                                                          (RESTATED)
            Reported net loss attributable to common
              stockholders...........................   $   (352,201)
            Add: FCC license amortization............         40,535
            Deduct: Deferred taxes...................        (14,203)
                                                        ------------
            Adjusted net loss attributable to common
              stockholders...........................   $   (325,869)
                                                        ============
            Basic and diluted loss per share:
            Reported net loss attributable to common
              stockholders...........................   $      (5.46)
            FCC license amortization.................           0.63
            Deferred taxes...........................          (0.22)
                                                        ------------
            Adjusted net loss attributable to common
              stockholders...........................   $      (5.05)
                                                        ============

     Intangible assets that have finite useful lives continue to be amortized
over their estimated useful lives and primarily consist of cable and satellite
distribution rights which are amortized on a straight-line basis over the terms
of the related contracts, which terms are generally ten years (see Note 8). In
1998, the Company began entering into cable and satellite distribution
agreements for periods generally up to ten years in markets where the Company
does not own a television station. Certain of these distribution agreements also
provided the Company with some level of promotional advertising to be run at the
discretion of the distributor, primarily during the first few years to support
the launch of the Company's PAX TV network on the cable systems. The Company had
been amortizing these assets on an accelerated basis in order to give effect to
the advertising component included in certain of these agreements. In 2003, the
Company determined that it had previously over amortized certain of these assets
and recorded a $6.9 million reduction of its amortization expense, resulting in
a corresponding increase in intangible assets. The remaining unamortized costs,
which were being amortized over seven years, will be amortized over the
remaining contractual life of the agreements.

PROGRAM RIGHTS

     The Company's programming consists of both originally developed programs
and syndicated programs that have previously aired on other networks. The
Company generally has unlimited exclusive domestic broadcast rights for its
original programs. For syndicated programs, the Company licenses the exclusive
domestic distribution rights for a fixed cost over the license term. Program
rights are carried at the lower of unamortized cost or estimated net realizable
value. Program rights and the related liabilities are recorded at the
contractual amounts when the programming is available to air. Original
programming generally is amortized over three years. Syndicated programming
rights are amortized over the licensing agreement term using the greater of the
straight line per run or


                                      F-9
<PAGE>

straight line over the license term method. The estimated costs of programming
which will be amortized during the next year are included in current assets;
program rights obligations which become due within the next year are included in
current liabilities.

     The Company periodically evaluates the net realizable value of its program
rights based on anticipated future usage of programming and the anticipated
future ratings and related advertising revenue to be generated on a daypart
basis. The Company also evaluates whether future revenues will be sufficient to
recover the cost of programs the Company is committed to purchase in the future
and, if estimated future revenues are insufficient, the Company accrues a loss
related to its programming commitments. For the years ended December 31, 2003,
2002 and 2001, the Company recorded charges of approximately $1.1 million, $41.3
million and $67.0 million, respectively, related to the write-down of program
rights to their estimated net realizable value and losses on programming
commitments.

CABLE AND SATELLITE DISTRIBUTION RIGHTS

     As discussed above, the Company has entered into agreements with cable and
satellite distributors for carriage on their systems.

     The Company generally enters into agreements with cable distributors in
markets not currently served by a Company owned television station. The Company
pays fees based on the number of cable television subscribers reached and in
certain instances provides a specified amount of airtime per hour or per week in
which the distributor may sell local advertising. Obligations for cable
distribution rights which will be paid within the next year are included in
current liabilities. The Company has also entered into agreements with cable
system operators to improve channel positioning on certain cable systems.
Amounts paid for channel improvement with a stipulated termination date are
amortized over the term of the agreement using the straight-line method. Amounts
paid for channel improvement with no stipulated termination date are amortized
on a straight-line basis over a maximum life of ten years. As of December 31,
2003, obligations for cable distribution rights require collective payments by
the Company of approximately $2.5 million in 2004 and $0.3 million in 2005.

     The agreements with certain satellite distributors provide for payment in
advertising credits, to be determined at the prevailing market rate at the time
of placement. Deferred revenue from the advertising credits provided is
recognized as advertising revenue when advertising credits are utilized. An
estimate of the advertising credit that will be utilized within the next year is
included in deferred revenues as a current liability in the accompanying
consolidated balance sheets and amounted to $7.5 million and $6.8 million as of
December 31, 2003 and 2002, respectively. An estimate of the advertising credit
that will be utilized beyond December 31, 2004 and 2003 is included in deferred
revenues as a long-term liability in the accompanying consolidated balance
sheets and amounted to $6.9 million and $7.6 million as of December 31, 2003 and
2002, respectively. Additionally, these agreements provide a specified amount of
time per week in which the distributor may sell advertising time.

INVESTMENTS IN BROADCAST PROPERTIES

     Investments in broadcast properties represent the Company's purchase
options in entities owning television broadcasting stations. In connection with
these agreements, the Company has obtained the right to provide programming for
the related stations pursuant to time brokerage agreements ("TBAs") and has
options to purchase certain of the related station assets and FCC licenses at
various amounts and terms (see Note 17).

     Included in depreciation and amortization is a $5.4 million impairment
charge recorded in the year ended December 31, 2003 in connection with a
purchase option on a television station, resulting in a corresponding decrease
in investments in broadcast properties. This impairment existed in periods prior
to the year ended December 31, 2003.

LONG-LIVED ASSETS

     Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" and Accounting Principles Board Opinion ("APB") No.
30, "Reporting the Results of Operations--Reporting the Effects of the Disposal
of a Segment Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 establishes a single accounting model for
assets to be disposed of by sale whether previously held and used or newly
acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of
discontinued operations in the income statement, but broadens the presentation
to include a component of an entity. The adoption of SFAS No. 144 did not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.


                                      F-10
<PAGE>

     The Company reviews long-lived assets and reserves for impairment whenever
events or changes in circumstances indicate that, based on estimated
undiscounted future cash flows, the carrying amount of the assets may not be
fully recoverable. If the Company's analysis indicates that a possible
impairment exists, the Company is required to then estimate the fair value of
the asset determined either by third party appraisal or estimated discounted
future cash flows. It is possible that the estimated life of certain long-lived
assets will be reduced significantly in the near term due to the anticipated
industry migration from analog to digital broadcasting. If and when the Company
becomes aware of such a reduction of useful lives, depreciation expense will be
adjusted prospectively to ensure assets are fully depreciated upon migration.

     The Company classifies assets as held for sale following criteria
established in SFAS No. 144, including when, in the opinion of management, the
sale of the asset is probable of completion within one year. Assets held for
sale are recorded at the lower of their carrying amount or fair value less cost
to sell. The Company does not depreciate assets while they are classified as
held for sale. The results of operations of assets held for sale are not
classified as discontinued operations since they are not considered a component
under SFAS No. 144.

DERIVATIVE FINANCIAL INSTRUMENTS

     The Company's derivative financial instruments (including certain
derivative instruments embedded in other contracts) are recorded in the balance
sheet as either an asset or liability measured at fair value. Changes in the
derivative instruments fair value are recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative instruments gains and losses to offset related
results on the hedged item in the statement of operations, to the extent
effective, and requires that the Company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.

     As described in Note 11, the Company utilized an interest rate swap to
manage the impact of interest rate changes on the Company's senior credit
facility borrowings. The interest rate swap matured on October 15, 2003 and was
not renewed. Under the interest rate swap, the Company agreed with the other
party to exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Income or expense under these instruments was recorded on an
accrual basis as an adjustment to the yield of the underlying exposures over the
periods covered by the contracts. The Company has accounted for the swap as a
cash flow hedge pursuant to SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities", as amended, with changes in the fair value included as
a component of other comprehensive loss. At December 31, 2002, the fair value of
the swap was a liability of approximately $3.1 million.

OTHER COMPREHENSIVE GAIN (LOSS)

     Other comprehensive gain (loss) represents the unrealized gain (loss) on
the Company's interest rate swap accounted for as a cash flow hedge totaling
approximately $3.1 million, ($1.8) million and ($1.4) million for the years
ended December 31, 2003, 2002 and 2001, respectively. No income tax benefit has
been recorded related to these losses due to uncertainty regarding realization
of the Company's deferred tax assets.

REVENUE RECOGNITION

     Revenue is recognized as commercial spots or long form programming are
aired and, with respect to network commercial spots only, as ratings guarantees
to advertisers are achieved. As of December 31, 2003 and 2002, included in
deferred revenues as a current liability in the accompanying consolidated
balance sheets is approximately $4.5 million and $1.7 million, respectively,
related to ratings guarantee shortfalls.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. For the years ended December
31, 2003, 2002 and 2001, advertising expenses amounted to $8.4 million, $8.6
million and $4.6 million, respectively, and are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations.

TIME BROKERAGE AGREEMENTS

     The Company operates certain stations under TBAs, whereby the Company has
agreed to provide the station with programming and sells and retains all
advertising revenue during such programming. The broadcast station licensee


                                      F-11

<PAGE>

retains responsibility for ultimate control of the station in accordance with
FCC policies. The Company pays a fixed fee to the station owner as well as
certain expenses of the station and performs other functions. The financial
results of TBA operated stations are included in the Company's statements of
operations from the date of commencement of the TBA.

STOCK-BASED COMPENSATION

     Employee stock options are accounted for using the intrinsic value method.
Stock-based compensation to non-employees is accounted for using the fair value
method. When options are granted to employees, a non-cash charge representing
the difference between the exercise price and the quoted market price of the
common stock underlying the vested options on the date of grant is recorded as
stock-based compensation expense with the balance deferred and amortized over
the remaining vesting period.

   Had compensation expense for employee stock options granted been determined
using the fair value method the Company's net loss and net loss per share would
have been as follows (in thousands except per share data):

<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31,
                                                                         --------------------------------
                                                                         2003          2002          2001
                                                                         ----          ----          ----
                                                                                    (RESTATED)    (RESTATED)
<S>                                                                   <C>           <C>           <C>
Net loss attributable to common stockholders.....................     $(146,317)    $(446,285)    $(352,201)
Add: Stock-based compensation expense determined under the
intrinsic value method and included in reported
  net loss.......................................................        12,766         3,810        10,161
Deduct: Total stock-based compensation expense determined
  under the fair value method....................................       (15,079)       (7,317)      (18,310)
                                                                      ---------     ---------     ---------
Pro forma net loss attributable to common stockholders...........     $(148,630)    $(449,792)    $(360,350)
                                                                      =========     =========     =========

Basic and diluted net loss per share:
  As reported....................................................     $   (2.14)    $   (6.88)    $   (5.46)
  Pro forma......................................................         (2.17)        (6.94)        (5.59)
</TABLE>


    The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model assuming a dividend yield of zero,
expected volatility range of 50% to 79%; risk free interest rates of 2.8% to
6.9% and weighted average expected option terms of one day to 7.5 years.

INCOME AND OTHER TAXES

     The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of a deferred tax asset will not be
realized. The Company's income tax provision consists of taxes currently
payable, if any, and the change during the year of deferred tax assets and
liabilities.

     As previously described, upon adoption of SFAS No. 142 on January 1, 2002,
the Company no longer amortizes its FCC license intangible assets. Under
previous accounting standards, these assets were being amortized over 25 years.
Although the provisions of SFAS No. 142 stipulate that indefinite-lived
intangible assets are not amortized, the Company is required under SFAS No. 109,
"Accounting for Income Taxes", to recognize deferred tax liabilities and assets
for temporary differences related to its FCC license intangible assets and the
tax-deductible portion of these assets. Prior to adopting SFAS No. 142, the
Company considered its deferred tax liabilities related to its FCC license
intangible assets as a source of future taxable income in assessing the
realization of its deferred tax assets. Because indefinite-lived intangible
assets are no longer amortized for financial reporting purposes under SFAS No.
142, the related deferred tax liabilities will not reverse until some
indeterminate future period should FCC license intangible assets become impaired
or be disposed of. Therefore, the reversal of deferred tax liabilities related
to the FCC license intangible assets is no longer considered a source of future
taxable income in assessing the realization of deferred tax assets. As a result
of this accounting change, the Company was required to record an increase in its
deferred tax asset valuation allowance totaling approximately $168.6 million
during the year ended December 31, 2002. In addition, the Company will continue
to record increases in its valuation allowance in future periods based on
increases in the deferred tax liabilities and assets for temporary differences
related to FCC license intangible assets.

     In 2003, the Company recorded a reserve for state taxes (not based on
income) related to 2003 and prior periods in the amount of $3.1 million,
resulting in a corresponding increase in accounts payable and accrued
liabilities, in connection with a tax liability related to certain states in
which the Company has operations.

PER SHARE DATA

     Basic and diluted loss per share was computed by dividing the net loss less
dividends and accretion on redeemable and convertible preferred stock by the
weighted average number of common shares outstanding during the period. The
effect of stock options and warrants is antidilutive. Accordingly, basic and
diluted loss per share is the same for all periods presented.

     The following securities, which could potentially dilute earnings per share
in the future, were not included in the computation of loss per share, because
to do so would have been antidilutive (in thousands):

<TABLE>
<CAPTION>
                                                                2003      2002    2001
                                                              -------- -------- --------
<S>                                                             <C>      <C>     <C>
       Stock options outstanding............................     3,129   11,426  12,652
       Class A common stock warrants outstanding............    32,032   32,428  32,428
       Class A common stock reserved under convertible
         securities.........................................    39,903   39,167  38,500
                                                              -------- -------- --------
                                                                75,064   83,021  83,580
                                                              ======== ======== ========
</TABLE>

     In June 2003, warrants to purchase 240,000 shares of Class A common stock
were issued in connection with the issuance of the 9 3/4% Series A Convertible
Preferred Stock in June 1998 and warrants to purchase 155,500 shares of Class A
common stock


                                      F-12
<PAGE>

issued to an affiliate of a former member of the
Company's board of directors, which were valued upon issuance at approximately
$1.7 million, expired unexercised.

USE OF ESTIMATES

     The preparation of financial statements in accordance with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

     Certain reclassifications have been made to prior years financial
statements to conform with the 2003 presentation.

NEW ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2003, the Company adopted SFAS No. 145 "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". Among other matters, SFAS No. 145 rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt" which
required gains and losses from extinguishments of debt to be classified as
extraordinary items, net of related income taxes. As a result, debt
extinguishments used as part of an entity's risk management strategy no longer
meet the criteria for classification as extraordinary items. In connection with
the Company's July 2001 and January 2002 refinancings, the Company recognized
losses due to early extinguishment of debt amounting to $9.9 million and $17.6
million, respectively, resulting primarily from redemption premiums and the
write-off of unamortized debt costs associated with each refinancing. This loss
was classified as an extraordinary item in the Company's previously issued
financial statements. Because of the adoption of SFAS No. 145 in 2003, the
Company has reclassified this loss to other income (expense) in the accompanying
consolidated statements of operations.

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 supersedes Emerging Issues Task
Force Issue No. 94-3. SFAS No. 146 requires that the liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred, not at the date of an entitys commitment to an exit or disposal plan.
The provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002. The Company early adopted the provisions of
SFAS No. 146 in the fourth quarter of 2002.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for companies that voluntarily change to a fair value-based method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Currently, the Company accounts for stock-based compensation under the
intrinsic value method of APB Opinion No. 25. The provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002. The Company has
adopted the disclosure provisions of SFAS No. 148 as of December 31, 2002. The
Company does not intend to change its accounting policy with regard to
stock-based compensation and there was no impact on the Company's financial
position, results of operations or cash flows upon adoption of SFAS No.148.

     In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003) "Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin (ARB) No. 51" ("FIN 46"). FIN 46 clarifies the
application of ARB No. 51 to certain entities in which the equity investors do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Application of FIN
46 is required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Application by public entities for all other types of entities is required
in financial statements for periods ending after March 15, 2004. The adoption of
FIN 46 is not expected to have any impact on the Company's financial position,
results of operations or cash flows.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity". This
statement establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 requires liability
classification for mandatorily redeemable equity instruments not convertible
into common stock such as the Company's 14 1/4% Junior Exchangeable Preferred


                                      F-13
<PAGE>


Stock. SFAS No. 150 is effective immediately with respect to instruments entered
into or modified after May 31, 2003 and as to all other instruments that exist
as of the beginning of the first interim financial reporting period beginning
after June 15, 2003. The Company adopted SFAS No. 150 effective July 1, 2003.
Upon adoption, the Company recorded a deferred asset for the unamortized
issuance costs and recorded a liability for the mandatorily redeemable preferred
stock balance related to its 14 1/4% Junior Exchangeable Preferred Stock. In
addition, the amortization of the issuance costs and the dividends related to
the 14 1/4% Junior Exchangeable Preferred Stock are being recorded as interest
expense beginning July 1, 2003 versus the recording of these costs as dividends
and accretion on redeemable preferred stock in prior periods. Restatement of
prior periods is not permitted upon adoption of SFAS No. 150. The Company's
9 3/4% Series A Convertible Preferred Stock and 8% Series B Convertible
Exchangeable Preferred Stock are not affected by the provisions of SFAS No. 150
because of their equity conversion features.

2.       RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

     From 1997 through 2000, the Company acquired several television stations in
transactions structured as the purchase of the outstanding stock of the entity
owning the station. In each of these transactions, the Company, in error, failed
to establish the proper deferred tax liability for the difference between the
book basis and tax basis of the acquired stations FCC license as required under
SFAS No. 109, Accounting for Income Taxes. Further, in connection with its
analysis of prior acquisitions, the Company determined that in certain
acquisitions it had understated the value of FCC licenses. Additionally, the
Company determined that goodwill should not have been recorded for certain
acquisitions that were fundamentally purchases of assets. The Company has
corrected this matter by reclassifying $54.5 million from goodwill to FCC
license intangible assets. Set forth below are the restatement adjustments
included in the restatement of the Company's previously issued financial
statements.

     The recording of deferred tax liabilities resulting from the stock
acquisitions described above has resulted in additional FCC license intangible
assets amounting to approximately $28.3 million. The increased amount of our FCC
license intangible assets has resulted in additional amortization expense of
approximately $1.0 million in the year ended December 31, 2001 ($2.3 million in
the period from January 1, 1997 through December 31, 2000). Effective January 1,
2002, the Company adopted SFAS No. 142 Accounting for Goodwill and Other
Intangible Assets at which time indefinite-lived intangible assets were no
longer amortized.

     The deferred tax liabilities associated with these additional FCC license
intangible assets would have, in periods subsequent to the respective
acquisition, resulted in the realization of the Company's previously
unrecognized deferred tax assets (generated by net operating losses) as the
Company considered the reversal of deferred tax liabilities related to FCC
license intangible assets as a source of future taxable income in assessing the
realization of deferred tax assets up until the adoption of SFAS No. 142. The
realization of deferred tax assets has resulted in a deferred tax benefit of
$28.3 million in the period from January 1, 1997 through December 31, 2000.

     The additional FCC license intangible assets resulting from these
acquisitions has been considered in the determination of any gain or loss
upon the disposition of the related assets. As a result, the Company would have
recognized additional losses on the sale of broadcast assets of approximately
$.7 million in the year ended December 31, 2001 ($1.7 million in the period from
January 1, 1997 through December 31, 2000).

     In cases where the acquisitions were consummated at times when the Company
had unrecognized deferred tax assets (resulting from net operating losses), the
recording of deferred tax liabilities resulting from these stock acquisitions
has resulted in their realization. The realization of these additional deferred
tax assets had no financial statement impact until the adoption of SFAS No. 142.
However, upon the adoption of SFAS No. 142 in the first quarter of 2002, the
Company no longer amortized its FCC license intangible assets. Under previous
accounting standards, this asset was being amortized over 25 years. Although the
provisions of SFAS No. 142 stipulate that indefinite-lived intangible assets are
no longer amortized, the Company is required under SFAS No. 109 Accounting for
Income Taxes, to recognize deferred tax liabilities and assets for temporary
differences related to FCC license intangible assets and the tax-deductible
portion of this asset. Because indefinite-lived intangible assets were no longer
amortized for financial reporting purposes under SFAS No. 142, the related
deferred tax liabilities will not reverse until some indeterminate future period
should FCC license intangible assets become impaired or be disposed of.
Therefore the


                                      F-14

<PAGE>

reversal of deferred tax liabilities related to FCC license intangible assets
was no longer considered a source of future taxable income in assessing the
realization of deferred tax assets. As a result, upon adoption of SFAS No. 142
in the first quarter of 2002, the Company has recorded an additional
provision for income taxes in connection with the deferred tax liabilities
resulting from stock acquisitions of approximately $32.3 million.

     The Company has restated its previously issued financial statements to
correct the items described in the preceding paragraphs. The cumulative impact
of the aforementioned adjustments result in a decrease to the Company's
accumulated deficit as of December 31, 2000 of $24.3 million, from ($759.3)
million, as originally reported, to ($735.0) million, as restated. The Company
has determined that it would be appropriate to restate its 2002 and 2001
financial statements, and to restate the financial information the Company
previously reported in the first quarter of 2002. Unless otherwise specifically
noted, the financial information in this Form 10-K reflects the 2001
restatement, the 2002 restatement and the first quarter 2002 restatement. For
information concerning the restatement of the quarterly results of operations,
see Note 19. The following sets forth the condensed balance sheet as of December
31, 2002 and the condensed consolidated statements of operations for 2002 and
2001 as originally reported and as restated (in thousands, except per share
data):


<TABLE>
<CAPTION>
                                                                                   AS OF DECEMBER 31, 2002
                                                                         ------------------------------------------
                                                                         AS ORIGINALLY
                                                                         REPORTED (1)   ADJUSTMENTS    AS RESTATED
                                                                         -------------  -----------   -------------
<S>                                                                       <C>             <C>         <C>
        ASSETS
           Current assets...............................................  $   124,984                 $    124,984
           Intangible assets, net.......................................      877,203    $  22,523         899,726
           Property, equipment and other assets, net....................      251,909                      251,909
                                                                          -----------    ---------    ------------
             Total assets...............................................  $ 1,254,096    $  22,523    $  1,276,619
                                                                          ===========    =========    ============
        LIABILITIES, MANDATORILY REDEEMABLE
           PREFERRED  STOCK AND STOCKHOLDERS' DEFICIT
           Current liabilities..........................................      105,796                      105,796
           Deferred income taxes........................................      136,286    $  32,325         168,611
           Senior subordinated notes and bank financing,
              net of current portion....................................      896,957                      896,957
           Other long-term liabilities..................................       70,421                       70,421
                                                                          -----------    ---------    ------------
                 Total liabilities......................................    1,209,460       32,325       1,241,785
                                                                          -----------    ---------    ------------
           Mandatorily redeemable and convertible preferred stock.......      993,101                      993,101
                                                                          -----------    ---------    ------------
           Total stockholders' deficit..................................     (948,465)     (9,802)        (958,267)
                                                                          -----------    ---------    ------------
        Total liabilities, mandatorily redeemable and stockholders'
              deficit...................................................  $ 1,254,096    $  22,523    $  1,276,619
                                                                          ===========    =========    ============
</TABLE>

         (1) After considering reclassifications to conform to the 2003
             presentation.

<TABLE>
<CAPTION>
                                                                            FOR THE YEAR ENDED DECEMBER 31, 2002
                                                                         ------------------------------------------
                                                                         AS ORIGINALLY
                                                                         REPORTED (1)   ADJUSTMENTS    AS RESTATED
                                                                         -------------  -----------   -------------
<S>                                                                     <C>              <C>          <C>
        REVENUES:
          Revenues..............................................        $      321,896                $    321,896
          Less: agency commissions..............................               (44,975)                    (44,975)
                                                                        --------------                -------------
          Net revenues..........................................               276,921                     276,921
                                                                        --------------                -------------
        OPERATING EXPENSES:
          Expenses, excluding depreciation and amortization.....               311,204                     311,204
          Depreciation and amortization.........................                58,529                      58,529
                                                                        --------------                -------------
                  Total operating expenses......................               369,733                     369,733
                                                                        --------------                -------------
        Gain on sale or disposal of broadcast and other assets, net             22,906                      22,906
                                                                        --------------                -------------
        Operating loss..........................................               (69,906)                    (69,906)
        Other expense, net......................................               (97,007)                    (97,007)
        Income tax provision....................................              (136,948)   $(32,325)       (169,273)
                                                                        --------------    --------    -------------
</TABLE>



                                      F-15
<PAGE>

<TABLE>

<S>                                                                     <C>               <C>          <C>
        Net loss................................................              (303,861)    (32,325)       (336,186)
        Dividends and accretion on redeemable and convertible
           preferred stock......................................              (110,099)                   (110,099)
                                                                        --------------   ----------   -------------
        Net loss attributable to common stockholders............        $     (413,960)   $(32,325)   $   (446,285)
                                                                        ==============   ==========    ============
        Basic and diluted loss per common share.................        $        (6.38)   $  (0.50)   $      (6.88)
                                                                        ==============   ==========    =============
        Weighted average shares outstanding.....................            64,849,068                   64,849,068
                                                                        ==============                 =============
</TABLE>

       (1) After considering reclassifications to conform to the 2003
           presentation.

<TABLE>
<CAPTION>
                                                                              FOR THE YEAR ENDED DECEMBER 31, 2001
                                                                        --------------------------------------------
                                                                        AS ORIGINALLY
                                                                         REPORTED (1)    ADJUSTMENTS     AS RESTATED
                                                                        -------------    -----------    ------------
<S>                                                                     <C>                            <C>
        REVENUES:
          Revenues..............................................        $      308,806                 $      308,806
          Less: agency commissions..............................               (43,480)                       (43,480)
                                                                        --------------                 --------------
          Net revenues..........................................               265,326                        265,326
                                                                        --------------                 --------------
        OPERATING EXPENSES:
          Expenses, excluding depreciation and amortization.....               326,810                        326,810
          Depreciation and amortization.........................                96,248     $  1,031            97,279
                                                                        --------------     --------    --------------
                  Total operating expenses......................               423,058        1,031           424,089
        Gain on sale or disposal of broadcast and other assets, net              9,366         (732)            8,634
                                                                        --------------     --------    --------------
        Operating loss..........................................              (148,366)      (1,763)         (150,129)
        Other expense ..........................................               (55,296)                       (55,296)
        Income tax provision....................................                  (120)                          (120)
                                                                        --------------     --------    --------------
        Net loss................................................              (203,782)      (1,763)         (205,545)
        Dividends and accretion on redeemable and convertible
           preferred stock......................................              (146,656)                      (146,656)
                                                                        --------------     --------    --------------
        Net loss attributable to common stockholders............        $     (350,438)    $ (1,763)   $     (352,201)
                                                                        ==============     --------    ==============
        Basic and diluted loss per common share.................        $        (5.43)    $  (0.03)   $        (5.46)
                                                                        ==============     ========    ==============
        Weighted average shares outstanding.....................            64,508,761                     64,508,761
                                                                        ==============                 ==============
</TABLE>

         (1) After considering reclassifications to conform to the 2003
             presentation.

3.    NBC TRANSACTIONS

     Effective September 15, 1999 (the "Issue Date"), the Company entered into
an Investment Agreement (the "Investment Agreement") with National Broadcasting
Company, Inc. ("NBC"), pursuant to which NBC purchased shares of convertible
exchangeable preferred stock (the "Series B Convertible Preferred Stock"), and
common stock purchase warrants from the Company for an aggregate purchase price
of $415 million. Further, Mr. Paxson, the majority stockholder of the Company,
and certain entities controlled by Mr. Paxson granted NBC the right (the "Call
Right") to purchase all (but not less than all) 8,311,639 shares of Class B
Common Stock of the Company beneficially owned by Mr. Paxson.

     The common stock purchase warrants issued to NBC consist of a warrant to
purchase up to 13,065,507 shares of Class A Common Stock at an exercise price of
$12.60 per share ("Warrant A") and a warrant to purchase up to 18,966,620 shares
of Class A Common Stock ("Warrant B") at an exercise price equal to the average
of the closing sale prices of the Class A Common Stock for the 45 consecutive
trading days ending on the trading day immediately preceding the warrant
exercise date (provided that such price shall not be more than 17.5% higher or
17.5% lower than the six month trailing average closing sale price). The
Warrants are exercisable through September 2009 subject to certain conditions
and limitations.


                                      F-16
<PAGE>

     The Call Right has a per share exercise price equal to the higher of (i)
the average of the closing sale prices of the Class A Common Stock for the 45
consecutive trading days ending on the trading day immediately preceding the
exercise of the Call Right (provided that such price shall not be more than
17.5% higher or 17.5% lower than the six month trailing average closing sale
prices), and (ii) $20.00. The owners of the shares which are subject to the Call
Right may not transfer such shares prior to the sixth anniversary of the Issue
Date, and may not convert such shares into any other securities of the Company
(including shares of Class A Common Stock). Exercise of the Call Right is
subject to compliance with applicable provisions of the Communications Act of
1934, as amended (the "Communications Act"), and the rules and regulations of
the FCC. The Call Right may not be exercised until Warrant A and Warrant B have
been exercised in full. The Call Right expires on the tenth anniversary of the
Issue Date, or prior thereto under certain circumstances.

     The Company valued the common stock purchase warrants issued to NBC and the
Call Right at $66.7 million. The Company recorded this value along with
transaction costs as a reduction of the face value of the Series B Convertible
Preferred Stock. Such discount was accreted as preferred stock dividends through
September 2002 using the interest method.

     The Investment Agreement requires the Company to obtain the consent of NBC
or its permitted transferee with respect to certain corporate actions, as set
forth in the Investment Agreement, and grants NBC certain rights with respect to
the operations of the Company. NBC was also granted certain demand and piggyback
registration rights with respect to the shares of Class A Common Stock issuable
upon conversion of the Series B Convertible Preferred Stock (or conversion of
any exchange debentures issued in exchange therefor), exercise of the Warrants
or conversion of the Class B Common Stock subject to the Call Right.

     NBC, the Company, Mr. Paxson and certain entities controlled by Mr. Paxson
also entered into a Stockholder Agreement, pursuant to which, if permitted by
the Communications Act and FCC rules and regulations, the Company may nominate
persons named by NBC for election to the Company's board of directors and Mr.
Paxson and his affiliates have agreed to vote their shares of common stock in
favor of the election of such persons as directors of the Company. Should no NBC
nominee be serving as a member of the Company's board of directors, then NBC may
appoint two observers to attend all board meetings. The Stockholder Agreement
further provides that the Company shall not, without the prior written consent
of NBC, enter into certain agreements or adopt certain plans, as set forth in
the Stockholder Agreement, which would be breached or violated upon the
acquisition of the Company securities by NBC or its affiliates or would
otherwise restrict or impede the ability of NBC or its affiliates to acquire
additional shares of capital stock of the Company.

     The Company and NBC have entered into a number of agreements affecting the
Company's business operations, including an agreement under which NBC provides
network sales, marketing and research services for the Company's PAX TV Network,
national advertising sales services and Joint Sales Agreements ("JSA") between
the Company's stations and NBC's owned and operated stations serving the same
markets. Pursuant to the terms of the JSAs, the NBC stations sell all
non-network spot advertising of the Company's stations and receive commission
compensation for such sales and the Company's stations may agree to carry one
hour per day of the NBC stations syndicated or news programming. Certain Company
station operations, including sales operations, are integrated with the
corresponding functions of the related NBC station and the Company reimburses
NBC for the cost of performing these operations. For the years ended December
31, 2003, 2002 and 2001, the Company incurred expenses totaling approximately
$20.6 million, $20.8 million and $19.1 million, respectively, for commission
compensation and cost reimbursements under these agreements.

     As further discussed in Note 14, on November 13, 2003, NBC exercised its
right under the Investment Agreement to demand that the Company redeem or
arrange for a third party to acquire, by payment in cash, all 41,500 outstanding
shares of Series B Convertible Preferred Stock held by NBC. The aggregate
redemption price payable in respect of the 41,500 preferred shares, including
accrued dividends thereon, was $557.5 million and $524.3 million as of December
31, 2003 and 2002, respectively.

4.    RESTRUCTURING

     During the fourth quarter of 2002, the Company adopted a plan to
consolidate certain of its operations, reduce personnel and modify its
programming schedule in order to significantly reduce the Company's cash
operating expenditures. In connection with this plan, the Company recorded a
restructuring charge of approximately $2.6 million in 2002 consisting of $2.2
million in termination benefits for 95 employees and $0.4 million for costs
associated with exiting leased properties and consolidating certain operations.
Through December 31, 2003, the Company has paid $2.1 million in termination
benefits to 94 employees and paid $0.5 million of lease termination and other
costs. As described in Note 1, the Company has elected to account for these
costs pursuant to the provisions of SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred, as opposed to when there is


                                      F-17
<PAGE>

a commitment to a restructuring plan as set forth under EITF 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity", which has been nullified under SFAS No. 146. As such, the Company
will recognize additional restructuring costs as they are incurred.

     In connection with the NBC relationship, the Company entered into JSAs with
certain of NBC's owned and operated stations in 1999 and 2000. During the fourth
quarter of 2000, the Company approved a plan to restructure its television
station operations by entering into JSAs primarily with NBC affiliate stations
in each of the Company's remaining non-JSA markets. To date, the Company has
entered into JSAs for 47 of its television stations. Under the JSA structure,
the Company generally carries no station sales staff, and the JSA partner
provides local and national spot advertising sales management and representation
to the Company station and, in approximately half of the JSAs, integrates and
co-locates the Company station operations. The Company's restructuring plan
included two major components: (1) termination of 226 station sales and
administrative employees; and (2) exiting Company studio and sales office leased
properties. These restructuring activities resulted in a charge of approximately
$5.8 million in the fourth quarter of 2000 consisting of $2.7 million of
termination benefits and $3.1 million of costs associated with exiting leased
properties which will no longer be utilized upon implementation of the JSAs. The
Company has substantially completed the JSA restructuring plan, except for
contractual lease obligations for closed locations, the majority of which expire
in 2004.

     In 2002, the Company reversed approximately $0.5 million of restructuring
reserves primarily related to two stations which had not entered into JSAs and
certain other reserves which were no longer required. In 2001, the Company
reversed approximately $1.2 million of restructuring reserves primarily related
to four stations which had not entered into JSAs and certain other reserves
which were no longer required.

     The following summarizes the activity in the Company's restructuring
reserves for the years ended December 31, 2003, 2002 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                           AMOUNTS CHARGED
                                           BALANCE       (CREDITED) TO COSTS     CASH            BALANCE
                                      DECEMBER 31, 2002      AND EXPENSES      DEDUCTIONS    DECEMBER 31, 2003
                                      ----------------- --------------------   ----------    -----------------
<S>                                        <C>                <C>              <C>               <C>
CORPORATE RESTRUCTURING
Accrued liabilities:
  Lease and other costs.........           $  262             $  115           $  (326)          $   51
  Severance.....................              732                (67)             (660)               5
                                           ------             ------           -------           ------
                                           $  994             $   48           $  (986)          $   56
                                           ======             ======           =======           ======
JSA RESTRUCTURING
Accrued liabilities:
  Lease costs...................           $  528             $   --           $  (439)          $   89
                                           ======             ======           =======           ======
</TABLE>

<TABLE>
<CAPTION>
                                                          AMOUNTS CHARGED
                                           BALANCE       (CREDITED) TO COSTS     CASH            BALANCE
                                      DECEMBER 31, 2001     AND EXPENSES       DEDUCTIONS    DECEMBER 31, 2002
                                      ----------------- --------------------   ----------    -----------------
<S>                                        <C>                <C>              <C>               <C>

CORPORATE RESTRUCTURING
Accrued liabilities:
  Lease and other costs.........           $    --            $    422         $   (160)         $  262
  Severance.....................           $    --            $  2,218         $ (1,486)            732
                                           -------            --------         --------          ------
                                           $    --            $  2,640        $  (1,646)         $  994
                                           =======            ========         ========          ======
JSA RESTRUCTURING
Accrued liabilities:
  Lease costs...................           $ 1,717            $   (194)        $   (995)         $  528
  Severance.....................               382                (273)            (109)             --
                                           -------            --------         --------          ------
                                           $ 2,099            $   (467)        $ (1,104)         $  528
                                           =======            ========         ========          ======
</TABLE>


                                      F-18
<PAGE>

<TABLE>
<CAPTION>
                                                          AMOUNTS CHARGED
                                           BALANCE       (CREDITED) TO COSTS     CASH            BALANCE
                                      DECEMBER 31, 2000     AND EXPENSES       DEDUCTIONS    DECEMBER 31, 2001
                                      ----------------- --------------------   ----------    -----------------
<S>                                       <C>                <C>              <C>               <C>
JSA RESTRUCTURING
Accrued liabilities:
  Lease costs................             $  3,091           $    (430)       $     (944)       $  1,717
  Severance..................                2,586                (799)           (1,405)            382
                                          --------           ---------        ----------        --------
                                          $  5,677           $  (1,229)       $   (2,349)       $  2,099
                                           =======            ========        ==========        ========
</TABLE>


5.    CERTAIN TRANSACTIONS WITH RELATED PARTIES

     In addition to the transactions with NBC described in Note 3, the Company
has entered into certain operating and financing transactions with related
parties as described below.

DP MEDIA, INC.

     In June 2000, the Company completed the acquisition of DP Media, Inc.
(DP Media) for aggregate consideration of $113.5 million, $106.0 million of
which had previously been advanced by the Company during 1999. DP Media was
beneficially owned by family members of Mr. Paxson, the majority stockholder of
the Company. DP Media's assets included a 32% equity interest in a limited
liability company controlled by the former stockholders of DP Media, which owns
television station WWDP in Norwell, Massachusetts. In April 2003, the owners of
WWDP sold WWDP to Valuevision Media Acquisition, Inc. for a purchase price of
$32.5 million. The proceeds to the Company of $13.8 million resulted in a
pre-tax gain of approximately $9.9 million. See Note 6.

THE CHRISTIAN NETWORK, INC.

     The Company has entered into several agreements with The Christian Network,
Inc. and certain of its for profit subsidiaries (individually and collectively
referred to herein as CNI). CNI is a section 501(c)(3) not-for-profit
corporation to which Mr. Paxson, the majority stockholder of the Company, has
been a substantial contributor and of which he was a member of the Board of
Stewards through 1993.

     CNI Master Agreement. In connection with the NBC transactions described
elsewhere herein, in September 1999 the Company entered into a Master Agreement
for Overnight Programming, Use of Digital Capacity and Public Interest
Programming with CNI, pursuant to which the Company granted CNI, for a term of
50 years (with automatic ten year renewals, subject to certain limited
conditions), certain rights to continue broadcasting CNI's programming on
Company stations during the hours of 1:00 a.m. to 6:00 a.m. When digital
programming begins, the Company will make a digital channel available for CNI's
use for 24 hour CNI digital programming.

     License Agreement. The Company and CNI entered into a three year agreement
in March 1999 under which the Company paid license fees to CNI to broadcast
CNI's religious programming. The license agreement expired in May 2002 without
being renewed. During the years ended December 31, 2002 and 2001, the Company
paid license fees in connection with this agreement amounting to approximately
$93,000 and $215,000, respectively.

     CNI Tax Indemnification Agreement. The Company and CNI entered into an
agreement in May 1994 (the "CNI Agreement") under which the Company agreed that,
if the tax exempt status of CNI were jeopardized by virtue of its relationships
with the Company and its subsidiaries, the Company would take certain actions to
ensure that CNI's tax exempt status would no longer be so jeopardized. Such
steps could include, but not be limited to, rescission of one or more
transactions or payment of additional funds by the Company. If the Company's
activities with CNI are consistent with the terms governing their relationship,
the Company believes that it will not be required to take any actions under the
CNI Agreement. However, there can be no assurance that the Company will not be
required to take any actions under the CNI Agreement at a material cost to the
Company.

     Network Operations Center. CNI and the Company have contracted for the
Company to lease CNI's television production and distribution facility, the
Worship Channel Studio. The current lease term continues until June 30, 2008 and
will be automatically renewed for an additional five year term unless otherwise
terminated by either party providing notice of non-renewal on or before June 30,
2007. The Company utilizes this facility primarily as its network operations
center and originates the PAX TV network signal from this location. For the
years ended December 31, 2003, 2002 and 2001, the Company incurred lease expense
in connection with


                                      F-19
<PAGE>

the lease of this facility in the amount of $212,000, $209,000 and $205,000,
respectively. In addition, the Company provides satellite uplink and assembly
services at no cost to CNI pursuant to the lease agreement.

OFFICER LOANS

     During December 1996, the Company extended loans to members of its senior
management to finance their purchase of shares of Class A Common Stock in the
open market. The loans are full recourse promissory notes bearing interest at
5.75% per annum and are collaterized by a pledge of the shares of Class A Common
Stock purchased with the loan proceeds. As of December 31, 2003 and 2002, the
outstanding balances on such loans amounted to $0.7 million and $1.6 million,
respectively. As of December 31, 2002, these loans were past their payment
terms. Because of uncertainty regarding the timing and collection of the unpaid
balance of these loans, the Company, in 2002, recorded an allowance for doubtful
accounts on a majority of the outstanding balance.

6.    ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

     During 2001, the Company acquired the assets of three television stations
for total consideration of approximately $30.8 million of which $16.1 million
was paid in prior years. Additionally, the Company paid approximately $1.0
million to acquire the minority interest in a station acquired in 1998.

DIVESTITURES

     In May 2003, the Company completed the sale of the assets of its television
station KAPX, serving the Albuquerque, New Mexico market, for a cash purchase
price of $20.0 million resulting in a pre-tax gain of approximately $12.3
million.

     In April 2003, the Company completed the sale of the assets of its
television stations WMPX, serving the Portland-Auburn, Maine market, and WPXO,
serving the St. Croix, U.S. Virgin Islands market, for an aggregate cash
purchase price of $10.0 million resulting in a pre-tax gain of approximately
$3.1 million.

     In April 2003, the Company completed the sale of its limited partnership
interest in television station WWDP, serving the Boston, Massachusetts market,
for approximately $13.8 million resulting in a pre-tax gain of approximately
$9.9 million.

     In February 2003, the Company completed the sale of the assets of its
television station KPXF, serving the Fresno, California market, for a cash
purchase price of $35.0 million resulting in a pre-tax gain of approximately
$26.6 million.

     In October 2002, the Company completed the sale of its television station
WPXB, serving Merrimack, New Hampshire, to NBC. The Company received cash
proceeds of $26.0 million from the sale and realized a pre-tax gain of
approximately $24.5 million.

     During 2001, the Company sold interests in five stations for aggregate
consideration of approximately $31.9 million and realized pre-tax gains of
approximately $11.6 million.

7.   PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following as of December 31, (in
thousands):

<TABLE>
<CAPTION>
                                                                  2003           2002
                                                              ------------  ------------
<S>                                                           <C>           <C>
     Broadcasting towers and equipment.................       $    245,492  $    228,464
     Office furniture and equipment....................             19,031        19,464
     Buildings and leasehold improvements..............             16,963        15,065
     Land and improvements.............................                667           667
     Aircraft, vehicles and other......................              3,959         3,549
                                                              ------------  ------------
                                                                   286,112       267,209
     Accumulated depreciation and amortization.........           (165,271)     (140,148)
                                                              ------------  ------------
     Property and equipment, net.......................       $    120,841  $    127,061
                                                              ============  ============
</TABLE>

     Depreciation and amortization expense aggregated approximately
$34.1million, $33.3 million and $37.1 million for the years ended December 31,
2003, 2002 and 2001, respectively. In connection with restructuring activities
described in Note 4, the Company


                                      F-20
<PAGE>

identified certain leasehold improvements and office furniture and equipment
which would no longer be used in its operations upon exiting certain leased
properties. The Company prospectively shortened the estimated remaining useful
lives through the disposal date of these assets resulting in approximately $3.1
million of additional depreciation and amortization expense in 2001.

     As described in Note 11, the Company's senior credit facility is secured by
all assets of the Company, including property and equipment.

8.    INTANGIBLE ASSETS

     Intangible assets consist of the following as of December 31, (in
thousands):

<TABLE>
<CAPTION>
                                                          2003                        2002
                                               -------------------------    -------------------------
                                                  GROSS                     GROSS
                                                CARRYING     ACCUMULATED    CARRYING     ACCUMULATED
                                                 AMOUNT     AMORTIZATION     AMOUNT     AMORTIZATION
                                               ----------   -------------   ---------   -------------
<S>                                            <C>         <C>              <C>         <C>
Amortizable intangible assets:
  Cable and satellite distribution
     rights................................    $  128,810  $  (78,957)      $  129,379  $  (78,205)
  Other....................................         5,441      (4,480)           5,441      (4,263)
Indefinite lived intangible asset:
  FCC licenses.............................       843,140          --          847,374          --
                                               ----------  ----------       ----------  ----------
                                               $  977,391  $  (83,437)      $  982,194  $  (82,468)
                                               ==========  ==========       ==========  ==========
</TABLE>


     As discussed in Note 1, upon adoption of SFAS No. 142 on January 1, 2002,
the Company no longer amortizes its FCC license intangible assets. Amortization
expense related to intangible assets aggregated $8.9 million, $19.2 million and
$60.2 million for the years ended December 31, 2003, 2002 and 2001,
respectively.

     Estimated future amortization expense is as follows for the periods
indicated (in thousands):

                  2004...........................    $   10,049
                  2005...........................        10,057
                  2006...........................         9,878
                  2007...........................         9,635
                  2008...........................         7,123
                  Thereafter.....................         4,072
                                                     ----------
                                                     $   50,814
                                                     ==========

9.    PROGRAM RIGHTS

     Program rights consist of the following as of December 31, (in thousands):

                                                2003          2002
                                           ------------  ------------
Program rights..........................   $    371,146  $    319,843
Accumulated amortization................       (300,847)     (249,873)
                                           ------------  ------------
                                                 70,299        69,970
Less: current portion...................        (41,659)      (33,998)
                                           ------------  ------------
Program rights, net.....................   $     28,640  $     35,972
                                           ============  ============

     Program rights amortization expense amounted to $51.1 million, $78.0
million and $84.8 million for the years ended December 31, 2003, 2002 and 2001,
respectively.

     As of December 31, 2003, the Company's programming contracts require
collective payments by the Company of approximately $55.4 million as follows (in
thousands):

<TABLE>
<CAPTION>
                                         OBLIGATIONS FOR
                                             PROGRAM          PROGRAM RIGHTS
                                             RIGHTS             COMMITMENTS        TOTAL
                                         ---------------       ------------      ---------
<S>                                        <C>                 <C>               <C>
          2004.......................      $  35,382           $   12,118        $ 47,500
          2005.......................          6,810                   --           6,810
          2006.......................          1,092                   --           1,092
                                           ---------           ----------        --------
                                           $  43,284           $   12,118        $ 55,402
                                           =========           ==========        ========
</TABLE>


                                      F-21
<PAGE>

     In 2003, the Company recognized an adjustment of programming to net
realizable value totaling $1.1 million resulting from our decision to no longer
air an original game show production.

     Effective January 2003, the Company modified its programming schedule by
reducing the PAX TV programming hours primarily during the daytime period and
replacing such hours with long form paid programming. As a result of this
change, the Company no longer plans to air certain syndicated and original
programs. Therefore, the Company revised its estimate of future advertising
revenues to be generated related to these programs and recognized a charge of
approximately $38.4 million in the fourth quarter of 2002 related to these
programming assets. Additionally, as further described below, in the second
quarter of 2002 the Company recorded a $2.9 million accrued programming loss
related to programming commitments for the television series Touched By An Angel
("Touched").

     In 2001, the Company adjusted its estimate of the anticipated future usage
of Touched and certain other syndicated programs and the related advertising
revenues expected to be generated and recognized a charge of approximately $67.0
million related to the net realizable value of these programming assets and
related programming commitments.

     On August 1, 2002, the Company entered into agreements with a subsidiary of
CBS Broadcasting, Inc. ("CBS") and Crown Media United States, LLC ("Crown
Media") to sublicense the Company's "rights to broadcast Touched to Crown Media
for exclusive exhibition on the Hallmark Channel, commencing September 9, 2002.
Under the terms of the agreement with Crown Media, the Company is to receive
approximately $47.4 million from Crown Media, $38.6 million of which is to be
paid over a three-year period that commenced August 2002 and the remaining $8.8
million, for the 2002/2003 season, is to be paid over a three-year period that
commenced August 2003. In addition, the agreement with Crown Media provides that
Crown Media is obligated to sublicense from the Company future seasons of
Touched should CBS renew the series. As further described below, CBS did not
renew Touched for the 2003/2004 season.

     Under the terms of the Company's agreement with CBS, the Company remains
obligated to CBS for amounts due under its pre-existing license agreement, less
estimated programming cost savings of approximately $15 million. As of December
31, 2003 and 2002, the Company's liability to CBS totaled approximately $47.3
million and $45.7 million, respectively. The sublicense transaction resulted in
a gain of approximately $4 million, which was deferred and is being recorded
over the term of the Crown Media agreement (the deferred gain is included in
obligations to CBS in the accompanying consolidated balance sheets and amounted
to $2.3 and $3.8 million as of December 31, 2003 and 2002, respectively).

     The Company has a significant concentration of credit risk with respect to
the amounts due from Crown Media under the sublicense agreement. As of December
31, 2003, the maximum amount of loss due to credit risk that the Company would
sustain if Crown Media failed to perform under the agreement totaled
approximately $25.4 million, representing the present value of amounts due from
Crown Media. Under the terms of the sublicense agreement, the Company has the
right to terminate Crown Medias rights to broadcast Touched if Crown Media fails
to make timely payments under the agreement. Therefore, should Crown Media fail
to perform under the agreement, the Company could regain its exclusive rights to
broadcast Touched on PAX TV pursuant to its existing licensing agreement with
CBS.

     Under its agreement with CBS, the Company is required to license future
seasons of Touched if the series is renewed by CBS. Under its sublicense
agreement with Crown Media, Crown Media is obligated to sublicense such future
seasons from the Company. The Company's financial obligation to CBS for such
seasons exceed the sublicense fees to be received from Crown Media. In the
second quarter of 2002, upon the decision by CBS to renew Touched for the
2002/2003 season, the Company recorded a loss of approximately $10.7 million.
This amount was offset, in part, by a reduction in the Company's loss on the
2001/2002 season of approximately $7.8 million, resulting in a net accrued
programming loss of $2.9 million. The change in estimate for the 2001/2002
season was due to the sublicensing agreement with Crown Media and a lower number
of episodes produced than previously estimated. As of December 31, 2002, accrued
programming losses amounted to $10.7 million and $1.1 million was included in
accounts payable and accrued liabilities and $9.6 million was included in other
long-term liabilities in the accompanying consolidated balance sheets. In 2003,
CBS determined that it would not renew Touched for the 2003/2004 season and, as
a consequence, a loss accrual was not required.


                                      F-22
<PAGE>

     The Company's obligation to CBS for Touched will be partially funded
through the sublicense fees from Crown Media. As of December 31, 2003, the
Company's obligation to CBS and its receivable from Crown Media related to
Touched are as follows (in thousands):

<TABLE>
<CAPTION>
                                            OBLIGATIONS
                                                TO         AMOUNTS DUE FROM
                                                CBS           CROWN MEDIA        NET AMOUNT
                                           ------------    ----------------   -------------
<S>                                        <C>               <C>               <C>
        2004.............................  $   19,556        $   (15,800)      $     3,756
        2005.............................      18,513            (10,439)            8,074
        2006.............................       9,191             (1,711)            7,480
                                           ----------        -----------       -----------
                                               47,260            (27,950)           19,310
        Amount representing interest.....          --              2,527             2,527
                                           ----------        -----------       -----------
                                           $   47,260        $   (25,423)      $    21,837
                                           ==========        ===========       ===========
</TABLE>


     For the years ended December 31, 2003, 2002 and 2001, the Company
recognized into income a portion of the deferred gains related to the sublicense
transaction with Crown Media and certain other syndicated programs totaling
approximately $2.1 million, $1.5 million, $0.9 million, respectively. These
amounts are reflected in "gain on modification of program rights obligations" in
the accompanying consolidated statements of operations.

10.      ASSETS HELD FOR SALE

     The results of operations and the gain or (loss) on sale of assets held for
sale are included in the determination of the Company's operating income (loss)
from continuing operations in accordance with SFAS No. 144 since these assets do
not constitute a component of the Company under SFAS No. 144. The Company
generally maintains a geographic presence in the markets where assets have been
sold by airing the PAX TV network through cable distribution agreements or the
Company's other owned or operated stations in the designated market areas.

     Assets held for sale consist of the following as of December 31, (in
thousands):



                                                2003            2002
                                             ---------       -----------
        Intangible assets, net........       $   3,499       $   17,281
        Property and equipment, net...           3,802           16,065
        Other assets                                --              236
                                             ---------       ----------
                                             $   7,301       $   33,582
                                             =========       ==========

     In September 2003, an agreement, which the Company entered into in June
2003, to sell the assets of its television station KPXJ, serving the Shreveport,
Louisiana market, was terminated. At the same time, the Company entered into an
agreement with a new purchaser to sell the assets of its Shreveport television
station for a cash purchase price of $10.0 million. The sale, subject to receipt
of regulatory approvals, is expected to close in the first half of 2004.

     Included in assets held for sale are certain broadcast towers with a
carrying value of $2.7 million for which the Company is in the process of
transferring title and assigning the leases to the buyer.

11.   SENIOR SUBORDINATED NOTES AND BANK FINANCING

    Effective January 1, 2003, the Company adopted SFAS No. 145 "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". Among other matters, SFAS No. 145 rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt" which
required gains and losses from extinguishments of debt to be classified as
extraordinary items, net of related income taxes. As a result, debt
extinguishments used as part of an entity's risk management strategy no longer
meet the criteria for classification as extraordinary items. In connection with
the Company's July 2001 and January 2002 refinancings, the Company recognized
losses due to early extinguishment of debt amounting to $9.9 million and $17.6
million, respectively, resulting primarily from redemption premiums and the
write-off of unamortized debt costs associated with each refinancing. This loss
was classified as an extraordinary item in the Company's previously issued
financial statements. Because of the adoption of SFAS No. 145 in 2003, the
Company has reclassified this loss to other income (expense) in the accompanying
consolidated statements of operations.

     Senior subordinated notes and bank financing consists of the following as
of December 31, (in thousands):

<TABLE>
<CAPTION>

                                                                                              2003           2002
                                                                                         -------------  -------------
<S>                                                                                      <C>            <C>
Senior Subordinated Discount Notes, yielding 12 1/4%, due 2009......................     $     496,263  $     496,263
10 3/4% Senior Subordinated Notes, due 2008.........................................           200,000        200,000
Senior Credit Facility, secured by all assets of the Company(1):
               o $25.0 million revolving line of credit, maturing
                  June 30, 2006, interest at LIBOR plus 3.25% or
                  Base Rate (as defined) plus 2.25% at the
                  Company's option (4.52% and 5.24% at December 31,
                  2003 and 2002, respectively)......................................             8,000         25,000
               o  $50.0 million Term A loan, maturing December 31,
</TABLE>



                                     F-23

<PAGE>


<TABLE>
<S>                                                                                      <C>            <C>
                  2005, interest at LIBOR plus 3.25% or Base Rate
                  (as defined) plus 2.25% at the Company's option
                  (4.85% and 4.97% at December 31, 2003 and 2002,
                  respectively), quarterly principal payments
                  that commenced in September 2003..................................            49,750         48,000
                o $285.0 million Term B loan, maturing June 30, 2006,
                  interest at LIBOR plus 3.25% or Base Rate (as
                  defined) plus 2.25% at the Company's option
                  (4.43% and 5.40% at December 31, 2003 and 2002,
                  respectively), quarterly principal payments
                  that commenced in September 2001..................................           277,875        280,725
Other...............................................................................               505            558
                                                                                         -------------  -------------
                                                                                             1,032,393      1,050,546
Less: discount on Senior Subordinated Discount Notes................................          (106,785)      (150,445)
Less: current portion...............................................................               (61)        (3,144)
                                                                                         -------------  -------------
                                                                                         $     925,547  $     896,957
                                                                                         =============  =============
</TABLE>

(1)  As discussed in Note 20, on January 12, 2004, the Company completed a
     private offering of $365.0 million of senior secured floating rate notes
     the proceeds of which were used to repay in full the outstanding
     indebtedness under the $360.0 million senior credit facility.

     In January 2002, the Company completed an offering of senior subordinated
discount notes due in 2009 (the 12 1/4% Notes). Gross proceeds of the offering
totaled approximately $308.3 million and were used to refinance the Company's
12 1/2% exchange debentures due 2006 (the 12 1/2% exchange debentures were
issued in exchange for the outstanding shares of the Company's 12 1/2%
exchangeable preferred stock on January 14, 2002) and to pay costs related to
the offering. The 12 1/4% Notes were sold at a discounted price of 62.132% of
the principal amount at maturity which represents a yield to maturity of
12 1/4%. Cash interest on the 12 1/4% Notes will be payable semi-annually
beginning on July 15, 2006. The 12 1/4% Notes are guaranteed by the Company's
subsidiaries. The Company recognized a loss due to the early extinguishment of
debt totaling $17.6 million in the first quarter of 2002 resulting primarily
from the redemption premium and the write-off of unamortized debt costs
associated with the repayment of the 12 1/2% exchange debentures.

     The 12 1/4% Notes are redeemable at the Company's option on or after
January 15, 2006 at the redemption prices set forth below (expressed as a
percentage of the face value) plus accrued and unpaid interest, if any, to the
date of redemption.

          Twelve Month Period
         Beginning January 15,
     ------------------------------
            2006...............................     106.125%
            2007...............................     103.063%
            2008 and thereafter................     100.000%

     On July 12, 2001, the Company completed a $560.0 million financing
consisting of a $360.0 million senior credit facility (the "Senior Credit
Facility") and $200.0 million of 10 3/4% Senior Subordinated Notes due 2008 (the
"10 3/4% Notes"). Proceeds from the initial funding under the Senior Credit
Facility and the 10 3/4% Notes were used to repay all of the Company's
indebtedness and obligations under its previously existing credit facilities
which were scheduled to mature in June 2002, to redeem its 11 5/8% Senior
Subordinated Notes and its 12% redeemable preferred stock, as well as to pay
redemption premiums, fees and expenses in connection with the refinancing. In
2001, the Company recognized a loss related to the early extinguishment of debt
totaling approximately $9.9 million resulting primarily from the write-off of
unamortized debt costs related to the refinanced indebtedness and the
redemption premium and costs associated with the repayment of the 11 5/8%
Senior Subordinated Notes.

     The 10 3/4% Notes are due in 2008 and interest is payable on January 15 and
July 15 of each year, commencing on January 15, 2002. The 10 3/4% Notes are
redeemable at the Company's option on or after July 15, 2005 at the redemption
prices set forth below (expressed as a percentage of the face value) plus
accrued interest to the date of redemption:

         Twelve Month Period
         Beginning July 15,
     --------------------------
            2005......................     105.375%
            2006......................     102.688%
            2007......................     100.000%


                                      F-24

<PAGE>

The 12 1/4% Notes and 10 3/4% Notes contain certain covenants, which, among
other things, restrict additional indebtedness, payment of dividends, stock
issuance of subsidiaries, certain investments and transfers or sales of assets,
and provide for the repurchase of the notes in the event of a change in control
of the Company. The 12 1/4% Notes and 10 3/4% Notes are general unsecured
obligations of the Company subordinate in right of payment to all existing and
future senior indebtedness of the Company and senior in right to all future
subordinated indebtedness of the Company.

     The Senior Credit Facility that was refinanced with the proceeds from the
January 2004 offering discussed in Note 20, consisted of a $25.0 million
revolving credit facility maturing June 2006, a $50.0 million Term A facility
maturing December 2005 and a $285.0 million Term B facility maturing June 2006.
The interest rate under the Senior Credit Facility, as amended, was LIBOR plus
3.25% or Base Rate (as defined) plus 2.25%, at the Company's option. In
September 2001, the Company entered into an interest rate swap in the notional
amount of $144.0 million to hedge the impact of interest rate changes on a
portion of the Company's variable rate indebtedness. The interest rate swap
matured on October 15, 2003 and was not renewed. The fixed rate under the swap
was 3.64% (6.89% including the spread over LIBOR under the senior credit
facility) and variable rates were indexed to LIBOR.

     The Company amended and restated the Senior Credit Facility on May 5, 2003
to consolidate previous amendments and allow for the issuance of letters of
credit, subject to availability, under a $25.0 million revolving credit
facility. At December 31, 2003 and 2002, there was $8.0 million and $25.0
million, respectively, in borrowings outstanding under the revolving credit
facility. At December 31, 2003, there was $16.6 million of outstanding letters
of credit (there were no outstanding letters of credit as of December 31, 2002).
The Company paid a fee of $0.1 million in connection with the May 5, 2003
amendment and restatement. On September 19, 2003, the Company further amended
the Senior Credit Facility to reduce its trailing twelve month minimum net
revenue and EBITDA covenants, eliminate a revenue fee connected with a waiver
obtained in March 2003 (for which the waiver provisions were subsequently
incorporated into the May 5, 2003 amendment and restatement) and eliminate the
requirement to comply with certain other financial covenants as of March 31,
2005. The Company paid a fee of $1.0 million in connection with the September
19, 2003 amendment.

     As amended, the Company's Senior Credit Facility contained various
financial covenants and restricted the ability of the Company and any of its
subsidiaries to incur additional indebtedness, dispose of assets, pay dividends,
repurchase or redeem capital stock and indebtedness, create liens, make capital
expenditures, make certain investments or acquisitions and enter into
transactions with affiliates and otherwise restricting its activities. The
Senior Credit Facility contained the following financial covenants: (1)
twelve-month trailing minimum net revenue and minimum EBITDA (as defined under
the Senior Credit Facility) for each of the fiscal quarters ended June 30, 2001
through March 31, 2005, (2) maximum ratio of total senior debt to EBITDA,
maximum ratio of total debt to EBITDA, minimum permitted interest coverage ratio
and minimum permitted fixed charge coverage ratio, each beginning for each of
the fiscal quarters ending on or after June 30, 2005, (3) maximum annual capital
expenditures for 2001 through 2006, and (4) maximum annual programming payments
for 2002 through 2006. The Company's amended twelve-month minimum net revenue
and EBITDA covenants were $250 million and $50 million, respectively, for each
of the next four quarters. At December 31, 2003 and 2002, the Company was in
compliance with its amended covenants.

     Aggregate maturities of senior subordinated notes and bank financing at
December 31, 2003, after giving effect to the January 2004 refinancing described
in Note 20, are as follows (in thousands):

          2004....................................    $          61
          2005....................................               65
          2006....................................               71
          2007....................................               79
          2008....................................          200,086
          Thereafter..............................          832,031
                                                      $   1,032,393

     In connection with the Company's senior subordinated notes and bank
financing, the Company has incurred debt issuance costs totaling approximately
$26.3 million which are amortized to interest expense over the term of the
indebtedness using the effective interest method. Included in other assets as of
December 31, 2003 and 2002, are unamortized debt issue costs amounting to $18.6
million and $19.0 million, respectively. As described in Note 20, the January
2004 refinancing resulted in the expensing of debt issue costs in the amount of
$6.3 million in the first quarter of 2004.


                                      F-25

<PAGE>


12.      INCOME TAXES

    The  provision  for  federal  and state  income  taxes  for the years  ended
December 31, 2003, 2002 and 2001 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                    2003           2002          2001
                                                    ----           ----          ----
                                                                (RESTATED)    (RESTATED)
<S>                                                <C>          <C>           <C>
 Current:
   Federal...................................      $     --     $    (542)    $    --
   State.....................................           119          (120)       (120)
                                                   --------     ---------     -------
                                                        119          (662)       (120)
                                                   --------     ---------     -------
 Deferred:
   Federal...................................        14,513        50,723      67,438
   State.....................................         1,244         4,348       5,781
   Change in valuation allowance.............       (22,427)     (223,682)    (73,219)
                                                   --------     ---------     -------
                                                     (6,670)     (168,611)         --
                                                   --------     ---------     -------
           Total provision for income taxes..      $ (6,551)    $(169,273)   $   (120)
                                                   ========     =========     =======
</TABLE>


    Deferred tax assets and deferred tax liabilities reflect the tax effect of
differences between financial statement carrying amounts and tax bases of assets
and liabilities as follows as of December 31, (in thousands):

                                                          2003           2002
                                                          ----           ----
DEFERRED TAX ASSETS:                                                  (RESTATED)
  Net operating loss carryforwards.................     $ 314,692     $ 295,876
  Programming rights...............................        18,369        30,805
  Deferred compensation............................        20,687        18,844
  Deferred interest expense........................        26,278        12,138
  Other............................................           593         1,415
                                                         --------       --------
                                                          380,619       359,078
  Deferred tax asset valuation allowance...........      (370,537)     (348,110)
                                                         --------      --------
    Net deferred tax assets........................        10,082        10,968

Deferred tax liabilities:
  Basis difference on FCC licenses
  no longer amortized for financial
  reporting purposes under SFAS 142................      (175,281)     (168,611)
  Basis difference on other fixed assets and
  certain other intangible assets..................       (10,082)      (10,968)
                                                        ---------     ---------
     Net deferred tax liability....................     $(175,281)    $(168,611)
                                                        =========     =========

     The reconciliation of the income tax benefit computed at the U.S. federal
statutory tax rate, to the provision for income taxes is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                               2003         2002           2001
                                                               ----         ----           ----
                                                                          (RESTATED)    (RESTATED)
<S>                                                           <C>          <C>           <C>
Tax benefit at U.S. federal statutory tax rate.........       $ 14,743     $  58,651     $  71,898
State income tax benefit, net of federal tax...........          1,264         5,024         6,011
Non-deductible preferred stock redemption premium......             --        (6,647)          --
Disqualified original issue discount...................         (2,451)       (2,104)          --
Non-deductible items...................................           (247)         (515)       (1,773)
Valuation allowance....................................        (22,427)     (223,682)      (73,219)
Tax benefit of disposed FCC license intangible........           3,078            --            --
Other..................................................           (511)           --        (3,037)
                                                              --------     ---------     ---------
Provision for income taxes.............................       $ (6,551)    $(169,273)    $    (120)
                                                              ========     =========     =========

</TABLE>

    At December 31, 2003 and 2002, the Company has recorded a valuation
allowance for its deferred tax assets net of those deferred tax liabilities
which are expected to reverse in determinate future periods, as it believes it
is more likely than not that it will be unable


                                      F-26

<PAGE>

to utilize its remaining net deferred tax assets. As previously described in
Note 1, following the adoption of SFAS No. 142 on January 1, 2002, the Company
no longer amortizes its FCC license intangible assets for financial reporting
purposes. Therefore, the reversal of deferred tax liabilities related to FCC
license intangible assets is no longer considered a source of future taxable
income in assessing the realization of deferred tax assets. As a result of this
accounting change, the Company was required to record an increase in its
deferred tax asset valuation allowance totaling approximately $173.0 million
during the year ended December 31, 2002.

    The Company structured the disposition of its radio division in 1997 and its
acquisition of television stations during the period following this disposition
in a manner that the Company believed would qualify these transactions as a
"like kind" exchange under Section 1031 of the Internal Revenue Code and would
permit the Company to defer recognizing for income tax purposes up to
approximately $333 million of gain. The IRS has examined the Company's 1997 tax
return and has issued the Company a "30-day letter" proposing to disallow all of
the Company's gain deferral. The Company filed a protest to this determination
with the IRS appeals division, but cannot predict the outcome of this matter at
this time, and may not prevail. In addition, the "30-day letter" offered the
Company an alternative position that, in the event the IRS is unsuccessful in
disallowing all of the gain deferral, approximately $62 million of the $333
million gain deferral will be disallowed. The Company filed a protest to this
alternative determination as well. The Company may not prevail with respect to
this alternative determination. Should the IRS successfully challenge the
Company's position and disallow all or part of its gain deferral, because the
Company had net operating losses in the years subsequent to 1997 in excess of
the amount of the deferred gain, the Company would not be liable for any tax
deficiency, but could be liable for interest on the tax liability for the period
prior to the carryback of its net operating losses. The Company has estimated
the amount of interest for which it could be held liable as of December 31,
2003, to be approximately $16.6 million should the IRS succeed in disallowing
all of the deferred gain. If the IRS were successful in disallowing only part of
the gain under its alternative position, the Company estimates it would be
liable for only a nominal amount of interest.

    The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $828 million at
December 31, 2003, expiring through 2023. A portion of the net operating losses,
amounting to approximately $10.0 million, are limited to annual utilization.
Additionally, further limitations on the utilization of the Company's net
operating tax loss carryforwards could result in the event of certain changes in
the Company's ownership.

13.      STOCK INCENTIVE PLANS

    The Company has established various stock incentive plans to provide
incentives to directors, officers, employees and others who perform services for
the Company through awards of options and shares of restricted stock. Awards
granted under the plans are at the discretion of the Company's Compensation
Committee and may be in the form of either incentive or nonqualified stock
options or awards of restricted stock. Options granted under the plans generally
vest over a three to five year period and expire ten years after the date of
grant. At December 31, 2003, 3,488,774 shares of Class A common stock were
available for additional awards under the plans.

    In October 2003, the Company granted 3,598,750 options under the Company's
1998 Stock Incentive Plan, as amended, to purchase one share of the Company's
Class A common stock at an exercise price of $0.01 per share to certain
employees and directors. The options provided for a one business day exercise
period. All holders of the options exercised their options and received Class A
common stock subject to vesting restrictions (restricted stock award). The
restricted stock awards included retention grants totaling 2,278,000 shares
which will vest in their entirety at the end of a five year period. Of the
remaining restricted stock awards, 1,000,750 will vest ratably over a three year
period and 320,000 will vest ratably over a five year period. The award resulted
in non-cash stock based compensation expense of approximately $18.3 million,
which will be recognized on a straight-line basis over the vesting period of the
awards. For the year ended December 31, 2003, the Company recognized
approximately $1.5 million in stock based compensation expense in connection
with these grants. Approximately $5.7 million will be recognized in 2004; and
the remaining $11.1 million will be recognized between 2005 and 2008. The
restricted stock awards will vest as follows:


                                      F-27

<PAGE>


                  RESTRICTED
   YEAR ENDED    STOCK AWARDS
  DECEMBER 31,      VESTING
  ------------   ------------
  2004.........       397,584
  2005.........       397,583
  2006.........       397,583
  2007.........        64,000
  2008.........     2,342,000
                    ---------
                    3,598,750
                    =========

     In January 2003, the Company consummated a stock option exchange offer
under which the Company granted to holders who tendered their eligible options
in the exchange offer new options under the Company's 1998 Stock Incentive Plan,
as amended, to purchase one share of the Company's Class A common stock for each
two shares of Class A common stock issuable upon the exercise of tendered
options, at an exercise price of $0.01 per share. Because the terms of the new
options provided for a one business day exercise period, all holders who
tendered their eligible options in the exchange offer exercised their new
options promptly after the issuance of those new options. Approximately 5.5
million options issued under the Company's stock option plans and 1.8 million
non qualified options issued in addition to the options granted under its stock
option plans were tendered in the exchange offer and approximately 2.6 million
new shares of Class A common stock were issued upon exercise of the new options,
net of approximately 1.0 million shares of Class A common stock withheld, in
accordance with the provisions of the 1998 Stock Incentive Plan, at the holders'
elections to cover withholding taxes and the option exercise price totaling
approximately $2.4 million. The stock option exchange resulted in a non-cash
stock-based compensation expense of approximately $8.6 million, of which
approximately $8.5 million related to vested and unvested shares issued upon
exercise of the new options was recognized in the year ended December 31, 2003
and the remaining $0.1 million will be recognized on a straight-line basis over
the remaining vesting period of the modified awards. In addition, the remaining
deferred stock compensation expense associated with the original stock option
awards totaling approximately $2.5 million at December 31, 2002 associated with
tendered options is being recognized on a straight-line basis over the remaining
vesting period of the modified awards ($2.3 million recognized in the year ended
December 31, 2003).

     During 1999, the Compensation Committee of the Board of Directors reduced
the per share exercise price of 840,000 unvested stock options held by the
Company's former CEO to $.01 and 360,000 vested stock options held by the
Company's former CEO to $1.00. The Company recognized stock based compensation
of approximately $0.6 million and $2.3 million for the years ended December 31,
2002 and 2001, related to these options.

    A summary of the activity in the Company stock option plans is as follows
for the years ended December 31,:

<TABLE>
<CAPTION>
                                                              2003                      2002                      2001
                                                     ----------------------    ---------------------     ----------------------
                                                                   WEIGHTED                  WEIGHTED                  WEIGHTED
                                                                   AVERAGE                   AVERAGE                   AVERAGE
                                                     NUMBER OF     EXERCISE    NUMBER OF     EXERCISE    NUMBER OF     EXERCISE
                                                      OPTIONS        PRICE      OPTIONS        PRICE      OPTIONS        PRICE
                                                     ---------     --------    ---------     --------    ---------     --------
<S>                                                 <C>             <C>        <C>            <C>        <C>            <C>
Outstanding, beginning of year...................    9,103,336      $ 5.88     9,452,436      $ 5.91     7,774,286      $ 5.59
Granted..........................................    7,529,409         .04        80,500        7.25     2,303,750        7.25
Forfeited........................................   (6,410,350)       7.25      (240,950)       7.25      (117,575)       8.23
Exercised........................................   (7,615,709)        .04      (188,650)       6.37      (508,025)       6.39
                                                    ----------                 ---------                 ---------
Outstanding, end of year.........................    2,606,686        2.70     9,103,336        5.88     9,452,436        5.91
                                                    ==========                 =========                 =========
Weighted average fair value of options granted
  during the year................................                     3.72                      7.66                      8.22
</TABLE>

    The majority of the Company's option grants have been at exercise prices
which have historically been below the quoted market price of the underlying
common stock at the date of grant.

    The following table summarizes information about employee and director stock
options outstanding and exercisable at December 31, 2003:


                                      F-28

<PAGE>


                                 WEIGHTED
                     NUMBER       AVERAGE        NUMBER
                   OUTSTANDING   REMAINING    EXERCISABLE AT
                  DECEMBER 31,  CONTRACTUAL    DECEMBER 31,
 EXERCISE PRICES      2003         LIFE            2003
 ---------------  ------------  -----------   --------------
  $0.01........       740,000       4.0           740,000
  $1.00........       360,000       4.0           360,000
  $2.11........        12,500       9.0               625
  $2.60........        70,000       9.0                --
  $3.42........     1,011,511       1.0         1,011,511
  $7.25........       412,675       5.4           412,675
                    ---------                   ---------
                    2,606,686                   2,524,811
                    =========                   =========

    In addition to the options granted under its stock incentive plans, the
Company has granted nonqualified options to purchase shares of its Class A
common stock to members of senior management and others. Options outstanding
under these grants amounted to 0.5 million and 2.3 million at December 31, 2003
and 2002, respectively, with weighted average exercise prices of $3.04 and
$8.62, respectively, all of which options are exercisable and substantially all
of which expire in August 2006. During 2002, the Company's Chairman and CEO
forfeited 1.0 million options previously granted. The Company recognized
stock-based compensation related to these grants of approximately $(0.4) million
and $0.9 million for the years ended December 31, 2002 and 2001, respectively.
No expense was recognized in the year ended December 31, 2003 as no such shares
were granted.

     A summary of the activity in the Company's nonqualified options is as
follows for the years ended December 31,:

<TABLE>
<CAPTION>
                                                              2003                      2002                      2001
                                                     ----------------------    ---------------------     ----------------------
                                                                   WEIGHTED                  WEIGHTED                  WEIGHTED
                                                                   AVERAGE                   AVERAGE                   AVERAGE
                                                     NUMBER OF     EXERCISE    NUMBER OF     EXERCISE    NUMBER OF     EXERCISE
                                                      OPTIONS        PRICE      OPTIONS        PRICE      OPTIONS        PRICE
                                                     ---------     --------    ---------     --------    ---------     --------
<S>                                                 <C>             <C>        <C>            <C>        <C>            <C>
Outstanding, beginning of year...................   2,322,500       $ 8.62      3,200,000     $10.23     3,200,000      $10.28
Granted..........................................          --           --        122,500       7.25            --          --
Forfeited........................................  (1,800,000)       10.24     (1,000,000)     10.35            --          --
Exercised........................................          --           --             --         --            --          --
                                                   ----------                  ----------                ---------
Outstanding, end of year.........................     522,500         3.04      2,322,500       8.62     3,200,000       10.23
                                                   ----------                  ----------                ---------
Weighted average fair value of options granted
during the year..................................                       --                      6.70
</TABLE>


    The following table summarizes information about nonqualified options
outstanding and exercisable at December 31, 2003:

                                   WEIGHTED
                                    AVERAGE
                                   REMAINING
                      NUMBER      CONTRACTUAL        NUMBER
 EXERCISE PRICES    OUTSTANDING      LIFE          EXERCISABLE
 ---------------   ------------   -----------    --------------
  $2.85........       500,000         5.7            500,000
  $7.25........        22,500         8.1             22,500
                      -------                        -------
                      522,500                        522,500
                      =======                        =======


                                      F-29

<PAGE>


14.      MANDATORILY REDEEMABLE PREFERRED STOCK

    In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 requires liability
classification for mandatorily redeemable equity instruments not convertible
into common stock such as the Company's 14 1/4% Junior Exchangeable Preferred
Stock. SFAS No. 150 is effective immediately with respect to instruments entered
into or modified after May 31, 2003 and as to all other instruments that exist
as of the beginning of the first interim financial reporting period beginning
after June 15, 2003. The Company adopted SFAS No. 150 effective July 1, 2003.
Upon adoption, the Company recorded a deferred asset for the unamortized
issuance costs and recorded a liability for the mandatorily redeemable preferred
stock balance related to its 14 1/4% Junior Exchangeable Preferred Stock. In
addition, the amortization of the issuance costs and the dividends related to
the 14 1/4% Junior Exchangeable Preferred Stock are being recorded as interest
expense beginning July 1, 2003 versus the recording of these costs as dividends
and accretion on redeemable preferred stock in prior periods. Restatement of
prior periods is not permitted upon adoption of SFAS No. 150. The Company's
9 3/4% Series A Convertible Preferred Stock and 8% Series B Convertible
Exchangeable Preferred Stock are not affected by the provisions of SFAS No. 150
because of their equity conversion features.

    The following represents a summary of the changes in the Company's
mandatorily redeemable preferred stock for each of the three years in the period
ended December 31, 2003 and the aggregate liquidation preference and accumulated
dividends as of December 31, 2003 (in thousands):


<TABLE>
<CAPTION>
                                                JUNIOR
                                             EXCHANGEABLE                  SERIES B
                                               PREFERRED    CONVERTIBLE   CONVERTIBLE   EXCHANGEABLE     JUNIOR
                                                 STOCK       PREFERRED     PREFERRED      PREFERRED     PREFERRED
                                                14 1/4%     STOCK 9 3/4%    STOCK 8%    STOCK 12 1/2%   STOCK 12%      TOTAL
                                             ------------   ------------  -----------   -------------   ---------      -----
             MANDATORILY REDEEMABLE
              AND CONVERTIBLE PREFERRED
              STOCK:
<S>                                           <C>             <C>          <C>            <C>            <C>         <C>
             Balance at December 31, 2000     $ 270,854       $ 92,945     $412,857       $ 246,878      $ 56,855    $1,080,389
             Accretion...................         1,177            492       25,005             679         2,247        29,600
             Accrual of cumulative
               Dividends.................        38,037          9,703       33,200          32,333         3,783       117,056
             Cash dividends..............            --             --           --              --        (3,783)       (3,783)
             Redemption..................            --             --           --              --       (59,102)      (59,102)
                                              ---------       --------     --------       ---------      --------    ----------
             Balance at December 31, 2001       310,068        103,140      471,062         279,890            --     1,164,160
             Accretion...................         1,185            496       20,021              24            --        21,726
             Accrual of cumulative
               Dividends.................        43,245         10,684       33,200           1,244            --        88,373
             Exchange into debentures
               (see Note 11).............            --             --           --        (281,158)           --      (281,158)
                                              ---------       --------     --------       ---------      --------    ----------
             Balance at December 31, 2002       354,498        114,320      524,283       $      --            --       993,101
             Accretion...................           596            499           --              --            --         1,095
             Accrual of cumulative
               Dividends.................        24,044         11,765       33,200              --            --        69,009
             Reclassification as a
                liability on July 1,
                2003.....................      (379,138)            --           --              --            --      (379,138)
                                              ---------       --------     --------       ---------      --------    ----------

             Balance at December 31, 2003     $      --       $126,584     $557,483       $      --      $     --    $  684,067
                                              =========       ========     ========       =========      ========    ==========

             MANDATORILY REDEEMABLE
                PREFERRED STOCK:
             Balance at July 1, 2003.....       379,138
             Reclassification of
               unamortized issuance costs
                on July 1, 2003..........         4,062
             Accrual of cumulative
               dividends from July 1,
               2003 through December 31,
               2003......................        27,539
                                              ---------
             Balance at December 31, 2003     $ 410,739
                                              =========
             Aggregate liquidation
               preference and accumulated
               dividends at December 31,
               2003......................     $ 410,739       $128,104     $557,483      $       --            --    $1,096,326
                                              =========       ========     ========       =========      ========    ==========
</TABLE>

                                      F-30

<PAGE>


JUNIOR PREFERRED STOCK 12%

    In July 2001, the Company redeemed all 33,000 shares issued and outstanding
of its $0.001 par value Junior Preferred Stock (the "Junior Preferred Stock").
Prior to redemption, the Company paid cash dividends of approximately $3.8
million in the year ended December 31, 2001.

EXCHANGEABLE PREFERRED STOCK 12 1/2%

     As discussed in Note 11, in January 2002 the Company exchanged all issued
and outstanding shares of Exchangeable Preferred Stock 12 1/2% in the amount of
$281.2 million, including accumulated but unpaid dividends, into 12 1/2%
Exchange Debentures. The 12 1/2% Exchange Debentures were then redeemed with
proceeds from the issuance of the 12 1/4% Notes.

    During 2001 the Company paid dividends of approximately $31.7 million by the
issuance of additional shares of Exchangeable Preferred Stock.

JUNIOR EXCHANGEABLE PREFERRED STOCK 14 1/4%

    During 1998, the Company issued 20,000 shares of Cumulative Junior
Exchangeable Preferred Stock (the "Junior Exchangeable Preferred Stock") with an
aggregate $200 million liquidation preference for gross proceeds of an
equivalent amount. At December 31, 2003 and 2002, the Company had authorized
72,000 shares of $0.001 par value Junior Exchangeable Preferred Stock of which
40,355 and 35,330 shares were issued and outstanding, respectively. Holders of
the Junior Exchangeable Preferred Stock were initially entitled to cumulative
dividends at an annual rate of 13 1/4% of the liquidation preference, payable
semi-annually in cash or additional shares beginning November 15, 1998 and
accumulating from the issue date. If dividends for any period ending after May
15, 2003 are paid in additional shares of Junior Exchangeable Preferred Stock,
the dividend rate will increase 1% for that dividend payment period. Because the
Company elected to continue to pay dividends in additional shares, the dividend
rate increased to 14 1/4% after May 15, 2003 in accordance with the terms of the
security.

    The Company is required to redeem all of the then outstanding Junior
Exchangeable Preferred Stock on November 15, 2006, at a price equal to the
aggregate liquidation preference thereof plus accumulated and unpaid dividends
to the date of redemption. The Junior Exchangeable Preferred Stock is redeemable
at the Company's option at any time on or after May 15, 2003, at the redemption
prices set forth below (expressed as a percentage of liquidation preference)
plus accumulated and unpaid dividends to the date of redemption:

      TWELVE MONTH
         PERIOD
    BEGINNING MAY 15,
    -----------------
    2003....................................    106.625%
    2004....................................    103.313%
    2005 and thereafter.....................    100.000%

    Upon a change of control, the Company is required to offer to purchase the
Junior Exchangeable Preferred Stock at a price equal to 101% of the liquidation
preference thereof plus accumulated and unpaid dividends. The Company may,
provided it is not contractually prohibited from doing so, exchange the
outstanding Junior Exchangeable Preferred Stock on any dividend payment date for
13 1/4% Exchange Debentures due 2006. The Exchange Debentures have redemption
features similar to those of the Junior Exchangeable Preferred Stock. For the
years ended December 31, 2003, 2002 and 2001, the Company paid dividends of
approximately $50.2 million, $42.5 million and $37.4 million, respectively, by
the issuance of additional shares of Junior Exchangeable Preferred Stock.
Accrued Junior Exchangeable Preferred Stock dividends aggregated approximately
$7.2 million and $5.9 million at December 31, 2003 and 2002, respectively.


                                      F-31

<PAGE>

CONVERTIBLE PREFERRED STOCK 9 3/4%

    During 1998, the Company issued 7,500 shares of Series A Convertible
Preferred Stock ("Convertible Preferred Stock") with an aggregate liquidation
preference of $75 million, and warrants to purchase 240,000 shares of Class A
common stock. Of the gross proceeds of $75 million, approximately $960,000 was
allocated to the value of the warrants, which were exercisable at a price of $16
per share through June 2003. In June 2003, the warrants to purchase 240,000
shares of Class A common stock expired unexercised.

    At December 31, 2003 and 2002, the Company had authorized 17,500 shares of
$0.001 par value Convertible Preferred Stock of which 12,810 and 11,634 shares
were issued and outstanding, respectively. Holders of the Convertible Preferred
Stock are entitled to receive cumulative dividends at an annual rate of 9 3/4%,
payable quarterly beginning September 30, 1998 and accumulating from the issue
date. The Company may pay dividends either in cash, in additional shares of
Convertible Preferred Stock, or (subject to an increased dividend rate) by the
issuance of shares of Class A common stock equal in value to the amount of such
dividends. For the years ended December 31, 2003, 2002 and 2001, the Company
paid dividends of approximately $11.8 million, $10.7 million and $9.7 million,
respectively, by the issuance of additional shares of Convertible Preferred
Stock. At December 31, 2003 and 2002, there were no accrued and unpaid dividends
on the Convertible Preferred Stock.

    The Company is required to redeem the Convertible Preferred Stock on
December 31, 2006, at a price equal to the aggregate liquidation preference
thereof plus accumulated and unpaid dividends to the date of redemption. The
Convertible Preferred Stock is redeemable at the Company's option at any time on
or after June 30, 2003, at the redemption prices set forth below (expressed as a
percentage of liquidation preference) plus accumulated and unpaid dividends to
the date of redemption:

               TWELVE MONTH PERIOD
               BEGINNING JUNE 30,
            -------------------------
              2003...................................     104.00%
              2004...................................     102.00%
              2005 and thereafter....................     100.00%

     Upon a change of control, the Company is required to offer to purchase the
Convertible Preferred Stock at a price equal to the liquidation preference
thereof plus accumulated and unpaid dividends. The Convertible Preferred Stock
contains restrictions, primarily based on the trading price of the common stock,
on the issuance of additional preferred stock ranking senior to the Convertible
Preferred Stock. Each share of Convertible Preferred Stock is convertible into
shares of Class A common stock at an initial conversion price of $16 per share.
If the Convertible Preferred Stock is called for redemption, the conversion
right will terminate at the close of business on the date fixed for redemption.
Holders of the Convertible Preferred Stock have voting rights on all matters
submitted for a vote to the Company's common stockholders and are entitled to
one vote for each share of Class A common stock into which their Convertible
Preferred Stock is convertible.

SERIES B CONVERTIBLE PREFERRED STOCK 8%

     Pursuant to the Investment Agreement, NBC acquired $415 million aggregate
liquidation preference of a new series of the Company's convertible exchangeable
preferred stock which accrues cumulative dividends from the Issue Date at an
annual rate of 8% and is convertible (subject to adjustment under the terms of
the Certificate of Designation relating to the Series B Convertible Preferred
Stock) into 31,896,032 shares of the Company's Class A common stock at an
initial conversion price of $13.01 per share, which increases at a rate equal to
the dividend rate ($17.48 per share at December 31, 2003). On September 15,
2004, the rate at which dividends accrue on the Series B preferred stock will be
adjusted to a market rate determined by a nationally recognized independent
investment banking firm chosen by the Company. At December 31, 2003 and 2002,
the Company had 41,500 shares of $0.001 par value Series B Convertible Preferred
Stock authorized, issued and outstanding.

     On November 13, 2003, the Company received notice from NBC that NBC has
exercised its right under its investment agreement with the Company to demand
that the Company redeem or arrange for a third party to acquire (the
"Redemption"), by payment in cash, all 41,500 outstanding shares of the
Company's Series B Convertible Exchangeable Preferred Stock held by NBC. The
aggregate redemption price payable in respect of the 41,500 preferred shares,
including accrued dividends thereon, was approximately $557.5 million and $524.3
million as of December 31, 2003 and 2002, respectively.

    The Company will have up to one year after November 13, 2003 to consummate
the Redemption. If at any time during the one year redemption period, the terms
of the Company's outstanding debt and preferred stock do not prohibit the
Redemption and the Company has sufficient funds on hand to consummate the
Redemption, the Company must consummate the Redemption at that time. NBC may not
exercise its Warrant A and Warrant B (which represent the right to purchase an
aggregate of 32,032,127 shares of the


                                      F-32

<PAGE>

Company's Class A common stock) or its right to purchase shares of Class B
common stock beneficially owned by Lowell W. Paxson, the Company's Chairman of
the Board and Chief Executive Officer, during the one year Redemption period. If
the Company does not effect the Redemption within one year after November 13,
2003, NBC will again be permitted to exercise Warrant A and Warrant B and its
right to acquire Mr. Paxson's Class B common stock, and generally will be
permitted to transfer, without restriction, any of the Company's securities
acquired by it, its right to acquire Mr. Paxson's Class B common stock, the
contractual rights described by the Investment Agreement and its other rights
under the related transaction agreements, provided that Warrant A, Warrant B and
the right to acquire Mr. Paxson's Class B common stock will expire, to the
extent unexercised, 30 days after any such transfer. If NBC transfers any of the
Company's securities or its right to acquire Mr. Paxson's Class B common stock,
the transferee will remain subject to the terms and conditions of such
securities, including those limitations on exercise described above.

     The Company's ability to effect any redemption is restricted by the terms
of the Company's outstanding debt and preferred stock. To effect the Redemption,
the Company would need not only to raise sufficient cash to fund payment of the
Redemption price, but also to obtain the consents of the holders of the
Company's outstanding debt and preferred stock or repay, redeem or refinance
these securities in a manner that obviated the need to obtain the consents of
the holders. Alternatively, the Company would need to identify a third party
willing to purchase NBC's Series B preferred stock directly from NBC or to enter
into a merger, acquisition or other transaction with the Company as a result of
which NBC's Series B preferred stock would be redeemed or acquired at the stated
redemption price. NBC also has the right to require that the Company redeem any
Series B preferred stock and Class A common stock issued upon conversion of the
Series B preferred stock then held by NBC upon the occurrence of various events
of default (a "Default Redemption"). If NBC exercises this right, the Company
will have up to 180 days to consummate the redemption. If at any time during the
180 day redemption period, the terms of the Company's outstanding debt and
preferred stock do not prohibit the redemption and the Company has sufficient
funds on hand to consummate the redemption, the Company must consummate the
redemption at that time. NBC may not exercise Warrant A, Warrant B or its right
to purchase shares of Class B common stock beneficially owned by Mr. Paxson
during the 180 day redemption period.

     Should the Company fail to effect a Default Redemption within 180 days
after NBC has exercised its right to require the Company to redeem its
securities, NBC will have 180 days within which to exercise Warrant A and
Warrant B and its right to acquire Mr. Paxsons Class B common stock, and
generally will be permitted to transfer, without restriction, any of the
Company's securities acquired by it, its right to acquire Mr. Paxsons Class B
common stock, the contractual rights provided by the NBC investment agreement,
and its other rights under the related transaction agreements, provided that
Warrant A, Warrant B and the right to acquire Mr. Paxsons Class B common stock
shall expire, to the extent unexercised, 30 days after any such transfer. If NBC
does not effect any of these transactions within the 180 day period, the Company
will have the right, for 30 days, to redeem NBC's securities. If the Company
does not effect a redemption during this period, NBC will have the right to
require the Company to effect, at the Company's option, either a public sale or
a liquidation of the Company and may participate as a bidder in any such
transaction. If the highest bid in any public sale of the Company would be
insufficient to pay NBC the redemption price of its securities, NBC will have a
right of first refusal to purchase the Company for the highest bid amount. NBC
will not be permitted to exercise Warrant A, Warrant B or its right to acquire
Mr. Paxsons Class B common stock during the public sale or liquidation process.

     The Company's ability to effect any redemption is restricted by the terms
of the Company's outstanding debt and preferred stock. Were NBC to exercise its
right to demand that the Company redeem its Series B preferred stock, in order
to be able to do so the Company would need not only to raise sufficient cash to
fund payment of the redemption price, but also to obtain the consents of the
holders of the Company's outstanding debt and preferred stock or repay, redeem
or refinance these securities in a manner that obviated the need to obtain the
consents of the holders. Alternatively, the Company would need to identify a
third party willing to purchase NBC's Series B preferred stock directly from NBC
or to enter into a merger, acquisition or other transaction with the Company as
a result of which NBC's Series B preferred stock would be redeemed or acquired
at the stated redemption price.

     Beginning on September 15, 2004, the Company has the right, at any time, to
redeem any or all of the Company's outstanding Series B preferred stock at a
redemption price per share equal to the higher of (i) the liquidation preference
of $10,000 per share plus accrued and unpaid dividends, and (ii) the product of
80% of the average of the closing sale prices of the Class A common stock for
the ten consecutive trading days ending on the trading day immediately preceding
the Company's notice to NBC exercising the optional redemption, and the number
of shares of Class A common stock into which a share of Series B preferred stock
is convertible (approximately 768.58 shares of Class A common stock as of
December 31, 2003). If the Company elects to redeem a portion of the Company's
outstanding Series B preferred stock, the Company is required to declare and
pay, in full, all of the accumulated and unpaid dividends on the Series B
preferred stock. As of December 31, 2003 and 2002, accumulated and unpaid
dividends on the Series B preferred stock aggregated approximately $142.5
million and $109.3 million, respectively.


                                      F-33

<PAGE>


    The Series B Convertible Preferred Stock is exchangeable, in whole or in
part, at the option of the holder, subject to the Company's debt and preferred
stock covenants limiting additional indebtedness but in any event not later than
January 1, 2007, into convertible debentures of the Company maturing on December
31, 2009 and ranking on a parity with the Company's other subordinated
indebtedness. Should NBC determine that the rules and regulations of the FCC
prohibit it from holding shares of Class A common stock, NBC may convert the
Series B Convertible Preferred Stock held by it into an equal number of shares
of non-voting common stock of the Company, which non-voting common stock shall
be immediately convertible into Class A common stock upon transfer by NBC.

    The Series B Convertible Preferred Stock is non-voting, except as otherwise
required by law and except in certain circumstances, including with respect to:

    o   amending certain rights of the holders of the Series B Convertible
        Preferred Stock; and

    o   issuing certain equity securities that rank on a parity with or senior
        to the Series B Covertible Preferred Stock.


REDEMPTION FEATURES OF PREFERRED STOCK

    The following table presents the redemption value of the three classes of
preferred stock outstanding at December 31, 2003 should the Company elect to
redeem the preferred stock in the indicated year, assuming no dividends are paid
in cash prior to redemption (in thousands):

<TABLE>
<CAPTION>
                                       JUNIOR EXCHANGEABLE     CONVERTIBLE PREFERRED    SERIES B CONVERTIBLE
                                         PREFERRED STOCK              STOCK               PREFERRED STOCK
                                           14 1/4%(1)               9 3/4%(2)                  8%(3)
                                       -------------------     ---------------------    --------------------
<C>                                          <C>                     <C>                      <C>
2004.............................            486,697                 143,880                  590,683
2005.............................            540,916                 155,324                  623,883
2006.............................            609,879                 171,029                  657,083
2007.............................                 --                      --                  690,283
2008.............................                 --                      --                  723,483
2009.............................                 --                      --                  748,383
</TABLE>

----------

(1) Mandatorily redeemable on November 15, 2006; redeemable by the Company on or
    after May 15, 2003.

(2) Mandatorily redeemable on December 31, 2006; redeemable by the Company on or
    after June 30, 2003.

(3) As further discussed above, on November 13, 2003, the Company received
    notice from NBC that NBC has exercised its right under its investment
    agreement with the Company to demand that the Company redeem or arrange for
    a third party to acquire, by payment in cash, all 41,500 outstanding shares
    of the Company's Series B Convertible Preferred Stock held by NBC.

COVENANTS UNDER PREFERRED STOCK TERMS

    The certificates of designation of the preferred stock contain certain
covenants which, among other things, restrict additional indebtedness, payment
of dividends, transactions with related parties, certain investments and
transfers or sales of assets.

15.      COMMON STOCK AND COMMON STOCK WARRANTS

     On May 1, 2000, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to increase the total number of
authorized shares of common stock from 197,500,000 shares to 327,500,000 shares,
the number of authorized shares of Class A common stock from 150,000,000 shares
to 215,000,000 shares and the number of authorized shares of Class C non-voting
common stock, par value $0.001 per share, from 12,500,000 shares to 77,500,000
shares. No shares of the Company's Class C common stock were issued or
outstanding at December 31, 2003 or 2002.

    Class A common stock and Class B common stock will vote as a single class on
all matters submitted to a vote of the stockholders, with each share of Class A
common stock entitled to one vote and each share of Class B common stock
entitled to ten votes; Class C common stock is non-voting. Each share of Class B
common stock is convertible, at the option of its holder, into one share of
Class A


                                      F-34

<PAGE>


common stock at any time. Under certain circumstances, Class C common stock may
be converted, at the option of the holder, into Class A common stock.

     In connection with the NBC transaction discussed elsewhere herein, NBC
acquired a warrant to purchase up to 13,065,507 shares of Class A Common stock
at an exercise price of $12.60 per share ("Warrant A") and a warrant to purchase
up to 18,966,620 shares of Class A Common Stock ("Warrant B") at an exercise
price equal to the average of the closing sale prices of the Class A Common
Stock for the 45 consecutive trading days ending on the trading day immediately
preceding the warrant exercise date (provided that such price shall not be more
than 17.5% higher or 17.5% lower than the six month trailing average closing
sale price). The Warrants are exercisable for ten years from the Issue Date,
subject to certain conditions and limitations.

    In connection with the Series A Convertible Preferred Stock sale in June
1998, the Company issued warrants to purchase 240,000 shares of Class A common
stock at an exercise price of $16. The warrants were valued at $960,000. In June
2003, the warrants to purchase 240,000 shares of Class A common stock expired
unexercised.

    In June 1998, the Company issued to an affiliate of a former member of its
Board of Directors five year warrants entitling the holder to purchase 155,500
shares of Class A common stock at an exercise price of $16.00 per share. In
March 2000, the Company reduced the exercise price of warrants held by the
affiliate from $16.00 per share to $12.60 per share resulting in stock-based
compensation expense of $139,000. In June 2003, the warrants to purchase 155,500
shares of Class A common stock expired unexercised.

16.      FAIR VALUE OF FINANCIAL INSTRUMENTS

    The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of December 31,
2003. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate such value:

    Cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses. The fair values approximate the carrying values due to their short
term nature.

    Investments in broadcast properties. The fair value of investments in
broadcast properties is estimated based on recent market sale prices for
comparable stations and/or markets. The fair value approximates the carrying
value.

    Long-term debt. The fair value of the Company's long-term debt is estimated
based on current market rates and instruments with the same risk and maturities.
The fair value of the Company's borrowings under the Senior Credit Facility
approximates its carrying value. The fair market value of the Company's 10 3/4%
Notes and 12 1/4% Notes are estimated based on year end quoted market prices for
such securities. At December 31, 2003, the estimated fair value of the Company's
10 3/4% Notes and 12 1/4% Notes were approximately $219.0 million and $426.8
million, respectively.

    Mandatorily redeemable securities. The fair value of the Company's
mandatorily redeemable preferred stock is estimated based on quoted market
prices plus accumulated but unpaid dividends, except for the Series B
Convertible Preferred Stock, which is estimated at the December 31, 2003
aggregate liquidation preference plus accumulated dividends as no quoted market
prices are available for these securities. The estimated fair value of the
Company's mandatorily redeemable preferred stock is as follows (in thousands):

Junior Exchangeable Preferred 14 1/4% ..........................   $   379,934
Convertible Preferred 9 3/4% ...................................       103,764
Series B Convertible Preferred 8%...............................       557,483
                                                                   -----------
                                                                   $ 1,041,181
                                                                   ===========

17.      COMMITMENTS AND CONTINGENCIES

LEASES

                                      F-35
<PAGE>

    Future minimum annual payments under non-cancelable operating leases for
broadcasting facilities and equipment as of December 31, 2003 are as follows (in
thousands):

2004.....................................        $ 15,679
2005.....................................          15,602
2006.....................................          15,332
2007.....................................          14,884
2008.....................................          13,676
Thereafter...............................         111,931
                                                 --------
                                                 $187,104
                                                 ========

    The Company incurred total operating expenses of approximately $18.8
million, $17.9 million and $14.9 million for the years ended December 31, 2003
2002 and 2001, respectively, under these leases.

    As of December 31, 2003 the Company is obligated under employment agreements
with its senior management to make payments totaling approximately $2.4 million
in 2004 and $1.5 million in each of 2005, 2006 and 2007.

    In December 2001, the Company completed the sale and leaseback of certain of
its tower assets for aggregate proceeds of $34.0 million. This transaction
resulted in a deferred gain of approximately $5.2 million which is being
recognized over the lease term as a reduction of rent expense. As part of the
transaction, the Company entered into operating leases related to both its
analog and digital antennas at these facilities for terms of up to 20 years.
Annual rent expense over the lease term is approximately $4.0 million. For
certain tower assets with a net book value of approximately $2.7 million as of
December 31, 2003 ($9.1 million as of December 31, 2002), the Company has been
unable to transfer title or assign leases to the buyer. The Company is in the
process of transferring title and assigning leases to the buyer. These assets
are included in assets held for sale in the accompanying consolidated balance
sheets. In the interim, at closing, the Company entered into management
agreements with the buyer on terms consistent with the operating leases.
Included in the $34.0 million proceeds was approximately $12.1 million of
deferred consideration for the managed sites. Of the $12.1 million deferred
consideration received, $2.6 million remained as of December 31, 2003 and is
included in other long-term liabilities in the accompanying consolidated balance
sheets ($12.1 million as of December 31, 2002). Under the terms of the agreement
with the buyer, the proceeds received by the Company related to these assets are
not refundable to the buyer in the event the Company is unable to complete the
transfer of title for these assets.

INVESTMENT COMMITMENTS

    In 1997, the Company paid $2 million for an option to acquire a television
station serving the Memphis, Tennessee market and simultaneously paid $2 million
for an option to acquire a television station serving the New Orleans, Louisiana
market. The Company may exercise its rights to acquire these television stations
for an option exercise price of $18 million for each station beginning January
1, 2005 through December 31, 2006. The owners of these stations also have the
right to require the Company to purchase these stations at any time after
January 1, 2005 through December 31, 2006. These stations are currently
operating under TBAs with the Company. The purchase of these assets is subject
to various conditions, including the receipt of regulatory approvals. The
completion of these investments is also subject to several factors and to the
satisfaction of various conditions, and there can be no assurance that these
investments will be completed. As discussed in Note 1, the Company recorded an
impairment charge of $5.4 million in connection with the purchase option for one
of these stations.

LEGAL PROCEEDINGS

    The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.

EXPLORATION OF STRATEGIC ALTERNATIVES

    The Company has engaged Bear Stearns & Co. Inc. and Citigroup Global Markets
Inc. to act as its financial advisors and explore strategic alternatives for the
Company. These strategic alternatives may include the sale of all or part of the
Company's assets, finding a strategic partner for the Company who would provide
the financial resources to enable the Company to redeem, restructure or
refinance the Company's debt and preferred stock, or finding a third party to
acquire the Company through a merger or other business


                                      F-36

<PAGE>

combination or acquisition of the Company's equity securities. The Company's
ability to pursue strategic alternatives is subject to various limitations and
issues which the Company may be unable to control. A strategic transaction will,
in most circumstances, require that the Company seek the consent of, or
refinance, redeem or repay NBC and the other holders of the Company's preferred
stock, as well as the holders of the Company's senior and subordinated debt. FCC
regulations may limit the type of strategic alternatives the Company may pursue
and the parties with whom the Company may pursue strategic alternatives. In
addition, the Company's ability to pursue a strategic alternative will be
dependent upon the attractiveness of the Company's assets and business plan to
potential transaction parties. Among other things, certain potential transaction
parties may find unattractive the Company's capital structure and high level of
indebtedness, the PAX TV programming and the overnight programming provided by
CNI, which is currently carried by the Company, and certain of the Company's
television stations serving major television markets. The relatively low tax
basis of the Company in its television station assets (resulting in part from
the Section 1031 like kind exchange that was structured upon the sale of the
Company's radio group in 1997) is a significant factor to be considered in
structuring any potential transactions involving sales of a material portion of
the Company's television assets, and may make certain types of transactions less
attractive or not viable. Potential transaction parties may believe that the
Company's stations and other assets are less valuable than as shown in prior
appraisals the Company has obtained. The Company may be prevented from
consummating a strategic transaction due to any of these and other factors, or
it may incur significant costs to terminate obligations and commitments with
respect to, or receive less consideration in a strategic transaction as a result
of, these and other factors. There is no assurance that the Company will be
successful in its efforts to find or effectuate strategic alternatives for the
Company.

INSURANCE LITIGATION

     The Company's antenna, transmitter and other broadcast equipment from its
New York television station were destroyed upon the collapse of the World Trade
Center on September 11, 2001. The Company has property and business interruption
insurance coverage to mitigate losses sustained, although the extent of coverage
of such insurance is currently being litigated.

18.      SUPPLEMENTAL CASH FLOW INFORMATION

    Supplemental cash flow information and non-cash operating, investing and
financing activities are as follows (in thousands):


<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                                  ---------------------------
                                                                  2003       2002        2001
                                                                  ----       ----        ----
<S>                                                            <C>         <C>         <C>
Supplemental disclosures of cash flow information:
  Cash paid for interest.................................      $41,883     $43,630     $ 39,987
                                                               =======     =======     ========
  Cash paid for income taxes.............................      $ 1,053     $   625     $    255
                                                               =======     =======     ========
Non-cash operating, investing and financing activities:
  Programming received in a settlement...................      $ 1,000     $    --     $     --
                                                               =======     =======     ========
  Accretion of discount on Senior Subordinated Notes.....      $43,660     $37,480     $    240
                                                               =======     =======     ========
  Dividends accrued on redeemable and convertible
     preferred stock.....................................      $96,548     $88,373     $113,273
                                                               =======     =======     ========
  Discount accretion on redeemable and
     convertible securities..............................      $ 1,999     $21,726     $ 29,600
                                                               =======     =======     ========
  Satellite and cable distribution.......................      $    --     $    --     $  1,151
                                                               =======     =======     ========
  Notes receivable from sales of broadcast properties....      $    --     $    --     $  4,792
                                                               =======     =======     ========
  Stock option exercise proceeds and withholding
     taxes remitted through withholding of shares
     received upon exercise..............................      $ 2,359     $    --     $     --
                                                               =======     =======     ========
  Reduction of stock subscription notes receivable through
    offset of deferred and other compensation............      $   913     $    --     $     --
                                                               =======     =======     ========
</TABLE>

19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

    As described in Note 2, the Company has determined that it would be
appropriate to restate its 2002 and 2001 financial statements, and to restate
the financial information the Company previously reported in the first quarter
of 2002.


                                      F-37
<PAGE>


    The following sets forth the quarterly results of operations for the first
quarter of 2002 as originally reported and as restated (in thousands):

<TABLE>
<CAPTION>
                                                             FOR THE QUARTER ENDED MARCH 31, 2002
                                                             ------------------------------------
                                                        AS ORIGINALLY
                                                         REPORTED (2)     ADJUSTMENTS     AS RESTATED
                                                        -------------     -----------     -----------

<S>                                                      <C>              <C>            <C>
           Gross revenues...........................     $    80,781                     $    80,781
           Less: agency commissions.................         (11,706)                        (11,706)
                                                         -----------                     -----------
           Net revenues.............................          69,075                          69,075
                                                         -----------                     -----------
           Expenses, excluding depreciation,
             amortization and stock-stock based
             compensation...........................          62,079                          62,079
           Stock-based compensation.................           1,333                           1,333
           Depreciation and amortization............          12,638                          12,638
                                                         -----------                     -----------
           Total expenses ..........................          76,050                          76,050
                                                         -----------                     -----------
           Loss on sale or disposal of broadcast and
           other assets, net........................            (713)                           (713)
                                                         -----------                     -----------
           Operating loss...........................     $    (7,688)                    $    (7,688)
                                                         ===========                     ===========
           Net loss attributable to common
             stockholders...........................     $  (199,462)     $ (32,325)(1)  $  (231,787)
                                                         ===========      =========      ===========
           Basic and diluted loss per common share.      $     (3.08)     $   (0.50)     $     (3.58)
                                                         ===========      =========      ===========
           Weighted average common shares
             outstanding............................      64,758,512                      64,758,512
                                                         ===========                     ===========
             Stock price(1)
                High................................     $     13.00                     $     13.00
                Low.................................     $      8.50                     $      8.50
</TABLE>


                                      F-38

<PAGE>


    (1)  Represents an additional provision for income taxes in connection with
         the adoption of SFAS No. 142 in the first quarter of 2002.

    (2)  After considering reclassifications to conform to the 2003
         presentation.

     Seasonal revenue fluctuations are common within the television broadcasting
industry and result primarily from fluctuations in advertising expenditures. The
Company believes that television advertisers generally spend relatively more for
commercial advertising time in the second and fourth calendar quarters and spend
relatively less during the first calendar quarter of each year. The Company's
quarterly results of operations are as follows:


<TABLE>
<CAPTION>
                                                                           FOR THE 2003 QUARTERS ENDED
                                                           ----------------------------------------------------------
                                                           DECEMBER 31   SEPTEMBER 30(3)   JUNE 30(2)        MARCH 31
                                                           -----------   ---------------   ----------       ---------
                                                                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
                                                           ----------------------------------------------------------
<S>                                                        <C>            <C>             <C>             <C>
             Gross revenues...........................     $    82,428    $    75,028     $    76,872     $    82,678
             Less: agency commissions.................         (12,146)       (10,833)        (11,012)        (12,076)
                                                           -----------    -----------     -----------     -----------
             Net revenues.............................          70,282         64,195          65,860          70,602
                                                           -----------    -----------     -----------     -----------
             Expenses, excluding depreciation,
               amortization and stock-based
               compensation...........................          59,930         55,315          52,466          54,873
             Stock-based compensation.................           3,032          1,223           1,097           7,414
             Depreciation and amortization............          11,055         10,018           7,340          14,570
                                                           -----------    -----------     -----------     -----------
             Total expenses...........................     $    74,017    $    66,556     $    60,903     $    76,857
                                                           -----------    -----------     -----------     -----------
             Gain (loss) on sale or disposal of
             broadcast and other assets, net..........          (3,089)          (243)         28,407          26,514
                                                           -----------    -----------     -----------     -----------
             Operating (loss) income..................     $    (6,824)   $    (2,604)    $    33,364     $    20,259
                                                           ===========    ===========     ===========     ===========
             Net loss attributable to common
               stockholders...........................     $   (51,833)   $   (54,024)    $   (17,013)    $   (23,447)
                                                           ===========    ===========     ===========     ===========

             Basic and diluted loss per common share..     $     (0.73)   $     (0.80)    $     (0.25)    $     (0.35)
                                                           ===========    ===========     ===========     ===========
             Weighted average common shares
               outstanding............................      71,305,999     67,752,309      67,658,154      66,799,581
                                                           ===========    ===========     ===========     ===========
               Stock price(1)
                  High................................     $      6.00    $      6.37     $      6.59     $      2.65
                  Low.................................     $      3.67    $      3.91     $      2.43     $      1.94
</TABLE>

----------

    (1)  The Company's Class A common stock is listed on the American Stock
         Exchange under the symbol PAX.
    (2)  In the second quarter of 2003, the Company determined that it had
         over-amortized certain cable distribution agreements and recorded a
         $4.0 million reduction of its amortization expense.
    (3)  In the third quarter of 2003, the Company determined that it had been
         over-amortizing certain satellite distribution agreements and certain
         other cable distribution agreements and recorded a $4.5 million
         reduction of its amortization expense. Additionally, in the third
         quarter of 2003, the Company recorded a reserve for state taxes in the
         amount of $2.9 million in connection with a tax liability related to
         certain states in which the Company has operations. Included in
         depreciation and amortization is a $3.7 million impairment charge
         recorded in the third quarter of 2003, in connection with a purchase
         option on a television station.


<TABLE>
<CAPTION>
                                                                           FOR THE 2002 QUARTERS ENDED (2)
                                                           ----------------------------------------------------------
                                                           DECEMBER 31(5)   SEPTEMBER 30   JUNE 30(4)     MARCH 31(3)
                                                           --------------   ------------   ----------     -----------
                                                                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
                                                           ----------------------------------------------------------
                                                                                                          (RESTATED)
<S>                                                        <C>               <C>          <C>             <C>
           Gross revenues...........................       $    85,374    $    77,130     $    78,611     $    80,781
           Less: agency commissions.................           (12,116)       (10,874)        (10,279)        (11,706)
                                                           -----------    -----------     -----------     -----------
           Net revenues.............................            73,258         66,256          68,332          69,075
                                                           -----------    -----------     -----------     -----------
           Expenses, excluding depreciation,
             amortization and stock-stock based
             compensation...........................           107,954         68,648          68,713          62,079
           Stock-based compensation.................               719          1,216             542           1,333
</TABLE>


                                      F-39

<PAGE>

<TABLE>

<S>                                                        <C>               <C>          <C>             <C>
           Depreciation and amortization............            17,191         14,472          14,228          12,638
                                                           -----------    -----------     -----------     -----------
           Total expenses ..........................           125,864         84,336          83,483          76,050
                                                           -----------    -----------     -----------     -----------
           Gain (loss) on sale or disposal of
           broadcast and other assets, net..........            24,143         (1,222)            698            (713)
                                                           -----------    -----------     -----------     -----------
           Operating loss...........................       $   (28,463)   $   (19,302)    $   (14,453)    $    (7,688)
                                                           ===========    ===========     ===========     ===========
           Net loss attributable to common
             Stockholders...........................       $   (75,305)   $   (72,461)    $   (66,732)    $  (231,787)
                                                           ===========    ===========     ===========     ===========

           Basic and diluted loss per common share.        $     (1.16)   $     (1.11)    $     (1.03)    $     (3.58)
                                                           ===========    ===========     ===========     ===========
           Weighted average common shares
             outstanding............................        64,880,466     64,880,466      64,875,141      64,758,512
                                                           ===========    ===========     ===========     ===========
             Stock price(1)
                High................................       $      3.29    $      6.15     $     11.49     $     13.00
                Low.................................       $      2.03    $      2.10     $      5.50     $      8.50
</TABLE>

----------

    (1)  The Company's Class A common stock is listed on the American Stock
         Exchange under the symbol PAX.
    (2)  The filings on Form 10-Q for the three month periods ended March 31,
         2002, June 30, 2002 and September 30, 2002 have been amended through
         the Company's filing of reports on Form 10-Q/A for those same periods.
         Additionally, see Note 2.
    (3)  In the first quarter of 2002, the Company increased its deferred tax
         asset valuation allowance by approximately $162.6 million in connection
         with the Company's adoption of SFAS No. 142 on January 1, 2002. In
         addition, in the first quarter of 2002, the Company recorded a loss on
         extinguishment of debt in the amount of $17.6 million in connection
         with the refinancing of the 12 1/2% exchange debentures in January
         2002.
    (4)  In the second quarter of 2002, the Company recorded an adjustment of
         $2.9 million to adjust programming to net realizable value related to
         programming commitments for Touched.
    (5)  In the fourth quarter of 2002, the Company recorded an adjustment of
         $38.4 million to adjust programming to net realizable value in
         connection with the modification by the Company of its programming
         schedule effective in January 2003. Additionally, in the fourth quarter
         of 2002, the Company recorded restructuring charges of $2.6 million in
         connection with its corporate restructuring.


20.      SUBSEQUENT EVENTS

     On January 12, 2004, the Company completed a private offering of $365
million of senior secured floating rate notes ("senior secured notes"). The
senior secured notes bear interest at the rate of LIBOR plus 2.75% per year and
will mature on January 10, 2010. The senior secured notes may be redeemed by the
Company at any time at specified redemption prices and are secured by
substantially all of the Company's assets. In addition, a substantial portion of
the senior secured notes are unconditionally guaranteed, on a joint and several
senior secured basis, by all of the Company's subsidiaries. The indenture
governing the senior secured notes contains certain covenants which, among other
things, restrict the incurrence of additional indebtedness, the payment of
dividends, transactions with related parties, certain investments and transfers
or sales of certain assets. The proceeds from the offering were used to repay in
full the outstanding indebtedness under the Company's Senior Credit Facility
described in Note 11, pre-fund letters of credit supported by the revolving
credit portion of the Company's previously existing Senior Credit Facility and
pay fees and expenses incurred in connection with the transaction. The
refinancing resulted in the Company expensing the debt issue costs in the first
quarter of 2004, which are included in other assets in the accompanying
consolidated balance sheet, associated with the Company's Senior Credit Facility
in the amount of $6.3 million as of December 31, 2003.

     The Company failed to file its annual report on Form 10-K for the fiscal
year ended December 31, 2003 on March 30, 2004, as required by the rules and
regulations of the SEC. The Company expects to file such statements on March 31,
2004. After reviewing the terms of the indentures governing the Company's Senior
Secured Floating Rate Notes due 2010, 10 3/4% Senior Subordinated Notes due
2008, and 12 1/4% Senior Subordinated Discount Notes due 2009 (the
"Indentures"), the Company has determined that such failure may constitute a
Default under and as defined in such Indentures. The Company has determined that
it will have complied with the requirements of the Indentures upon the filing on
March 31, 2004 of its 10-K with the SEC. Furthermore, if the failure to file
were a Default under and as defined in such Indentures, the filing of the 10-K
would cure the Default and would prevent the same from becoming an Event of
Default under the terms of the Indentures.


21.      CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     Paxson Communications Corporation (the "Parent Company") and its wholly
owned subsidiaries are joint and several guarantors under the Company's debt
obligations. There are no restrictions on the ability of the guarantor
subsidiaries or the Parent Company to issue dividends or transfer assets to any
other subsidiary guarantors. The accounts of the Parent Company include network
operations, network sales, programming and other corporate departments. The
accounts of the wholly owned subsidiaries primarily include the television
stations owned and operated by the Company.


                                      F-40

<PAGE>


The accompanying condensed consolidated financial information has been prepared
and presented pursuant to SEC Regulation S-X Rule 3-10 "Financial statements of
guarantors and issuers of guaranteed securities registered or being registered."
This information is not intended to present the financial position, results of
operations, and cash flows of the individual companies or groups of companies in
accordance with U.S. GAAP.

CONDENSED CONSOLIDATING BALANCE SHEETS:
<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31, 2003 (IN THOUSANDS)
                                                     -----------------------------------------------------------------
                                                                       WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                     PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                     -----------------------------------------------------------------
<S>                                                    <C>             <C>                <C>              <C>
Assets
   Current assets                                      $  184,612      $    9,764         $       --       $  194,376
   Receivable from wholly owned subsidiaries              892,601              --           (892,601)              --
   Intangible assets, net                                  61,486         832,468                 --          893,954
   Investment in and advances to wholly owned
     subsidiaries                                          58,045              --            (58,045)              --
   Property, equipment and other assets, net               71,404         123,943                 --          195,347
                                                     -----------------------------------------------------------------
     Total assets                                      $1,268,148      $  966,175         $ (950,646)      $1,283,677
                                                     =================================================================
Liabilities, Mandatorily Redeemable and Convertible
  Preferred Stock and Stockholders' Deficit
   Current liabilities                                 $  119,572      $    7,672         $       --       $  127,244
   Deferred income taxes                                  175,281              --                 --          175,281
   Senior subordinated notes and bank financing, net
     of current portion                                   925,547              --                 --          925,547
   Notes payable to Parent Company                             --         892,601           (892,601)              --
   Mandatorily redeemable preferred stock                 410,739              --                 --          410,739
   Other long-term liabilities                             42,787           7,857                 --           50,644
                                                     -----------------------------------------------------------------
     Total liabilities                                  1,673,926         908,130           (892,601)       1,689,455

   Mandatorily redeemable and convertible preferred
     stock                                                684,067              --                 --          684,067
   Commitments and contingencies
Stockholders' deficit                                  (1,089,845)         58,045            (58,045)      (1,089,845)
                                                     -----------------------------------------------------------------
     Total liabilities, mandatorily redeemable and
       convertible preferred stock, and
       stockholders' deficit                           $1,268,148      $  966,175         $  (950,646)     $1,283,677
                                                     =================================================================
</TABLE>


<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
                                                            TWELVE MONTHS ENDED DECEMBER 31, 2003 (IN THOUSANDS)
                                                     -----------------------------------------------------------------
                                                                       WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                     PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                     -----------------------------------------------------------------
<S>                                                    <C>             <C>                <C>              <C>
REVENUES:
Gross revenues                                         $  198,994      $  118,012         $       --       $  317,006
Less: agency commissions                                  (29,908)        (16,159)                --          (46,067)
                                                     -----------------------------------------------------------------
Net revenues                                              169,086         101,853                 --          270,939
                                                     -----------------------------------------------------------------

EXPENSES:
</TABLE>


                                      F-41

<PAGE>

<TABLE>

<S>                                                    <C>             <C>                <C>              <C>
  Programming and broadcast operations                     14,107          37,847                 --           51,954
  Program Rights Amortization                              51,082              --                 --           51,082
  Selling, general and administrative                      49,881          61,095                 --          110,976
  Stock-based compensation                                 12,766              --                 --           12,766
  Other operating expense                                   4,056           4,516                 --            8,572
  Depreciation and amortization                             7,751          35,232                 --           42,983
                                                     -----------------------------------------------------------------
            Total operating expenses                      139,643         138,690                             278,333

Gain on sale or disposal of broadcast and other
  assets, net                                               9,921          41,668                 --           51,589
                                                     -----------------------------------------------------------------
Operating income                                           39,364           4,831                 --           44,195
                                                     -----------------------------------------------------------------

OTHER INCOME (EXPENSE):
  Interest expense                                        (91,698)           (504)                --          (92,202)

  Dividends on mandatorily reddeemable preferred stock    (27,539)             --                 --          (27,539)
  Other income, net                                         5,803              81                 --            5,884
  Equity 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)              0                 --           (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)
                                                     =================================================================
</TABLE>


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
                                                                 TWELVE MONTHS ENDED DECEMBER 31, 2003 (IN THOUSANDS)
                                                          -----------------------------------------------------------------
                                                                            WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                          PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>                <C>              <C>

    Net cash (used in) provided by operating activities     $    7,517      $   25,399         $       --       $   32,916
                                                          -----------------------------------------------------------------

Cash flows from investing activities:
    Decrease in short term investments                           4,125              --                 --            4,125
    Purchases of property and equipment                         (1,487)        (25,245)                --          (26,732)
    Proceeds from sales of broadcast properties                 83,332              --                 --           83,332

    Proceeds from sale of broadcast towers and property
      and equipment                                                360              --                 --              360
    Other                                                           --            (156)                --             (156)
                                                          -----------------------------------------------------------------
    Net cash provided by (used in) investing activities         86,330         (25,401)                --           60,929
                                                          -----------------------------------------------------------------

Cash flows from financing activities:
    Borrowings of long-term debt                                 2,000              --                 --            2,000
    Repayments of long-term debt                               (20,152)             --                 --          (20,152)
    Payments of loan origination costs                          (2,259)             --                 --           (2,259)
</TABLE>


                                      F-42

<PAGE>

<TABLE>

<S>                                                         <C>             <C>                <C>              <C>
    Proceeds from exercise of common stock options, net            115              --                 --              115
    Payments of employee income taxes on exercise of
      common stock options                                      (2,335)             --                 --           (2,335)
    Repayment of stock subscription notes receivable               144              --                 --              144
                                                          -----------------------------------------------------------------
    Net cash used in financing activities                      (22,487)             --                 --          (22,487)
                                                          -----------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents            71,360              (2)                --           71,358
    Cash and cash equivalents, beginning of period              25,730              35                 --           25,765
                                                          -----------------------------------------------------------------
    Cash and cash equivalents, end of period                $   97,090      $       33         $       --       $   97,123
                                                          -----------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
           CONDENSED CONSOLIDATING BALANCE SHEETS:
                                                                       AS OF DECEMBER 31, 2002 (IN THOUSANDS)
                                                          -----------------------------------------------------------------
                                                                            WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                          PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>                <C>              <C>
Assets
   Current assets                                           $  113,378      $   11,606         $       --       $  124,984
   Receivable from wholly owned subsidiaries                   907,601              --           (907,601)              --
   Intangible assets, net                                       62,870         836,856                 --          899,726
   Investment in and advances to wholly owned subsidiaries      83,693              --            (83,693)              --
   Property, equipment and other assets, net                    88,862         163,047                 --          251,909
                                                          -----------------------------------------------------------------
     Total assets                                           $1,256,404      $1,011,509         $ (991,294)      $1,276,619
                                                          =================================================================

Liabilities, Mandatorily Redeemable and Convertible
  Preferred Stock and Stockholders' Deficit
   Current liabilities                                      $   99,587      $    6,209         $       --       $  105,796
   Deferred income taxes                                       168,611              --                 --          168,611

   Senior subordinated notes and bank financing, net of
     current portion                                           896,957              --                 --          896,957
   Notes payable to Parent Company                                  --         907,601           (907,601)              --
   Mandatorily redeemable preferred stock                           --              --                 --               --
   Other long-term liabilities                                  56,415          14,006                 --           70,421
                                                          -----------------------------------------------------------------
     Total liabilities                                       1,221,570         927,816           (907,601)       1,241,785

   Mandatorily redeemable and convertible preferred stock      993,101              --                 --          993,101
   Commitments and contingencies
   Stockholders' deficit                                      (958,267)         83,693            (83,693)        (958,267)
                                                          -----------------------------------------------------------------
   Total liabilities, mandatorily redeemable and
convertible preferred stock, and stockholders' deficit      $1,256,404      $1,011,509         $ (991,294)      $1,276,619
                                                          =================================================================
</TABLE>


                                      F-43

<PAGE>


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
                                                                TWELVE MONTHS ENDED DECEMBER 31, 2002 (IN THOUSANDS)
                                                          -----------------------------------------------------------------
                                                                            WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                          PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>                <C>              <C>
REVENUES:
Gross revenues                                              $  208,729      $  113,167         $       --       $  321,896
Less: agency commissions                                       (29,929)        (15,046)                --          (44,975)
                                                          -----------------------------------------------------------------
Net revenues                                                   178,800          98,121                 --          276,921
                                                          -----------------------------------------------------------------

EXPENSES:
  Programming and broadcast operations                          14,072          37,132                 --           51,204
  Program Rights Amortization                                   77,835             145                 --           77,980
  Selling, general and administrative                           67,215          65,090                 --          132,305
  Adjustment of programming to net realizable value             41,270              --                 --           41,270
  Other operating expenses                                       4,424           4,021                 --            8,445
  Depreciation and amortization                                 23,824          34,705                 --           58,529
                                                          -----------------------------------------------------------------
            Total operating expenses                           228,640         141,093                 --          369,733

Gain on sale or disposal of broadcast and other assets, net      1,857          21,049                 --           22,906
                                                          -----------------------------------------------------------------
Operating income                                               (47,983)        (21,923)                --          (69,906)
                                                          -----------------------------------------------------------------

OTHER INCOME (EXPENSE):
  Interest expense                                              16,203        (101,417)                --          (85,214)
  Dividends on mandatorily reedeemable preferred stock              --              --                 --               --
  Other income, net                                              5,313             446                 --            5,759
  Loss on extinguishment of debt                               (17,552)              0                 --          (17,552)
  Equity in losses of consolidated subsidiaries               (122,894)             --            122,894               --
                                                          -----------------------------------------------------------------
(Loss) income before income taxes                             (166,913)       (122,894)           122,894         (166,913)
Income tax provision                                          (169,273)              0                 --         (169,273)
                                                          -----------------------------------------------------------------
Net (loss) income                                             (336,186)       (122,894)           122,894         (336,186)

Dividends and accretion on redeemable and convertible
  preferred stock                                             (110,099)             --                 --         (110,099)
                                                          -----------------------------------------------------------------
Net (loss) income attributable to common stockholders       $ (446,285)     $ (122,894)        $  122,894       $ (446,285)
                                                          =================================================================
</TABLE>


<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
                                                                TWELVE MONTHS ENDED DECEMBER 31, 2002 (IN THOUSANDS)
                                                          -----------------------------------------------------------------
                                                                            WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                          PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>                <C>              <C>
    Net cash (used in) provided by operating activities     $ (105,156)     $   29,728         $       --       $  (75,428)
                                                          -----------------------------------------------------------------

Cash flows from investing activities:
    Increase in short term investments                          (4,923)             --                 --           (4,923)
    Purchases of property and equipment                         (2,180)        (28,997)                --          (31,177)
    Proceeds from sales of broadcast properties                 26,647              --                 --           26,647
</TABLE>


                                      F-44

<PAGE>

<TABLE>

<S>                                                         <C>             <C>                <C>              <C>
    Proceeds from sale of broadcast towers and property
      and equipment                                                143              --                 --              143
    Proceeds from insurance recoveries                           2,722              --                 --            2,722
    Other                                                         (363)           (738)                --           (1,101)
                                                          -----------------------------------------------------------------
    Net cash provided by (used in) investing activities         22,046         (29,735)                --           (7,689)
                                                          -----------------------------------------------------------------

Cash flows from financing activities:
    Borrowings of long-term debt                               336,338              --                 --          336,338
    Repayments of long-term debt                                (2,898)             --                 --           (2,898)
    Redemption of preferred stock                             (284,410)             --                 --         (284,410)
    Payments of loan origination costs                         (10,886)             --                 --          (10,886)
    Debt extinguishment premium and costs                      (14,302)             --                 --          (14,302)

    Proceeds from exercise of common stock options, net          1,182              --                 --            1,182
                                                          -----------------------------------------------------------------
    Net cash used in financing activities                       25,024              --                 --           25,024
                                                          -----------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents           (58,086)             (7)                --          (58,093)
    Cash and cash equivalents, beginning of period              83,816              42                 --           83,858
                                                          -----------------------------------------------------------------
    Cash and cash equivalents, end of period                $   25,730      $       35         $       --       $   25,765
                                                          -----------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
                                                                  TWELVE MONTHS ENDED DECEMBER 31, 2001 (IN THOUSANDS)
                                                          -----------------------------------------------------------------
                                                                            WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                          PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>                <C>              <C>
REVENUES:
Gross revenues                                              $  202,796      $  106,010         $       --       $  308,806
Less: agency commissions                                       (29,964)        (13,516)                --          (43,480)
                                                          -----------------------------------------------------------------
Net revenues                                                   172,832          92,494                 --          265,326
                                                          -----------------------------------------------------------------

EXPENSES:
  Programming and broadcast operations                          12,829          30,201                 --           43,030
  Program Rights Amortization                                       --          84,808                 --           84,808
  Selling, general and administrative                           56,233          63,194                 --          119,427
  Stock-based compensation                                      10,161              --                 --           10,161
  Adjustment of programming to net realizable value             66,992              --                 --           66,992
  Other operating expenses                                        (197)          2,589                 --            2,392
  Depreciation and amortization                                 24,194          73,085                 --           97,279
                                                          -----------------------------------------------------------------
            Total operating expenses                           170,212         253,877                 --          424,089

Gain (loss) on sale or disposal of broadcast and other
  assets, net                                                   22,876         (14,242)                --            8,634
                                                          -----------------------------------------------------------------
Operating income                                                25,496        (175,625)                --         (150,129)
                                                          -----------------------------------------------------------------

OTHER INCOME (EXPENSE):
  Interest expense                                              58,639        (108,361)                --          (49,722)
  Dividends on mandatorily reddeemable preferred stock              --              --                 --               --
  Other income, net                                              5,529          (1,200)                --            4,329
  Loss on extinguishment of debt                                (9,903)             --                 --           (9,903)
</TABLE>


                                      F-45

<PAGE>

<TABLE>

<S>                                                         <C>             <C>                <C>              <C>
  Equity in losses of consolidated subsidiaries               (285,227)             --            285,227               --
                                                          -----------------------------------------------------------------
(Loss) income before income taxes                             (205,466)       (285,186)           285,227         (205,425)
Income tax provision                                               (79)            (41)                --             (120)
                                                          -----------------------------------------------------------------
Net (loss) income                                             (205,545)       (285,227)           285,227         (205,545)

Dividends and accretion on redeemable and convertible
  preferred stock                                             (146,656)             --                 --         (146,656)
                                                          -----------------------------------------------------------------
Net (loss) income attributable to common stockholders       $ (352,201)     $ (285,227)        $  285,227       $ (352,201)
                                                          =================================================================
</TABLE>




CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
                                                                 TWELVE MONTHS ENDED DECEMBER 31, 2001 (IN THOUSANDS)
                                                          -----------------------------------------------------------------
                                                                            WHOLLY OWNED      CONSOLIDATING    CONSOLIDATED
                                                          PARENT COMPANY    SUBSIDIARIES       ADJUSTMENTS        GROUP
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>                <C>              <C>

    Net cash (used in) provided by operating activities     $ (107,405)     $   46,633         $       --       $  (60,772)
                                                          -----------------------------------------------------------------

Cash flows from investing activities:
    Decrease in short term investments                          37,851              --                 --           37,851
    Acquisitions of broadcast properties                            --         (15,679)                --          (15,679)
    Purchases of property and equipment                         (4,251)        (30,962)                --          (35,213)
    Proceeds from sales of broadcast properties                 27,122              --                 --           27,122

    Proceeds from sale of broadcast towers and property
      and equipment                                             34,396              --                 --           34,396
                                                          -----------------------------------------------------------------
    Net cash provided by (used in) investing activities         95,118         (46,641)                --           48,477
                                                          -----------------------------------------------------------------

Cash flows from financing activities:
    Borrowings of long-term debt                               539,767              --                 --          539,767
    Repayments of long-term debt                              (416,924)             --                 --         (416,924)
    Redemption of preferred stock                              (59,102)             --                 --          (59,102)
    Payments of loan origination costs                         (13,787)             --                 --          (13,787)
    Preferred stock dividends                                   (3,783)             --                 --           (3,783)
    Debt extinguishment premium and costs                       (4,754)             --                 --           (4,754)

    Proceeds from exercise of common stock options, net          3,191              --                 --            3,191
    Repayment of stock subscription notes receivable               182              --                 --              182
                                                          -----------------------------------------------------------------
    Net cash used in financing activities                       44,790              --                 --           44,790
                                                          -----------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents            32,503              (8)                --           32,495
    Cash and cash equivalents, beginning of period              51,313              50                 --           51,363
                                                          -----------------------------------------------------------------
    Cash and cash equivalents, end of period                $   83,816      $       42         $       --       $   83,858
                                                          =================================================================
</TABLE>


                                      F-46

<PAGE>

                                                                   SCHEDULE II


                        PAXSON COMMUNICATIONS CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS
           FOR THE THREE YEARS ENDED DECEMBER 31, 2003 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                    COLUMN A                 COLUMN B          COLUMN C         COLUMN D        COLUMN E
                        --------------------------------    ----------         --------         --------        --------
                                                                              ADDITIONS
                                                                         -------------------
                                                                         CHARGED
                                                            BALANCE AT      TO                                  BALANCE AT
                                                             BEGINNING   COSTS AND                                 END OF
                                                             OF YEAR     EXPENSES     OTHER     DEDUCTIONS          YEAR
                                                            ----------   ---------    -----     ----------      ----------
<S>                                                         <C>         <C>           <C>       <C>             <C>
                     FOR THE YEAR ENDED DECEMBER 31, 2003:
                       Allowance for doubtful accounts..... $   2,100   $   (418)     $  --     $   (592)(1)    $   1,090
                                                            =========   ========      =====     ======== ==     =========
                       Deferred tax assets valuation
                          allowance........................ $ 343,693   $ 22,427(2)   $  --     $     --        $ 366,120
                                                            =========   ========      =====     ======== ==     =========
                       Restructuring reserves.......        $   1,522   $     48      $  --     $ (1,425)(3)    $     145
                                                            =========   ========      =====     ======== ==     =========
                     FOR THE YEAR ENDED DECEMBER 31, 2002
                       (RESTATED):
                       Allowance for doubtful accounts..... $   3,635   $   (126)     $  --     $ (1,409)(1)    $   2,100
                                                            =========   ========      =====     ======== ==     =========
                       Deferred tax assets valuation
                          allowance........................ $ 120,011   $223,682(2)   $  --     $     --        $ 343,693
                                                            =========   ========      =====     ======== ==     =========
                       Restructuring reserves.............. $   2,099   $  2,173      $  --     $ (2,750)(3)    $   1,522
                                                            =========   ========      =====     ======== ==     =========
                     FOR THE YEAR ENDED DECEMBER 31, 2001
                       (RESTATED):
                       Allowance for doubtful accounts..... $   4,167   $  2,119      $  --     $ (2,651)(1)    $   3,635
                                                            =========   ========      =====     ======== ==     =========
                       Deferred tax assets valuation
                          allowance........................ $  46,792   $ 73,219(2)   $  --     $               $ 120,011
                                                            =========   ========      =====     ======== ==     =========
                       Restructuring reserves.............. $   5,677   $ (1,229)     $  --     $ (2,349)(3)    $   2,099
                                                            =========   ========      =====     ======== ==     =========
</TABLE>


----------

    (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 termination benefits and lease obligations.






                                      F-47