**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

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**Form 10-K**

**(Mark One)**

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

**Forthe fiscal year ended December 31, 2006**

**or**

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

**Forthe transition period from: Not Applicable**

**Commissionfile number 1-14776**

**Hearst-Argyle Television, Inc.**

(Exact Name of Registrantas Specified in Its Charter)

| **Delaware**                                |   | **74-2717523**                                              |
|---------------------------------------------|--------|-------------------------------------------------------------|
| (State or other  jurisdiction of            |   | (I.R.S. Employer                                       |
| incorporation or  organization)             |   | Identification No.)                                    |
| **300 West 57****th**** Street**       |   | ** **                                                  |
| **New  York, NY 10019**                     |   | **(212)  887-6800**                                         |
| (Address of  principal   executive offices) |   | (Registrant’s  telephone number,  including area code) |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OFTHE ACT:**

| Title of Each Class                                    | ** ** | **Name of Each Exchange On Which Registered** |
|--------------------------------------------------------|------------|-----------------------------------------------------------------------------|
| Series A  Common Stock,  par value $.01 per share |       | New York  Stock Exchange                                               |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OFTHE ACT:**

**None**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o  No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

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

| Large accelerated filer o | Accelerated Filer x | Non-accelerated  filer o |
|---------------------------|---------------------|--------------------------|

 

Indicate by check markwhether the registrant is a shell company. Yes o  No x

The aggregate market valueof the registrant’s voting and non-voting common stock held by non-affiliateson June 30, 2006 based on the closing price for the registrant’s Series ACommon Stock on such date as reported on the New York Stock Exchange (the “NYSE”),was approximately $327,954,902.

Shares of the registrant’sCommon Stock outstanding as of February 15, 2007: 93,293,318 shares(consisting of 51,994,670 shares of Series A Common Stock and41,298,648 shares of Series B Common Stock).

**DOCUMENTS INCORPORATED BY REFERENCE:**Portions of theregistrant’s Proxy Statement relating to the 2007 Annual Meeting ofStockholders are incorporated by reference into Part III (Items 10, 11,12, 13 and 14).

 

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**FORWARD-LOOKINGSTATEMENTS**

This report****includes****orincorporates forward-looking statements. We base these forward-lookingstatements on our current expectations and projections about future events. Theseforward-looking statements generally can be identified by the use of statementsthat include phrases such as “anticipate”, “will”, “may”, “likely”, “plan”, “believe”,“expect”, “intend”, “project”, “forecast” or other such similar words and/orphrases. For these statements, the Company claims the protection of the safeharbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995. The forward-looking statements contained in thisreport, concerning, among other things, trends and projections involvingrevenue, income, earnings, cash flow, liquidity, operating expenses, assets,liabilities, capital expenditures, dividends and capital structure, involverisks and uncertainties, and are subject to change based on various importantfactors. Those factors include the impact on our operations from

·       Changesin Federal regulations that affect us, including changes in Federalcommunications laws or regulations;

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

·       Competitionin the broadcast television markets we serve;

·       Ourability to obtain quality programming for our television stations;

·       Successfulintegration of television stations we acquire;

·       Pricingfluctuations in local and national advertising;

·       Changesin national and regional economies;

·       Ourability to service and refinance our outstanding debt;

·       Changesin advertising trends and our advertisers’ financial condition; and

·       Volatilityin programming costs, industry consolidation, technological developments, andmajor world events**.**

For a discussion of additional risk factors that areparticular to our business, please refer to Part I, Item 1A. “Risk Factors”beginning on page 17. These and other matters we discuss in this report,or in the documents we incorporate by reference into this report, may causeactual results to differ from those we describe. We undertake no obligation toupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise.

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**HEARST-ARGYLETELEVISION, INC.**

**2006 ANNUAL REPORTON FORM 10-K**

**TABLEOF CONTENTS**

|                   | ** ** | ** **                                                                                                          | ** ** | ** ** | **Page** | ** ** |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|----------|------------|
| **PART I**   |
| Item 1.           |       | Business                                                                                                            |       | 4          |     |
| Item 1A.          |       | Risk Factors                                                                                                        |       | 17         |     |
| Item 1B.          |       | Unresolved  Staff Comments                                                                                          |       | 24         |     |
| Item 2.           |       | Properties                                                                                                          |       | 24         |     |
| Item 3.           |       | Legal Proceedings                                                                                                   |       | 26         |     |
| Item  4.          |       | Submission  of Matters to a Vote of Security Holders                                                                |       | 26         |     |
| **PART II**  |
| Item  5.          |       | Market  for Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities |       | 27         |     |
| Item 6.           |       | Selected  Financial Data                                                                                            |       | 30         |     |
| Item  7.          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 32         |     |
| Item  7A.         |       | Quantitative  and Qualitative Disclosures about Market Risk                                                         |       | 49         |     |
| Item  8.          |       | Financial  Statements and Supplementary Data                                                                        |       | 50         |     |
| Item  9.          |       | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                               |       | 88         |     |
| Item 9A.          |       | Controls  and Procedures                                                                                            |       | 88         |     |
| Item 9B.          |       | Other  Information                                                                                                  |       | 89         |     |
| **PART III** |
| Item  10.         |       | Directors,  Executive Officers and Corporate Governance                                                             |       | 90         |     |
| Item 11.          |       | Executive  Compensation                                                                                             |       | 90         |     |
| Item  12.         |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |       | 90         |     |
| Item  13.         |       | Certain  Relationships and Related Transactions, and Director Independence                                          |       | 90         |     |
| Item  14.         |       | Principal  Accounting Fees and Services                                                                             |       | 90         |     |
| **PART IV**  |
| Item  15.         |       | Exhibits and Financial Statement Schedules                                                                          |       | 90         |     |
|                   |            |                                                                                                                     |            |            |          |            |  |

 

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**PART I**

**ITEM 1.**                BUSINESS

**General**

Hearst-Argyle Television, Inc. (the “Company” or “we”)is one of the country’s largest independent, or non-network-owned, televisionstation groups. Headquartered in New York City, we own or manage 29 televisionstations reaching approximately 20.2 million, or approximately 18.1%, oftelevision households in the United States. Our 13 ABC-affiliated televisionstations, which reach 8.3% of U.S. television households, represent the largestABC affiliate group. Our 10 NBC-affiliated television stations, which reach7.2% of U.S. television households, represent the second largest NBC affiliategroup. We own two CBS-affiliated television stations, one CW station and oneMyNetworkTV station, and we also manage one CW station and one independentstation for The Hearst Corporation (“Hearst”). Our primary objective is tomaximize the revenue and profits of our media properties by optimizing audienceratings and market share. We believe that local news leadership, the effectiveshowcasing of network and syndicated programs, and serving our localcommunities, drive market-competitive ratings, revenue share and station andWebsite profitability. We are a leader in the convergence of local broadcasttelevision and the Internet through our investment in, and operating agreementwith, Internet Broadcasting, which operates a nation-wide network of televisionWebsites. Our stations’ Websites typically provide news, weather, communityinformation, user generated content and entertainment content to our audience. Ourstations’ Websites attracted a combined average of 3.9 million unique viewersand generated 106.9 million average page views per month during 2006. Also,as part of our ongoing initiative to explore additional uses of our digitalspectrum, 12 of our stations broadcast additional channels on a multicaststream in addition to their main digital channel. Our NBC-affiliated stationsmulticast the NBC Weather Plus Network, the first ever 24/7, all digital, localand national broadcast network, and two of our other stations launched similarstation-branded multicast weather channels in 2006. We also manage two radiostations which are owned by Hearst.

We provide, throughour local television stations, free over-the-air programming to our local communities.Our programming includes three main components:

·       programsproduced by networks with which we are affiliated, such as ABC’s *Grey’s Anatomy*, NBC’s *Law and Order*and CBS’ *CSI:**Crime Scene Investigation*,and special event programs like The Academy Awards, the Olympics and the SuperBowl;

·       programsthat we produce at our stations, such as local news, weather, sports andentertainment; and

·       first-runsyndicated programs that we acquire, such as *The**Oprah Winfrey Show* and *Entertainment Tonight*.

In keeping with our commitment to serve the publicinterest of the local communities in which we operate, our television stationsand Websites also provide public service announcements and political coverageand sponsor community service projects and other public initiatives.

Our primary source of revenue is the sale ofadvertising to advertisers. We seek to attract advertising customers andincrease our advertiser base by delivering mass audiences in key demographics,primarily in the top 75 U.S. television markets as measured by Nielsen MediaResearch. We also seek to attract our television audience by providingcompelling content on multiple media platforms. We provide leading local newsprogramming and popular network and syndicated programs at each of our televisionstations, 20 of which are in the top 50 U.S. television markets. In addition,we seek to make our content available to our audience as they use additionalcontent platforms, such as the Internet and portable devices, during their day.We stream a portion of our television programming, including our news andweather forecasts, and we 

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publish communityinformation, user generated content and entertainment content on our stations’Websites. In certain markets, we have also established a mobile presence forour stations’ Websites. We believe that aligning our content offerings withaudience media consumption patterns in this manner ultimately benefits ouradvertisers. Our advertisers benefit from a variety of marketing opportunities,including traditional spot campaigns, community events and sponsorships at ourtelevision stations, as well as on our stations’ Internet and/or mobileWebsites, enabling them to reach our audience in multiple ways.

We believe that excellence in news coverage is a keydeterminant to developing a loyal audience, which is instrumental to a station’scompetitive, operational and financial success. We focus on the coverage oflocal and national issues, breaking news, accurate and timely forecasting oflocal weather conditions and the latest information at times of emergencies, aswell as coverage of political issues, candidates, debates, and elections. Wetypically rank either first or second (in total household ratings and by shareof demographic audience, adults aged 25-54) in local morning and eveningnews programs in at least 19 of the 25 markets where we produce news. Inaddition, our television stations have been recognized with numerous local,state and national awards for outstanding news coverage. Our stations havereceived numerous honors in recent years, including three consecutive WalterCronkite Awards bestowed by the University of Southern California’s AnnenbergSchool for Communication, Edward R. Murrow Awards, George Foster PeabodyAwards, Alfred I. duPont Columbia Awards, National Headliner Awards, the NABService to America Award, as well as numerous state and local Emmy andAssociated Press honors.

We believe that capitalizing on the opportunitiesafforded the television industry by digital media, such as digitalmulti-casting, streaming on broadband, video-on-demand and mobile and otherportable devices, is important to our future success. We devote substantialenergy and resources to integrating such media into our business and seekinvestment opportunities in companies which we believe are well-positioned foremerging trends in digital media.

For the year ended December 31, 2006, we hadrevenue of $785.4 million, employed 3,312 full-time and part-time employees andoperated in 25 U.S. markets. Information about our financial results isdiscussed under Item 7 “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” beginning on page 32, and presentedunder Item 8 “Financial Statements and Supplementary Data” beginning on page 50.

Hearst-Argyle isincorporated under the laws of the State of Delaware. Our principal executiveoffices are located at 300 West 57th Street, New York, New York 10019, and our maintelephone number at that address is (212) 887-6800. Our Series ACommon Stock is listed on the New York Stock Exchange under the ticker symbol “HTV”.

**Company Background**

Hearst-Argyle Television, Inc. was formed in August 1997when Hearst combined its television broadcast group and related broadcastoperations (the “Hearst Broadcast Group”) with those of Argyle Television, Inc.(“Argyle”).

Founded by William Randolph Hearst in 1887, The HearstCorporation entered the broadcasting business in 1928 with its acquisition ofradio station WSOE in Milwaukee, Wisconsin. In 1948, Hearst launched its firsttelevision station, WBAL-TV, in Baltimore, Maryland, which was the nation’s 19th television station. Thatsame year, WLWT(TV), in Cincinnati, Ohio, later to become an Argyle station,was launched as the nation’s 20th television station and WDSU(TV), in NewOrleans, Louisiana, later to be acquired by the Pulitzer Publishing Company,was launched as the nation’s 48th television station. By 1997, when Hearst andArgyle combined their broadcast operations to form our company, the twocompanies had a combined total of 15 owned and managed television stations andtwo managed radio stations.

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Since that time, we have acquired additionaltelevision stations through asset purchase, asset exchange or mergertransactions, including merger transactions in 1999 with Pulitzer PublishingCompany, in which we acquired nine television stations and five radio stations,and with Kelly Broadcasting Company, in which we acquired our televisionstations in Sacramento, California, and a three-party asset exchange transactionin 2001 pursuant to which we sold three Phoenix, Arizona radio stations andacquired WMUR-TV, Manchester, New Hampshire. In 2004, we purchased an ABCaffiliate, WMTW-TV, in Portland, Maine and in 2006, we purchased a CWaffiliate, WKCF(TV), in Orlando, Florida.

We also have a strategic equity investment in InternetBroadcasting Systems, Inc. (“Internet Broadcasting”). Each of our stationshas a Website for which certain services and content are produced and managedby Internet Broadcasting. Our stations’ Websites typically provide news,weather, community information, user generated content and entertainmentcontent. These Websites are part of a nation-wide network of local Websitesthat we and Internet Broadcasting have built with other television stationgroups. The Internet Broadcasting network provides local Internet coverage of57 markets, reaching 65% of U.S. households. We also have a strategic equityinvestment in Ripe Digital Entertainment, Inc. (“Ripe TV”), anadvertising-supported free digital video-on-demand program service fordistribution via multiple platforms, including digital cable, broadband, andcell phones. In addition, we have a minority interest in the ArizonaDiamondbacks major league baseball team, which we acquired in the Pulitzertransaction.

As of February 15, 2007, Hearst owned, throughits wholly-owned subsidiaries, Hearst Holdings, Inc., a Delawarecorporation (“Hearst Holdings”), and Hearst Broadcasting, Inc., a Delawarecorporation (“Hearst Broadcasting”), 100% of the issued and outstanding sharesof our Series B Common Stock, par value $.01 per share, (the “Series BCommon Stock,” and together with our Series A Common Stock, par value $.01per share, the “Series A Common Stock,” the “Common Stock”) andapproximately 52.9% of the issued and outstanding shares of our Series ACommon Stock, representing in the aggregate approximately 73.75% of theoutstanding voting power of our Common Stock (except with regard to theelection of directors, which is discussed below). On February 15, 2007,Hearst Broadcasting also owned 500,000 Series B Redeemable ConvertiblePreferred Securities due 2021 that were issued by Hearst-Argyle Capital Trust,our wholly-owned subsidiary trust. Hearst Broadcasting may convert the Series BRedeemable Convertible Preferred Securities into 986,131 shares of our Series ACommon Stock, representing in the aggregate approximately 1.9% of theoutstanding voting power of our Common Stock (except with respect to theelection of directors, which is discussed below) as of February 15, 2007. Becauseof Hearst’s ownership, we are considered a “controlled company” under New YorkStock Exchange rules.

Hearst Broadcasting’sownership of our Series B Common Stock entitles it to elect as a class allbut two members of our Board of Directors (the “Board”). The holders of our Series ACommon Stock are entitled to elect the remaining two members of our Board. WhenHearst combined the Hearst Broadcast Group with Argyle in August 1997,Hearst agreed that, for purposes of any vote to elect directors and for as longas it held any shares of our Series B Common Stock, it would vote anyshares of Series A Common Stock that it owned only in the same proportionas the shares of Series A Common Stock not held by Hearst are voted in theelection.

**The Stations**

We own 26 television stations. In addition, we managethree television stations (WMOR-TV in Tampa, Florida, WPBF(TV) in West PalmBeach, Florida and KCWE(TV) in Kansas City, Missouri) and two radio stations(WBAL(AM) and WIYY(FM) in Baltimore, Maryland), all of which are owned byHearst. Of the 29 television stations we own or manage, 20 are in the top 50 ofthe 210 generally recognized geographic designated market areas (“DMAs”)according to Nielsen Media Research (“Nielsen”) estimates for the 2006-2007television broadcasting season.

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Thefollowing table sets forth certain information for each of our owned andmanaged television stations as of December 31, 2006:

| **Station** | ** ** | ** **                        | ** ** | **Market** | ** ** | **Market  Rank(1)** | ** ** | **Network  Affiliation(2)** | ** ** | **Analog  Channel** | ** ** | **Digital  Channel(3)** | ** ** | **Percentage  Of U.S.  Television  Households(4)** | ** ** |
|-------------|------------|-----------------------------------|------------|------------|------------|---------------------|------------|-----------------------------|------------|---------------------|------------|-------------------------|------------|---------------------------------------------------------|------------|
| WCVB        |       | Boston,  MA                       |       |       | 7          |                |       |                        | ABC        |                |       |                    | 5          |                                                    |       |   | 20 |   |   |   | 2.130 | % |   |
| WMUR        |       | Manchester, NH(5)            |       |       | 7          |                |       |                        | ABC        |                |       |                    | 9          |                                                    |       |   | 59 |   |   |   | — |   |   |
| WMOR        |       | Tampa,  FL                        |       |       | 12         |                |       |                        | IND        |                |       |                    | 32         |                                                    |       |   | 19 |   |   |   | 1.577 | % |   |
| WESH        |       | Orlando,  FL                      |       |       | 19         |                |       |                        | NBC        |                |       |                    | 2          |                                                    |       |   | 11 |   |   |   | 1.254 | % |   |
| WKCF        |       | Orlando,  FL(6)                   |       |       | 19         |                |       |                        | CW         |                |       |                    | 18         |                                                    |       |   | 17 |   |   |   | — |   |   |
| KCRA        |       | Sacramento,  CA                   |       |       | 20         |                |       |                        | NBC        |                |       |                    | 3          |                                                    |       |   | 35 |   |   |   | 1.229 | % |   |
| KQCA        |       | Sacramento,  CA(7)                |       |       | 20         |                |       |                        | MNT        |                |       |                    | 58         |                                                    |       |   | 46 |   |   |   | — |   |   |
| WTAE        |       | Pittsburgh,  PA                   |       |       | 22         |                |       |                        | ABC        |                |       |                    | 4          |                                                    |       |   | 51 |   |   |   | 1.045 | % |   |
| WBAL        |       | Baltimore,  MD                    |       |       | 24         |                |       |                        | NBC        |                |       |                    | 11         |                                                    |       |   | 59 |   |   |   | 0.985 | % |   |
| KMBC        |       | Kansas  City, MO                  |       |       | 31         |                |       |                        | ABC        |                |       |                    | 9          |                                                    |       |   | 7 |   |   |   | 0.820 | % |   |
| KCWE        |       | Kansas  City, MO(8)               |       |       | 31         |                |       |                        | CW         |                |       |                    | 29         |                                                    |       |   | 31 |   |   |   | — |   |   |
| WLWT        |       | Cincinnati,  OH                   |       |       | 33         |                |       |                        | NBC        |                |       |                    | 5          |                                                    |       |   | 35 |   |   |   | 0.797 | % |   |
| WISN        |       | Milwaukee,  WI                    |       |       | 34         |                |       |                        | ABC        |                |       |                    | 12         |                                                    |       |   | 34 |   |   |   | 0.793 | % |   |
| WYFF        |       | Greenville,  SC                   |       |       | 36         |                |       |                        | NBC        |                |       |                    | 4          |                                                    |       |   | 59 |   |   |   | 0.742 | % |   |
| WPBF        |       | West  Palm Beach, FL              |       |       | 38         |                |       |                        | ABC        |                |       |                    | 25         |                                                    |       |   | 16 |   |   |   | 0.693 | % |   |
| WGAL        |       | Lancaster,  PA                    |       |       | 41         |                |       |                        | NBC        |                |       |                    | 8          |                                                    |       |   | 58 |   |   |   | 0.641 | % |   |
| KOAT        |       | Albuquerque,  NM                  |       |       | 45         |                |       |                        | ABC        |                |       |                    | 7          |                                                    |       |   | 21 |   |   |   | 0.595 | % |   |
| KOCO        |       | Oklahoma City, OK       |       |       | 46         |                |       |                        | ABC        |                |       |                    | 5          |                                                    |       |   | 7 |   |   |   | 0.595 | % |   |
| WXII        |       | Greensboro,  NC                   |       |       | 47         |                |       |                        | NBC        |                |       |                    | 12         |                                                    |       |   | 31 |   |   |   | 0.593 | % |   |
| WLKY        |       | Louisville,  KY                   |       |       | 48         |                |       |                        | CBS        |                |       |                    | 32         |                                                    |       |   | 26 |   |   |   | 0.582 | % |   |
| WDSU        |       | New  Orleans, LA                  |       |       | 54         |                |       |                        | NBC        |                |       |                    | 6          |                                                    |       |   | 43 |   |   |   | 0.509 | % |   |
| KITV        |       | Honolulu,  HI                     |       |       | 72         |                |       |                        | ABC        |                |       |                    | 4          |                                                    |       |   | 40 |   |   |   | 0.376 | % |   |
| KCCI        |       | Des  Moines, IA                   |       |       | 73         |                |       |                        | CBS        |                |       |                    | 8          |                                                    |       |   | 31 |   |   |   | 0.375 | % |   |
| WMTW        |       | Portland-Auburn,  ME              |       |       | 74         |                |       |                        | ABC        |                |       |                    | 8          |                                                    |       |   | 46 |   |   |   | 0.367 | % |   |
| KETV        |       | Omaha,  NE                        |       |       | 75         |                |       |                        | ABC        |                |       |                    | 7          |                                                    |       |   | 20 |   |   |   | 0.362 | % |   |
| WAPT        |       | Jackson,  MS                      |       |       | 87         |                |       |                        | ABC        |                |       |                    | 16         |                                                    |       |   | 21 |   |   |   | 0.309 | % |   |
| WPTZ/WNNE   |       | Plattsburgh,  NY/  Burlington, VT |       |       | 90         |                |       |                        | NBC        |                |       |                    | 5/31       |                                                    |       |   | 14/25 |   |   |   | 0.294 | % |   |
| KHBS/KHOG   |       | Fort  Smith/  Fayetteville, AR    |       |       | 102        |                |       |                        | ABC        |                |       |                    | 40/29      |                                                    |       |   | 21/15 |   |   |   | 0.252 | % |   |
| KSBW        |       | Monterey-Salinas,  CA             |       |       | 124        |                |       |                        | NBC        |                |       |                    | 8          |                                                    |       |   | 10 |   |   |   | 0.196 | % |   |
|        |       | TOTAL                             |       |       |       |                |       |                        |       |                |       |                    |       |                                                    |       |   |   |   |   |   | 18.111 | % |   |

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(1)          Television market rankis based on the relative size of the DMAs (defined by Nielsen as geographicmarkets for the sale of national “spot” and local advertising time) among the210 generally recognized DMAs in the United States, based on Nielsen estimatesfor the 2006-2007 season.

(2)          ABC refers to the ABCTelevision Network; CBS refers to the CBS Television Network; IND refers to anindependent station not affiliated with a network; NBC refers to the NBCTelevision Network; CW refers to The CW Network, formed by the 2006 merger ofthe UPN and WB networks; MNT refers to MyNetworkTV, launched in 2006 by the FoxBroadcasting Company.

(3)          Our television stationsare required to transition from analog television service to digital televisionservice by February 17, 2009. At present, all of our stations areoperating both analog and digital channels (with the exception of WDSU, whichis in the process of reconstructing its digital 

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transmission facility dueto damage sustained from Hurricane Katrina, and KMAU (satellite of KITV), whichis permitted to flash cut to digital on its current analog channel at the endof the digital transition). At the end of the transition, each station mustoperate with only one digital channel; however, this channel may be subdividedinto several sub-channels containing different content. In 2005, each stationwas required to elect a channel for operation after the digital transition. Theelected channel is either the station’s current analog channel, current digitalchannel, or it may be a new channel. The FCC has tentatively approved thechannel elections of each of our stations. Notwithstanding a station’s ultimatedigital channel, during and after the digital transition, stations may maintaintheir local brand identification associated with their analog channel numberthrough use of the Program and System Information Protocol (“PSIP”). In generaland as required by the FCC, PSIP works in conjunction with digital receiversand associates a station’s digital channel with the station’s analog channelnumber. For example, WCVB, which operates on analog channel 5 and digitalchannel 20, uses channel 5 as its “major” PSIP channel, and viewers access thestation’s digital channel by tuning to channel 5 on their digital receivers. Dueto PSIP, the fact that WCVB’s digital station technically operates on channel20 is not apparent to the viewer.

(4)          Based on Nielsenestimates for the 2006-2007 season.

(5)          Because WMUR and WCVBare in the same DMA, the FCC counts audience reach in this DMA only once forthe two stations.

(6)          Because WESH and WKCFare in the same DMA, the FCC counts audience reach in this DMA only once forthe two stations.

(7)          Because KQCA and KCRAare in the same DMA, the FCC counts audience reach in this DMA only once forthe two stations.

(8)          Because KCWE and KMBCare in the same DMA, the FCC counts audience reach in this DMA only once forthe two stations.

Thefollowing table sets forth certain information for each of our managed radiostations:

| **Station** | ** ** | ** **            | ** ** | **Market** | ** ** | **Market**  Rank(1) | ** ** | **Format** |
|-------------|------------|-----------------------|------------|------------|------------|---------------------|------------|------------|
| WBAL(AM)    |       | Baltimore, MD(2) |       | 21         |       | News/Talk           |
| WIYY(FM)    |       | Baltimore, MD(2) |       | 21         |       | Rock                |

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(1)          Radio market rank isbased on the relative size of the Metro Survey Area (defined by Arbitron asgenerally corresponding to the Metropolitan Statistical Areas, defined by theU.S. Office of Management and Budget) for Arbitron’s Fall 2006 Radio MarketReport.

(2)          We manage WBAL(AM) andWIYY(FM) under a management agreement with Hearst.

We have an option to acquireWMOR-TV and KCWE(TV) from Hearst, at their fair market value as determined bythe parties, or by an independent third-party appraisal, subject to certainspecified parameters (and we may withdraw any option exercise after we receivethe third-party appraisal). However, if Hearst elects to sell either stationduring the option period, we will have a right of first refusal to acquire thatstation substantially on the terms agreed upon between Hearst and the potentialbuyer. We also have a right of first refusal to purchase WPBF(TV) if Hearstproposes to sell the station to a third party We will exercise any option orright of first refusal related to these properties by action of our independentdirectors. The option periods and the rights of first refusal expire in December 2007.

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**NetworkAffiliations**

*General.**  *Twenty-eight of our 29 owned ormanaged television stations are affiliated with one of the following networkspursuant to a network affiliation agreement: ABC (13 stations), NBC (10stations), CBS (two stations), CW (two stations) and MyNetworkTV (one station).WMOR-TV in Tampa, Florida currently operates as an independent station.

Each affiliation agreement provides the affiliatedstation with the right to broadcast all programs transmitted by the network,which constitute approximately 14 hours of programming on a typical weekday onour ABC, NBC and CBS stations. In return, the network has the right to sell asignificant portion of the advertising time during those broadcasts. Theduration of a majority of our stations’ affiliations with their networks hasexceeded 40 years and, for certain stations, has continued for more than 50years. Our two radio stations also have an affiliation agreement with a networkthat provides certain content (e.g., news and sports) for the stations. However,our radio stations are less dependent on their affiliation agreements forprogramming.

*NetworkCompensation.**  *Historically,broadcast television networks have paid compensation to their affiliates,primarily in exchange for the broadcasting of network programming. In recentyears, network compensation has been reduced and in the future may beeliminated. Our affiliation agreements with NBC and CBS provide forcompensation that is weighted toward the first part of the term and declines tozero by the end of the term. In addition, more recently established networksgenerally have paid little or no cash compensation for the clearance of networkprogramming or have required payment from their affiliates.

*ABC.*   Theterm of each affiliation agreement for our ABC-affiliated stations—WCVB, WMUR,WTAE, KMBC, WISN, WPBF, KOCO, KOAT, KITV, WMTW, KETV, WAPT and KHBS/KHOG—is fora period of five years, expiring December 31, 2009.

*NBC.**  *The term of the affiliation agreementfor our NBC-affiliated stations—KCRA, WESH, WBAL, WLWT, WYFF, WGAL, WDSU, WXII,WPTZ/WNNE and KSBW—is for a period of nine years, six months, expiring December 31,2009. In addition, certain of our NBC stations have become affiliates of theNBC Weather Plus network. See “Digital Media Initiatives.”

*CBS.**  *The term of each affiliationagreement for our CBS-affiliated stations—WLKY and KCCI—is for a period of tenyears, expiring June 30, 2015.

*CW.**  *Warner Brothers and CBS Corp., respective owners ofthe former WB and UPN networks, discontinued the WB and UPN networks in thefall of 2006. On September 18, 2006, Warner Brothers and CBS Corp., in ajoint venture, commenced operation of a new network, The CW. Certain former WBand UPN network affiliates are now affiliated with The CW, including KCWE andWKCF. The term of each affiliation agreement for our CW-affiliated stations isfor a period of five years, expiring September 18, 2011.

*MyNetworkTV.**  *On September 5, 2006, News Corporation created anew prime-time network called MyNetworkTV. KQCA is affiliated with MyNetworkTV.The term of KQCA’s MyNetworkTV affiliation agreement is for a period of 2years, expiring September 5, 2008.

**Digital Media Initiatives**

We and other television station groups have enteredinto operating agreements with Internet Broadcasting to operate a nation-widenetwork of local Websites. The Internet Broadcasting network, which covers 57markets and reaches 65% of U.S. households, attracted on the average 12.2million monthly unique viewers, according to Nielsen NetRatings, and generated402.0 million average page views per month during 2006. Our stations’local Websites are part of this national network, for which Internet Broadcastingprovides content, production and management services on their technologyplatform. Our 

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stations’ Websitestypically provide news, weather, community information, user generated contentand entertainment content, including live video streams of breaking news eventsand access to video clip archives. Our stations’ Websites attracted a combinedaverage of 3.9 million monthly unique viewers, according to Nielsen NetRatings,and generated 106.9 million average page views per month during 2006. Threeof our executive officers, Harry T. Hawks, Steven A. Hobbs and Terry Mackin,serve on the Board of Directors of Internet Broadcasting.

In addition to the Internet-based services that we andInternet Broadcasting provide, we deliver various forms of content optimizedfor wireless devices in 12 of our markets, including Orlando, Sacramento andBoston. We also have launched station-branded multicast weather channels inOmaha and Des Moines. We continually seek to expand and enhance ourmulticasting, Internet and mobile content offerings to meet the changing needsof our audience and, ultimately, to attract advertisers.

In November 2004 NBC Universal and the NBCTelevision Affiliates Association formed NBC Weather Plus Network LLC, a 50/50joint venture which launched the first ever 24/7, all digital, local andnational broadcast network. NBC-affiliated stations participated in the ventureby investing in a limited liability company called Weather Network AffiliatesCompany, LLC, one of the entities which invested in NBC Weather Plus NetworkLLC. Stations participating in the venture broadcast 24-hour national andlocal weather and related community information using their digital spectrum(as a multi-cast stream which is separate from their main digital channel). Wehave launched NBC Weather Plus in all of our NBC markets. Terry Mackin, one ofour executive officers, serves as the past Chairman of the Board of the NBCTelevision Affiliates Association, which is the managing member and the ownerof certain ownership interests in Weather Network Affiliates Company, LLC. Aspast NBC Affiliate Chairman, Mr. Mackin serves as chairman of the NBCAffiliates “Futures” committee, which is responsible for developing strategicprojects between NBC and the NBC Affiliates. Mr. Mackin served as theChairman of the NBC Television Affiliates Association Board from May 2004to May 2006. Additionally, since May 2006, Mr. Mackin has servedas a member of the Board of Directors of NBC Weather Plus Network LLC.

In July 2005, we madean equity investment in Ripe TV. Ripe TV was formed in 2003 to create an advertising-supported,free, digital video-on-demand program service, consisting primarily ofshort-form entertainment content. Launched in October 2005, the programservice targets men aged 18-34 and is available for distribution viamultiple platforms, including digital cable, broadband, and cell phones. RipeTV is currently carried on the video-on-demand tiers of both Comcast’s and TimeWarner’s cable services. Two of our executive officers, Steven A. Hobbs andTerry Mackin, serve on the Board of Directors of Ripe TV.

**The CommercialTelevision Broadcasting Industry**

*General.**  *Commercial television broadcastingbegan on a regular basis in the 1940s. Currently a limited number of channelsare available for over-the-air broadcasting in any one geographic area, and alicense to operate a television station must be granted by the FCC. Alltelevision stations in the country are grouped by Nielsen into 210 generallyrecognized television markets that are ranked in size based upon actual orpotential audience. Each of these markets, called “Designated Market Areas” or “DMAs”,is designated as an exclusive geographic area consisting of all counties whoselargest viewing share is given to stations of that same market area. Nielsenregularly publishes data on estimated audiences for the television stations ineach DMA, which data is a significant factor in determining our advertisingrates.

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*Revenue.*   Televisionstation revenue is derived primarily from local, regional and nationaladvertising and, to a lesser extent, from retransmission revenue (consisting ofcompensation paid to us by multi-channel, video program distributors (“MVPDs”)as compensation for retransmitting our stations’ signals), network compensationand other sources. Advertising rates are set based upon a variety of factors,including

·       aprogram’s popularity among the viewers an advertiser wishes to attract; 

·       thenumber of advertisers competing for the available time; 

·       thesize and demographic makeup of the market served by the station; and 

·       theavailability of alternative advertising media in the market. 

Also, advertising ratesare determined by a station’s ratings and audience share among particulardemographic groups.

**Competition **

*General.**  *Competition in the televisionindustry takes place on three primary levels:

·       competitionfor audience; 

·       competitionfor programming; and

·       competitionfor advertisers.

*Competitionfor Audience.**  *Wecompete for audience on the basis of program popularity, which programmingconsists not only of our locally-produced news, public affairs andentertainment programming, but syndicated and network programming as well. Thepopularity of our programming has a significant effect on the rates we cancharge our advertisers. In addition, although the commercial televisionbroadcast industry historically has been dominated by the broadcast networksABC, NBC, CBS and FOX, other non-broadcast networks and programming originatedto be distributed solely via MVPDs, such as cable and satellite systems, havebecome significant competitors for the broadcast television audience. Currently,broadcast-originated programming accounts for about half of all televisionviewing. 

In addition, while we stream a portion of ourtelevision programming, including our news and weather forecasts, and wepublish community information, user generated content and entertainmentcontent, on our stations’ Websites, and have established a mobile presence incertain of our markets, we increasingly compete for audience with other contentproviders who operate on these platforms, as well. 

Other sources ofcompetition for audience include 

·       homeentertainment and recording systems (including VCRs, DVDs, DVRs and playbacksystems); 

·       video-on-demandand pay-per-view;

·       televisiongame devices; 

·       othersources of home entertainment. 

*Competitionfor Programming.**  *Competitionfor non-network programming involves negotiating with national programdistributors or syndicators that sell first-run and off-network packages ofprogramming. Our stations predominantly carry first-run syndicated product andcompete against other local broadcast stations****forexclusive local access to the most popular programs (such as *The Oprah Winfrey Show*, which we carry in a majority of ourmarkets). To a lesser extent, we compete for exclusive local access tooff-network reruns (such as *Friends*).MVPDs also compete with local stations for programming, and various nationalcable and satellite networks from time to time have acquired programs thatotherwise would have 

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been offered to localtelevision stations. In addition, networks have recently begun to distributetheir programming directly to the consumer via the Internet and portabledigital devices such as video iPods and cell phones.

*Competitionfor Advertisers.**  *Broadcasttelevision stations compete for advertising revenue and marketing sponsorshipwith other broadcast television stations, and a station’s competitive edge isin large part determined by the success of its programming. Broadcasttelevision stations also compete for advertising revenue with a variety ofother media, such as newspapers, radio stations, magazines, outdooradvertising, transit advertising, yellow page directories, direct mail,the Internet and MVPDs serving the same market. 

Additional factorsrelevant to a television station’s competitive position include signal strengthand coverage within a geographic area and assigned frequency or channelposition. Television stations that broadcast over the VHF band (channels 2-13)of the spectrum historically have had a competitive advantage over televisionstations that broadcast over the UHF band (channels above 13) of the spectrumbecause the former usually have better signal coverage and operate at a lowertransmission cost. However, the improvement of UHF transmitters and receivers,the complete elimination from the marketplace of VHF-only receivers, theexpansion of MVPD systems (such as cable and satellite) and the commencement ofand transition to digital broadcasting have reduced the VHF signal’scompetitive advantage.

**Seasonality,Cyclicality and Materiality of Automotive Advertising**

Our business has experienced and is expected tocontinue to experience seasonality due to, among other things, seasonaladvertising patterns and seasonal influences on people’s viewing habits. Theadvertising revenue of our stations is generally highest in the second andfourth quarters of each year, due in part to increases in consumer advertisingin the spring and retail advertising in the period leading up to and includingthe holiday season. Additionally, advertising revenue is cyclical, benefitingin even-numbered years from advertising placed by candidates for politicaloffices and issue-oriented advertising, and demand for advertising time inOlympic broadcasts. While political and Olympic advertising cycles have been anormal pattern for our industry for decades, the variability has become morepronounced in recent years as these respective categories of revenue have grownsignificantly in size. The seasonality and cyclicality inherent in our businessmake it difficult to estimate future operating results based on the previousresults of any specific quarter.

In addition, the Companyderives a material portion of its ad revenue from the automotive industry. Approximately22% of the Company’s total revenue came from the automotive category in 2006. Anincrease or decrease in revenue from this category therefore maydisproportionately impact our operating results. 

**Federal Regulationof Television Broadcasting**

*General.**  *Broadcasting is subject to thejurisdiction of the FCC under the Communications Act of 1934, as amended (the “CommunicationsAct”). The Communications Act requires the FCC to regulate broadcasting so asto serve “the public interest, convenience and necessity.” The CommunicationsAct prohibits the operation of broadcast stations except pursuant to licensesissued by the FCC and empowers the FCC, among other things, to 

·       issue,renew, revoke and modify broadcasting licenses; 

·       assignfrequency bands;

·       determinestations’ frequencies, locations and power; and

·       regulatethe equipment used by stations. 

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The Communications Act prohibits the assignment of alicense or the transfer of control of a license without the FCC’s priorapproval. The FCC also regulates certain aspects of the operation of cabletelevision systems, direct broadcast satellite (“DBS”) systems and otherelectronic media that compete with broadcast stations. In addition, althoughthe FCC has reduced its regulation of broadcast stations, the FCC continues toregulate matters such as television station ownership, network-affiliaterelations, cable and DBS systems’ carriage of television station signals,carriage of syndicated and network programming on distant stations, politicaladvertising practices and obscene and indecent programming. In recent years,the FCC and Congress have increased their regulatory focus on indecency, whichmay impact certain of our programming decisions. 

The following discussion summarizes the federalstatutes and regulations material to our operations, but does not purport to bea complete summary of all the provisions of the Communications Act or of othercurrent or proposed statutes, regulations, and policies affecting our business.The summaries which follow should be read in conjunction with the text of thestatutes, rules, regulations, orders, and decisions described herein.

*LicenseRenewals.**  *Underthe Communications Act, the FCC generally may grant and renew broadcastlicenses for terms of eight years, though licenses may be renewed for a shorterperiod under certain circumstances. The Communications Act requires the FCC torenew a broadcast license if the FCC finds that (i) the station has servedthe public interest, convenience and necessity; (ii) there have been noserious violations of either the Communications Act or the FCC’s rules andregulations by the licensee; and (iii) there have been no other seriousviolations that taken together constitute a pattern of abuse. In making itsdetermination, the FCC may consider petitions to deny but cannot considerwhether the public interest would be better served by issuing the license to aperson other than the renewal applicant. In addition, competing applicationsfor the same frequency may be accepted only after the FCC has denied anincumbent’s application for license renewal. 

The following tableprovides the expiration dates for the full power station licenses of our ownedand managed television stations: 

| **Station**                           | ** ** | ** **          | ** ** | **Market**             | ** ** | **Expiration of**   FCC License |
|---------------------------------------|------------|---------------------|------------|------------------------|------------|---------------------------------|
| WCVB                                  |       | Boston, MA          |       | April 1, 2007*    |
| WMUR                                  |       | Manchester, NH(1)   |       | April 1, 2007*    |
| WMOR                                  |       | Tampa, Fl           |       | February 1, 2013  |
| WESH                                  |       | Orlando, FL         |       | February 1, 2013  |
| WKCF                                  |       | Orlando, FL         |       | February 1, 2013  |
| KCRA                                  |       | Sacramento, CA      |       | December 1, 2014  |
| KQCA                                  |       | Sacramento, CA      |       | December 1, 2006* |
| WTAE                                  |       | Pittsburgh, PA      |       | August 1, 2007    |
| WBAL                                  |       | Baltimore, MD       |       | October 1, 2012   |
| KMBC                                  |       | Kansas City, MO     |       | February 1, 2014  |
| KCWE                                  |       | Kansas City, MO     |       | February 1, 2014  |
| WLWT                                  |       | Cincinnati, OH      |       | October 1, 2013   |
| WISN                                  |       | Milwaukee, WI       |       | December 1, 2005* |
| WYFF                                  |       | Greenville, SC      |       | December 1, 2012  |
| WPBF                                  |       | West Palm Beach, FL |       | February 1, 2013  |
| WGAL                                  |       | Lancaster, PA       |       | August 1, 2007    |
| KOAT                                  |       | Albuquerque, NM     |       | October 1, 2014   |
| KOCT (satellite station of KOAT)**    |       | Carlsbad, NM        |       | October 1, 2014   |
| KOVT (satellite station of KOAT)**    |       | Silver City, NM     |       | October 1, 2014   |
| KOFT-DT (satellite station of KOAT)** |       | Farmington, NM      |       | —(2)              |

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| KOCO                               |   | Oklahoma City, OK    |   | June 1, 2014      |
|------------------------------------|--------|----------------------|--------|------------------------|
| WXII                               |   | Greensboro, NC       |   | December 1, 2012  |
| WDSU                               |   | New Orleans, LA      |   | June 1, 2013      |
| WLKY                               |   | Louisville, KY       |   | August 1, 2013    |
| KITV                               |   | Honolulu, HI         |   | February 1, 2007* |
| KHVO (satellite station of KITV)** |   | Hilo, HI             |   | February 1, 2007* |
| KMAU (satellite station of KITV)** |   | Wailuku, HI          |   | February 1, 2007* |
| KCCI                               |   | Des Moines, IA       |   | February 1, 2014  |
| WMTW                               |   | Portland-Auburn, ME  |   | April 1, 2007*    |
| KETV                               |   | Omaha, NE            |   | June 1, 2014      |
| WAPT                               |   | Jackson, MS          |   | June 1, 2013      |
| WPTZ                               |   | Plattsburgh, NY      |   | June 1, 2007*     |
| WNNE (satellite station of WPTZ)** |   | Burlington, VT       |   | April 1, 2007*    |
| KHBS                               |   | Fort Smith, AR       |   | June 1, 2013      |
| KHOG (satellite station of KHBS)** |   | Fayetteville, AR     |   | June 1, 2013      |
| KSBW                               |   | Monterey-Salinas, CA |   | December 1, 2014  |

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(1)          Manchester,New Hampshire is determined by Nielsen to be a part of the Boston DMA.

(2)          Oursatellite station KOFT-DT in Farmington, NM operates in digital mode onlypursuant to a special temporary authority which the FCC must renewperiodically.

*                    Wehave filed for renewal of licenses for these stations, and those applicationsare pending. A station’s authority to operate is automatically extended while arenewal application is on file and under review.

**             Satellite stationsgenerally retransmit the signal of a primary station, and offer some locallyoriginated programming.

*Ownership Regulation.**  *The Communications Act and FCC rules limitthe ability of individuals and entities to have ownership or other attributableinterests in certain combinations of broadcast stations and other media. In June 2006,the FCC launched a rulemaking proceeding to promulgate new media ownershiprules. This rulemaking is, in part, a response to the 2004 decision of theThird Circuit Court of Appeals, which stayed and remanded several of theownership rule changes that the FCC had adopted in 2003. The rules adoptedin 2003 would have liberalized most of the ownership rules which wouldhave permitted us to acquire television stations in certain markets where weare currently prohibited from acquiring new stations. During the pendency ofthe FCC’s current rulemaking proceeding, the FCC’s pre-June 2003 broadcastownership rules remain in effect. The FCC’s currently effective ownership rules thatare material to our operations are summarized below:

·       *Local Television Ownership.  *Underthe FCC’s current local television ownership (or “duopoly”) rule, a party mayown multiple television stations without regard to signal contour overlapprovided they are located in separate Nielsen DMAs. In addition, the rules permitparties to own up to two TV stations in the same DMA so long as (1) atleast one of the two stations is not among the top four-ranked stations in themarket based on audience share at the time an application for approval of theacquisition is filed with the FCC, and (2) at least eight independentlyowned and operating full-power commercial and non-commercial televisionstations would remain in the market after the acquisition. In addition, withoutregard to the number of remaining or independently owned television stations,the FCC will permit television duopolies within the same DMA so long as theGrade B signal contours of the stations involved do not overlap. Stationsdesignated by the FCC as ‘‘satellite” stations, which are full-power stationsthat typically rebroadcast the programming of a ‘‘parent’’ station, are exemptfrom the local television ownership rule. Also, the FCC may grant a waiver ofthe local television ownership rule if one of the two television stationsis a ‘‘failed’’ or 

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‘‘failing’’ station or ifthe proposed transaction would result in the construction of a new televisionstation. We are currently in compliance with the local television ownershiprule.

·       *National Television Ownership Cap.  *TheCommunications Act, as amended in 2004, limits the number of televisionstations one entity may own nationally. Under the rule, no entity may have anattributable interest in television stations that reach, in the aggregate, morethan 39% of all U.S. television households.

The FCC currentlydiscounts the audience reach of a UHF station by 50% when computing thenational television ownership cap. Further, for entities that have attributableinterests in two stations in the same market, the FCC counts the audience reachof the stations in that market only once in computing the national ownershipcap. The FCC is currently considering whether to retain the UHF discount. Thepropriety of the UHF discount will be the subject of further administrativeproceedings, but the discount currently remains in effect.

·       *Dual Network Rule.  *The dual network rule prohibitsa merger between or among any of the four major broadcast television networks—ABC,CBS, FOX and NBC.

·       *Media Cross-Ownership*.   The FCC’scurrently effective rules prohibit the licensee of a radio or TV stationfrom directly or indirectly owning, operating, or controlling a daily newspaperif the station’s specified service contour encompasses the entire communitywhere the newspaper is published. While the FCC liberalized this rule in2003, the new version of the rule remains under review and is noteffective. The new rule, if it were adopted, would permit us to acquirestations in certain areas where Hearst, our controlling stockholder, ownsnewspapers.

The cross-ownershiprules also permit cross ownership of radio and television stations under agraduated test based on the number of independently owned media voices in thelocal market. In large markets, (markets with at least 20 independently ownedmedia voices), a single entity can own up to one television station and seven radiostations or, if permissible under the local television ownership rule (ifeight full-power television stations would remain in the market posttransaction), two television stations and six radio stations. Our televisionand radio stations in Baltimore, Maryland, are permanently grandfathered underthis rule.

·       *Attribution of Ownership.  *Under theFCC’s attribution policies, the following relationships and interests generallyare attributable for purposes of the FCC’s broadcast ownership restrictions:

·        holdersof 5% or more of the licensee’s voting stock, unless the holder is a qualifiedpassive investor, in which case the threshold is a 20% or greater voting stockinterest;

·        allofficers and directors of a licensee and its direct or indirect parent(s);

·        anyequity interest in a limited partnership or limited liability company, unlessproperly “insulated” from management activities; and

·        equityand/or debt interests which in the aggregate exceed 33% of a licensee’s totalassets, if the interest holder supplies more than 15% of the station’s totalweekly programming, or is a same-market broadcast company, cable operator ornewspaper (the “equity/debt plus” standard).

All non-conforming interests acquired before November 7,1996, are permanently grandfathered and thus do not constitute attributableownership interests.

Under the single majority shareholder exception to theFCC’s attribution policies, otherwise attributable interests under 50% are notattributable if a corporate licensee is controlled by a single majorityshareholder and the minority interest holder is not otherwise attributableunder the “equity/debt plus” standard. Thus, in our case, where Hearst isthe single majority shareholder, ownership 

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of minority stockinterests of up to 33% would not be attributable absent other factors. The FCCis reviewing the single majority shareholder exception, but the exceptioncurrently remains in effect.

*DigitalTelevision Service.**  *TheCommunications Act and the FCC require television stations to transition fromanalog television service to digital television service. In 2006, newlegislation was enacted that establishes a hard transition deadline of February 17,2009. Until the end of the transition, in general, stations are required tooperate both analog and digital facilities.

*Cableand Satellite Carriage of Local Television Signals.***  **Pursuant to the Cable Television Consumer Protectionand Competition Act of 1992 (“1992 Cable Act”) and the FCC’s “must carry”regulations, cable operators are generally required to devote up to one-thirdof their activated channel capacity to the carriage of the analog signals oflocal commercial television stations. The 1992 Cable Act also prohibits cableoperators and other MVPDs from retransmitting a broadcast signal withoutobtaining the station’s consent. On a cable system-by-cable system basis, alocal television broadcast station must make a choice once every three yearswhether to proceed under the “must carry” rules or to waive the right tomandatory, but uncompensated, carriage and, instead, to negotiate a grant ofretransmission consent to permit the cable system to carry the station’ssignal, in most cases in exchange for some form of consideration from the cableoperator. In 2005, we made cable carriage elections for the three-year period January 1,2006 to December 31, 2008. We opted to negotiate retransmission consentwith most of the cable systems that carry our stations.

The Satellite Home Viewer Improvement Act of 1999 (“SHVIA”)established a compulsory copyright licensing system for the distribution oflocal television station signals by direct broadcast satellite systems toviewers in each DMA. Under SHVIA’s “carry-one, carry all” provision, a directbroadcast satellite system generally is required to retransmit the analogsignal of all local television stations in a DMA if the system chooses toretransmit the analog signal of any local television station in that DMA. Televisionstations located in markets in which satellite carriage of local stations isoffered may elect mandatory carriage or retransmission consent once every threeyears. In 2005, we made satellite carriage elections for the three-year period January 1,2006 to December 31, 2008. We opted to negotiate retransmission consentfor all satellite systems that carry our stations.

To date, the FCC has determined that cable systemsgenerally will be required under the FCC’s “must carry” rules to carry asingle programming stream transmitted by each local digital television stationat the end of the digital television transition. During the transition period,cable operators are required to carry either a station’s analog signal or asingle programming stream of the digital signal, but not both. Therefore, theFCC does not require cable operators to carry additional multicast programmingstreams that we may create using our digital spectrum. Petitions filed by thebroadcast industry requesting the FCC to reconsider that decision are pending. Nonetheless,we have retransmission consent agreements with a number of cable operators andsatellite carriers that require carriage of the analog and certain digitalprogramming streams of our stations.

The Satellite Home Viewer Extension and ReauthorizationAct of 2004 (“SHVERA”) extended until December 31, 2009, the separatecompulsory copyright license that permits satellite carriers to retransmitdistant network signals to unserved households (i.e., those households that donot receive a signal of Grade B intensity from a local network affiliate). SHVERAalso created a compulsory copyright license that permits satellite carriers toretransmit a station’s signal out of its DMA into communities in which thestation is “significantly viewed” (as that term is defined by the FCC).

*Indecency Regulation.**  *Federal law and the FCC’s rules prohibit thebroadcast of obscene material at any time, and the broadcast of indecent orprofane material during the period from 6 a.m. through 10 p.m. Inrecent years, the FCC and its indecency prohibition have received muchattention. In 2006, legislation was enacted that raised the maximum monetarypenalty for the broadcast of obscene, indecent, or profane language to $325,000for each “violation,” with a cap of $3 million for any “single act.”

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**Employees**

As of December 31,2006, we had approximately 2,938 full-time employees and 374 part-timeemployees. A total of approximately 923 of our employees are represented byfive unions (the American Federation of Television and Radio Artists, theInternational Brotherhood of Electrical Workers, the International Alliance ofTheatrical Stage Employees, the Directors Guild of America, and the NationalAssociation of Broadcast Electrical Technicians). We have not experienced anysignificant labor problems, and believe that our relations with our employeesare satisfactory.

**AvailableInformation**

We maintain an Internet site at www.hearstargyle.com.We make available, free of charge, on our Internet site, our annual report onForm 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K, and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 as soon as reasonably practicable after we electronicallyfile those materials with, or furnish them to, the Securities and ExchangeCommission (“SEC”).

Our Code of Business Conduct and Ethics, our CorporateGovernance Guidelines, our Audit Committee Charter and our CompensationCommittee Charter are also posted to the corporate governance section of ourInternet site. In addition, you may obtain a free copy of our Code of BusinessConduct and Ethics, our Corporate Governance Guidelines, or our Board committeecharters that we file on our Internet site by writing to us at Hearst-ArgyleTelevision, Inc., 300 West 57th St. New York, New York 10019, Attention:Corporate Secretary.

We also make available onour Internet site additional information, including news releases, earningsreleases, archived audio Web casts and forthcoming corporate events.

**ITEM 1A.**        RISKFACTORS

**The following discussion of riskfactors contains “forward-looking statements,” as discussed on page 2 ofthis report. These risk factors may be important to understanding any statementin this report or elsewhere. The following information should be read in conjunctionwith Management’s Discussion and Analysis (MD&A), and the consolidatedfinancial statements and related notes in this report.**

**We Depend UponNetwork Affiliation Agreements**

Each of the televisionstations we own or manage is a party to a network affiliation agreement givingsuch station the right to rebroadcast programs transmitted by the network,except WMOR-TV, in Tampa, Florida, which operates as an independent station.These affiliations are valuable to us because programs provided by the major networksare typically the most popular with audiences, which increases our ability toattract viewers to our programs, including our local newscasts. In exchange forgiving us the right to rebroadcast their programs, the networks have the rightto sell a substantial majority of the advertising time during such broadcasts.Thirteen of our stations are parties to affiliation agreements with ABC, 10 withNBC, two with CBS, two with CW and one with MyNetworkTV. We may fail to renewthese network affiliation agreements, or we may renew them on less favorableterms than we presently have. In addition, because networks increasinglydistribute their programming on other platforms, such as the Internet orportable devices, they may become less reliant upon their affiliates todistribute their programming, which could put us at a disadvantage in futurecontract negotiations. The termination or non-renewal, or renewal on lessfavorable terms, of our stations’ network affiliation agreements couldadversely affect the viewership of our stations and affect our ability to selladvertising, which could materially decrease our revenue and operating results.

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**We Depend UponNetworks for Programming**

Our viewership levels, andultimately advertising revenues, for each station are materially dependent uponprogramming which is either supplied to us by the networks or purchased by us. First,programming which the networks provide to us may not achieve or maintainsatisfactory viewership levels. Specifically, because 23 of our 29 owned ormanaged stations are ABC or NBC affiliates, if ABC or NBC network programmingfails to generate satisfactory ratings, our revenues may be adversely affected.Additionally, we purchase syndicated programming to supplement the showssupplied to us by the networks. Generally, however, before we purchasesyndicated programming for our stations, this programming must first be clearedin the largest television markets—New York, Los Angeles and Chicago. Networkowned and operated stations in those markets typically determine whichsyndicated shows will be brought to market, and therefore dictate our optionsfor syndicated programs. If those stations do not launch new shows, or if theshows that they launch, and which in turn we acquire, fail to generatesatisfactory ratings, our viewership levels may decrease and our revenues maybe adversely affected

**IncreasedProgramming Costs Could Adversely Affect Our Business and Operating Results**

Television programming isone of our most significant operating cost components. We may be exposed in thefuture to increased programming costs. Should such an increase in ourprogramming expenses occur, it could have a material adverse effect on ouroperating results. In addition, television networks have been seekingarrangements with their affiliates to share the networks’ programming costs andto change the structure of network compensation. If we become party to anarrangement whereby we share our networks’ programming costs, our programmingexpenses would increase further. In addition, we usually acquire syndicatedprogramming rights two or three years in advance and acquiring those rights mayrequire multi-year commitments, making it difficult to predict accurately how aprogram will perform. In some instances, we must replace programs before theircosts have been fully amortized, resulting in write-offs that increase stationoperating costs. An increase in the cost of news programming and content or inthe costs for on-air and creative talent may also increase our expenses,particularly during events requiring extended news coverage, and thereforeadversely affect our business and operating results. Finally, cabledistributors are increasingly competing with us or the networks with which weare affiliated for the rights to carry popular sports programming, which couldincrease our costs, or if we were to lose the rights to broadcast such sportsprogramming, could adversely affect our audience share and operating results.

**A Decline inAdvertising Expenditures Could Adversely Affect our Operating Results**

We rely substantially uponsales of advertising for our revenues. Our stations compete for advertisingrevenues with other television stations in their respective markets. They alsocompete with other advertising media, such as newspapers, radio stations,magazines, outdoor advertising, transit advertising, yellow page directories,direct mail, the Internet and local cable and satellite system operators. Ourstations are located in highly competitive markets. Accordingly, our operatingresults are and will continue to be dependent upon the ability of each of ourstations to compete successfully for advertising revenues in its respectivemarket. Our ability to generate advertising revenues is and will continue to beaffected by changes in the national economy, as well as by regional economicconditions in each of the markets in which our stations operate. The size ofadvertisers’ budgets, which are affected by broad economic trends, affect thebroadcast industry in general and the revenues of individual broadcasttelevision stations. If the economic prospects of advertisers or the economydecline, our current or prospective advertisers may purchase less advertisingtime from us. In addition, the occurrence of disasters, acts of terrorism,political uncertainty or hostilities could cause us to lose our ability tobroadcast our television signals or, if we are able to broadcast, our broadcastoperations may shift to around-the-clock news coverage, which would 

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causethe loss of advertising revenues due to the suspension of advertising-supportedcommercial programming.

**Materiality of aSingle Advertising Category Could Adversely Affect Our Business**

We derive a materialportion of our ad revenue from the automotive industry. For example,approximately 22% of our total revenue came from the automotive category in2006. If automotive-related advertising revenue decreases, or if revenue fromanother advertising category that constitutes a material portion of ourstations’ revenue in a particular period were to decrease, our business andoperating results could be adversely affected.

**IncreasedCompetition Due to Technological Innovation May Adversely Impact ourBusiness**

Technological innovation, and the resultingproliferation of programming alternatives such as cable, satellite television,video provided by telephone company fiber lines, satellite radio,video-on-demand, pay-per-view, the Internet, home video and entertainmentsystems, portable entertainment systems, and the availability of televisionprograms on the Internet and portable digital devices have fragmentedtelevision viewing audiences and subjected television broadcast stations to newtypes of competition. Over the past decade, the aggregate viewership ofnon-network programming distributed via MVPDs such as cable television andsatellite systems has increased, while the aggregate viewership of the majortelevision networks has declined. New technologies that enable users to viewcontent of their own choosing, in their own time, and to fast-forward or skipadvertisements, such as DVRs, portable digital devices, and the Internet, maycause changes in consumer behavior that could affect the attractiveness of ourofferings to advertisers. If this were to occur, our operating results could beadversely affected.

Other advances intechnology, such as increasing use of local-cable advertising “interconnects,”which allow for easier insertion of advertising on local cable systems, havealso increased competition for advertisers. In addition, video compressiontechniques permit greater numbers of channels to be carried within existingbandwidth on cable, satellite and other television distribution systems. Thesecompression techniques, as well as other technological developments, areapplicable to all video delivery systems, including digital over-the-airbroadcasting, and have the potential to provide vastly expanded programming tohighly targeted audiences. Reduction in the cost of creating additional channelcapacity could lower entry barriers for new channels and encourage thedevelopment of increasingly specialized niche programming on cable, satelliteand other television distribution systems. We expect this ability to reach verynarrowly defined audiences to increase competition both for audience and foradvertising revenue. In addition, the expansion of competition due totechnological innovation has increased, and may continue to increase,competitive demand for programming. Such increased demand, together with risingproduction costs, may in the future increase our programming costs or impairour ability to acquire programming, which will in turn impair our ability togenerate revenue from the advertisers with which we seek to do business.

**We May LoseAudience Share As a Result of the Transition to Digital Television**

The Communications Act andthe FCC’s rules require television stations to transition from analogtelevision service to digital television service by February 17, 2009. Afterthat time, our analog signals will no longer be available. The United StatesGovernment Accountability Office estimates that, as of February 2005,approximately 19 percent of all U.S. households, or roughly 20.8 millionhouseholds, receive television exclusively by means of analog over-the-airtransmissions and do not subscribe to cable or satellite services. In additionto these households, many households that subscribe to cable or satelliteservices also have one or more television sets that rely on over-the-airtransmissions. In total, the FCC estimates that, as of February 2005,there were approximately 73 million television sets in U.S. households thatrelied on over-the-air transmissions. To continue to receive our stations afterthe conclusion of the 

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digitaltelevision transition, households that rely on over-the-air transmissions willbe required to purchase digital televisions, obtain digital to analog converterequipment, or subscribe to satellite or cable service (assuming such serviceswill continue to offer programming for analog televisions). A significantpercentage of households with analog over-the-air receivers may not desire orbe able to afford to purchase digital televisions. While the federal governmenthas created a subsidy to help such households obtain digital converters, thesubsidy may not be large enough to cover all households with over-the-airreceivers and some of such households may not take advantage of the subsidy. Asa result, the digital transition may cause some households to lose service fromour stations. And, to the extent such households elect to subscribe tosatellite or cable service, the additional channels available through thoseservices may reduce our viewership from such households. Furthermore, whiledigital television improves the technical quality of our over-the-airtelevision broadcasts, the digital transition may cause a loss to a portion ofour audience because digital over-the-air service areas do not necessarilyreplicate analog service areas in all respects. While, in many cases, a station’sdigital signal covers all of the station’s analog service area, in somecircumstances, conversion to digital may reduce a station’s geographicalcoverage area. We believe that digital television is important to our long-termviability and offers many advantages such as high definition video,multi-channel digital audio and multicast capability. However, we cannotpredict the precise effect digital television might have on our stations’viewership and our operations.

**Our Inability to Secure Carriage of Our Stations byMulti-Channel Video Programming Distributors May Adversely Affect OurBusiness**

Cable operators and direct broadcast satellite systemsare generally required to carry the analog signal of local commercialtelevision stations pursuant to the FCC’s “must carry” or “carry-one, carry-all”rules. However, these MVPDs are prohibited from carrying a broadcast signalwithout obtaining the station’s consent. For each distributor, a localtelevision broadcaster must make a choice once every three years whether toproceed under the “must carry” or “carry-one, carry-all” rules or to waivethe right to mandatory but uncompensated carriage and negotiate a grant ofretransmission consent to permit the system to carry the station’s signal, inmost cases in exchange for some form of consideration from the system operator.In 2005, we elected retransmission consent for most of our stations for thethree-year period commencing on January 1, 2006. At present, we haveretransmission consent agreements with the majority of operators for the periodJanuary 1, 2006, to at least December 31, 2008. If our retransmissionconsent agreements are terminated or not renewed, or if our broadcast signal isdistributed on less favorable terms, our ability to distribute our programmingcould be adversely affected. In many instances, the negotiation of theseagreements involves the payment of compensation to us by the MVPDs as consideration.If we are unable to satisfactorily conclude those negotiations our ability togrow our retransmission consent revenue will be adversely affected.

In addition, althoughcable operators generally will be required, under the FCC’s current “must carry”rules, to retransmit a single programming stream transmitted by each localdigital television station at the end of the digital television transition, todate, the FCC has determined that cable operators are not required to carryboth a station’s analog signal and digital signal during the transition period.Also, to date and except with respect to stations licensed to Hawaii andAlaska, the FCC has not extended its “carry-one, carry-all” rule torequire satellite systems to carry a station’s digital signal. At present, wehave retransmission consent agreements with a number of cable systems operatorsand satellite providers that require carriage of the analog and certain digitalsignals of our stations.

**Our Business is Seasonal and Cyclical and Some Years andQuarters Therefore May Be Less Profitable Than Others**

Our business hasexperienced and is expected to continue to experience seasonality due to, amongother things, seasonal advertising patterns and seasonal influences on people’sviewing habits. The 

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advertisingrevenue of our stations is generally highest in the second and fourth quartersof each year, due in part to increases in consumer advertising in the springand retail advertising in the period leading up to and including the holidayseason. Additionally, advertising revenue is cyclical, benefiting ineven-numbered years from advertising placed by candidates for political officesand issue-oriented advertising, and demand for advertising time in Olympicbroadcasts. While political and Olympic advertising cycles have been a normalpattern for our industry for decades, the variability has become morepronounced in recent years as these respective categories of revenue have grownsignificantly in size. The seasonality and cyclicality inherent in our businessmake it difficult to estimate future operating results based on the previousresults of any specific quarter.

**The Television Industry is Highly Competitive and OurCompetitors May Have Greater Resources Than We Do**

The television broadcastindustry is highly competitive. Some of our competitors are owned and operatedby large national or regional companies that may have greater resources,including financial resources, than we have. Competition in the televisionindustry takes place on several levels: competition for audience, competitionfor programming and competition for advertisers. Our stations may not be ableto maintain or increase their current audience share or revenue share. To theextent that certain of our competitors have, or may in the future obtain,greater resources than we have, we may not be able to successfully compete withthem.

**We Have aControlling Stockholder**

The Hearst Corporation,through its beneficial ownership of our Series A and Series B CommonStock, has voting control of our company. Through its beneficial ownership of100% of our Series B Common Stock, Hearst also is entitled to elect as aclass all but two members of our Board of Directors (currently, 11 of our 13Board seats). As a result, Hearst is able to control substantially all actionsto be taken by our stockholders, and also is able to maintain control over ouroperations and business. In addition, Hearst has the ability to cause theredemption of our Series B Debentures, $134.0 million aggregate principalamount of which were outstanding at December 31, 2006. This control, aswell as certain provisions of our Certificate of Incorporation and of Delawarelaw, may make us a less attractive target for a takeover than we otherwisemight be, or render more difficult or discourage a merger proposal, tenderoffer or other transaction involving an actual or potential change of control. Hearst’svoting control also prevents other stockholders from exercising significantinfluence over our Company’s business decisions.

**The Interests and Assets of Our ControllingStockholder May Adversely Impact Our Ability to Make Certain Acquisitions**

The interests of Hearst, which owns or has significantinvestments in other businesses, including cable television networks,newspapers, magazines and electronic media, may from time to time becompetitive with, or otherwise diverge from, our interests, particularly withrespect to new business opportunities and future acquisitions. We and Hearsthave agreed that, without the prior written consent of the other, neither wenor they will make any acquisition or purchase any assets if such anacquisition or purchase by one party would require the other party to divest orotherwise dispose of any of its assets because of regulatory or other legal prohibitions.

Under current FCCregulations, given the newspaper and other media interests held by Hearst, weare precluded from acquiring television stations in various markets in theUnited States. While divestiture of a prohibited interest could permit such acquisitions,such a divestiture may not occur or may otherwise adversely impact potentialacquisitions. Additionally, Hearst is not precluded from purchasing television 

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stations,newspapers or other assets in other markets. If Hearst were to make such purchases,the FCC rules would preclude us from owning television stations in thosemarkets in the future.

**We May EncounterConflicts of Interest with Our Controlling Stockholder**

We and Hearst alsohave ongoing relationships that may create situations where the interests ofthe two parties could conflict. For example, we and Hearst are parties to aseries of agreements with each other, including

·       aLease Agreement (whereby we lease one floor of the newly constructed HearstTower in Manhattan for our corporate offices

·       aManagement Agreement (whereby we provide certain management services, such assales, news, programming and financial and accounting management services withrespect to certain Hearst-owned or managed television and radio stations);

·       anOption Agreement (whereby Hearst has granted us an option to acquire twotelevision stations it owns (KCWE and WMOR), as well as a right of firstrefusal with respect to a prospective purchaser if Hearst proposes to sellWPBF);

·       aStudio Lease Agreement (whereby Hearst leases space from us for Hearst’s radiobroadcast stations);

·       aName License Agreement (whereby Hearst permits us to use the Hearst name inconnection with our name and operation of our business); and

·       aServices Agreement (whereby Hearst provides us certain administrative services,such as accounting, financial, legal, tax, insurance, data processing andemployee benefits).

Because we and Hearst areaffiliates, it is possible that our interests concerning these agreements mayfrom time to time conflict and that more favorable terms than those we havenegotiated with Hearst may be available from third parties.

**Changes in FCCRegulations and Enforcement Policies May Adversely Affect Our Business**

As discussed more fully in Item 1 “Business; Federal Regulationof Television Broadcasting”, our broadcast operations are subject to extensiveregulation by the FCC under the Communications Act. If we do not comply withthese regulations, in particular the specific regulations discussed below, orif the FCC adopts a rigorous enforcement policy concerning them, our businessand operating results could be adversely affected.

*OwnershipRules.*   We must comply with extensive FCCregulations and policies in the ownership of our broadcast stations, whichrestrict our ability to consummate future transactions and, in certaincircumstances, could require us to divest some stations. In general, the FCC’sownership rules limit the number of television and radio stations that wecan own in a market, the number of television stations we can own nationwide,and prohibit ownership of stations in markets where Hearst has interests innewspapers. As described in Item 1 “Business; Federal Regulation of TelevisionBroadcasting,” the FCC’s ownership rules are currently under review. Theactions Congress or the FCC may take and changes in the FCC’s ownership rules mayadversely impact our business.

*IndecencyRules.*   Federal law and the FCC’s rules prohibitthe broadcast of obscene material at any time, and the broadcast of indecent orprofane material during the period from 6 a.m. through 10 p.m. Inrecent years, the FCC has vigorously enforced its indecency prohibition, and in2006, legislation was enacted that raised the maximum monetary penalty for thebroadcast of obscene, indecent, or profane language to $325,000 for each “violation,”with a cap of $3 million for any “single act.” The determination 

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of whether content isindecent or profane is inherently subjective, creates uncertainty as to ourability to comply with the rules (in particular during live programming),and impacts our programming decisions. Violation of the indecency rules couldlead to sanctions which may adversely affect our business and results ofoperations.

*Monetary Forfeitures andPenalties.*   In recent years, the FCC has alsovigorously enforced a number of other rules, typically in connection withlicense renewals. For example, in recent years, the FCC issued monetaryforfeitures and sanctions for violations of its equal employment opportunityrules, public inspection file rules, children’s programming rules, closedcaptioning rules, and emergency alert system rules. Our stations were not thesubject of monetary sanctions in 2006.

**PossibleAcquisitions, Divestitures or Other Strategic Initiatives May AdverselyImpact Our Business**

Our management is evaluating, and will continue toevaluate, the nature and scope of our operations and various short-term andlong-term strategic considerations. These may include acquisitions ordivestitures of, or strategic alliances, joint ventures, mergers or integrationor consolidation with, television stations or other businesses, includingdigital media businesses, as well as discussions with third parties regardingany of these considerations. In the alternative, our management may decide fromtime to time that such initiatives are not appropriate.

There are uncertaintiesand risks relating to each of these strategic initiatives. For example,acquisition opportunities may become more limited as a consequence of theconsolidation of ownership occurring in the television broadcast industry. Also,prospective competitors may have greater financial resources than we have. Futureacquisitions may not be available on attractive terms, or at all. Also, if wedo make acquisitions, we may not be able to successfully integrate the acquiredstations or businesses. With respect to divestitures, we may experience varyingsuccess in making such divestitures on favorable terms, if at all, or inreducing fixed costs or transferring liabilities previously associated with thedivested television stations or businesses. In addition, any such acquisitionsor divestitures may be subject to FCC approval and FCC rules andregulations. Finally, strategic minority investments we choose to make indigital media projects may ultimately prove unprofitable. Any of these effortswould require varying levels of management resources, which may divert ourattention from other business operations. If we do not realize the expectedbenefits or synergies of such transactions, or, conversely, if we do notrealize such benefits or synergies because we chose not to pursue any suchtransaction, there may be an adverse effect on our financial condition andoperating results.

**We Could SufferLosses Due to Asset Impairment Charges for Goodwill and FCC Licenses**

At December 31, 2006,84% of our total assets consisted of goodwill and intangible assets. We testour goodwill and intangible assets, including FCC licenses, for impairmentduring the fourth quarter of every year, and on an interim date should factorsor indicators become apparent that would require an interim test, in accordancewith Statement of Financial Accounting Standards No. 142, “Goodwill andOther Intangible Assets.” If the fair value of a reporting unit or anintangible asset is revised downward below its net carrying value, animpairment under SFAS 142 could result and a non-cash charge could be required.This could materially affect our reported net earnings and our balance sheet.

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**The Loss of Key Personnel Could Disrupt our Managementor Operations and Adversely Affect our Business**

Our business depends uponthe continued efforts, abilities and expertise of our chief executive officerand other key employees. We believe that the rare combination of skills andyears of media experience possessed by our executive officers would bedifficult to replace, and that the loss of our executive officers could have amaterial adverse effect on our business. Additionally, our stations employ severalon-air personnel, including anchors and reporters, with significant loyalaudiences. Our failure to retain these personnel could adversely affect ouroperating results.

**Strikes and OtherUnion Activity Could Adversely Affect Our Business**

Certain employees, such ason-air talent and engineers, at some of our stations are subject to collectivebargaining agreements. If we are unable to renew expiring collective bargainingagreements, it is possible that the affected unions could take action in theform of strikes or work stoppages. Such actions, higher costs in connectionwith these agreements, or significant labor disputes could adversely affect ourbusiness by disrupting our ability to operate our affected stations.

**Our Share Repurchase Program and Hearst’s SharePurchase Program May Affect the Market Price of Our Series A CommonStock.**

We have a share repurchaseprogram authorized by our Board of Directors, pursuant to which we mayrepurchase up to $300 million of our Series A Common Stock from time to time,in the open market or in private transactions, subject to market conditions. Inaddition, The Hearst Corporation’s Board of Directors authorized a sharepurchase program, pursuant to which Hearst or its subsidiaries may purchase onthe open market or through private transactions up to 25 million shares of our Series ACommon Stock. Such repurchases and purchases, or the absence thereof, mayincrease or decrease the market price of our Series A Common Stock.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

None.

**ITEM 2.**                PROPERTIES

Ourprincipal executive offices are located at 300 West 57th Street, New York, New York 10019. The realproperty of each of our stations generally includes owned or leased offices,studios, transmitters and tower sites. Offices and main studios are typicallylocated together, while transmitters and tower sites are often in separatelocations that are more suitable for optimizing signal strength and coverage. Setforth below are our stations’ principal facilities as of December 31, 2006.In addition to the property listed below, we and the stations also lease otherproperty primarily for communications equipment.

| Station   | ** ** | ** **       | ** ** | **Location**                     | ** ** | **Use** | ** ** | **Ownership**           | ** ** | **Approximate   Size** | ** ** |
|-----------|------------|------------------|------------|----------------------------------|------------|---------|------------|-------------------------|------------|------------------------|------------|
| Corporate |       | Washington  D.C. |       | Washington D.C. Office |       | Leased  |       | 4,007 sq. ft. |       |
|           |       | New  York, NY    |       | New  York Office(1)              |       | Leased  |       | 19,866 sq. ft.          |       |
| WCVB      |       | Boston, MA       |       | Office and studio                |       | Owned   |       | 90,002sq. ft.           |       |
|      |       |             |       | Tower and transmitter            |       | Leased  |       | 1,600 sq. ft.           |       |
| WMUR      |       | Manchester, NH   |       | Office and studio                |       | Owned   |       | 67,440 sq. ft.          |       |
|           |       |             |       | Tower  and transmitter           |       | Owned   |       | 4.5 acres               |       |
|           |       |             |       | Office                           |       | Leased  |       | 1,963 sq. ft.           |       |

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| KCRA/KQCA |   | Sacramento, CA         |   | Office, studio and tower             |   | Owned        |   | 75,000 sq. ft.           |   |
|-----------|--------|-----------------------------|--------|--------------------------------------|--------|--------------|--------|--------------------------|--------|
|           |   |                        |   | Tower and transmitter                |   | Owned        |   | 2,400 sq. ft.            |   |
|           |   |                        |   | Tower and transmitter                |   | Leased       |   | 1,200 sq. ft.            |   |
|           |   |                        |   | Office                               |   | Leased       |   | 3,085 sq. ft.            |   |
| WTAE      |   | Pittsburgh, PA              |   | Office and studio                    |   | Owned        |   | 68,033 sq. ft. |   |
|      |   |                        |   | Tower  and transmitter               |   | Owned        |   | 37 acres                 |   |
|      |   |                        |   | Office                               |   | Leased       |   | 609 sq. ft.              |   |
| WESH/WKCF |   | Orlando, FL                 |   | Studio, transmitter, tower |   | Owned        |   | 61,300 sq. ft.           |   |
|           |   | Daytona  Beach, FL          |   | Studio  and office                   |   | Leased       |   | 1,472 sq. ft.            |   |
|           |   |                        |   | Office                               |   | Leased       |   | 775 sq. ft.              |   |
|           |   |                        |   | Office                               |   | Leased       |   | 535 sq. ft.              |   |
|           |   |                        |   | Transmitter                          |   | Leased       |   | 2,025 sq. ft.            |   |
|           |   |                        |   | Tower                                |   | Partnership* |   | 190 acres                |   |
|           |   |                        |   | Transmitter                          |   | Partnership* |   | 8,050 sq. ft.            |   |
| WBAL      |   | Baltimore, MD               |   | Office and studio                    |   | Owned        |   | 63,000 sq. ft.           |   |
|      |   |                        |   | Tower                                |   | Partnership* |   | 0.2 acres                |   |
| KMBC      |   | Kansas City, MO             |   | Office and studio                    |   | Leased       |   | 58,514 sq. ft.           |   |
|           |   |                        |   | Tower  and transmitter               |   | Owned        |   | 11.6 acres               |   |
|           |   |                        |   | Land(2)                              |   | Owned        |   | 8.4 acres                |   |
| WLWT      |   | Cincinnati, OH              |   | Office and studio                    |   | Owned        |   | 52,000 sq. ft.           |   |
|      |   |                        |   | Tower  and transmitter               |   | Owned        |   | 4.2 acres                |   |
| WISN      |   | Milwaukee, WI               |   | Office and studio                    |   | Owned        |   | 88,000 sq. ft.           |   |
|           |   |                        |   | Tower  and transmitter land          |   | Leased       |   | 5.5 acres                |   |
|           |   |                        |   | Transmitter  building                |   | Owned        |   | 3,192 sq. ft.            |   |
| WYFF      |   | Greenville, SC              |   | Office and studio                    |   | Owned        |   | 57,500 sq. ft.           |   |
|      |   |                        |   | Tower  and transmitter               |   | Owned        |   | 1.5 acres                |   |
|      |   |                        |   | Office                               |   | Leased       |   | 3,000 sq. ft.            |   |
| WDSU      |   | New Orleans, LA   |   | Office and studio                    |   | Owned        |   | 50,525 sq. ft.           |   |
|           |   |                        |   | Transmitter                          |   | Owned        |   | 8.3 acres                |   |
| KOCO      |   | Oklahoma City, OK |   | Office and studio                    |   | Owned        |   | 28,000 sq. ft. |   |
|      |   |                        |   | Tower  and transmitter               |   | Owned        |   | 85 acres                 |   |
| WGAL      |   | Lancaster, PA               |   | Office, studio and tower   |   | Owned        |   | 58,900 sq. ft.           |   |
|           |   |                        |   | Office                               |   | Leased       |   | 2,380 sq. ft.            |   |
| WXII      |   | Winston-Salem, NC      |   | Office and studio          |   | Owned        |   | 38,027 sq. ft. |   |
|      |   |                        |   | Tower and transmitter      |   | Owned        |   | 223.6 acres              |   |
| WLKY      |   | Louisville, KY              |   | Office and studio                    |   | Owned        |   | 37,842 sq. ft.           |   |
|           |   |                        |   | Tower  and transmitter               |   | Owned        |   | 40.0 acres               |   |
|           |   |                        |   | Transmitter                          |   | Leased       |   | 1,350 sq. ft.            |   |
|           |   |                        |   | Transmitter  building                |   | Owned        |   | 2,000 sq. ft.            |   |
| KOAT      |   | Albuquerque, NM             |   | Office and studio                    |   | Owned        |   | 37,315 sq. ft.           |   |
|      |   |                        |   | Tower and transmitter      |   | Owned        |   | 328.5 acres         |   |
| KCCI      |   | Des Moines, IA    |   | Office, studio and transmitter       |   | Owned        |   | 52,000 sq. ft. |   |
|           |   |                        |   | Tower  and transmitter               |   | Owned        |   | 119.5 acres              |   |
| WMTW      |   | Portland-Auburn, ME         |   | Office and studio                    |   | Leased       |   | 11,703 sq. ft.           |   |
|      |   |                        |   | Tower  and transmitter               |   | Owned        |   | 296 acres                |   |
|      |   |                        |   | Office  and studio                   |   | Owned        |   | 16,300 sq. ft.           |   |
|      |   |                        |   | Transmitter  building                |   | Owned        |   | 5,120 sq. ft.            |   |
|      |   |                        |   | Office  land                         |   | Owned        |   | 13.9 acres               |   |

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| KITV      |   | Honolulu,  HI                         |   | Office  and studio     |   | Owned  |   | 35,000 sq. ft. |   |
|-----------|--------|---------------------------------------|--------|------------------------|--------|--------|--------|----------------|--------|
|           |   |                                  |   | Tower  and transmitter |   | Leased |   | 130 sq. ft.    |   |
|           |   |                                  |   | Tower  and transmitter |   | Leased |   | 304 sq. ft.    |   |
|           |   |                                  |   | Tower  and transmitter |   | Leased |   | 2.6 acres      |   |
| KETV      |   | Omaha, NE                             |   | Office and studio      |   | Owned  |   | 39,204 sq. ft. |   |
|      |   |                                  |   | Tower  and transmitter |   | Owned  |   | 23.3 acres     |   |
|      |   |                                  |   | Transmitter  building  |   | Owned  |   | 30,492 sq. ft. |   |
|      |   |                                  |   | Office                 |   | Leased |   | 597 sq. ft.    |   |
| WAPT      |   | Jackson, MS                           |   | Office and studio      |   | Owned  |   | 18,000 sq. ft. |   |
|           |   |                                  |   | Tower  and transmitter |   | Owned  |   | 24 acres       |   |
| WPTZ      |   | Plattsburgh, NY                  |   | Office and studio      |   | Owned  |   | 12,800 sq. ft. |   |
|      |   |                                  |   | Office                 |   | Leased |   | 5,441 sq. ft.  |   |
|      |   |                                  |   | Tower  and Transmitter |   | Owned  |   | 2,432 sq. ft.  |   |
|      |   |                                  |   | Tower  and transmitter |   | Owned  |   | 13.4 acres     |   |
| WNNE      |   | White River Junction, VT              |   | Office and studio      |   | Leased |   | 5,600 sq. ft.  |   |
| KHBS/KHOG |   | Fort Smith/Fayetteville, AR |   | Office and studio      |   | Owned  |   | 44,904 sq. ft. |   |
|      |   |                                  |   | Office  and studio     |   | Leased |   | 1,110 sq. ft.  |   |
|      |   |                                  |   | Transmitter  Building  |   | Owned  |   | 2100 sq. ft.   |   |
|      |   |                                  |   | Tower  and transmitter |   | Leased |   | 2.5 acres      |   |
|      |   |                                  |   | Tower  and transmitter |   | Owned  |   | 26.7 acres     |   |
| KSBW      |   | Monterey-Salinas, CA                  |   | Office and studio      |   | Owned  |   | 44,000 sq. ft. |   |
|           |   |                                  |   | Tower  and transmitter |   | Owned  |   | 160.2 acres    |   |
|           |   |                                  |   | Office                 |   | Leased |   | 900 sq. ft.    |   |

----

*                     Owned by the Company in partnership with certain thirdparties.

(1)           We also sublease to third parties 21,789 square feet ofspace at 888 Seventh Avenue, New York, New York, the previous location of ourcorporate headquarters.

(2)           In 2005 we commenced construction of anoffice and studio facility for KMBC on land we purchased in 2004. When thefacility is completed, we will move our operations to the new facility andterminate this station’s office space lease.

**ITEM 3.**                LEGALPROCEEDINGS

From time to time, webecome involved in various claims and lawsuits that are incidental to ourbusiness. In our opinion, there are no legal proceedings pending against us orany of our subsidiaries that are reasonably expected to have a material adverseeffect on our consolidated financial condition or results of operations.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

26

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**PART II**

**ITEM 5.**                MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

(a)   *Market Performance ofCommon Stock and Dividends on Common Stock*.   Our Series ACommon Stock is listed on the New York Stock Exchange (“NYSE”) under the tickersymbol “HTV.” All of the outstanding shares of our Series B Common Stockare currently held by Hearst Broadcasting, a wholly-owned subsidiary of HearstHoldings, which is in turn a wholly-owned subsidiary of Hearst. Our Series BCommon Stock is not publicly traded. The table below sets forth, for thecalendar quarters indicated, the reported high and low sales prices of our Series ACommon Stock on the NYSE and the dividends declared on our Series A and Series BCommon Stock:

| ** **     | ** ** | **High** | ** ** | **Low** | ** ** | **Dividend** | ** ** |
|----------------|------------|----------|------------|---------|------------|--------------|------------|
| 2006           |       |     |       |    |       |         |       |   |   |
| First Quarter  |       | $        | 24.17      |    | $          | 23.23        |       |   | $ | 0.07 |   |   |
| Second Quarter |       | 23.37    |       | 21.67   |       |         | 0.07       |   |   |
| Third Quarter  |       | 23.81    |       | 20.00   |       |         | 0.07       |   |   |
| Fourth Quarter |       | 26.04    |       | 22.93   |       |         | 0.07       |   |   |
| 2005           |       |     |       |    |       |         |       |   |   |
| First Quarter  |       | $        | 26.15      |    | $          | 24.59        |       |   | $ | 0.07 |   |   |
| Second Quarter |       | 25.71    |       | 24.50   |       |         | 0.07       |   |   |
| Third Quarter  |       | 26.20    |       | 23.85   |       |         | 0.07       |   |   |
| Fourth Quarter |       | 25.76    |       | 23.33   |       |         | 0.07       |   |   |

 

On February 15, 2007,the closing price for our Series A Common Stock was $26.38.

(b)   *Holders*.   On February 15, 2007 there wereapproximately 816 Series A Common Stock shareholders of record and HearstBroadcasting was the sole holder of our Series B Common Stock.

(c)   *Dividends*.   In December 2006, we declared aquarterly cash dividend of $0.07 per share on our Series A Common Stockand our Series B Common Stock, which we paid on January 15, 2007 toholders of record on January 5, 2007, for a total of $6.5 million. During2006, we paid a total of $26.0 million in dividends. See Note 10 to the consolidatedfinancial statements.

(d)   *Securities Authorized for Issuance Under Equity Compensation Plans.  *Thefollowing table summarizes our equity compensation plans as of December 31,2006:

| ** **                                                  | ** ** | ** ** | ** ** | **EQUITY COMPENSATION PLAN  INFORMATION**                                                                                                                 | ** ** |
|-------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan Category**                                      | ** ** | ** ** | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights  (1)** | ** ** | **Weighted average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance (2)** | ** ** |
| Equity compensation  plans approved by security holders     |       |       | 8,806,296  |                                                                                                                                                      |       |   | $ | 23.85 |   |   |   | 4,474,174 |   |   |
| Equity compensation  plans not approved by security holders |       |       | N/A        |                                                                                                                                                      |       |   | N/A |   |   |   | N/A |   |   |
| Total                                                       |       |       | 8,806,296  |                                                                                                                                                      |       |   | $ | 23.85 |   |   |   | 4,474,174 |   |   |

----

(1)          Includesshares of Series A Common Stock to be issued upon exercise of stockoptions granted under the Company’s Amended and Restated 1997 Stock Option Planand the Company’s 2004 Long Term Incentive Compensation Plan. The Company hasalso awarded 167,000 shares of restricted stock under the 2004 Long TermIncentive Compensation Plan.

(2)          Includes252,800 shares of Series A Common Stock available for future stock optionand restricted stock grants under the Company’s 2004 Long Term IncentiveCompensation Plan and 4,221,374 shares of Series A Common Stock reservedfor future issuance under the Company’s Employee Stock Purchase Plan.

27

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(e)   *Performance Graph.*   The following graph compares theannual cumulative total stockholder return on an investment of $100 in the Series ACommon Stock on December 31, 2001, based on the market price of the Series ACommon Stock and assuming reinvestment of dividends, with the cumulative totalreturn of a similar investment in (i) companies on the Standard &Poor’s 500 Stock Index and (ii) a group of peer companies selected by uson a line-of-business basis and weighted for market capitalization.

**CUMULATIVE TOTALRETURNBased upon an initial investment of $100 on December 31, 2001with dividends reinvested**

| ** **                         | ** ** | **Dec-01** | ** ** | **Dec-02** | ** ** | **Dec-03** | ** ** | **Dec-04** | ** ** | **Dec-05** | ** ** | **Dec-06** | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| Hearst-Argyle  Television          |       |       | $          | 100        |       |       |       | $          | 112        |       |       |       | $          | 128 |   |   |   | $ | 123 |   |   |   | $ | 113 |   |   |   | $ | 122 |   |   |
| S&P 500®                  |       |       | $          | 100        |       |       |       | $          | 78         |       |       |       | $          | 100 |   |   |   | $ | 111 |   |   |   | $ | 117 |   |   |   | $ | 135 |   |   |
| Custom Composite Index  (6 Stocks) |       |       | $          | 100        |       |       |       | $          | 114        |       |       |       | $          | 148 |   |   |   | $ | 125 |   |   |   | $ | 95 |   |   |   | $ | 88 |   |   |

 

The Custom Composite Index consists of Belo Corp.,Sinclair Broadcast Group, Inc., Young Broadcasting Inc., Lin TV Corp. (Begin3Q02), Nexstar Broadcasting Corp, (Begin 1Q04), and Gray Television Inc. (Begin3Q02).

*(f)*   Purchase of Equity Securities bythe Issuer and Affiliated Purchasers.*  *Thefollowing table reflects purchases made during the three months ended December 31,2006, of our Series A Common Stock by Hearst Broadcasting, an indirectwholly-owned subsidiary of Hearst:

| **Period**                              | ** ** | ** ** | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price  Paid Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Program** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Program** |
|-----------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|
| October 1 – October 31   |       | 0          |       | $0.00                                  |       | 0                                 |       |                                                                               |
| November 1 – November 30 |       | 0          |       | $0.00                                  |       | 0                                 |       |                                                                               |
| December 1 – December 31 |       | 0          |       | $0.00                                  |       | 0                                 |       | 1,184,656                                                                          |
| Total                                   |       | 0          |       | $0.00                                  |       | 0                                 |       |                                                                               |

----

(1)          On September 28,2005, Hearst increased Hearst Broadcasting’s authorization to purchase theCompany’s Series A Common Stock from 20 million to 25 million shares. Hearstmay effect such purchases from time to time in the open market or in privatetransactions, subject to market conditions and management’s discretion. As of December 31,2006, Hearst has purchased approximately 23.8 million shares of the Company’soutstanding Series A Common Stock. As of 

28

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December 31, 2006,Hearst owned approximately 53.0% of the Company’s outstanding Series ACommon Stock and 100% of the Company’s Series B Common Stock, representingin the aggregate approximately 73.8% of our outstanding common stock.

Thefollowing table reflects purchases made by the Company of its Series ACommon Stock during the three months ended December 31, 2006.

| **Period**                              | ** ** | ** ** | ** ** | **Total Number of  Shares  Purchased** | ** ** | **Average Price  Paid Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Program** | ** ** | **Approximate Dollar  Value of Shares that  May Yet Be  Purchased  Under the Program** |
|-----------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|
| October 1 – October 31   |       | 0          |       | $0.00                                  |       | 0                                 |       |                                                                               |
| November 1 – November 30 |       | 0          |       | $0.00                                  |       | 0                                 |       |                                                                               |
| December 1 – December 31 |       | 0          |       | $0.00                                  |       | 0                                 |       | $196,710,259                                                                       |
| Total                                   |       | 0          |       | $0.00                                  |       | 0                                 |       |                                                                               |

----

(1)          In May 1998, theCompany’s Board of Directors authorized the repurchase of up to $300 million ofits outstanding Series A Common Stock. Such purchases may be effected fromtime to time in the open market or in private transactions, subject to marketconditions and management’s discretion. As of December 31, 2006, theCompany has spent approximately $110.8 million to repurchase approximately 4.5million shares of Series A Common Stock at an average price of $24.87. Therecan be no assurance that such repurchases will occur in the future or, if theydo occur, what the terms of such repurchases will be.

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**ITEM 6.**                SELECTEDFINANCIAL DATA 

The selected financialdata should be read in conjunction with the historical financial statements andnotes thereto included elsewhere herein and in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations.”

**Hearst-Argyle Television, Inc.(In thousands, except per share data)**

| ** **                                            | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                            | ** ** | **2006(a)**                                 | ** ** | **2005(b)** | ** ** | **2004(b)** | ** ** | **2003(c)** | ** ** | **2002(c)** | ** ** |
| **Statement  of income data:**                        | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total revenue                                         |       | $                                           | 785,402    |   | $ | 706,883 |   | $ | 779,879 |   | $ | 686,775 |   | $ | 721,311 |   |
| Station operating  expenses:                          |       |                                        |       |   |   |   |   |   |   |   |   |
| Salaries, benefits  and other operating costs         |       | 397,604                                     |       | 364,421 |   | 355,641 |   | 330,519 |   | 331,643 |   |
| Amortization of  program rights                       |       | 68,601                                      |       | 60,912 |   | 63,843 |   | 62,845 |   | 60,821 |   |
| Depreciation and  amortization.                       |       | 59,161                                      |       | 51,728 |   | 50,376 |   | 55,467 |   | 43,566 |   |
| Impairment loss(d)                                    |       | —                                      |       | 29,235 |   | — |   | — |   | — |   |
| Corporate, general  and administrative expenses       |       | 31,261                                      |       | 23,149 |   | 25,268 |   | 19,122 |   | 19,650 |   |
| Operating income                                      |       | $                                           | 228,775    |   | $ | 177,438 |   | $ | 284,751 |   | $ | 218,822 |   | $ | 265,631 |   |
| Interest expense                                      |       | 66,103                                      |       | 66,777 |   | 65,445 |   | 68,726 |   | 74,142 |   |
| Interest income                                       |       | (6,229                                      | )          | (3,402 | ) | (1,715 | ) | (511 | ) | (699 | ) |
| Interest expense,  net—Capital Trust(e)          |       | 9,750                                       |       | 9,750 |   | 18,675 |   | 15,000 |   | 15,000 |   |
| Other (income)  expense, net(f)(g)(h)(i)              |       | 2,501                                       |       | 2,500 |   | 3,700 |   | — |   | (299 | ) |
| Income before income  taxes                           |       | $                                           | 156,650    |   | $ | 101,813 |   | $ | 198,646 |   | $ | 135,607 |   | $ | 177,487 |   |
| Income taxes(m)                                       |       | 58,410                                      |       | 3,012 |   | 75,724 |   | 41,958 |   | 64,959 |   |
| Equity in (income)  loss of affiliates, net of tax(j) |       | (483                                        | )          | (1,416 | ) | (1,020 | ) | (572 | ) | 4,511 |   |
| Net income                                            |       | $                                           | 98,723     |   | $ | 100,217 |   | $ | 123,942 |   | $ | 94,221 |   | $ | 108,017 |   |
| Less preferred stock  dividends(k)                    |       | —                                      |       | 2 |   | 1,067 |   | 1,211 |   | 1,377 |   |
| Income applicable  to common stockholders             |       | $                                           | 98,723     |   | $ | 100,215 |   | $ | 122,875 |   | $ | 93,010 |   | $ | 106,640 |   |
| Income per common  share—basic                   |       | $                                           | 1.06       |   | $ | 1.08 |   | $ | 1.32 |   | $ | 1.00 |   | $ | 1.16 |   |
| Number of common  shares used in the  calculation     |       | 92,745                                      |       | 92,826 |   | 92,928 |   | 92,575 |   | 92,148 |   |
| Income per common  share—diluted                 |       | $                                           | 1.06       |   | $ | 1.08 |   | $ | 1.30 |   | $ | 1.00 |   | $ | 1.15 |   |
| Number of common  shares used in the  calculation     |       | 93,353                                      |       | 93,214 |   | 101,406 |   | 92,990 |   | 92,550 |   |
| Dividends declared per  share(l)                      |       | $                                           | 0.28       |   | $ | 0.28 |   | $ | 0.25 |   | $ | 0.06 |   | — |   |
| **Balance sheet data (at year-end):**                 | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                            |       | $                                           | 18,610     |   | $ | 120,065 |   | $ | 92,208 |   | $ | 71,528 |   | $ | 4,442 |   |
| Total assets                                          |       | $                                           | 3,958,088  |   | $ | 3,832,359 |   | $ | 3,842,140 |   | $ | 3,799,087 |   | $ | 3,769,111 |   |
| Long-term debt                                        |       | $                                           | 777,122    |   | $ | 777,170 |   | $ | 882,221 |   | $ | 882,409 |   | $ | 973,378 |   |
| Note payable to  Capital Trust                        |       | $                                           | 134,021    |   | $ | 134,021 |   | $ | 134,021 |   | $ | 206,186 |   | $ | 206,186 |   |
| Stockholders’  equity                            |       | $                                           | 1,882,807  |   | $ | 1,821,459 |   | $ | 1,753,837 |   | $ | 1,672,382 |   | $ | 1,579,262 |   |
| **Other data:**                                       | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash provided  by operating activities            |       | $                                           | 200,384    |   | $ | 128,730 |   | $ | 193,631 |   | $ | 179,075 |   | $ | 205,452 |   |
| Net cash used in  investing activities                |       | $                                           | (282,893   | ) | $ | (41,008 | ) | $ | (72,069 | ) | $ | (25,541 | ) | $ | (25,818 | ) |
| Net cash used in  financing activities                |       | $                                           | (18,946    | ) | $ | (59,865 | ) | $ | (100,883 | ) | $ | (86,448 | ) | $ | (178,452 | ) |
| Capital  expenditures                                 |       | $                                           | 64,229     |   | $ | 35,839 |   | $ | 36,380 |   | $ | 25,392 |   | $ | 25,920 |   |
| Program payments                                      |       | $                                           | 67,817     |   | $ | 64,104 |   | $ | 62,247 |   | $ | 62,039 |   | $ | 59,870 |   |
| Dividends paid on  common stock                       |       | $                                           | 25,954     |   | $ | 25,997 |   | $ | 22,301 |   | — |   | — |   |
| Series A  Common Stock repurchases               |       | $                                           | 2,780      |   | $ | 16,385 |   | $ | 10,920 |   | — |   | — |   |

 

See accompanying notes.

30

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**Notesto Selected Financial Data**

(a)           Includes (i) theresults of our 25 stations which were owned for the entire period presented andthe management fees derived from three television stations (WMOR-TV, WPBF-TVand KCWE-TV) and two radio stations (WBAL-AM and WIYY-FM) managed by us for theentire period presented and (ii) the results of WKCF-TV, after itsacquisition by us, from August 31, 2006 through December 31, 2006.

(b)          Includes (i) the results of our 24 stations which were owned forthe entire period presented and the management fees derived from threetelevision stations (WMOR-TV, WPBF-TV and KCWE-TV) and two radio stations(WBAL-AM and WIYY-FM) managed by us for the entire period presented and (ii) theresults of WMTW-TV, after its acquisition by us, from July 1, 2004 throughDecember 31, 2005.

(c)           Includes the results of our 24 television stations which were owned forthe entire period presented and the management fees earned by us from thestations we manage for Hearst for the entire period presented.

(d)          In December 2005,we recorded an impairment charge of $29.2 million to write down to fair valueWDSU’s FCC license and goodwill. Due to Hurricane Katrina, the future cashflows of our station in New Orleans were negatively impacted resulting in theimpairment.

(e)           Represents interestexpense on the note payable to our wholly-owned unconsolidated subsidiarytrust, which holds solely parent company debentures in the amounts of $134.0million at December 31, 2006, 2005 and 2004 and $206.2 million at December 31,2003 and 2002, and a $3.7 million premium paid to redeem the Series ADebentures in the amount of $72.2 million on December 31, 2004, offset byour equity interest in the earnings of the trust.

(f)             In July 2006,USDTV filed for Chapter 7 bankruptcy and as a result, the Company wrote off itsinvestment of $2.5 million.

(g)           In the year ended December 31,2005, we concluded our joint venture with NBC Universal and recorded a loss of$2.5 million. The investment had been accounted for using the equity method.

(h)          In 2004, ProActTechnologies Corporation sold substantially all of its operating assets to athird party as part of an overall plan of liquidation. The Company wrote-downour investment in ProAct by $3.7 million during the year ended December 31,2004.

(i)             In the year ended December 31,2002, Other (income) expense, net represents a supplemental closing fee paid tous in connection with the sale of the Phoenix Stations in March 2001.

(j)              Represents our equity interest in the operatingresults of: (i) Internet Broadcasting Systems, Inc. from December 2,1999 through December 31, 2006; (ii) IBS/HATV LLC from September 1,2002 through December 31, 2005; (iii) NBC/Hearst-Argyle Syndication,LLC from April 1, 2002 through December 31, 2005; and (iv) RipeDigital Entertainment, Inc. from July 27, 2005 through December 31,2006.

(k)          Represents dividends onthe preferred stock issued in connection with the acquisition ofKHBS-TV/KHOG-TV.

(l)             During 2006, ourBoard of Directors declared quarterly cash dividends on our Series A and Series BCommon Stock for a total amount of $26.0 million. Included in this amount was$19.0 million payable to Hearst. During 2005, our Board of Directors declaredquarterly cash dividends on our Series A and Series B Common Stockfor a total amount of $26.0 million. Included in this amount was $18.0 millionpayable to Hearst. During 2004, our Board of Directors declared quarterly cashdividends on our Series A and Series B Common Stock for a totalamount of $23.2 million. Included in this amount was $15.4 million payable toHearst. On December 3, 2003, our Board of Directors declared a cashdividend of $0.06 per share on our Series A and Series B Common Stockin the amount of $5.6 million. We did not declare or pay any dividends onCommon Stock in 2002.

(m)      During the year ended December 31,2005, $31.9 million in tax benefits were recorded as a result of the settlementof certain tax return examinations and $5.5 million in tax benefits wererecorded as a result of a change in Ohio tax law.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Organization ofInformation**

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

·       Forward-LookingStatements

·       ExecutiveSummary

·       CriticalAccounting Policies and Estimates

·       Resultsof Operations

·       Liquidityand Capital Resources

·       Impactof Inflation

·       Off-BalanceSheet Arrangements

·       New AccountingPronouncements

**Forward-LookingStatements**

This report****includes****orincorporates forward-looking statements. We base these forward-lookingstatements on our current expectations and projections about future events. Theseforward-looking statements generally can be identified by the use of statementsthat include phrases such as “anticipate”, “will”, “may”, “likely”, “plan”, “believe”,“expect”, “intend”, “project”, “forecast” or other such similar words and/orphrases. For these statements, the Company claims the protection of the safeharbor for forward-looking statements contained in the Private SecuritiesLitigation Reform Act of 1995. The forward-looking statements contained in thisreport, concerning, among other things, trends and projections involvingrevenue, income, earnings, cash flow, liquidity, operating expenses, assets,liabilities, capital expenditures, dividends and capital structure, involverisks and uncertainties, and are subject to change based on various importantfactors. Those factors include the impact on our operations from

·       Changesin Federal regulations that affect us, including changes in Federalcommunications laws or regulations;

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

·       Competitionin the broadcast television markets we serve;

·       Ourability to obtain quality programming for our television stations;

·       Successfulintegration of television stations we acquire;

·       Pricingfluctuations in local and national advertising;

·       Changesin national and regional economies;

·       Ourability to service and refinance our outstanding debt;

·       Changesin advertising trends and our advertisers’ financial condition; and

·       Volatilityin programming costs, industry consolidation, technological developments, andmajor world events.

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For adiscussion of additional risk factors that are particular to our business,please refer to Part I, Item 1A. “Risk Factors” beginning on page 17.These and other matters we discuss in this report, or in the documents weincorporate by reference into this report, may cause actual results to differfrom those we describe. We undertake no obligation to update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.

**Executive Summary**

Hearst-Argyle Television, Inc.and its subsidiaries (hereafter “we” or the “Company”) own and operate 26network-affiliated television stations. Additionally, we provide managementservices to two network-affiliated stations and one independent televisionstation and two radio stations owned by The Hearst Corporation (“Hearst”) inexchange for management fees. We are a leader in the convergence of localbroadcast television and the Internet through our investment in, and operatingagreement with, Internet Broadcasting, which operates a nation-wide network oftelevision Websites. Our stations’ Websites typically provide news, weather,community information, user generated content and entertainment content to ouraudience. Also, 11 of our stations broadcast additional channels on a multicaststream with their main digital channel.

*Events and otherfactors that have influenced our 2006 results*

·       Forthe year ended December 31, 2006, total revenue increased 11.1%. Resultsfor the year ended reflect record political revenue in a mid-term electionyear, the positive impact of strategic developments including the successfulcompletion of certain retransmission consent negotiations and a stationacquisition, and expanded focus on digital media. These results were offset bythe dampening impact of weak automotive advertising.

·       OnAugust 31, 2006, the Company purchased the assets related to broadcasttelevision station WKCF-TV, the CW affiliate in Orlando, Florida, for $217.5million in cash funded with a combination of cash on hand and a $100 millionadvance under the Company’s Credit Facility.

·       Forthe year ended December 31, 2006, the Company recorded digital mediarevenue and associated expenses of $15.5 million and $10.1 million,respectively. This is primarily due to the restructuring of our relationshipwith Internet Broadcasting and IBS/HATV LLC which increased our equity interestin Internet Broadcasting to 38% and dissolved IBS/HATV LLC. As of January 1,2006, we now recognize results of local Websites directly in our incomestatement.

·       Asa result of the adoption of the fair value recognition provisions of SFAS 123(R) asof January 1, 2006, the Company recognized stock-based compensationexpense of $7.6 million in the year ended December 31, 2006.

·       In2006, we recognized insurance proceeds of $5.0 million for a portion of theproperty damages and expenses incurred at our station WDSU-TV in New Orleans,Louisiana as a result of Hurricane Katrina. Of this amount, $2.4 million offseta receivable from our property insurers established in 2005 while the remaining$2.6 million was recorded as an offset to Salaries, benefits and otheroperating costs. Additional recoveries are expected in future periods.

·       TheCompany wrote off its investment of $2.5 million in USDTV which filed forbankruptcy in July 2006.

·       At December 31, 2006,total debt was $867.2 million, unchanged from December 31, 2005.

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*Industry Trends*

·       Politicaladvertising increases in even-numbered years, such as 2006, consistent with theincrease in the number of candidates running for political office in theinterim national election cycle, as well as select state and local elections.

·       Revenuefrom Olympic advertising occurs exclusively in even-numbered years, such as2006, with the alternating Winter and Summer Games occurring every two years.Our 10 NBC stations aired the 2006 Winter Olympics in February 2006.

·       TheFederal Communications Commission (“FCC”) has permitted broadcast televisionstation licensees to use their digital spectrum for a wide variety of servicessuch as high-definition television programming, audio, data and other types ofcommunication, subject to the requirement that each broadcaster provide atleast one free video channel equal in quality to the current technicalstandards. Our NBC stations currently broadcast the Weather Plus network, a24/7 local and national weather broadcast network, on a multicast stream inaddition to their main digital channels. In addition, two of our other stationslaunched similar station-branded multicast weather channels in 2006.

·       Compensationfrom networks to their affiliates in exchange for broadcasting of networkprogramming has been sharply reduced in recent years and may be eliminated inthe future.

·       Pursuantto the Cable Television Consumer Protection and Competition Act of 1992 (“1992Cable Act”) and the FCC’s “must carry” regulations, cable operators aregenerally required to devote up to one-third of their activated channel capacityto the carriage of the analog signal of local commercial television stations. Ona cable system-by-cable system basis, a local television broadcast station mustchoose once every three years whether to waive the right to mandatory, butuncompensated, carriage and, instead, to negotiate a grant of retransmissionconsent. We opted to negotiate retransmission consent with most of the cablesystems that carry our stations and we record income from most of theserelationships.

·       TheSatellite Home Viewer Improvement Act of 1999 (“SHVIA”) established acompulsory copyright licensing system for the distribution of local televisionstation signals by direct broadcast satellite systems to viewers in each DMA. UnderSHVIA’s “carry-one, carry-all” provision, a direct broadcast satellite systemgenerally is required to retransmit the analog signal of all local televisionstations in a DMA if the system chooses to retransmit the analog signal of anylocal television station in that DMA. Television stations located in markets inwhich satellite carriage of local stations is offered may elect mandatorycarriage or retransmission consent once every three years. We opted tonegotiate retransmission consent for all satellite systems that carry ourstations and we record income from most of these relationship.

·       Legislationthat guides the transition from analog to digital television broadcastingincludes a deadline of February 17, 2009 for completion of the transitionto digital broadcasting and the return of the analog spectrum to thegovernment. As a result, the Company accelerated the depreciation of certainequipment that may have a shorter useful life as a result of the digitalconversion.

·       In 2006 Nextel was grantedthe right from the FCC to reclaim from Broadcasters in each market across thecountry the 1.9 GHz spectrum to use for an emergency communications system.In order to claim this signal, Nextel must replace all analog equipmentcurrently using this spectrum with digital equipment. All broadcasters haveagreed to use the digital substitute that Nextel will provide. The transitionwill be completed on a market by market basis beginning in 2007. As thetransition takes place in each market, we expect to record gains to theextent that the fair market value of the equipment we receive exceeds the bookvalue of the analog equipment.

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**Critical AccountingPolicies and Estimates**

Our management’s discussion and analysis of financialcondition and results of operations is based on our consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The preparation of ourconsolidated financial statements requires us to make estimates and judgmentsthat affect the reported amounts of assets, liabilities, revenue, and expenses,and related disclosure of contingent assets and liabilities. On an ongoingbasis, we evaluate our estimates, including those related to allowances fordoubtful accounts; program rights, barter and trade transactions; useful livesof property, plant and equipment; intangible assets; carrying value ofinvestments; accrued liabilities; contingent liabilities; income taxes; pensionbenefits; and fair value of financial instruments and stock options. We baseour estimates on historical experience and on various other assumptions, whichwe believe to be reasonable under the circumstances. Had we used differentassumptions in determining our estimates, our reported results may have varied.The different types of estimates that are required to be made by us in thepreparation of our consolidated financial statements vary significantly in thelevel of subjectivity involved in their determination. We have identified theestimates below as those which contain a relatively high level of subjectivityin their determination and, therefore, could have a more material effect uponour reported results if different assumptions were used.

*Impairment Testing of IntangibleAssets—*In performing our annual impairment testing ofgoodwill and FCC licenses, which are both considered to be intangible assetswith indefinite useful lives, we must make a significant number of assumptionsand estimates in determining the fair value based on the present value offuture cash flows. To assist in this process, we utilize the services of anindependent valuation consulting firm. See Note 4 to the consolidated financialstatements. The assumptions and estimates required under the impairment testingof goodwill and FCC licenses include future market revenue growth, operatingprofit margins, perpetual growth rates, market revenue share, andweighted-average cost of capital, among others. For the year ended December 31,2006, estimates of the present value of future cash flows for our stationsexceeded the book value of our FCC licenses and goodwill indicating noimpairment of these assets. For the year ended December 31, 2005,estimates of future cash flows for our station in New Orleans were reducedsignificantly from prior year due to the negative impact of Hurricane Katrinaon the New Orleans market. As a result, the Company wrote down its book valueof indefinite lived intangible assets and goodwill by $29.2 million, which wascomprised of $26.2 million of FCC license and $3.0 million of goodwill.

*Pension Assumptions*—Incomputing projected benefit obligations and the resulting pension expense, weare required to make a number of assumptions. To assist in this process, we usethe services of an independent consulting firm. See Note 16 to the consolidatedfinancial statements. To compute our projected benefit obligations as of themeasurement date of September 30, 2006, we used the discount rate of 5.75%and an average rate of compensation increase of 4.0%. In determining thediscount rate assumption of 5.75%, we used a measurement date of September 30,2006 and constructed a portfolio of bonds to match the benefit payment streamthat is projected to be paid from the Company’s pension plans. The benefitpayment stream is assumed to be funded from bond coupons and maturities as wellas interest on the excess cash flows from the bond portfolio. To compute ourpension expense in the year ended December 31, 2006, we assumed a discountrate of 6.0%, an expected long-term rate of return on plan assets of 7.75%, andan average rate of compensation increase of 4.0%. See Note 15 to theconsolidated financial statements for further discussion on management’smethodology for developing the expected long-term rate of return assumption. Weconsider the assumptions used in our determination of our projected benefitobligations and pension expense to be reasonable.

*Pension AssumptionsSensitivity Analysis*

Theweighted-average assumptions used in computing our net pension expense andprojected benefit obligation have a significant effect on the amounts reported.A one-percentage point change in each of the 

35

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assumptions below would have the following effectsupon net pension expense and projected benefit obligation, respectively, in theyear ended and as of December 31, 2006:

| ** **                     | ** ** | **One Percentage Point Increase** | ** ** | **One Percentage Point Decrease**        | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                     | ** ** | **Discount  Rate**                               | ** ** | **Expected long-  term rate of  return** | ** ** | **Rate of  compensation  increase** | ** ** | **Discount  Rate** | ** ** | **Expected long-  term rate of  return** | ** ** | **Rate of  compensation  increase** | ** ** |
| ** **                     | ** ** | **(In thousands)**                               | ** ** |
| Net pension (benefit)  expense |       | (4,187                                           | )          |                                                    | (1,434     | ) |   |   | 910 | ** ** |   |   | 4,748 | ** ** |   |   | 1,435 | ** ** |   |   | (852 | ) |   |
| Projected benefit  obligation  |       | (26,326                                          | )          |                                                    | N/A        |   |   |   | 5,011 | ** ** |   |   | 31,300 | ** ** |   |   | N/A | ** ** |   |   | (4,184 | ) |   |

 

*Income Taxes*—Income taxes are accounted for in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes (“SFAS 109”), which requires that deferred taxassets and liabilities be recognized for the differences in the book and taxbases of certain assets and liabilities using enacted tax rates. SFAS 109 alsorequires that deferred tax assets be reduced by a valuation allowance if it ismore likely than not, that some portion or all of the deferred tax assets willnot be realized. Income tax expense was $58.4 million or 37.3% of pre-taxincome in our Consolidated Statement of Income for the year ended December 31,2006. Deferred tax assets were approximately $4.7 million and deferred taxliabilities were approximately $838.2 million as of December 31, 2006. Ourestimates of income taxes and the significant items giving rise to the deferredassets and liabilities are set forth in Note 9 to the consolidatedfinancial statements. These estimates reflect our assessment of future taxes tobe paid on items reflected in the consolidated financial statements, givingconsideration to both timing and probability. Actual income taxes could varyfrom such estimates as a result of future changes in income tax law or reviewsby the Internal Revenue Service or other tax authorities.

*Investment Carrying Values*—We have investments in unconsolidated affiliates, which are accountedfor under the equity method if our equity interest is from 20% to 50%, andunder the cost method if our equity interest is less than 20% and we do notexercise significant influence over operating and financial policies. We reviewthe carrying value of investments on an ongoing basis and adjust them toreflect net realizable value, where necessary. See Note 3 to the consolidatedfinancial statements. As part of our analysis and determination of the netrealizable value of investments, we must make assumptions and estimatesregarding expected future cash flows, which involve assessing the financialresults, forecasts, and strategic direction of each company. During the yearended December 31, 2006, the Company wrote off its investment of $2.5million in USDTV. In December 2005, NBC and the Company concluded theNBC/Hearst-Argyle Syndication, LLC joint venture and as a result, the Companyrecorded a loss of $2.5 million. During the year ended December 31, 2004,the Company recorded a $3.7 million write-down to net realizable value of theCompany’s investment in ProAct Technologies Corporation. We consider theassumptions used in our determination of investment carrying values to bereasonable.

**Results of Operations**

Results of operations forthe years ended December 31, 2006, 2005 and 2004 include (i) theresults of our 24 television stations, which were owned for the entire periodpresented, and the management fees derived by the three television and two radiostations managed by us for the entire period presented; (ii) the resultsof operations of WKCF-TV, after our acquisition of the station, on August 31,2006; and (iii) the results of operations of WMTW-TV, after ouracquisition of the station, on July 1, 2004.

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*YearEnded December 31, 2006Compared to Year Ended December 31, 2005*

| ** **                                      | ** ** | **For the years ended  December 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2006**                                                  | ** ** | **2005**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(In Thousands)**                                   | ** ** | ** ** | ** ** | ** **        | ** ** |
| Total revenue                                   |       | $                                                         | 785,402    |       | $          | 706,883           |       | $ | 78,519 |   |   | 11.1 | % |   |
| Station operating  expenses:                    |       |                                                      |       |       |       |              |       |   |   |   |   |
| Salaries, benefits and other operating costs    |       | 397,604                                                   |       | 364,421    |       | 33,183            |       |   | 9.1 | % |   |
| Amortization of program rights                  |       | 68,601                                                    |       | 60,912     |       | 7,689             |       |   | 12.6 | % |   |
| Depreciation and amortization                   |       | 59,161                                                    |       | 51,728     |       | 7,433             |       |   | 14.4 | % |   |
| Impairment loss                                 |       | —                                                    |       | 29,235     |       | (29,235           | )          |   | -100.0 | % |   |
| Corporate,  general and administrative expenses |       | 31,261                                                    |       | 23,149     |       | 8,112             |       |   | 35.0 | % |   |
| Operating income                                |       | $                                                         | 228,775    |       | $          | 177,438           |       | $ | 51,337 |   |   | 28.9 | % |   |
| Interest expense                                |       | 66,103                                                    |       | 66,777     |       | (674              | )          |   | -1.0 | % |   |
| Interest income                                 |       | (6,229                                                    | )          | (3,402     | )          | (2,827            | )          |   | 83.1 | % |   |
| Interest expense,  net—Capital Trust       |       | 9,750                                                     |       | 9,750      |       | —            |       |   | 0.0 | % |   |
| Other expense                                   |       | 2,501                                                     |       | 2,500      |       | 1                 |       |   | 0.0 | % |   |
| Income before  income taxes and equity          |       | $                                                         | 156,650    |       | $          | 101,813           |       | $ | 54,837 |   |   | 53.9 | % |   |
| Income tax expense                              |       | $                                                         | 58,410     |       | $          | 3,012             |       | $ | 55,398 |   |   | 1839.2 | % |   |
| Equity in income  of affiliates, net of tax     |       | (483                                                      | )          | (1,416     | )          | 933               |       |   | -65.9 | % |   |
| Net income                                      |       | $                                                         | 98,723     |       | $          | 100,217           |       | $ | (1,494 | ) |   | -1.5 | % |   |

 

*Total revenue.*

Total revenue includes:

(i)            cash advertisingrevenue, net of agency and national representatives’ commissions;

(ii)        retransmission consentrevenue;

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

(iv)      network compensation; and

(v)          otherrevenue, primarily barter and trade revenue.

| ** **                                                      | ** ** | **For the years ended  December 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                      | ** ** | **2006**                                                  | ** ** | **2005**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                                      | ** ** | **(In thousands)**                                   | ** ** | ** ** | ** ** | ** **        | ** ** |
| Net  local & national ad revenue (excluding political) |       | $                                                         | 614,257    |       | $          | 629,837           |       | $ | (15,580 | ) |   | -2.5 | % |   |
| Net digital media  revenue                                      |       | 15,513                                                    |       | 335        |       | 15,178            |       |   | 4530.7 | % |   |
| Net political  revenue                                          |       | 88,040                                                    |       | 12,393     |       | 75,647            |       |   | 610.5 | % |   |
| Network  compensation                                           |       | 9,810                                                     |       | 19,087     |       | (9,277            | )          |   | -48.6 | % |   |
| Retransmission  consent revenue                                 |       | 17,908                                                    |       | 6,765      |       | 11,143            |       |   | 164.7 | % |   |
| Other revenues                                                  |       | 39,874                                                    |       | 38,466     |       | 1,408             |       |   | 3.7 | % |   |
| Total revenue                                                   |       | $                                                         | 785,402    |       | $          | 706,883           |       | $ | 78,519 |   |   | 11.1 | % |   |

 

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Total revenue inthe year ended December 31, 2006 increased $78.5 million or 11.1%. Thisincrease was primarily attributable to the following factors:

(i)            a $75.6 millionincrease in net political advertising revenue resulting from the normal,cyclical nature of the television broadcasting business, in which the demandfor advertising by candidates running for political office significantlyincreases in even-numbered election years (such as 2006);

(ii)        a $11.1 million increasein retransmission consent revenue; and

(iii)    $15.2 million increase in net digitalmedia revenue;

(iv)      an increase in the furnitureand housewares, attractions, retail and telecommunications categories,advertising associated with the Olympics on our NBC-affiliated stations and theacquisition of WKCF-TV; partially offset by

(v)          a $9.3 million decreasein network compensation; and

(vi)      adecrease in the automotive, pharmaceutical, fast food and beverages categories.

*Salaries, benefitsand other operating costs.*

Salaries, benefitsand other operating costs were $397.6 million in the year ended December 31,2006, as compared to $364.4 million in the year ended December 31, 2005,an increase of $33.2 million or 9.1%. This increase was primarily due to:

(i)            a $10.2 millionincrease in compensation, pension and employee benefits expense;

(ii)        a $10.0 million increasein digital media expenses;

(iii)    $3.8 million in stock-basedcompensation expense;

(iv)      an increase in expenses dueto the acquisition of WKCF-TV on August 31, 2006; partially offset by

(v)          $2.6 million ofinsurance proceeds recognized for a portion of the property damages andexpenses incurred at our station WDSU-TV in New Orleans, Louisiana as a resultof Hurricane Katrina; and

(vi)      a$1.9 million decrease in Trade/Barter Expense.

*Amortization ofprogram rights.*

Amortization ofprogram rights was $68.6 million in the year ended December 31, 2006, ascompared to $60.9 million in the year ended December 31, 2005, an increaseof $7.7 million or 12.6%. This increase was primarily due to:

(i)            renewal of popularshows at higher rates; and

(ii)        anincrease in amortization due to the purchase of WKCF-TV which has a higher costof programming due to the number of syndicated programming that air on thestation.

*Depreciation andamortization.*

Depreciation and amortization was $59.2 million in theyear ended December 31, 2006, as compared to $51.7 million in the yearended December 31, 2005, an increase of $7.4 million or 14.4%. Depreciationexpense was $52.8 million in the year ended December 31, 2006, as comparedto $45.7 million in the year ended December 31, 2005, an increase of $7.1 millionor 19.7%. This increase was primarily due to higher 

38

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capital expenditures,additional depreciation from WKCF-TV which we acquired on August 31, 2006and accelerated depreciation of analog equipment.

Amortization was $6.3million and $6.0 million for the years ended December 31, 2006 and 2005.

*Impairment loss.*

The Company recorded a$29.2 million write down of its indefinite lived intangible assets and goodwillfor the year ended December 31, 2005 which was comprised of $26.2 millionin respect of FCC license and $3.0 million in respect of goodwill. In performingits annual review for impairment the Company reduced its estimates of futurecash flows for our station in New Orleans due to the negative impact ofHurricane Katrina on the New Orleans market.

*Corporate, generaland administrative expenses.*

Corporate, generaland administrative expenses were $31.3 million in the year ended December 31,2006, as compared to $23.1 million in the year ended December 31, 2005, anincrease of $8.1 million or 35.0%. The increase was primarily due to:

(i)            a $2.0 million increasein salaries and incentive costs, a portion of which is related to ourinvestment in our digital media initiatives;

(ii)        $3.7 million instock-based compensation expense; and

(iii)    a$1.6 million increase due in large part to the timing of professional servicesexpenses.

*Operating income.*

Operating income was$228.8 million in the year ended December 31, 2006, as compared to $177.4million in the year ended December 31, 2005, an increase of $51.3 millionor 28.9%. This net increase in operating income was due to the items discussedabove.

*Interest expense.*

Interest expensewas $66.1 million in the year ended December 31, 2006, as compared to$66.8 million in the year ended December 31, 2005, a decrease of $0.7million or 1.0%. This decrease was primarily due to:

(i)            a decrease in interestexpense as a result of the repurchase of $10 million and $15 million of oursenior notes and the related decrease in the amortization of deferred financingfees, partially offset by;

(ii)        anincrease in interest expense due to the borrowing of $100 million on our creditfacility in August 2006.

*Interest income.*

Interest income was $6.2million in the year ended December 31, 2006, as compared to $3.4 millionin the year ended December 31, 2005, an increase of $2.8 million or 83.1%.This increase is due to higher cash balances on average and higher interestrates in the 2006 as compared to the same period in 2005.

*Interest Expense,net—Capital Trust.*

Interest expense, net, tothe Capital Trust, was $9.8 million for the years ended December 31, 2006and 2005.

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*Other expense.*

Other expense was $2.5million for the years ended December 31, 2006 and 2005. In July 2006,USDTV filed for Chapter 7 bankruptcy and as a result, the Company wrote off itsinvestment of $2.5 million. In December 2005, NBC and the Companyconcluded the NBC/Hearst-Argyle Syndication, LLC joint venture and as a result,the Company recorded a loss of $2.5 million.

*Income taxes.*

Income tax expensewas $58.4 million in the year ended December 31, 2006, as compared to $3.0million in the year ended December 31, 2005, an increase of $55.4 million.This increase in income tax expense was primarily due to:

(i)            an increase in incomebefore income taxes from $101.8 million for the year ended December 31,2005 to $156.7 million for the year ended December 31, 2006; and

(ii)        $37.4 million in taxbenefits recorded as a result of the settlement of certain tax returnexaminations and changes in Ohio tax law in the year ended December 31,2005.

We expect our effectivetax rate for the year ending December 31, 2007 to be approximately 39.5%.

*Equity in (income)of affiliates, net of tax.*

Equity in (income) ofaffiliates, net of tax was $0.5 million in the year ended December 31,2006, as compared to $1.4 million in the year ended December 31, 2005, adecrease of $0.9 million or 65.9%. See Note 3 to the consolidated financialstatements. For the year ended December 31, 2006, our share of income inInternet Broadcasting Systems, Inc. (“Internet Broadcasting”) was offsetby our share of losses in Ripe Digital Entertainment, Inc. (“Ripe TV”).For the year ended December 31, 2005, our equity represented our share ofincome in IBS/HATV LLC, offset by our share of losses at Internet Broadcastingand Ripe TV.

*Net income.*

Net income was $98.7million in the year ended December 31, 2006, as compared to $100.2 millionin the year ended December 31, 2005, a decrease of $1.5 million or 1.5%.This decrease was due to the items discussed above.

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*YearEnded December 31, 2005Compared to Year Ended December 31, 2004*

| ** **                                      | ** ** | **For the years ended  December 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2005**                                                  | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(In Thousands)**                                   | ** ** | ** ** | ** ** | ** **        | ** ** |
| Total revenue                                   |       | $                                                         | 706,883    |       | $          | 779,879           |       | $ | (72,996 | ) |   | -9.4 | % |   |
| Station operating  expenses:                    |       |                                                      |       |       |       |              |       |   |   |   |   |
| Salaries, benefits and other operating costs    |       | 364,421                                                   |       | 355,641    |       | 8,780             |       |   | 2.5 | % |   |
| Amortization of program rights                  |       | 60,912                                                    |       | 63,843     |       | (2,931            | )          |   | -4.6 | % |   |
| Depreciation and amortization                   |       | 51,728                                                    |       | 50,376     |       | 1,352             |       |   | 2.7 | % |   |
| Impairment loss                                 |       | 29,235                                                    |       | —     |       | 29,235            |       |   | N/A |   |   |
| Corporate,  general and administrative expenses |       | 23,149                                                    |       | 25,268     |       | (2,119            | )          |   | -8.4 | % |   |
| Operating income                                |       | $                                                         | 177,438    |       | $          | 284,751           |       | $ | (107,313 | ) |   | -37.7 | % |   |
| Interest expense                                |       | 66,777                                                    |       | 65,445     |       | 1,332             |       |   | 2.0 | % |   |
| Interest income                                 |       | (3,402                                                    | )          | (1,715     | )          | (1,687            | )          |   | 98.4 | % |   |
| Interest expense,  net—Capital Trust       |       | 9,750                                                     |       | 18,675     |       | (8,925            | )          |   | -47.8 | % |   |
| Other expense                                   |       | 2,500                                                     |       | 3,700      |       | (1,200            | )          |   | -32.4 | % |   |
| Income before  income taxes and equity          |       | $                                                         | 101,813    |       | $          | 198,646           |       | $ | (96,833 | ) |   | -48.7 | % |   |
| Income tax expense                              |       | $                                                         | 3,012      |       | $          | 75,724            |       | $ | (72,712 | ) |   | -96.0 | % |   |
| Equity in income  of affiliates, net of tax     |       | (1,416                                                    | )          | (1,020     | )          | (396              | )          |   | 38.8 | % |   |
| Net income                                      |       | $                                                         | 100,217    |       | $          | 123,942           |       | $ | (23,725 | ) |   | -19.1 | % |   |

 

*Total revenue.*

Total revenue includes:

(i)            cash advertisingrevenue, net of agency and national representatives’ commissions;

(ii)        network compensation;

(iii)    retransmission consentrevenue; and

(iv)      otherrevenue, primarily barter and trade revenue.

| ** **                                                      | ** ** | **For the years ended  December 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                      | ** ** | **2005**                                                  | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Net  local & national ad revenue (excluding political) |       | $                                                         | 629,837    |       | $          | 621,805           |       | $ | 8,032 |   |   | 1.3 | % |   |
| Net digital media  revenue                                      |       | 335                                                       |       | —     |       | 335               |       |   | N/A |   |   |
| Net political  revenue                                          |       | 12,393                                                    |       | 86,733     |       | (74,340           | )          |   | -85.7 | % |   |
| Network  compensation                                           |       | 19,087                                                    |       | 28,980     |       | (9,893            | )          |   | -34.1 | % |   |
| Retransmission  consent revenue                                 |       | 6,765                                                     |       | 1,822      |       | 4,943             |       |   | 271.3 | % |   |
| Other revenues                                                  |       | 38,466                                                    |       | 40,539     |       | (2,073            | )          |   | -5.1 | % |   |
| Total revenue                                                   |       | $                                                         | 706,883    |       | $          | 779,879           |       | $ | (72,996 | ) |   | -9.4 | % |   |

 

Total revenue inthe year ended December 31, 2005 was $706.9 million, as compared to $779.9million in the year ended December 31, 2004, a decrease of $73.0 millionor 9.4%. This decrease was primarily attributable to the following factors:

(i)            a $74.3 milliondecrease in net political advertising revenue resulting from the normal,cyclical nature of the television broadcasting business, in which the demandfor advertising by candidates running for political office significantlyincreases in even-numbered election years (such as 2004);

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(ii)        a $19.7 milliondecrease representing the absence of net Olympic revenue; and

(iii)    a $9.9 million decreasein network compensation; partially offset by

(iv)      an increase in theautomotive, financial services, and furniture and housewares categories; and

(v)          a$5.4 million increase in retransmission consent revenue.

*Salaries, benefitsand other operating costs.*

Salaries, benefitsand other operating costs were $364.4 million in the year ended December 31,2005, as compared to $355.6 million in the year ended December 31, 2004,an increase of $8.8 million or 2.5%. This increase was primarily due to:

(i)            a $4.9 millionincrease in payroll expense;

(ii)        a $4.1 million increase inpension and employee benefit expense; and

(iii)    $3.7 million in incrementalexpenses due to Hurricane Katrina; partially offset by

(iv)      a $2.1 million decrease inTrade/Barter Expense; and

(v)          a$2.5 million decrease in property and casualty insurance expense.

*Amortization ofprogram rights.*

Amortization ofprogram rights was $60.9 million in the year ended December 31, 2005, ascompared to $63.8 million in the year ended December 31, 2004, a decreaseof $2.9 million or 4.6%. This decrease was primarily due to:

(i)            cost savings byreplacing certain higher cost first-run programs; and

(ii)        a $2.2 million write-downof certain syndicated programs in 2004; partially offset by

(iii)    theadditional programming cost for WMTW-TV, which we acquired on July 1,2004;

*Depreciation andamortization.*

Depreciation and amortization was $51.7 million in theyear ended December 31, 2005, as compared to $50.4 million in the yearended December 31, 2004, an increase of $1.4 million or 2.7%. Depreciationexpense was $45.7 million in the year ended December 31, 2005, as comparedto $44.4 million in the year ended December 31, 2004, an increase of $1.3million or 2.9%. This increase was primarily due to additional depreciationfrom WMTW-TV, which we acquired on July 1, 2004.

Amortization was $6.0million in each of the years ended December 31, 2005 and 2004.

*Impairment loss.*

The Company recorded a$29.2 million write down of its indefinite lived intangible assets and goodwillfor the year ended December 31, 2005 which was comprised of $26.2 millionof FCC license and $3.0 million of goodwill. In performing its annual reviewfor impairment the Company reduced its estimates of future cash flows for ourstation in New Orleans due to the negative impact of Hurricane Katrina on theNew Orleans market.

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*Corporate, generaland administrative expenses.*

Corporate, generaland administrative expenses were $23.1 million in the year ended December 31,2005, as compared to $25.3 million in the year ended December 31, 2004, adecrease of $2.1 million or 8.4%. The decrease was primarily due to:

(i)            a decrease in salariesand incentive costs; and

(ii)        adecrease in accounting and consulting fees primarily as a result of a reductionof costs associated with Sarbanes-Oxley Section 404 compliance.

*Operating income.*

Operating income was$177.4 million in the year ended December 31, 2005, as compared to $284.8million in the year ended December 31, 2004, a decrease of $107.3 millionor 37.7%. This net decrease in operating income was due to the items discussedabove.

*Interest expense.*

Interest expensewas $66.8 million in the year ended December 31, 2005, as compared to$65.4 million in the year ended December 31, 2004, an increase of $1.3million or 2.0%. This increase was primarily due to:

(i)            the $0.7 millionpremium paid in the fourth quarter of 2005 on the repurchase of $15 million ofour 7.5% Senior Notes due 2027; and

(ii)        theacceleration of $0.7 million of deferred financing costs related to therepurchase of those Senior Notes.

*Interest income.*

Interest income was $3.4million in the year ended December 31, 2005, as compared to $1.7 millionin the year ended December 31, 2004, an increase of $1.7 million or 98.4%.This increase was due in part to higher cash balances.

*Interest Expense,net—Capital Trust.*

Interest expense, net, tothe Capital Trust, was $9.8 million in the year ended December 31, 2005,compared to $18.7 million in the year ended December 31, 2004, a decreaseof $8.9 million, or 47.8%. The decrease results from $5.4 million in interestsavings due to the redemption of the $72.2 million Series A Debentures in December 2004and the absence of a $3.7 million premium we paid in 2004 for the redemption ofthose Debentures.

*Other expense.*

Other expense was $2.5million in the year ended December 31, 2005, as compared to $3.7 millionin the year ended December 31, 2004, a decrease of $1.2 million or 32.4%. InDecember 2005, NBC and the Company concluded the NBC/Hearst-ArgyleSyndication, LLC joint venture and as a result, the Company recorded a loss of$2.5 million. During the year ended December 31, 2004, the Companyrecorded a $3.7 million write-down to net realizable value of the Company’sinvestment in ProAct Technologies Corporation.

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*Income taxes.*

Incometax expense was $3.0 million in the year ended December 31, 2005, ascompared to $75.7 million in the year ended December 31, 2004, adecrease of $72.7 million or 96.0%. This decrease in income tax expense wasprimarily due to

(i)            adecrease in income before income taxes from $198.6 million for the year ended December 31,2004 to $101.8 million for the year ended December 31, 2005;

(ii)        $31.9million in tax benefits recorded as a result of the settlement of certain taxreturn examinations in the period ended June 30, 2005; and

(iii)    anet deferred tax benefit of $5.5 million as a result of Ohio tax law changes.

*Equity in (income) of affiliates, net.*

Equity in income ofaffiliates, net of tax was $1.4 million in the year ended December 31,2005, as compared to $1.0 million of income in the year ended December 31,2004, an increase of $0.4 million or 38.8%. See Note 3 to the consolidatedfinancial statements. This increase was primarily due to the improved operatingresults of Internet Broadcasting, IBS HATV LLC and related Websites partiallyoffset by a loss from our investment in Ripe TV. Our share in the financialresults of Internet Broadcasting entities was $1.7 million in the year ended December 31,2005, as compared to $1.0 million in the year ended December 31, 2004.

*Net income.*

Netincome was $100.2 million in the year ended December 31, 2005, as comparedto $123.9 million in the year ended December 31, 2004, a decrease of $23.7million or 19.1%. This decrease was due to the items discussed above,primarily:

(i)            adecrease of $107.3 million in Operating income; and

(ii)        adecrease of $8.9 million in Interest expense, net—Capital Trust; partiallyoffset by

(iii)    adecrease of $72.4 million in Income taxes, in the year ended December 31,2005, as compared to the year ended December 31, 2004.

**Liquidity and Capital Resources**

| ** **                                 | ** ** | **For the years ended  December 31,** | ** ** | **2006 vs 2005** | ** ** | **2006 vs 2005** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **2006**                                                  | ** ** | **2005**                   | ** ** | **$ Change**          | ** ** | **% Change** | ** ** |
| ** **                                 | ** ** | **(in Thousands)**                                   | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Net cash provided by  operating activities |       | $                                                         | 200,384    |                       | $          | 128,730                    |       |   | $ | 71,654 |   |   |   | 56 | % |   |
| Net cash used in  investing activities     |       | $                                                         | (282,893   | )                          | $          | (41,008                    | )          |   | $ | (241,885 | ) |   |   | 590 | % |   |
| Net cash used in  financing activities     |       | $                                                         | (18,946    | )                          | $          | (59,865                    | )          |   | $ | 40,919 |   |   |   | -68 | % |   |
| Cash and cash  equivalents                 |       | $                                                         | 18,610     |                       | $          | 120,065                    |       |   | $ | (101,455 | ) |   |   | -85 | % |   |
| Cash paid during the year for:             |       |                                                      |       |                       |       |                       |       |   |   |   |   |   |   |
| Interest                                   |       | $                                                         | 65,144     |                       | $          | 64,320                     |       |   | $ | 824 |   |   |   | 1 | % |   |
| Interest on Note payable  to Capital Trust |       | $                                                         | 9,750      |                       | $          | 9,750                      |       |   | $ | — |   |   |   | 0 | % |   |
| Taxes, net of refunds                      |       | $                                                         | 38,518     |                       | $          | 39,892                     |       |   | $ | (1,374 | ) |   |   | -3 | % |   |
| Dividends paid on common  stock            |       | $                                                         | 25,954     |                       | $          | 25,997                     |       |   | $ | (43 | ) |   |   | 0 | % |   |
| Series A Common Stock repurchases     |       | $                                                         | 2,780      |                       | $          | 16,385                     |       |   | $ | (13,605 | ) |   |   | -83 | % |   |

 

As of December 31, 2006, the Company’s cash andcash equivalents balance was $18.6 million, as compared to $120.1 million as ofDecember 31, 2005. The net decrease in cash and cash equivalents of $101.5million during 2006 was due to the factors described below under Operating Activities,Investing Activities, and Financing Activities.

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*OperatingActivities*

Net cash providedby operating activities was approximately $200.4 million and $128.7 million inthe years ended December 31, 2006 and 2005 respectively. The increase innet cash provided by operating activities of $71.7 million in the year ended December 31,2006 was primarily due to:

(i)            the increase in ourrevenue, driven by political advertising for which we receive cash in advance;

(ii)        contributions to thepension plans in 2005 of approximately $18.9 million that were not made in 2006;

(iii)    the timing of tax payments andaccounts payable; and

(iv)      cashreceived due to the dissolution of IBS/HATV LLC.

*InvestingActivities*

Net cash used in investing activities wasapproximately $282.9 million and $41.0 million in the years ended December 31,2006 and 2005, respectively. Investing activities in 2006 included theacquisition of WKCF-TV for $217.5 million in cash and investments in digitalmedia companies. In 2006 and 2005, we invested an aggregate of $10.6 millionand $8.5 million, respectively, in Internet Broadcasting, Ripe TV, USDTV and tounwind our joint venture with NBC Universal. See Note 3 to the consolidatedfinancial statements.

During the yearended December 31, 2006, we invested $64.2 million in capital expendituresas compared to $35.8 million invested in the year ended December 31, 2005.The increased level of capital investment relates primarily to special projectsas follows:

(i)            $24 million onbuilding projects in Kansas City, Baltimore, New York and Orlando,

(ii)        $12 million on digitaltelevision projects,

(iii)    $9 million on news acquisitionand editing equipment,

(iv)      $4 million on informationtechnology projects,

(v)          $1million on repairs related to damage caused by Hurricane Katrina.

*FinancingActivities*

Net cash used in financing activities wasapproximately $18.9 million and $59.9 million in the years ended December 31,2006 and 2005, respectively. In the year ended December 31, 2006, we usedcash provided by operating activities primarily to pay the first installment of$90 million principal of our private placement debt, fund $26.0 million individends and to repurchase of $10.0 million of our 7% senior notes due 2018. Inthe year ended December 31, 2005, we used cash provided by operatingactivities to fund $26.0 million of dividends to our holders of Series Aand B Common Stock, repurchase $16.4 million of Series A Common Stock andrepurchase $15 million of our 7.5% senior notes due 2027.

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Long-termdebt outstanding was relatively unchanged at December 31, 2006 from December 31,2005 notwithstanding the $100 million borrowed to finance our acquisition ofWKCF-TV and the $90 million payment on our private placement debt. The changesin long-term debt in the year ended December 31, 2006 were as follows (inthousands):

| ** **                         | ** ** | **Revolving Credit   Facility** | ** **                                                    | **Senior Notes** | ** ** | **Private Placement   Debt** | ** **     | **Capital Lease   Obligations** | ** ** | **Total** | ** **     |
|------------------------------------|------------|-------------------------------------------|---------------------------------------------------------------|-----------------------|------------|----------------------------------------|----------------|-------------------------------------------|------------|-----------|----------------|
| Balance at  December 31, 2005 |       |                                      | $         — |                  |       |                                   | $ 417,110 |                                      |       |      | $ 450,000 |   |   |   | $ 60 |   |   | $ 867,170 |   |
| Payments                           |       |                                      | —                                                        |                  |       |                                   | —         |                                      |       |      | (90,000        | ) |   |   | (48 | ) |   | (90,048 | ) |
| Borrowings                         |       |                                      | 100,000                                                       |                  |       |                                   | —         |                                      |       |      | —         |   |   |   | — |   |   | 100,000 |   |
| Repurchases                        |       |                                      | —                                                        |                  |       |                                   | (10,000        | )                                         |       |      | —         |   |   |   | — |   |   | (10,000 | ) |
| Balance at  December 31, 2006 |       |                                      | $ 100,000                                                |                  |       |                                   | $ 407,110 |                                      |       |      | $ 360,000 |   |   |   | $ 12 |   |   | $ 867,122 |   |

 

Certain of our debt obligations contain financial andother covenants and restrictions on the Company. None of these covenants orrestrictions includes any triggers explicitly tied to the Company’s creditratings or stock price. We are in compliance with all such covenants andrestrictions as of December 31, 2006. All of our long-term debtobligations as of December 31, 2006, exclusive of capital leaseobligations and the credit facility, bear interest at a fixed rate. Our creditratings for long-term debt obligations, respectively, were BBB- by Standard &Poor’s and FitchRatings, and Baa3 by Moody’s Investors Service, as of December 31,2006. Such credit ratings are considered to be investment grade.

In November 2006, we increased our five-yearunsecured revolving credit facility which matures on April 15, 2010 to$500 million. The credit facility can be used for general corporate purposesincluding working capital, investments, acquisitions, debt repayment anddividend payments. Outstanding principal balances under the credit facilitywill bear interest at our option at LIBOR or the alternate base rate (“ABR”),plus the applicable margin. The applicable margin for ABR loans is zero. Theapplicable margin for LIBOR loans varies between 0.50% and 1.00% depending onthe ratio of our total debt to earnings before interest, taxes, depreciationand amortization as defined by the credit agreement (the “Leverage Ratio”). TheABR is the greater of (i) the prime rate or (ii) the Federal FundsEffective Rate in effect plus 0.5%. We are required to pay a commitment feebased on the unused portion of the credit facility. The commitment fee rangesfrom 0.15% to 0.25% depending on our Leverage Ratio. The credit facility is ageneral unsecured obligation of the Company. We have borrowed $100.0 millionunder the credit facility as of December 31, 2006.

On December 31, 2004, we redeemed a portion ofthe Series A Debentures. We originally issued $206.2 million of Series Aand Series B Debentures on December 20, 2001 to our wholly-ownedunconsolidated subsidiary Capital Trust in exchange for the proceeds of a$200.0 million private placement of Redeemable Convertible Preferred Securitieswhich the Capital Trust issued to institutional investors. We redeemed the Series ADebentures in their entirety in the aggregate principal amount of $72.2million, at a price of $52.625 per $50.00 principal amount in accordance withthe terms of the indenture. The redemption of the Series A Debenturestriggered a simultaneous redemption by the Capital Trust of 1.4 million sharesof its Series A Securities, as well as the redemption of 43,299 shares ofthe Capital Trust’s common stock, which were held by us. The Series ASecurities were effectively convertible, at the option of the holder, intoshares of our Series A Common Stock at a rate of 2.005133 shares of Series ACommon Stock per $50 principal amount of Series A Debentures (an effectiveconversion price of $24.9360). The redemption of the Series A Debentureswill remove the potential dilution of 2.8 million shares and reduce Interestexpense, net—Capital Trust by $5.3 million per year starting in 2005. We recognized a pre-tax loss of$3.7 million related to the redemption premium, which is included in Interestexpense, net—Capital Trust in the Consolidated Statement of Income for the yearended December 31, 2004. See Note 7 to the consolidated financialstatements.

As of December 31, 2006, the Company hasoutstanding $134.0 million aggregate principal amount of Series BDebentures which are convertible into 5,128 shares of Series A CommonStock in the aggregate. 

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The Series BDebentures mature on December 31, 2021 and bear interest at a rate of 7.5%per year. The Company has the right to defer interest on the Debentures (andtherefore distributions on the Redeemable Convertible Preferred Securities) byextending the interest payment period from time to time in accordance with andsubject to the terms of the Redeemable Convertible Preferred Securities. The Series BDebentures may be redeemed at the option of the Company (or at the direction ofHearst) at any time on or after December 31, 2006. The redemption prices(per $50 principal amount) of the Series B Debentures range from $51.875in 2007, declining to $50.375 in 2011 and $50 thereafter to maturity. TheRedeemable Convertible Preferred Securities issued by the Capital Trust areeffectively convertible, at the option of the holder at any time, into sharesof the Company’s Series A Common Stock, par value $.0l per share throughan exchange of such Redeemable Convertible Preferred Securities for a portionof the Debentures of the corresponding series held by the Capital Trust.

We redeemed 1,600 shares of Series A PreferredStock on January 1, 2004 and 5,468 shares of Series B Preferred Stockon December 10, 2004 for an aggregate amount of $7.1 million. We redeemed5,781 shares outstanding of Series A Preferred Stock and 5,470 sharesoutstanding of Series B Preferred Stock for $11.3 million on January 1,2005.

During 2006, our Board of Directors declared quarterlycash dividends of $0.07 per share on our Series A and Series B CommonStock for a total amount of $26.0 million. Included in this amount was $18.0million payable to Hearst. During 2005, our Board of Directors declaredquarterly cash dividends on our Series A and Series B Common Stockfor a total amount of $26.0 million. Included in this amount was $19.0 millionpayable to Hearst. See Note 13 to the consolidated financial statements.

During 2006, the Companyrepurchased 129,150 shares of Series A Common Stock at a cost of $2.8million and an average per share price of $21.52. Between May 1998 and December 31,2006, the Company repurchased approximately 4.5 million shares of Series ACommon Stock at a cost of approximately $110.8 million and an average price of$24.87. In May 1998, our Board of Directors authorized the repurchase ofup to $300 million of its outstanding Series A Common Stock. Suchrepurchases may be effected from time to time in the open market or in privatetransactions, subject to market conditions and management’s discretion. Wecannot assure you that we will make such repurchases in the future or, if theydo occur, on what terms such repurchases will be made.

**ContractualObligations**

Thefollowing table summarizes our future cash obligations as of December 31,2006 under existing debt repayment schedules, non-cancelable leases, futurepayments for program rights, employment and talent contracts and Note payableto Capital Trust:

| ** **                                      | ** ** | **2007**       | ** ** | **2008**       | ** ** | **2009**       | ** ** | **2010**       | ** ** | **2011**      | ** ** |
|-------------------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|----------------|------------|---------------|------------|
| Long-term debt(1)(2)(3)                         |       | $ 215,048 |       | $ 90,012  |       | $ 90,000  |       | $ 190,000 |       | —        |       |
| Note payable to  Capital Trust(2)               |       | —         |       | —         |       | —         |       | 134,021        |       | —        |       |
| Net  non-cancelable operating lease obligations |       | 6,157          |       | 4,875          |       | 4,019          |       | 2,805          |       | 2,078         |       |
| Program rights                                  |       | 95,884         |       | 88,628         |       | 78,201         |       | 70,442         |       | 44,933        |       |
| Employee, talent  and other contracts           |       | 75,909         |       | 43,642         |       | 15,870         |       | 3,999          |       | 1,416         |       |
| Common Stock  Dividend                          |       | 6,523          |       | —         |       | —         |       | —         |       | —        |       |
|                                            |       | $ 399,521 |       | $ 227,157 |       | $ 188,090 |       | $ 401,267 |       | $ 48,427 |       |

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(1)          Includescapital lease obligations.

(2)          Excludes interest.

(3)          The Company has theability and intent to refinance its $125,000 principal amount of 7% seniornotes due November 2007 and therefore has continued to classify the debtat a long-term obligation on the consolidated balance sheet.

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The above table does not include cash requirements forthe payment of any dividends that our Board of Directors may decide to declarein the future on our Series A and Series B Common Stock. See Note 10to the consolidated financial statements.

We anticipate that ourprimary sources of cash, which include current cash balances, net cash providedby operating activities and the remaining availability on our $500 millioncredit facility, will be sufficient to finance the operating and workingcapital requirements of our stations, our debt service requirements, sinkingfund payment, anticipated capital expenditures, dividend payments, and ourother obligations for both the next 12 months and the foreseeable futurethereafter.

**Impact of Inflation**

The impact of inflation onour operations has not been significant to date. There can be no assurance,however, that a high rate of inflation in the future would not have an adverseimpact on our operating results.

**Off-Balance SheetArrangements**

Other than contractualcommitments and other legal contingencies incurred in the normal course ofbusiness, agreements for future barter and program rights not yet available forbroadcast as of December 31, 2006, and employment contracts for keyemployees discussed above, the Company does not have any off-balance sheetfinancings or liabilities. Other than its wholly-owned unconsolidated subsidiarytrust, which is reflected in the Consolidated Balance Sheet as Note payable toCapital Trust, the Company does not have any majority-owned subsidiaries thatare not included in the consolidated financial statements, nor does the Companyhave any interests in, or relationships with, any special-purpose entities thatare not reflected in the consolidated financial statements.

**New AccountingPronouncements**

In February 2007, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”) whichpermits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value. SFAS 159 will be effective for the Company on January 1,2008. The Company is currently evaluating the impact of adopting SFAS 159on its financial position, cash flows, and results of operations.

In June 2006, the Financial Accounting StandardsBoard (“FASB”) issued FIN 48, *Financial Interpretation No. 48,Accounting for Uncertainty inIncome Taxes*(“FIN 48”), which clarifies the accounting foruncertainty in income taxes by prescribing a recognition threshold for taxpositions taken or expected to be taken in a tax return. FIN 48 is effectivefor fiscal years beginning after December 31, 2006. The Company continuesto evaluate the impact of FIN 48 but does not believe that it will have amaterial impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS 157,*Statement of Financial Accounting Standards No. 157,Fair Value Measurements* (“SFAS 157”), which applies whenever otherstandards require (or permit) assets or liabilities to be measured at fairvalue. SFAS 157 establishes a fair value hierarchy that prioritizes theinformation used to develop the assumption that market participants would usewhen pricing an asset or liability. SFAS 157 is effective for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscalyears. We do not believe the adoption of SFAS 157 will have a material impacton our financial position or results of operations.

In September 2006, the FASB issuedSFAS 158, *Statement of Financial Accounting Standards No. 158, Employers’Accounting for Defined Benefit Pension and Other Postretirement Plan*(“SFAS 158”),which requires employers to fully recognize the obligations associatedwith single-employer defined benefit 

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pension, retireehealthcare and other postretirement plans in their financial statements. Itrequires employers to recognize an asset or liability for a plan’soverfunded or underfunded status, measure a plan’s assets and obligations thatdetermine its funded status as of the end of the employer’s fiscal year andrecognize in comprehensive income changes in the funded status of a definedbenefit postretirement plan in the year in which changes occur. The requirementto recognize the funded status of a benefit plan and the disclosurerequirements are effective for fiscal years ending after December 15,2006. We have adopted the requirement to recognize the funded status of abenefit plan as of December 31, 2006. As a result, Accumulated othercomprehensive loss increased $26.4 million, net of tax. The requirementto measure plan assets and benefit obligations as of the date ofthe employer’s fiscal year end is effective for all years ending after December 15,2008.

In September 2006,the Staff of the SEC issued SAB 108 *Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements* (“SAB 108”).SAB 108 provides guidance on the consideration of the effects of prior yearmisstatements in quantifying current year misstatements for the purpose of determiningwhether the current year’s financial statements are materially misstated. SAB108 is effective for fiscal years ending after November 15, 2006. Theadoption of SAB 108 did not have a material impact on our financial statements.

**ITEM 7A:   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Ourlong-term debt obligations as of December 31, 2006 are at 1)fixed interestrates and therefore are not sensitive to fluctuations in interest rates and 2)variable rate debt at LIBOR or the alternative base rate plus the applicablemargin. See Note 6 to the consolidated financial statements. The followingtable presents the fair value of long-term debt obligations (excluding capitallease obligations) as of December 31, 2006 and 2005 and the future cash flowsby expected maturity dates, based upon outstanding principal balances as of December 31,2006. See Note 17 to the consolidated financial statements.

| ** **                     | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                     | ** ** | **Expected Maturity**      | ** ** | **Fair**                        | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                     | ** ** | **2007**                        | ** ** | **2008**                        | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Value** | ** ** | **Value** | ** ** | **Value** | ** ** |
| Long-term debt:                | ** ** | ** **                      | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| **Fixed rate:**                |       |                            |       |                            |       |   |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |   |   |   |   | ** ** |   |   |   |
| Senior Notes                   |       | $ 125,000                  |       | —                          |       | — |   | — |   |   | — | ** ** |   |   | $ 282,110 | ** ** |   | $ 407,110 |   | $ 427,487 |   |   | $ 417,110 | ** ** |   | $ 434,830 |   |
| Private Placement Debt         |       | $ 90,000                   |       | $ 90,000                   |       | $ 90,000 |   | $ 90,000 |   |   | — | ** ** |   |   | — | ** ** |   | $ 360,000 |   | $ 372,147 |   |   | $ 450,000 | ** ** |   | $ 484,676 |   |
| **Variable rate debt:**        |       |                            |       |                            |       |   |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |   |   |   |   | ** ** |   |   |   |
| Revolving Credit Facility      |       | —                          |       | —                          |       | — |   | $ 100,000 |   |   | — | ** ** |   |   | — | ** ** |   | $ 100,000 |   | $ 100,000 |   |   | — | ** ** |   | — |   |
| Note payable to  Capital Trust |       | —                          |       | —                          |       | — |   | — |   |   | — | ** ** |   |   | $ 134,021 | ** ** |   | $ 134,021 |   | $ 143,303 |   |   | $ 134,021 | ** ** |   | $ 144,546 |   |

 

The annualized weighted average interest rate for ourfixed interest long-term debt outstanding is 7.2% for the years ended December 31,2006 and 2005. See Note 6 to the consolidated financial statements. The Notepayable to Capital Trust carries a fixed interest rate of 7.5%. See Note 7 tothe consolidated financial statements.

Our debt obligations contain certain financial andother covenants and restrictions on the Company. Such covenants andrestrictions do not include any triggers of default related to our overallcredit rating or stock prices. As of December 31, 2006, we were incompliance with all such covenants and restrictions.

Our Credit Facility stipulates that an event ofdefault exists at such time that Hearst’s (and certain of its affiliates’)equity ownership in us becomes less than 35% of the total equity which givesthe banks the right to terminate commitments and declare outstanding loans dueand payable.

As of December 31, 2006, we are not involved inany derivative financial instruments. However, we may consider certain interestrate risk strategies in the future.

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**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

**INDEXTO FINANCIAL STATEMENTS**
|                                                                                                                                                | ** ** | **Page** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **Hearst-Argyle Television, Inc.**                                                                                                        |       |     |
| Report of Independent Registered  Public Accounting Firm                                                                                       |       | 52       |
| Consolidated Balance Sheets  as of December 31, 2006 and 2005                                                                             |       | 53       |
| Consolidated Statements of  Income for the Years Ended December 31, 2006, 2005 and 2004                                                   |       | 54       |
| Consolidated Statements of  Stockholders’ Equity and Comprehensive Income for the Years Ended December 31,  2006, 2005 and 2004 |       | 55       |
| Consolidated Statements of  Cash Flows for the Years Ended December 31, 2006, 2005 and 2004                                               |       | 56       |
| Notes to  Consolidated Financial Statements                                                                                                    |       | 57       |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders ofHearst-Argyle Television, Inc.

We have audited the accompanying consolidated balancesheets of Hearst-Argyle Television, Inc. (the “Company”) as of December 31,2006 and 2005, and the related consolidated statements of income, stockholders’equity and comprehensive income, and cash flows for each of the three years inthe period ended December 31, 2006. Our audits also included theconsolidated financial statement schedule listed in the Index at Item 15. Theseconsolidated financial statements and financial statement schedule are theresponsibility of the Company’s management. Our responsibility is to express anopinion on the consolidated financial statements and financial statementschedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position ofHearst-Argyle Television, Inc. and subsidiaries as of December 31,2006 and 2005, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2006, inconformity with accounting principles generally accepted in the United Statesof America. Also, in our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, present fairly, in all material respects, the information set forththerein.

As discussed in Note 2 to the consolidated financialstatements, the Company adopted Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment*, as of January 1,2006, which changed its method of accounting for stock-based compensation. Also,as discussed in Note 2 to the consolidated financial statements, the Companyadopted the recognition and disclosure provisions of Statement of FinancialAccounting Standards No. 158,*Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans*, as of December 31,2006, which changed its method of accounting for pension and postretirementbenefits.

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2006, basedon the criteria established in Internal Control—Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission and ourreport dated February 26, 2007 expressed an unqualified opinion onmanagement’s assessment of the effectiveness of the Company’s internal controlover financial reporting and an unqualified opinion on the effectiveness of theCompany’s internal control over financial reporting.
| /s/ DELOITTE & TOUCHE  LLP |   |
|-------------------------------------|--------|
| New York, New  York                 |   |
| February 26,  2007             |   |

 

51

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**HEARST-ARGYLE TELEVISION, INC.Consolidated Balance Sheets**

| ** **                                                                                                                                                                                                                | ** ** | **December 31,**                                     | ** ** | **December 31** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|----------------------|------------|------------|
| ** **                                                                                                                                                                                                                | ** ** | **2006**                                                  | ** ** | **2005**             | ** ** | ** ** |
| ** **                                                                                                                                                                                                                | ** ** | **(In thousands, except share data)** | ** ** | ** **           |
| **Assets**                                                                                                                                                                                                                |       |                                                      |       |                 |       |       |   |   |   |   |
| Current assets:                                                                                                                                                                                                           |       |                                                      |       |                 |       |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                |       |                                                      | $          | 18,610               |       |       |   | $ | 120,065 |   |   |   |
| Accounts receivable,  net of allowance for doubtful accounts of $2,380 and $2,943 in 2006 and 2005,  respectively                                                                                                         |       |                                                      | 161,783    |                 |       |       | 157,672 |   |   |   |
| Program and barter  rights                                                                                                                                                                                                |       |                                                      | 67,949     |                 |       |       | 46,807 |   |   |   |
| Deferred income  tax asset                                                                                                                                                                                                |       |                                                      | 4,672      |                 |       |       | 4,029 |   |   |   |
| Other                                                                                                                                                                                                                     |       |                                                      | 5,671      |                 |       |       | 9,153 |   |   |   |
| Total current  assets                                                                                                                                                                                                     |       |                                                      | $          | 258,685              |       |       |   | $ | 337,726 |   |   |   |
| Property, plant and equipment:                                                                                                                                                                                            |       |                                                      |       |                 |       |       |   |   |   |   |
| Land, building and  improvements                                                                                                                                                                                          |       |                                                      | $          | 157,255              |       |       |   | $ | 152,480 |   |   |   |
| Broadcasting  equipment                                                                                                                                                                                                   |       |                                                      | 390,379    |                 |       |       | 373,571 |   |   |   |
| Office furniture,  equipment and other                                                                                                                                                                                    |       |                                                      | 46,534     |                 |       |       | 42,024 |   |   |   |
| Construction in  progress                                                                                                                                                                                                 |       |                                                      | 21,705     |                 |       |       | 5,580 |   |   |   |
|                                                                                                                                                                                                                      |       |                                                      | 615,873    |                 |       |       | 573,655 |   |   |   |
| Less accumulated  depreciation                                                                                                                                                                                            |       |                                                      | (320,779   | )                    |       |       | (294,416 | ) |   |   |
| Property, plant  and equipment, net                                                                                                                                                                                       |       |                                                      | $          | 295,094              |       |       |   | $ | 279,239 |   |   |   |
| Intangible assets,  net                                                                                                                                                                                                   |       |                                                      | 2,520,040  |                 |       |       | 2,396,086 |   |   |   |
| Goodwill                                                                                                                                                                                                                  |       |                                                      | 816,724    |                 |       |       | 731,687 |   |   |   |
| Total intangible  assets and goodwill, net                                                                                                                                                                                |       |                                                      | $          | 3,336,764            |       |       |   | $ | 3,127,773 |   |   |   |
| Other assets:                                                                                                                                                                                                             |       |                                                      |       |                 |       |       |   |   |   |   |
| Deferred financing  costs, net of accumulated amortization of $18,472 and $16,568 in 2006 and  2005, respectively                                                                                                         |       |                                                      | $          | 9,648                |       |       |   | $ | 11,276 |   |   |   |
| Investments                                                                                                                                                                                                               |       |                                                      | 40,454     |                 |       |       | 31,321 |   |   |   |
| Program and barter  rights, noncurrent                                                                                                                                                                                    |       |                                                      | 15,227     |                 |       |       | 1,312 |   |   |   |
| Pension and other  assets                                                                                                                                                                                                 |       |                                                      | 2,216      |                 |       |       | 43,712 |   |   |   |
| Total other assets                                                                                                                                                                                                        |       |                                                      | $          | 67,545               |       |       |   | $ | 87,621 |   |   |   |
| Total assets                                                                                                                                                                                                              |       |                                                      | $          | 3,958,088            |       |       |   | $ | 3,832,359 |   |   |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                             |       |                                                      |       |                 |       |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                      |       |                                                      |       |                 |       |       |   |   |   |   |
| Current portion of  long-term debt                                                                                                                                                                                        |       |                                                      | $          | 90,048               |       |       |   | $ | 90,047 |   |   |   |
| Accounts payable                                                                                                                                                                                                          |       |                                                      | 18,208     |                 |       |       | 15,256 |   |   |   |
| Accrued  liabilities                                                                                                                                                                                                      |       |                                                      | 66,515     |                 |       |       | 51,133 |   |   |   |
| Program and barter  rights payable                                                                                                                                                                                        |       |                                                      | 65,473     |                 |       |       | 47,285 |   |   |   |
| Payable to The  Hearst Corporation, net                                                                                                                                                                                   |       |                                                      | 7,317      |                 |       |       | 6,981 |   |   |   |
| Other liabilities                                                                                                                                                                                                         |       |                                                      | 2,693      |                 |       |       | 6,868 |   |   |   |
| Total current  liabilities                                                                                                                                                                                                |       |                                                      | $          | 250,254              |       |       |   | $ | 217,570 |   |   |   |
| Program and barter  rights payable, noncurrent                                                                                                                                                                            |       |                                                      | 22,411     |                 |       |       | 1,818 |   |   |   |
| Long-term debt                                                                                                                                                                                                            |       |                                                      | 777,122    |                 |       |       | 777,170 |   |   |   |
| Note payable to  Capital Trust                                                                                                                                                                                            |       |                                                      | 134,021    |                 |       |       | 134,021 |   |   |   |
| Deferred income  tax liability                                                                                                                                                                                            |       |                                                      | 838,229    |                 |       |       | 845,272 |   |   |   |
| Pension and other  liabilities                                                                                                                                                                                            |       |                                                      | 53,244     |                 |       |       | 35,049 |   |   |   |
| Total noncurrent  liabilities                                                                                                                                                                                             |       |                                                      | $          | 1,825,027            |       |       |   | $ | 1,793,330 |   |   |   |
| Commitments and contingencies                                                                                                                                                                                             |       |                                                      |       |                 |       |       |   |   |   |   |
| Stockholders’ equity:                                                                                                                                                                                                |       |                                                      |       |                 |       |       |   |   |   |   |
| Preferred stock,  par value $0.01 per share, 1,000,000 shares authorized                                                                                                                                                  |       |                                                      | —     |                 |       |       | — |   |   |   |
| Series A common  stock, par value $0.01 per share, 200,000,000 shares authorized at December  31, 2006 and 2005, and 56,343,894 and 55,677,979 shares issued and  outstanding at December 31, 2006 and 2005, respectively |       |                                                      | 563        |                 |       |       | 557 |   |   |   |
| Series B common  stock, par value $0.01 per share, 100,000,000 shares authorized at December 31,  2006 and 2005, and 41,298,648 shares issued and outstanding at December 31,  2006 and 2005                    |       |                                                      | 413        |                 |       |       | 413 |   |   |   |
| Additional paid-in  capital                                                                                                                                                                                               |       |                                                      | 1,309,578  |                 |       |       | 1,291,388 |   |   |   |
| Retained earnings                                                                                                                                                                                                         |       |                                                      | 716,146    |                 |       |       | 643,414 |   |   |   |
| Accumulated other  comprehensive loss, net of tax benefit of $17,757 and $4,171 in 2006 and  2005, respectively                                                                                                           |       |                                                      | (33,109    | )                    |       |       | (6,309 | ) |   |   |
| Treasury stock, at  cost, 4,454,029 and 4,324,879 shares of Series A common stock at December 31,  2006 and 2005, respectively                                                                                       |       |                                                      | (110,784   | )                    |       |       | (108,004 | ) |   |   |
| Total stockholders’  equity                                                                                                                                                                                          |       |                                                      | $          | 1,882,807            |       |       |   | $ | 1,821,459 |   |   |   |
| Total liabilities  and stockholders’ equity                                                                                                                                                                          |       |                                                      | $          | 3,958,088            |       |       |   | $ | 3,832,359 |   |   |   |

 

 

See notes to consolidated financial statements.

52

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**HEARST-ARGYLE TELEVISION, INC.Consolidated Statements of Income**

| ** **                                       | ** ** | **Years Ended December 31,**                        | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | **(In thousands, except per share data)** | ** ** |
| Total revenue                                    |       | $                                                                  | 785,402    |   | $ | 706,883 |   | $ | 779,879 |   |
| Station operating  expenses:                     |       |                                                               |       |   |   |   |   |
| Salaries, benefits and other operating costs     |       | 397,604                                                            |       | 364,421 |   | 355,641 |   |
| Amortization of program rights                   |       | 68,601                                                             |       | 60,912 |   | 63,843 |   |
| Depreciation and amortization                    |       | 59,161                                                             |       | 51,728 |   | 50,376 |   |
| Impairment loss                                  |       | —                                                             |       | 29,235 |   | — |   |
| Corporate,  general and administrative expenses  |       | 31,261                                                             |       | 23,149 |   | 25,268 |   |
| Operating income                                 |       | $                                                                  | 228,775    |   | $ | 177,438 |   | $ | 284,751 |   |
| Interest expense                                 |       | 66,103                                                             |       | 66,777 |   | 65,445 |   |
| Interest income                                  |       | (6,229                                                             | )          | (3,402 | ) | (1,715 | ) |
| Interest expense,  net—Capital Trust        |       | 9,750                                                              |       | 9,750 |   | 18,675 |   |
| Other expense                                    |       | 2,501                                                              |       | 2,500 |   | 3,700 |   |
| Income before  income taxes and equity earnings  |       | $                                                                  | 156,650    |   | $ | 101,813 |   | $ | 198,646 |   |
| Income tax expense                               |       | 58,410                                                             |       | 3,012 |   | 75,724 |   |
| Equity in income  of affiliates, net of tax      |       | (483                                                               | )          | (1,416 | ) | (1,020 | ) |
| Net income                                       |       | $                                                                  | 98,723     |   | $ | 100,217 |   | $ | 123,942 |   |
| Less preferred stock dividends                   |       | —                                                             |       | (2 | ) | (1,067 | ) |
| Income applicable  to common stockholders        |       | $                                                                  | 98,723     |   | $ | 100,215 |   | $ | 122,875 |   |
| Income per common  share—basic:             |       | $                                                                  | 1.06       |   | $ | 1.08 |   | $ | 1.32 |   |
| Number of common  shares used in the calculation |       | 92,745                                                             |       | 92,826 |   | 92,928 |   |
| Income per common  share—diluted:           |       | $                                                                  | 1.06       |   | $ | 1.08 |   | $ | 1.30 |   |
| Number of common  shares used in the calculation |       | 93,353                                                             |       | 93,214 |   | 101,406 |   |
| Dividends per  common share—declared        |       | $                                                                  | 0.28       |   | $ | 0.28 |   | $ | 0.25 |   |

 

See notes to consolidated financial statements.

53

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**HEARST-ARGYLE TELEVISION, INC.Consolidated Statements of Stockholders’ Equity and Comprehensive Income**

| ** **                                                                                         | ** ** | **Series A**                                                  | ** ** | **Series B** | ** ** | **Preferred  Stock** | ** ** | **Additional  Paid  in Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury  Stock** | ** ** | **Total** | ** ** | **Total  Comprehensive  Income** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|---------------------------------------|------------|------------------------|------------|---------------------------------------------|------------|---------------------|------------|-----------|------------|----------------------------------|------------|
| ** **                                                                                         | ** ** | **(In thousands, except per share data)** | ** ** |
| **Balances—January 1, 2004**                                                             |       |                                                               | $          | 547               |       |                 |       | $                                     | 413        |                   |       |                                        | $          | —              |       |      |       | $                                | 1,269,514  |   |   |   | $ | 469,537 |   |   |   | $ | (5,249 | ) |   | $ | (80,699 | ) | $ | 1,654,063 |   |   |   |   |   |
| Net income                                                                                         |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | 123,942    |   |   |   | — |   |   | — |   | 123,942 |   |   | $ | 123,942 |   |   |
| Additional minimum pension liability, net of tax benefit  of $602                             |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | (912 | ) |   | — |   | (912 | ) |   | (912 | ) |   |
| Dividends on preferred stock ($65.00  per share)                                                   |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | (1,067     | ) |   |   | — |   |   | — |   | (1,067 | ) |   | $ | 123,030 |   |   |
| Dividends on common stock ($0.25  per share)                                                       |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | (23,234    | ) |   |   | — |   |   | — |   | (23,234 | ) |   |   |   |   |
| Employee stock purchase plan proceeds                                                              |       |                                                               | 1          |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 2,027      |      |       |                             | —     |   |   |   | — |   |   | — |   | 2,028 |   |   |   |   |   |
| Stock options exercised                                                                            |       |                                                               | 4          |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 8,629      |      |       |                             | —     |   |   |   | — |   |   | — |   | 8,633 |   |   |   |   |   |
| Tax benefit from stock plans                                                                       |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 1,304      |      |       |                             | —     |   |   |   | — |   |   | — |   | 1,304 |   |   |   |   |   |
| Treasury stock purchased—Series A Common Stock  (458,500 shares)                         |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | — |   |   | (10,920 | ) | (10,920 | ) |   |   |   |   |
| **Balances—December 31, 2004**                                                           |       |                                                               | $          | 552               |       |                 |       | $                                     | 413        |                   |       |                                        | $          | —              |       |      |       | $                                | 1,281,474  |   |   |   | $ | 569,178 |   |   |   | $ | (6,161 | ) |   | $ | (91,619 | ) | $ | 1,753,837 |   |   |   |   |   |
| Net income                                                                                         |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | 100,217    |   |   |   | — |   |   | — |   | 100,217 |   |   | $ | 100,217 |   |   |
| Additional minimum pension liability, net of tax benefit  of $98                              |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | (148 | ) |   | — |   | (148 | ) |   | (148 | ) |   |
| Dividends on preferred stock ($65.00  per share)                                                   |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | (2         | ) |   |   | — |   |   | — |   | (2 | ) |   | $ | 100,069 |   |   |
| Dividends on common stock ($0.28  per share)                                                       |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | (25,979    | ) |   |   | — |   |   | — |   | (25,979 | ) |   |   |   |   |
| Employee stock purchase plan proceeds                                                              |       |                                                               | 1          |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 2,192      |      |       |                             | —     |   |   |   | — |   |   | — |   | 2,193 |   |   |   |   |   |
| Stock options exercised                                                                            |       |                                                               | 4          |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 6,757      |      |       |                             | —     |   |   |   | — |   |   | — |   | 6,761 |   |   |   |   |   |
| Tax benefit from stock plans                                                                       |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 965        |      |       |                             | —     |   |   |   | — |   |   | — |   | 965 |   |   |   |   |   |
| Treasury stock purchased—Series A Common Stock  (669,227 shares)                         |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | — |   |   | (16,385 | ) | (16,385 | ) |   |   |   |   |
| **Balances—December 31, 2005**                                                           |       |                                                               | $          | 557               |       |                 |       | $                                     | 413        |                   |       |                                        | $          | —              |       |      |       | $                                | 1,291,388  |   |   |   | $ | 643,414 |   |   |   | $ | (6,309 | ) |   | $ | (108,004 | ) | $ | 1,821,459 |   |   |   |   |   |
| Net income                                                                                         |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | 98,723     |   |   |   | — |   |   | — |   | 98,723 |   |   | $ | 98,723 |   |   |
| Additional minimum pension liability, net of tax benefit  of $238                             |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | (360 | ) |   | — |   | (360 | ) |   | (360 | ) |   |
| Recognition of prior service cost and net loss under  SFAS 158, net of tax benefit of $17,519 |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | (26,440 | ) |   | — |   | (26,440 | ) |   | $ | 98,363 |   |   |
| Dividends on common stock ($0.28  per share)                                                       |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | (25,991    | ) |   |   | — |   |   | — |   | (25,991 | ) |   |   |   |   |
| Employee stock purchase plan proceeds                                                              |       |                                                               | 1          |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 2,125      |      |       |                             | —     |   |   |   | — |   |   | — |   | 2,126 |   |   |   |   |   |
| Stock options exercised                                                                            |       |                                                               | 5          |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 7,705      |      |       |                             | —     |   |   |   | — |   |   | — |   | 7,710 |   |   |   |   |   |
| Tax benefit from stock plans                                                                       |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 784        |      |       |                             | —     |   |   |   | — |   |   | — |   | 784 |   |   |   |   |   |
| Stock based compensation expense                                                                   |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | 7,576      |      |       |                             | —     |   |   |   | — |   |   | — |   | 7,576 |   |   |   |   |   |
| Treasury stock purchased—Series A Common Stock  (129,150 shares)                         |       |                                                               | —     |              |       |                 | —     |                                  |       |                   | —     |                                        |       |                | —     |      |       |                             | —     |   |   |   | — |   |   | (2,780 | ) | (2,780 | ) |   |   |   |   |
| **Balances—December 31,  2006**                                                          |       |                                                               | $          | 563               |       |                 |       | $                                     | 413        |                   |       |                                        | $          | —              |       |      |       | $                                | 1,309,578  |   |   |   | $ | 716,146 |   |   |   | $ | (33,109 | ) |   | $ | (110,784 | ) | $ | 1,882,807 |   |   |   |   |   |

 

See notes to consolidated financial statements.

54

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**HEARST-ARGYLE TELEVISION, INC.Consolidated Statements of Cash Flows**

| ** **                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                         | ** ** | **(In thousands)**                     | ** ** |
| **Operating Activities**                                                           | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                           | 98,723     |   | $ | 100,217 |   | $ | 123,942 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                        |       |   |   |   |   |
| Depreciation                                                                       |       | 52,817                                      |       | 45,724 |   | 44,376 |   |
| Amortization of  intangible assets                                                 |       | 6,344                                       |       | 6,003 |   | 6,000 |   |
| Amortization of deferred  financing costs                                          |       | 1,742                                       |       | 2,424 |   | 1,943 |   |
| Amortization of program  rights                                                    |       | 68,601                                      |       | 60,912 |   | 63,843 |   |
| Impairment loss                                                                    |       | —                                      |       | 29,235 |   | — |   |
| Deferred income taxes                                                              |       | 9,391                                       |       | 5,669 |   | 19,488 |   |
| Equity in (income) loss  of affiliates, net                                        |       | (483                                        | )          | (1,416 | ) | (1,020 | ) |
| (Benefit from) provision  for doubtful accounts                                    |       | 916                                         |       | 888 |   | 125 |   |
| Stock-based compensation  expense                                                  |       | 7,576                                       |       | — |   | — |   |
| (Gain) / loss on disposal  of fixed assets                                         |       | (465                                        | )          | (1,210 | ) | 977 |   |
| Distributions from  affiliates                                                     |       | —                                      |       | 2,030 |   | 3,376 |   |
| Other expense, net                                                                 |       | 2,501                                       |       | — |   | 3,700 |   |
| Program payments                                                                   |       | (67,817                                     | )          | (64,104 | ) | (62,247 | ) |
| Changes in operating assets and liabilities:                                       |       |                                        |       |   |   |   |   |
| Decrease (increase) in  Accounts receivable                                        |       | (7,728                                      | )          | (7,392 | ) | (146 | ) |
| Decrease (increase) in  Other assets                                               |       | 11,766                                      |       | (4,130 | ) | (9,179 | ) |
| (Decrease) increase in  Accounts payable and accrued liabilities                   |       | 14,811                                      |       | (7,617 | ) | 11,817 |   |
| (Decrease) increase in  Other liabilities                                          |       | 1,689                                       |       | (38,503 | ) | (13,364 | ) |
| Net cash provided  by operating activities                                         |       | $                                           | 200,384    |   | $ | 128,730 |   | $ | 193,631 |   |
| **Investing Activities**                                                           | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchases of  property, plant and equipment                                        |       | (64,229                                     | )          | (35,839 | ) | (36,380 | ) |
| Accrued purchases  of property, plant & equipment                         |       | 3,790                                       |       | 2,563 |   | 2,036 |   |
| Cash proceeds from  insurance recoveries                                           |       | 5,654                                       |       | — |   | — |   |
| Investment in  affiliates and other, net                                           |       | (10,597                                     | )          | (7,732 | ) | 350 |   |
| Acquisitions                                                                       |       | (217,511                                    | )          | — |   | (38,074 | ) |
| Net cash used in  investing activities                                             |       | $                                           | (282,893   | ) | $ | (41,008 | ) | $ | (72,068 | ) |
| **Financing Activities**                                                           | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Borrowings on  credit facility                                                     |       | 100,000                                     |       | — |   | — |   |
| Payments on  private placement                                                     |       | (90,000                                     | )          | — |   | — |   |
| Dividends paid on  preferred stock                                                 |       | —                                      |       | (2 | ) | (1,067 | ) |
| Dividends paid on common  stock                                                    |       | (25,954                                     | )          | (25,997 | ) | (22,301 | ) |
| Redemption of  Series A Note from Capital Trust, net                          |       | —                                      |       | — |   | (70,000 | ) |
| Series A  Common Stock repurchases                                            |       | (2,780                                      | )          | (16,385 | ) | (10,920 | ) |
| Redemption of  preferred stock                                                     |       | —                                      |       | (11,251 | ) | (7,068 | ) |
| Repurchase of senior  notes                                                        |       | (10,000                                     | )          | (15,000 | ) | — |   |
| Principal payments  on capital lease obligations                                   |       | (48                                         | )          | (184 | ) | (188 | ) |
| Proceeds from  employee stock purchase plan and stock option exercises             |       | 9,836                                       |       | 8,954 |   | 10,661 |   |
| Net cash used in  financing activities                                             |       | $                                           | (18,946    | ) | $ | (59,865 | ) | $ | (100,883 | ) |
| Increase in cash  and cash equivalents                                             |       | $                                           | (101,455   | ) | $ | 27,857 |   | $ | 20,680 |   |
| Cash and cash  equivalents at beginning of period                                  |       | $                                           | 120,065    |   | $ | 92,208 |   | $ | 71,528 |   |
| Cash and cash  equivalents at end of period                                        |       | $                                           | 18,610     |   | $ | 120,065 |   | $ | 92,208 |   |
| **Supplemental Cash Flow Information:**                                            | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Business acquired in purchase transaction:**                                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fair market value of  assets acquired, net                                         |       | $                                           | 245,169    |   | — |   | $ | 38,716 |   |
| Fair market value of  liabilities assumed, net                                     |       | (27,658                                     | )          | — |   | (642 | ) |
| Net cash paid,  including acquisition costs                                        |       | $                                           | 217,511    |   | — |   | $ | 38,074 |   |
| **Cash paid during the year for:**                                                 | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest                                                                           |       | $                                           | 65,144     |   | $ | 64,320 |   | $ | 63,502 |   |
| Interest on Note payable  to Capital Trust                                         |       | $                                           | 9,750      |   | $ | 9,750 |   | $ | 18,675 |   |
| Taxes, net of refunds                                                              |       | $                                           | 38,518     |   | $ | 39,892 |   | $ | 59,318 |   |
| **Non-cash investing and financing activities:**                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accrued property, plant & equipment  purchases                            |       | $                                           | 3,790      |   | $ | 2,563 |   | $ | 2,036 |   |

 

See notes to consolidated financial statements.

55

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements**

**1.**                 Nature ofOperations

Hearst-Argyle Television, Inc. and itssubsidiaries (“we” or the “Company”) own and operate 26 network-affiliatedtelevision stations in geographically diverse markets in the United States. Tenof the stations are affiliates of the National Broadcasting Company, Inc.(“NBC”), 12 of the stations are affiliates of the American BroadcastingCompanies (“ABC”), two of the stations are affiliates of Columbia BroadcastingSystems (“CBS”), one station is affiliated with The CW network (“CW”) and onestation is affiliated with MyNetworkTV (“MNT”). Additionally, the Companyprovides management services to two network-affiliated and one independenttelevision stations and two radio stations that are owned by The HearstCorporation (“Hearst”). We are a leader in the convergence of local broadcasttelevision and the Internet through our investment in, and operating agreementwith, Internet Broadcasting, which operates a nation-wide network of televisionWebsites. Our stations’ Websites typically provide news, weather, communityinformation, user generated content and entertainment content to our audience. Also,11 of our stations broadcast additional channels on a multicast stream withtheir main digital channel.

The Company has determined that it operates onereportable segment. The economic characteristics, services, production process,customer type and distribution methods for the Company’s business units aresubstantially similar and have therefore been aggregated as one reportablesegment.

**2.**                 Summaryof Accounting Policies and Use of Estimates

**General**

The consolidated financial statements include theaccounts of the Company and its wholly-owned subsidiaries, except for theCompany’s wholly-owned subsidiary trust which was required to be de-consolidatedupon adoption of the Financial Accounting Standards Board (“FASB”)Interpretation No. 46 (revised December 2003), *Consolidationof Variable Interest Entities* (“FIN 46(R)”). The net effect of suchdeconsolidation was to eliminate the Convertible Preferred Securities and showthe Note payable to the Capital Trust in noncurrent liabilities. With theexception of the unconsolidated subsidiary trust, all significant intercompanyaccounts have been eliminated in consolidation.

**Use of Estimates**

The preparation of the consolidated financialstatements in conformity with generally accepted accounting principles in theUnited States of America requires management to make estimates and assumptionsthat affect amounts reported in the consolidated financial statements andaccompanying notes. On an ongoing basis, the Company evaluates its estimates,including those related to allowances for doubtful accounts; program rights,barter and trade transactions; useful lives of property, plant and equipment;intangible assets; carrying value of investments; accrued liabilities;contingent liabilities; income taxes; pension benefits; and fair value offinancial instruments and stock options. Actual results could differ from thoseestimates.

**ComprehensiveIncome**

In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 130, *Reporting Comprehensive Income*, the Company is required todisplay comprehensive income and its components as part of its complete set offinancial statements. Comprehensive income represents the change instockholders’ equity resulting from transactions other then stockholderinvestments and distributions. Included in comprehensive income are changes inequity that are excluded from the Company’s net income, specifically,additional minimum pension liabilities, net of tax.

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

**Cash and CashEquivalents**

All highly liquid investments with original maturitiesof three months or less are considered to be cash equivalents.

**Accounts Receivable**

The Company extends credit based upon its evaluationof a customer’s credit worthiness and financial condition. For certainadvertisers, the Company does not extend credit and requires cash payment inadvance. The Company monitors the collection of receivables and maintains anallowance for estimated losses based upon the aging of such receivables andspecific collection issues that may be identified. While a large percentage ofour revenue is generated from advertising by the automotive industry,concentration of credit risk with respect to accounts receivable is generallylimited due to the large number of geographically diverse customers,individually small balances, and short payment terms.

**Program Rights**

Program rights and the corresponding contractualobligations are recorded when the license period begins and the programs areavailable for use. Program rights are carried at the lower of unamortized costor estimated net realizable value on a program by program basis. Any reductionin unamortized costs to net realizable value is included in amortization of programrights in the accompanying Consolidated Statements of Income. Such reductionsin unamortized costs were $2.2 million in the year ended December 31,2004, and were negligible in the years ended December 31, 2005 and 2006.Programming rights are amortized over the license period. The majority of theCompany’s programming rights are for first-run programming which is generallyamortized over one year. Rights for off-network syndicated products, featurefilms and cartoons are amortized based on the projected number of airings on anaccelerated basis contemplating the estimated revenue to be earned per showing,but generally not exceeding five years. Program rights and the correspondingcontractual obligations are classified as current or long-term based onestimated usage and payment terms.

**Barter and TradeTransactions**

Barter transactions represent the exchange ofcommercial air time for programming. Trade transactions represent the exchangeof commercial air time for merchandise or services. Barter transactions arerecorded at the fair market value of the commercial air time relinquished. Tradetransactions are generally recorded at fair market value of services eitherrendered or received. Barter program rights and payables are recorded forbarter transactions when the program is available for broadcast. Revenue isrecognized on barter and trade transactions when the commercials are broadcast;expenses are recorded when the programming airs or when the merchandise orservice is utilized. Barter and trade revenue are included in total revenue onthe Consolidated Statements of Income and were approximately $24.5 million,$25.0 million and $27.0 million for the years ended December 31, 2006,2005 and 2004, respectively. Barter and trade expenses are included inSalaries, benefits and other operating costs under Station operating expenseson the Consolidated Statements of Income and were approximately $23.2 million,$25.1 million, and $27.2 million for the years ended December 31, 2006,2005 and 2004, respectively.

**Property, Plant andEquipment**

Property, plant and equipment are recorded at cost.Depreciation is calculated on the straight-line method over the estimateduseful lives as follows: buildings—40 years; towers and transmitters—15 to 20 years;other broadcasting equipment—five to eight years; office furniture, computers,equipment and 

57

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

other—three to eightyears. Leasehold improvements are amortized on the straight-line method overthe shorter of the lease term or the estimated useful life of the asset. Managementreviews, on a continuing basis, the financial statement carrying value ofproperty, plant and equipment for impairment. If events or changes incircumstances were to indicate that an asset carrying value may not berecoverable utilizing related undiscounted cash flows, a write-down of theasset would be recorded through a charge to operations. Management also reviewsthe continuing appropriateness of the useful lives assigned to property, plantand equipment. Prospective adjustments to such lives are made when warranted.

**Intangible Assets**

Intangible assets include Federal CommunicationsCommission (“FCC”) licenses, network affiliations, goodwill, and otherintangible assets such as advertiser client base and favorable leases. TheCompany performs a review for impairment of its recorded goodwill and FCClicenses, which are its only intangible assets with indefinite useful lives,annually in the fourth quarter or earlier if indicators of potential impairmentexist. The impairment test for FCC license consists of a comparison of itscarrying value with its fair value, determined using a discounted cash flowanalysis. If the carrying value of the intangible asset exceeds its fair value,an impairment loss is recognized in an amount equal to that excess.

Goodwill impairment is determined using a two-stepprocess. The first step of the goodwill impairment test is to compare thecarrying value of the reporting unit to its fair value, which is estimatedusing a discounted cash flow analysis. If the fair value of a reporting unitexceeds its carrying amount, goodwill of the reporting unit is considered notimpaired and the second step of the impairment test is unnecessary. If thecarrying amount of a reporting unit exceeds its fair value, the second step ofthe goodwill impairment test is performed to measure the amount of impairmentloss, if any. The second step of the goodwill impairment test compares theimplied fair value of the reporting unit’s goodwill with the carrying amount ofthat goodwill. If the carrying amount exceeds the implied fair value, animpairment loss is recognized in an amount equal to that excess.

Various judgmental assumptions about cash flows,growth rates and discount rates are used in developing a discounted cash flowanalysis. Discount rate assumptions are based on the weighted average cost ofcapital of industry participants. The Company considers the assumptions used inits estimates to be reasonable, however, had the Company used differentassumptions, the Company’s reported results may have varied.

The Company amortizes intangible assets withdeterminable useful lives over their respective estimated useful lives whichrange from one to 28.5 years. In accordance with SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*, the Companyevaluates the remaining useful life of its intangible assets with determinablelives each reporting period to determine whether events or circumstanceswarrant a revision to the remaining period of amortization.

**Investments**

The Company hasinvestments in non-consolidated affiliates, which are accounted for under theequity method if the Company’s equity interest is from 20% to 50%, and underthe cost method if the Company’s equity interest is less than 20% and theCompany does not exercise significant influence over operating and financialpolicies. In addition, the Company has a wholly-owned unconsolidated subsidiarytrust which is accounted for under the equity method. See Note 7. The Companyevaluates its investments to determine if impairment has occurred. Carryingvalues are adjusted to reflect realizable value, where necessary.

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

**Revenue Recognition**

The Company’sprimary source of revenue is television advertising. Other sources includeretransmission consent revenue, digital media revenue and network compensation.Net advertising revenue, retransmission consent revenue, net digital mediarevenue and network compensation together represented approximately 95% of theCompany’s total revenue in each of the years ended December 31, 2006,2005 and 2004.

·       *Net Advertising Revenue*.   Advertisingrevenue is recognized net of national agency and national representatives’commissions and in the period when the commercials are broadcast.

·       *Retransmission Consent Revenue*.   LifetimeEntertainment Services acts as our agent with respect to the negotiation of ouragreements with cable, satellite and certain other multi-channel videoprogramming distributors for retransmission consent. Revenue is recognizedbased on the number of subscribers over the contract period or is a fixedamount recognized over the contract period. (See Note 13)

·       *Net Digital MediaRevenue*.   Digital media revenues are recognized net of agencyand national representatives’ commissions over the contract period, generallyas impressions are delivered. Digital media revenue includes primarily Internetadvertising revenue and, to a lesser extent, revenue from weather channelmulticasting.

·       *Network Compensation.*   In connectionwith the ABC and CBS affiliation agreements, revenue is recognized when theCompany’s station broadcasts specific network television programs based upon anegotiated value for each program. In connection with the NBC affiliationagreements, revenue is recognized on a straight-line basis, based upon the cashcompensation to be paid to the Company’s stations by NBC each year.

·       *Other Revenue.*   The Company generatesrevenue from other sources, which include the following types of transactionsand activities: (i) barter and trade revenue which is recognized when thecommercials are broadcast, (ii) management fees earned from Hearst (seeNote 13); (iii) services revenue from the production of commercials foradvertising customers or from the production of programs to be sold insyndication; (iv) rental income pursuant to tower lease agreements withthird parties providing for attachment of antennas to the Company’s towers; and(v) other miscellaneous revenue, such as licenses and royalties. Theserevenues are generally recognized as earned.

**Income Taxes**

The provision for income taxes is computed based onthe pretax income included in the Consolidated Statements of Income. TheCompany provides for federal and state income taxes currently payable, as wellas for those deferred because of timing differences between reporting incomeand expenses for financial statement purposes versus tax purposes. Deferred taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled.

The Company recordsreserves for estimates of probable settlements of federal and state audits. Theresults of these audits and negotiations with taxing authorities may affect theultimate settlement of these issues. The timing of any payments related to suchsettlements cannot be determined but the Company 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

expectsthat these payments will not be made within one year and, as such, these taxreserves are included in Other Liabilities (noncurrent). The Company alsorecords a valuation allowance against its deferred tax assets arising fromcertain net operating and capital losses when it is more likely than not thatsome portion or all of such losses will not be realized. The Company’seffective tax rate in a given financial statement period may be materiallyimpacted by changes in the level of earnings by taxing jurisdiction, changes inthe expected outcome of tax audits, or changes in the deferred tax valuationallowance.

**Earnings Per Share(“EPS”)**

Basic EPS is calculated bydividing net income less preferred stock dividends by the weighted averagecommon shares outstanding (see Note 8). Diluted EPS is calculated similarly,except that it includes the dilutive effect, if any, of shares issuable underthe Company’s 2004 Long Term Incentive Compensation Plan and Amended andRestated 1997 Stock Option Plan (see Note 12), the conversion of the Company’sPreferred Stock (see Note 11), or the conversion of the Redeemable ConvertiblePreferred Securities held by the Company’s wholly-owned unconsolidatedsubsidiary trust (see Note 7).

**Off-Balance SheetFinancings and Liabilities**

Other than contractualcommitments and other legal contingencies incurred in the normal course ofbusiness, agreements for future barter and program rights not yet available forbroadcast as of December 31, 2006, and employment contracts for keyemployees, which are disclosed in Note 14, the Company does not have any off-balancesheet financings or liabilities. Other than its wholly-owned unconsolidatedsubsidiary trust, which is reflected in the Consolidated Balance Sheet as Notepayable to Capital Trust, the Company does not have any majority-ownedsubsidiaries that are not included in the consolidated financial statements,nor does the Company have any interests in, or relationships with, anyspecial-purpose entities that are not reflected in the consolidated financialstatements.

**Purchase Accounting**

When allocating the purchaseprice to the acquired assets (tangible and intangible) and assumed liabilitiesof acquired businesses, it is necessary to develop estimates of fair value. TheCompany utilizes the services of an independent valuation consulting firm toassist in estimating fair values. The specialized tangible assets in use at abroadcasting business are typically valued on the basis of the replacement costof a new asset less observed depreciation. The appraisal of other fixed assets,such as furnishings, vehicles, and office machines, is based upon a comparablemarket approach. Identified intangible assets, including FCC licenses, arevalued at estimated fair value. FCC licenses are valued using a directapproach. The direct approach measures the future economic benefits that theFCC license brings to its holder and discounts them to the present. The fairmarket value of the FCC license is determined by discounting these futurebenefits utilizing discounted cash flows. The key assumptions used in thediscounted cash flow analysis include initial and subsequent capital costs,network affiliation, VHF or UHF status, market revenue growth and stationmarket share projections, operating profit margins, discount rates and terminalvalue estimates.

**Stock-BasedCompensation**

On January 1, 2006, the Company adopted FASBStatement No. 123(R), *Share-Based Payment*(“SFAS 123(R)”) using a modified prospective transition method. Accordingly,because we have adopted a prospective method prior periods have not beenrestated. For the year ended December 31, 2006, the 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

adoption of SFAS 123(R) resultedin incremental stock-based compensation expense and a decrease in income beforeincome taxes of $7.6 million, and a decrease in net income of $4.8 million. Additionally,the incremental stock-based compensation expense caused both basic and dilutedearnings per share to decrease by $0.05 for the year ended December 31,2006.

Priorto the adoption of SFAS 123(R), the Company applied Accounting Principles BoardOpinion No. 25, *Stock Issued to Employees*(“APB25”), to account for its stock-based awards, and the disclosure-only provisionsof SFAS No. 123, *Accounting for Stock-BasedCompensation*, as amended (“SFAS 123”), to present stock-basedcompensation disclosure. Under APB 25, because the exercise price of theCompany’s employee stock options equaled the market price of the underlyingstock on the date of grant, the stock options had no intrinsic value andtherefore no compensation expense was recognized. The following table detailsthe pro forma effects on net income and earnings per share for the years ended December 31,2005 and 2004 had compensation expense been recorded based on the fair valuemethod under SFAS 123, utilizing the Black-Scholes option valuation model:

| ** **                                                                                                                 | ** ** | **Years Ended December 31,**                                                                                                  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                 | ** ** | **           2005           ** | ** ** | **           2004           ** | ** ** |
| ** **                                                                                                                 | ** ** | **(In thousands, except per share data)**                                                                           | ** ** |
| Reported net  income                                                                                                       |       |                                                                                                                                         | $          | 100,217 |   |   |   | $ | 123,942 |   |   |
| Less:                                                                                                                      |       |                                                                                                                                         |       |   |   |   |   |   |   |
| Total stock-based employee compensation expense  determined under the fair value method for all awards, net of related tax |       |                                                                                                                                         | (4,823     | ) |   |   | (4,875 | ) |   |
| Pro forma net  income                                                                                                      |       |                                                                                                                                         | 95,394     |   |   |   | 199,067 |   |   |
| Less: Preferred  stock dividends                                                                                           |       |                                                                                                                                         | (2         | ) |   |   | (1,067 | ) |   |
| Pro forma net income applicable to common  stockholders (Basic)                                                            |       |                                                                                                                                         | $          | 95,392 |   |   |   | $ | 118,000 |   |   |
| Add: Interest Expense, Net—Capital Trust, net of tax                                                                  |       |                                                                                                                                         | —     |   |   |   | 9,285 |   |   |
| Pro forma net income applicable to common  stockholders (Diluted)                                                          |       |                                                                                                                                         | $          | 95,392 |   |   |   | $ | 127,285 |   |   |
| Earnings per  share:                                                                                                       |       |                                                                                                                                         |       |   |   |   |   |   |   |
| Basic—as reported                                                                                                     |       |                                                                                                                                         | $          | 1.08 |   |   |   | $ | 1.32 |   |   |
| Basic—pro forma                                                                                                       |       |                                                                                                                                         | $          | 1.03 |   |   |   | $ | 1.27 |   |   |
| Diluted—as reported                                                                                                   |       |                                                                                                                                         | $          | 1.08 |   |   |   | $ | 1.30 |   |   |
| Diluted—pro forma                                                                                                     |       |                                                                                                                                         | $          | 1.02 |   |   |   | $ | 1.26 |   |   |

 

**Reclassifications**

For comparability, certainimmaterial prior year amounts have been reclassified in the consolidatedstatements of cash flows to conform to the 2006 presentation. On theconsolidated statements of income, we have reclassified Equity in income ofaffiliates, net of tax from Income before income taxes to below Income taxexpense (benefit). As a result, we have reclassified amounts from 2005 and 2004to conform to this presentation. Additionally, we have reclassified interestincome as a separate component of income before income taxes and equity. Thesereclassifications had no impact on reported net income.

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

**New AccountingPronouncements**

In February 2007, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”) whichpermits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value. SFAS 159 will be effective for the Company on January 1,2008. The Company is currently evaluating the impact of adopting SFAS 159on its financial position, cash flows, and results of operations.

In June 2006, the FASB issued FIN 48, *Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes*(“FIN 48”), whichclarifies the accounting for uncertainty in income taxes by prescribing arecognition threshold for tax positions taken or expected to be taken in a taxreturn. FIN 48 is effective for fiscal years beginning after December 31,2006. The Company continues to evaluate the impact of FIN 48 but does notbelieve that it will have a material impact on our consolidated financialstatements.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* (“SFAS 157”),which applies whenever other standards require (or permit) assets orliabilities to be measured at fair value. SFAS 157 establishes a fair valuehierarchy that prioritizes the information used to develop the assumption thatmarket participants would use when pricing an asset or liability. SFAS 157 iseffective for fiscal years beginning after November 15, 2007 and interimperiods within those fiscal years. We do not believe the adoption of SFAS 157will have a material impact on our financial position or results of operations.

In September 2006, the FASB issuedSFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plan* (“SFAS158”), which requires employers to fully recognize the obligationsassociated with single-employer defined benefit pension, retiree healthcare andother postretirement plans in their financial statements. Itrequires employers to recognize an asset or liability for a plan’soverfunded or underfunded status, measure a plan’s assets and obligations thatdetermine its funded status as of the end of the employer’s fiscal year andrecognize in comprehensive income changes in the funded status of a definedbenefit postretirement plan in the year in which changes occur. The requirementto recognize the funded status of a benefit plan and the disclosurerequirements are effective for fiscal years ending after December 15,2006. We have adopted the requirement to recognize the funded status of abenefit plan as of December 31, 2006. As a result, Accumulated othercomprehensive loss increased $26.4 million, net of tax. Additionally, therequirement to measure plan assets and benefit obligations as of the dateof the employer’s fiscal year end is effective for all years ending after December 15,2008.

In September 2006,the Staff of the SEC issued *Staff Accounting Bulletin(“SAB”) No. 108, Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements* (“SAB108”). SAB 108 provides guidance on the consideration of the effects of prioryear misstatements in quantifying current year misstatements for the purpose ofdetermining whether the current year’s financial statements are materiallymisstated. SAB 108 is effective for fiscal years ending after November 15,2006. The adoption of SAB 108 did not have a material impact on our financialstatements.

**3.**                 Acquisitions,Dispositions and Investments

*Acquisition ofWKCF-TV Clermont, Florida (“WKCF-TV”)  *On August 31, 2006, the Company purchased theassets related to broadcast television station WKCF-TV, a CW affiliate inOrlando, Florida, for $217.5 million in cash funded with a combination of cashon hand and a borrowing of $100 million under the Company’s $500 million creditfacility. This acquisition has been accounted for as a purchase 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

*businesscombination and the pro-forma results of operations and related per shareinformation have not been presented as the amounts are considered immaterial.*

*Acquisitionof WMTW.**  *On July 1,2004, the Company acquired the television broadcast assets of WMTW-TV, Channel8, the ABC affiliate serving the Portland-Auburn, Maine television market, forapproximately $38.1 million in cash, inclusive of acquisition costs. Thisacquisition has been accounted for as a purchase business combination and thepro-forma results of operations and related per share information have not beenpresented as the amounts are considered immaterial.

Investmentsas of December 31, 2006 and 2005 consisted of the following:

| ** **             | ** ** | **2006**                | ** ** | **2005** | ** ** |
|------------------------|------------|-------------------------|------------|----------|------------|
| ** **             | ** ** | **(In thousands)** | ** ** |
| Internet  Broadcasting |       | $                       | 19,158     |     | $          | 11,308 |   |
| Ripe TV                |       | 7,313                   |       | 4,479    |       |
| Arizona  Diamondbacks  |       | 5,982                   |       | 5,982    |       |
| Capital Trust          |       | 4,021                   |       | 4,021    |       |
| USDTV                  |       | —                  |       | 1,529    |       |
| ProAct                 |       | 60                      |       | 60       |       |
| Other                  |       | 3,920                   |       | 3,942    |       |
| Total investments      |       | $                       | 40,454     |     | $          | 31,321 |   |

 

*Investmentin Ripe Digital Entertainment, Inc.*   On August 14,2006, the Company made an additional investment of $4.1 million in Ripe DigitalEntertainment, Inc. (“Ripe TV”) resulting in a total investment of $9.1million which represents a 24.7% ownership interest. In addition, the Companyhas committed to invest an additional $1.9 million in Ripe TV in 2007. Ripe TVwas formed in 2003 to start an advertising-supported digital video-on-demandprogram network. Launched in October 2005, the program service targets menaged 18-34 and is available for distribution via digital cable, broadbandand/or wireless systems. Since July 27, 2005, Steven A. Hobbs, ExecutiveVice President and Chief Legal and Development Officer, and since August 14,2006, Terry Mackin, Executive Vice President, have served on the Board ofDirectors of Ripe TV, from which they do not receive compensation for theirservices. We account for this investment using the equity method.

*Investmentin USDTV.*   During the year December 31,2006, the Company owned 6.175% of U.S. Digital Television, Inc. (“USDTV”).USDTV was formed to provide a national digital subscription-based televisionprogramming distribution service using portions of the digital televisionspectrum. In July 2006, USDTV filed for Chapter 7 bankruptcy and as aresult, the Company wrote off its investment of $2.5 million and included thewrite off in Other Expense for the quarter ended June 30, 2006 in theaccompanying condensed consolidated statements of income. In September 2006,USDTV sold substantially all its assets to a third party and assigned itsspectrum lease with KOAT, our Albuquerque, New Mexico station, to the buyer.

*Investmentin Internet Broadcasting Systems, Inc.*   Duringthe periods presented the Company had an investment in Internet BroadcastingSystems, Inc. (“Internet Broadcasting”) and, during the periods presentedthrough December 22, 2005, the Company had an investment in IBS/HATV LLC,the parent company of 26 wholly-owned subsidiary limited liability companies.Internet Broadcasting operates a national network of station Websites underoperating agreements with various television station groups, including theCompany. IBS/HATV LLC owned the Websites for each of the Company’s television 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

stations. The initial $20million investment in exchange for shares of preferred stock (representing anapproximately 24% equity interest in Internet Broadcasting) was made in December 1999,followed by an additional $6 million investment in bridge loans issued byInternet Broadcasting in May 2001.

On December 22,2005, the investment in Internet Broadcasting and the IBS/HATV LLC relationshipwere strategically restructured to provide for new content initiatives, newsales opportunities and enhanced capital resources for Internet Broadcasting. Underthe new arrangement, Internet Broadcasting continues to manage a nationalnetwork of station Websites under various operating agreements. However,IBS/HATV LLC and its subsidiaries were dissolved resulting in the recognitionof local Website operating results directly on the books of the Company’stelevision stations as of January 2006.

·       *Investment in Internet Broadcasting*.   Asa result of the restructuring on December 22, 2005, the Company’sinvestment in preferred stock and bridge loans was converted into shares ofInternet Broadcasting common stock, increasing the Company’s ownershippercentage from 24% to 31.1%. Subsequently, in January 2006, the Companypurchased Internet Broadcasting common stock from an existing InternetBroadcasting investor for $5.5 million, increasing its ownership percentage to39.2%. We continue to account for our investment in Internet Broadcasting usingthe equity method.

·       *IBS/HATV LLC (Limited Liability Company)*.   Asdescribed above, a component of the restructuring was the dissolution ofIBS/HATV LLC, effective December 31, 2005. In 2006, the Company receivedits share of the LLC’s assets. IBS/HATV LLC was owned 49.9% by HTV and 50.1% byInternet Broadcasting. Controlled and managed by Internet Broadcasting,IBS/HATV LLC was the parent company of 26 wholly-owned subsidiary limitedliability companies established to own and operate the Websites for each of theCompany’s television stations. As a result of the restructuring, those 26subsidiaries were also dissolved and their assets were transferred to theCompany. Prior to the restructuring, we accounted for our investment inIBS/HATV LLC using the equity method.

*Investmentin NBC/Hearst-Argyle Syndication, LLC.*   EffectiveDecember 31, 2005, NBC and the Company concluded the NBC/Hearst-Argylesyndication venture and the Company recorded a loss of $2.5 million withinOther expense. The Company’s 20% share in the results of NBC/Hearst-ArgyleSyndication, LLC was included in Equity in (income) loss of affiliates, net oftax in the accompanying Consolidated Statements of Income for the year ended December 31,2004. We accounted for this investment using the equity method.

*Investmentin Capital Trust.**  *On December 20,2001, the Company purchased all of the Capital Trust’s common stock (valued at$6.2 million) as part of the initial capitalization of the Capital Trust, andthe Company received $200.0 million in connection with the issuance of theSubordinated Debentures (valued at $206.2 million) to the Capital Trust. On December 31,2004, the Company redeemed a portion of the subordinated debentures (valued at$72.2 million) and the Capital Trust concurrently redeemed $2.2 million ofits common stock and $70.0 million of preferred securities. The SubordinatedDebentures are presented as Note payable to Capital Trust of $134.0 million inthe Company’s Consolidated Balance Sheets. The Capital Trust does not hold anyother significant assets other than note receivable from the Company for theSubordinated Debentures. In accordance with the provisions of FIN 46(R), theCompany does not consolidate the accounts of its wholly-owned subsidiary, theCapital Trust, in its consolidated financial statements. Therefore, we accountfor this investment using the equity method.

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

The earnings attributable to this investment are theCompany’s interest payments made on $6.2 million of the SubordinatedDebentures outstanding for the year ended December 31, 2004 and $4.0 millionof the Subordinated Debentures outstanding for the years endedDecember 31, 2005 and 2006. The Company has recorded its share in theearnings of the Capital Trust as an offset to the interest expense that theCompany pays on the Subordinated Debentures (see Note 7).

*Investmentin NBC Weather Plus.**  *InNovember 2004, NBC Weather Plus Network (“Weather Plus”) was formed tolaunch the first digital local and national weather network using a portion ofthe digital spectrum of NBC-affiliated television stations. Weather Plus is a50/50 joint venture between two member limited liability companies: NBC NewsBureaus, Inc. and Weather Network Affiliates Company, LLC. NBC-affiliatedstations participated in the venture by investing in Weather Network AffiliatesCompany, LLC. We have a minority interest in Weather Network AffiliatesCompany, LLC. Since November 2004 we have launched Weather Plus in all tenof our NBC-affiliated markets. We account for this investment using the costmethod.

*Other Investments.**  *The majority of the other investments are broadcasttower partnerships.

**4.**                 Goodwilland Intangible Assets

Thecarrying value of goodwill and intangible assets as of December 31, 2006 and2005 consisted of the following:

| ** **                                                        | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                        | ** ** | **(In thousands)**         | ** ** |
| Total intangible  assets subject to amortization                  |       |                            | $          | 106,783                         |       |   |   | $ | 111,983 |   |   |
| Intangible assets  not subject to amortization—FCC  licenses |       |                            | 2,413,257  |                            |       |   | 2,284,103 |   |   |
| Total intangible  assets, net                                     |       |                            | $          | 2,520,040                       |       |   |   | $ | 2,396,086 |   |   |
| Goodwill                                                          |       |                            | $          | 816,724                         |       |   |   | $ | 731,687 |   |   |

 

The increase in goodwill and intangible assets is dueto purchase accounting related to the WKCF-TV acquisition, completed on August 31,2006. The Company’s final valuation resulted in $85.0 million in goodwill and$129.2 million in FCC licenses, each of which have an indefinite life and aretherefore not amortized for book purposes but will be amortized for taxpurposes. Additionally, the Company’s final valuation resulted in $1.1 millionin advertiser client base which will be amortized over a period of one year.

In accordance with SFAS 142, *Goodwill andIntangible Assets,* (“SFAS 142”) the Company assesses its goodwilland intangible assets with indefinite useful lives at least annually byapplying a fair value-based test. The Company’s intangible assets withindefinite useful lives are licenses to operate its television stations whichhave been granted by the FCC. SFAS 142 also requires that intangible assetswith determinable useful lives be amortized over their respective estimateduseful lives to their estimated residual values, and reviewed for impairment inaccordance with SFAS 144*.*

In performing the annual impairment test, theestimated fair value of each station’s FCC license and enterprise value isdetermined based on the present value of future cash flows. For the year ended December 31,2006, the Company has determined based on the present value of future cashflows that no impairment of each station’s FCC license and enterprise valueexists. When performing the annual 

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

impairment test in 2005,we determined that the estimates of future cash flows at our station, WDSU-TVin New Orleans, Louisiana, were negatively impacted due to Hurricane Katrinaand as a result, the Company recorded a $29.2 million write down of itsindefinite lived intangible assets and goodwill for the year ended December 31,2005 which was comprised of $26.2 million of FCC license and $3.0 million ofgoodwill.

The Company, as an FCC licensee, enjoys an expectancyof continued renewal of its licenses, so long as it continues to provideservice in the public interest. The FCC has historically renewed the Company’slicenses in the ordinary course of business, without compelling challenge andat little cost to the Company. Furthermore, the Company believes thatover-the-air broadcasting will continue as a video distribution mode for theforeseeable future. Therefore, the cash flows derived from the Company’s FCClicenses are expected to continue indefinitely and as such, and in accordancewith SFAS 142, the life of the FCC license intangible asset is deemed to beindefinite.

Summarizedbelow are the carrying value and accumulated amortization of intangible assetsthat continue to be amortized under SFAS 142 as of December 31, 2006 and2005:

| ** **                                       | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **Gross Carrying**         | ** ** | **Accumulated**                 | ** ** | **Net Carrying** | ** ** | **Gross Carrying** | ** ** | **Accumulated** | ** ** | **Net Carrying** | ** ** |
| ** **                                       | ** ** | **Value**                       | ** ** | **Amortization**                | ** ** | **Value** | ** ** | **Value** | ** ** | **Amortization** | ** ** | **Value** | ** ** |
| ** **                                       | ** ** | **(In thousands)**         | ** ** |
| Intangible assets subject to amortization:       |       |                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Advertiser client  base                          |       |                            | $          | 124,035                         |       |   |   | $ | 73,967 |   |   |   | $ | 50,068 |   |   |   | $ | 122,891 |   |   |   | $ | 70,050 |   |   |   | $ | 52,841 |   |   |
| Network  affiliations                            |       |                            | 95,493     |                            |       |   | 38,880 |   |   |   | 56,613 |   |   |   | 95,493 |   |   |   | 36,489 |   |   |   | 59,004 |   |   |
| Other                                            |       |                            | 743        |                            |       |   | 641 |   |   |   | 102 |   |   |   | 743 |   |   |   | 605 |   |   |   | 138 |   |   |
| Total intangible  assets subject to amortization |       |                            | $          | 220,271                         |       |   |   | $ | 113,488 |   |   |   | $ | 106,783 |   |   |   | $ | 219,127 |   |   |   | $ | 107,144 |   |   |   | $ | 111,983 |   |   |

 

The Company’s amortizationexpense for definite-lived intangible assets was approximately $6.3 million inthe year ended December 31, 2006. Estimated annual intangible assetamortization expense is approximately $6.8 million in 2007 and $6.0 million ineach of the next four years.

**5.**                 AccruedLiabilities

Accrued liabilities as of December 31,2006 and 2005 consisted of the following:

| ** **                           | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                           | ** ** | **(In thousands)** | ** ** |
| Payroll, benefits and  related costs |       | $                       | 20,738     |     | $          | 17,075 |   |
| Accrued income taxes                 |       | 18,692                  |       | 10,307   |       |
| Accrued interest                     |       | 8,792                   |       | 9,462    |       |
| Accrued vacation                     |       | 5,855                   |       | 5,438    |       |
| Accrued payables                     |       | 4,128                   |       | 3,111    |       |
| Other taxes payable                  |       | 1,826                   |       | 1,777    |       |
| Other accrued  liabilities           |       | 6,484                   |       | 3,963    |       |
| Total accrued  liabilities           |       | $                       | 66,515     |     | $          | 51,133 |   |

 

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

**6.**                 Long-TermDebt

Long-termdebt as of December 31, 2006 and 2005 consisted of the following:

| ** **                 | ** ** | **2006**                | ** ** | **2005** | ** ** |
|----------------------------|------------|-------------------------|------------|----------|------------|
| ** **                 | ** ** | **(In thousands)** | ** ** |
| Revolving Credit  Facility |       | $                       | 100,000    |     | $          | — |   |
| Senior Notes               |       | 407,110                 |       | 417,110  |       |
| Private Placement  Debt    |       | 360,000                 |       | 450,000  |       |
| Capital Lease  Obligations |       | 60                      |       | 107      |       |
|                       |       | $                       | 867,170    |     | $          | 867,217 |   |
| Less: Current  maturities  |       | (90,048                 | )          | (90,047  | )          |
| Total long-term debt       |       | $                       | 777,122    |     | $          | 777,170 |   |

 

**Credit Facility**

In November 2006, weincreased our five-year unsecured revolving credit facility which matures on April 15,2010 to $500 million. The credit facility can be used for general corporatepurposes including working capital, investments, acquisitions, debt repaymentand dividend payments. Outstanding principal balances under the credit facilitybear interest at our option at LIBOR or the alternate base rate (“ABR”), plusthe applicable margin. The applicable margin for ABR loans is zero. The applicablemargin for LIBOR loans varies between 0.50% and 1.00% depending on the ratio ofour total debt to earnings before interest, taxes, depreciation andamortization as defined by the credit agreement (the “Leverage Ratio”). The ABRis the greater of (i) the prime rate or (ii) the Federal FundsEffective Rate in effect plus 0.5%. We are required to pay a commitment feebased on the unused portion of the credit facility. The commitment fee rangesfrom 0.15% to 0.25% depending on our Leverage Ratio. We have borrowed $100.0million under the credit facility as of December 31, 2006. The annualizedweighted average interest rate for our credit facility outstanding is 6.2% forthe year ended December 31, 2006.

**Senior Notes**

At December 31, 2006, the Senior Notes, which areunsecured obligations, consisted of $125 million principal amount of 7.0%senior notes due November 2007; $166 million principal amount of 7.0%senior notes due 2018 and $116.1 million principal amount of 7.5% senior notesdue 2027. In the first quarter of 2006, the Company repurchased $10 million of7.00% senior notes due 2018.  As of December 31,2006, the Company has the ability and intent to refinance its 7% senior notesdue November 2007 and therefore has continued to classify the debt as a long-termobligation.

At December 31, 2005,the Senior Notes, which are unsecured obligations, consisted of $125 millionprincipal amount of 7.0% senior notes due November 2007; $176 millionprincipal amount of 7.0% senior notes due 2018 and $116.1 million principalamount of 7.5% senior notes due 2027. Initially issued in November 1997and January 1998, proceeds from the senior notes were used to repay thenexisting debt. On December 13, 2005, we repurchased $15 million of our7.5% senior notes due 2027.

**Private PlacementDebt**

At December 31, 2006,the Private Placement Debt consists of $360 million in senior, unsecured notes,which bear interest at 7.18% per year. The first of five mandatory $90 millionannual payment 

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

installmentswas made on December 15, 2006. The second mandatory $90 million paymentwill be made on December 15, 2007. The Notes were initially issued inconnection with the January 1, 1999 acquisition of KCRA-TV in Sacramento,California.

**Capital LeaseObligations**

We have capitalized thefuture minimum lease payments of equipment under leases that qualify as capitalleases. We had capital lease obligations of approximately $0.1 million as of December 31,2006 and 2005. The capital leases have terms which expire at various datesthrough 2008.

**AggregateMaturities of Total Debt**

Approximateaggregate annual maturities of total debt (including capital lease obligations)are as follows (in thousands):

| **2007**       |   | 215,048 | (1)     |
|----------------|--------|---------|---------|
| **2008**       |   | 90,012  |    |
| **2009**       |   | 90,000  |    |
| **2010**       |   | 190,000 |    |
| **2011**       |   | 0       |    |
| **Thereafter** |   | 282,110 |    |
| **Total**      |   | $       | 867,170 |   |
|                |        |         |         |  |

----

(1)          TheCompany has the ability and intent to refinance its $125,000 principal amountof 7% senior notes due November 2007 and therefore has continued toclassify the debt at a long-term obligation on the consolidated balance sheet.

**Debt Covenants andRestrictions**

The Company’s debtobligations contain certain financial and other covenants and restrictions onthe Company. None of these covenants or restrictions include any triggersexplicitly tied to the Company’s credit ratings or stock price. The Company isin compliance with all such covenants and restrictions as of December 31,2006.

**Interest Rate RiskManagement**

The Company is notinvolved in any derivative financial instruments. However, we may considercertain interest rate risk strategies in the future. We may also consider inthe future certain interest rate swap arrangements or debt-for-debt exchanges.

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

**Interest Expense,net**

Interestexpense, net for the years ended December 31, 2006, 2005 and 2004consisted of the following:

| ** **                                          | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                          | ** ** | **(In thousands)** | ** ** |
| Interest on  borrowings:                            |       |                    |       |     |       |     |       |
| Credit Facility                                     |       | $                       | 2,663      |     | $          | 465      |       | $ | 289 |   |
| Senior Notes                                        |       | 29,514                  |       | 31,578   |       | 30,903   |       |
| Private Placement Debt                              |       | 32,023                  |       | 32,310   |       | 32,310   |       |
| Amortization of deferred financings costs and other |       | 1,903                   |       | 2,424    |       | 1,943    |       |
| Total interest expense                              |       | 66,103                  |       | 66,777   |       | 65,445   |       |
| Interest income                                     |       | (6,229                  | )          | (3,402   | )          | (1,715   | )          |
| Total interest expense,  net                        |       | $                       | 59,874     |     | $          | 63,375   |       | $ | 63,730 |   |

 

**7.**                 NotePayable to Capital Trust

As of December 31, 2006, the Company hasoutstanding $134.0 million aggregate principal amount of Series BDebentures which are convertible into 5,128 shares of Series A CommonStock in the aggregate.

The Redeemable Convertible Preferred Securities issuedby the Capital Trust are effectively convertible, at the option of the holderat any time, into shares of the Company’s Series A Common Stock, par value$.0l per share through an exchange of such Redeemable Convertible PreferredSecurities for a portion of the Debentures of the corresponding series held bythe Capital Trust. The conversion terms are identical for all holders of theRedeemable Convertible Preferred Securities, including Hearst. The Series BDebentures are convertible into the Company’s Common Stock at an initial rateof 1.972262 shares of the Company’s Common Stock per $50 principal amount of Series BDebentures (equivalent to a conversion price of $25.3516 per share of theCompany’s Common Stock). When the Debentures are repaid or redeemed, the sameamount of Redeemable Convertible Preferred Securities will simultaneously beredeemed with the proceeds from the repayment or redemption of the Debentures.

The Series B Debentures mature on December 31,2021 and bear interest at a rate of 7.5% per year. The Company has the right todefer interest on the Debentures (and therefore distributions on the RedeemableConvertible Preferred Securities) by extending the interest payment period fromtime to time in accordance with and subject to the terms of the RedeemableConvertible Preferred Securities. The Series B Debentures may be redeemedat the option of the Company (or at the direction of Hearst) at any time on orafter December 31, 2006. The redemption prices (per $50 principal amount)of the Series B Debentures range from $51.875 in 2007, declining to$50.375 in 2011 and $50 thereafter to maturity.

The Company redeemed allof its outstanding Series A Debentures on December 31, 2004 (the “RedemptionDate”), at a price of $52.625 per $50.00 principal amount of the Series ADebentures in accordance with the terms of the indenture. The redemption of theSeries A Debentures triggered a simultaneous redemption by the CapitalTrust of 1.4 million shares of its Series A Redeemable ConvertiblePreferred Securities. Also, the Capital Trust redeemed 43,299 shares of itscommon stock, held by the Company. As a result of the redemption, Notes payableto Capital Trust was reduced by $72.2 million and Investments was reduced by$2.2 million.

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

**Interest Expense, net—Capital Trust**

Interestexpense, net—Capital Trust is interest expense incurred net of equity interestin earnings of the Company’s Series B Debentures issued by its whollyowned unconsolidated subsidiary trust (the “Capital Trust”). Interest expense,net in 2004 includes a $3.7 million premium paid for the redemption of the Series ADebentures. For the years ended December 31, 2006, 2005 and 2004 theCompany incurred interest expense on the Debentures issued by the Capital Trustas follows:

| ** **                                                           | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                           | ** ** | **(In thousands)**                     | ** ** |
| Interest on Subordinated Debentures:                                 |       |                                        |       |   |   |   |   |
| Series B  Subordinated Debentures                               |       | $                                           | 10,052     |   | $ | 10,052 |   | $ | 10,052 |   |
| Series A  Subordinated Debentures                               |       | —                                      |       | — |   | 5,412 |   |
| Premium paid on  redemption of Series A Subordinated Debentures |       | —                                      |       | — |   | 3,789 |   |
| Gain on redemption of  Capital Trust common stock                    |       | —                                      |       | — |   | (114 | ) |
| Total interest expense                                               |       | 10,052                                      |       | 10,052 |   | 19,139 |   |
| Equity in earnings of  Capital Trust                                 |       | (302                                        | )          | (302 | ) | (464 | ) |
| Total interest expense, net—Capital Trust                       |       | $                                           | 9,750      |   | $ | 9,750 |   | $ | 18,675 |   |

 

**8.**                 EarningsPer Share

The calculation of basicEPS for each period is based on the weighted average number of common sharesoutstanding during the period. The calculation of dilutive EPS for each periodis based on the weighted average number of common shares outstanding during theperiod, plus the effect, if any, of dilutive common stock equivalent shares. Thefollowing tables set forth a reconciliation between basic EPS and diluted EPS,in accordance with SFAS 128, *Earnings PerShare* (in thousands except per share data):

| ** **                                                                                                         | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Reported net  income                                                                                               |       | $                                          | 98,723     |   | $ | 100,217 |   | $ | 123,942 |   |
| Less: Preferred stock  dividends                                                                                   |       | —                                     |       | (2 | ) | (1,067 | ) |
| Income applicable to  common stockholders (Basic)                                                                  |       | $                                          | 98,723     |   | $ | 100,215 |   | $ | 122,875 |   |
| Add: Interest  Expense, Net—Capital Trust, net of tax                                                         |       | —                                     |       | — |   | 9,285 |   |
| Income applicable to  common stockholders (Diluted)                                                                |       | $                                          | 98,723     |   | $ | 100,215 |   | $ | 132,160 |   |
| Basic shares                                                                                                       |       | 92,745                                     |       | 92,826 |   | 92,928 |   |
| Basic EPS                                                                                                          |       | $                                          | 1.06       |   | $ | 1.08 |   | $ | 1.32 |   |
| Diluted shares                                                                                                     |       | 93,353                                     |       | 93,214 |   | 101,406 |   |
| Diluted EPS                                                                                                        |       | $                                          | 1.06       |   | $ | 1.08 |   | $ | 1.30 |   |
| Basic shares                                                                                                       |       | 92,745                                     |       | 92,826 |   | 92,928 |   |
| Add: Shares  issued upon assumed exercise of stock options                                                         |       | 608                                        |       | 388 |   | 543 |   |
| Add: Shares  issued upon conversion of Series A Redeemable Convertible Preferred  Securities—if dilutive |       | —                                     |       | — |   | 2,807 |   |
| Add: Shares  issued upon conversion of Series B Redeemable Convertible Preferred  Securities—if dilutive |       | —                                     |       | — |   | 5,128 |   |
| Diluted shares                                                                                                     |       | 93,353                                     |       | 93,214 |   | 101,406 |   |

 

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**HEARST-ARGYLE TELEVISION, INC.Notes to Consolidated Financial Statements (Continued)**

Common stock options for 6,566,936, 3,657,174 and2,916,270 shares of Series A Common Stock (before application of thetreasury stock method), outstanding as of December 31, 2006, 2005 and2004, respectively, were not included in the computation of diluted EPS becausethe exercise prices were greater than the average market price of the commonshares during the calculation period.

The dilution test for the Redeemable ConvertiblePreferred Securities related to the Capital Trust is performed for all periods.This test considers only the total number of shares that could be issued ifconverted and does not consider either the conversion price or the share priceof the underlying common shares. When the securities related to the CapitalTrust are dilutive, the interest, net of tax, related to the Capital Trust isadded back to Income applicable to common stockholders for purposes of thediluted EPS calculation. The Series A Convertible Preferred Securitieswere redeemed on December 31, 2004 and therefore had no impact on the 2005or 2006 periods. For the year ended December 31, 2004, 7,935,068 shares ofSeries A Common Stock to be issued upon the conversion of 1,400,000 sharesof Series A 7.5% Redeemable Convertible Preferred Securities and 2,600,000shares of Series B 7.5% Redeemable Convertible Preferred Securities,related to the Capital Trust, are included in the number of common shares usedin the calculation of diluted EPS.

The Series A and BPreferred Stock were redeemed in full as of January 1, 2005. For the yearended December 31, 2004, 5,781,000 shares of Series A PreferredStock, and 5,470,000 shares of Series B Preferred Stock and the relateddividends were included in the calculation of diluted EPS.

**9.**                 IncomeTaxes

Theprovision (benefit) for income taxes relating to income for the years endedDecember 31, 2006, 2005 and 2004, consisted of the following:

| ** **                  | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                  | ** ** | **(In thousands)**                     | ** ** |
| Current:                    |       |                                        |       |   |   |   |   |
| State and local             |       | $                                           | 7,593      |   | $ | 5,671 |   | $ | 6,761 |   |
| Federal                     |       | 41,426                                      |       | (8,328 | ) | 49,475 |   |
|                        |       | $                                           | 49,019     |   | $ | (2,657 | ) | $ | 56,236 |   |
| Deferred:                   |       |                                        |       |   |   |   |   |
| State and local             |       | $                                           | 1,534      |   | $ | (7,096 | ) | $ | 1,976 |   |
| Federal                     |       | 7,857                                       |       | 12,765 |   | 17,512 |   |
|                        |       | $                                           | 9,391      |   | $ | 5,669 |   | $ | 19,488 |   |
| Provision for income  taxes |       | $                                           | 58,410     |   | $ | 3,012 |   | $ | 75,724 |   |

 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

TheCompany’s effective income tax rate in a given financial statement period maybe materially impacted by changes in the level of earnings by taxingjurisdiction, changes in the expected outcome of tax examinations, amount ofdeductions or changes in the deferred tax valuation allowance. The effectiveincome tax rate for the years ended December 31, 2006, 2005 and 2004varied from the statutory U.S. Federal income tax rate due to the following:

| ** **                                          | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Statutory U. S.  Federal income tax                 |       | 35.0     | %          | 35.0     | %          | 35.0     | %          |
| State income  taxes, net of Federal tax benefit     |       | 3.8      |       | (0.9     | )          | 2.9      |       |
| Other  non-deductible business expenses             |       | 0.2      |       | 1.3      |       | 0.3      |       |
| Change in  valuation allowances and other estimates |       | (1.6     | )          | (31.6    | )          | —   |       |
| Other                                               |       | (0.1     | )          | (0.8     | )          | (0.1     | )          |
| Effective income  tax rate                          |       | 37.3     | %          | 3.0      | %          | 38.1     | %          |

 

The increase in our Federal current tax expense andeffective tax rate for the year ended December 31, 2006, primarily relatesto an increase in income before income taxes from $101.8 million for the yearended December 31, 2005 to $156.7 million for the year ended December 31,2006; and $37.4 million in tax benefits recorded as a result of thesettlement of certain tax return examinations and changes in Ohio tax law inthe year ended December 31, 2005.

Deferredincome tax liabilities and assets at December 31, 2006 and 2005 consistedof the following:

| ** **                                                              | ** ** | **2006**                | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                              | ** ** | **(In thousands)** | ** ** |
| Deferred income tax  liabilities:                                       |       |                    |       |     |       |
| Difference between book and tax basis of property,  plant and equipment |       | $                       | 39,267     |     | $          | 26,994 |   |
| Accelerated funding of pension benefit obligation                       |       | (21,823                 | )          | 13,352   |       |
| Difference between book and tax basis of intangible  assets             |       | 820,785                 |       | 804,926  |       |
| Total deferred  income tax liabilities                                  |       | $                       | 838,229    |     | $          | 845,272 |   |
| Deferred income  tax assets:                                            |       |                    |       |     |       |
| Accrued expenses and other                                              |       | $                       | 4,672      |     | $          | 4,029 |   |
| Operating and Capital loss carryforwards                                |       | 31,098                  |       | 33,265   |       |
|                                                                    |       | 35,770                  |       | 37,294   |       |
| Less: Valuation allowance                                               |       | (31,098                 | )          | (33,265  | )          |
| Total deferred  income tax assets                                       |       | 4,672                   |       | 4,029    |       |
| Net deferred income tax  liabilities                                    |       | $                       | 833,557    |     | $          | 841,243 |   |

 

At December 31, 2006, net deferred taxliabilities include a deferred tax asset of $2.8 relating to stock-basedcompensation expense under SFAS 123(R). Full realization of this deferred taxasset requires stock options to be exercised at a price equaling or exceedingthe sum of the grant price plus the fair value of the option at the grant date.The provisions of SFAS 123(R), however, do not allow a valuation allowance tobe recorded unless the company’s future taxable income is expected to beinsufficient to recover the asset. Accordingly, there can be no assurance thatthe stock price of our Series A Common Stock will rise to levelssufficient to realize the entire tax benefit currently reflected in our balancesheet. See Note 12 for additional discussion of SFAS 123(R).

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

At December 31, 2006, we had state net operatingloss carryforwards (tax effected) of $25.5 million and other capital losscarryforwards (tax effected) of $5.5 million, respectively expiring through2026 and in 2009. The valuation allowance represents the uncertainty associatedwith the realization of these tax benefits. The change in the valuationallowance for 2006 is the result of the Company’s utilization of approximately$2.1 million in capital loss carryforwards.

Thenet deferred income tax liabilities are presented under the following captionson the Company’s consolidated balance sheets:

| ** **                           | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                           | ** ** | **(In thousands)** | ** ** |
| Deferred income  tax liability       |       | $                       | 838,229    |     | $          | 845,272 |   |
| Deferred income  tax asset (current) |       | 4,672                   |       | 4,029    |       |
| Net deferred income tax  liability   |       | $                       | 833,557    |     | $          | 841,243 |   |

 

The deferred taxliabilities primarily relate to differences between book and tax basis of theCompany’s FCC licenses. In accordance with the adoption of SFAS 142 on January 1,2002, the Company no longer amortizes its FCC licenses, but instead tests themfor impairment annually. As the tax basis in the Company’s FCC licensescontinues to amortize, the deferred tax liabilities will increase over time.

**10.**          CommonStock

**General**

The Company has authorized 300 million common shares,par value $0.01 per share, which includes 200 million of Series A CommonStock and 100 million Series B Common Stock. Except as otherwise describedbelow, the issued and outstanding shares of Series A Common Stock and Series BCommon Stock vote together as a single class on all matters submitted to a voteof stockholders, with each issued and outstanding share of Series A CommonStock and Series B Common Stock entitling the holder thereof to one voteon all such matters. With respect to any election of directors, (i) theholders of the shares of Series A Common Stock are entitled to voteseparately as a class to elect two members of the Company’s Board of Directors(the Series A Directors) and (ii) the holders of the shares of theCompany’s Series B Common Stock are entitled to vote separately as a classto elect the balance of the Company’s Board of Directors (the Series BDirectors); provided, however, that the number of Series B Directors shallnot constitute less than a majority of the Company’s Board of Directors.

All of the outstandingshares of Series B Common Stock are held by a subsidiary of Hearst. Noholder of shares of Series B Common Stock may transfer any such shares toany person other than to (i) Hearst; (ii) any corporation into whichHearst is merged or consolidated; (iii) any entity to which all orsubstantially all of Hearst’s assets are transferred; or (iv) any entitycontrolled by Hearst (each a “Permitted Transferee”). Series B CommonStock, however, may be converted at any time into Series A Common Stockand freely transferred, subject to the terms and conditions of the Company’sCertificate of Incorporation and to applicable securities laws limitations.

**Common StockRepurchase**

In May 1998 the Company’s Board of Directorsauthorized the repurchase of up to $300 million of its outstanding Series ACommon Stock. Such repurchases may be effected from time to time in the open 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

market or in privatetransactions, subject to market conditions and management’s discretion. During2006, the Company repurchased 129,150 shares of Series A Common Stock at acost of $2.8 million and an average per share price of $21.52. Between May 1998and December 31, 2006, the Company repurchased approximately 4.5 million sharesof Series A Common Stock at a cost of approximately $110.8 million and anaverage price of $24.87. There can be no assurance that such repurchases willoccur in the future or, if they do occur, what the terms of such repurchaseswill be.

Hearst and its indirectwholly-owned subsidiary Hearst Broadcasting, Inc. (“Hearst Broadcasting”)are authorized by Hearst’s Board of Directors to purchase up to 25 millionshares of the Company’s Series A Common Stock from time to time in theopen market, in private transactions or otherwise. As of December 31,2006, under this plan Hearst had purchased approximately 23.8 million shares ofthe Company’s outstanding Series A Common Stock. Hearst’s ownership of theCompany’s outstanding common stock was 73.8% and 70.5% as of December 31,2006 and 2005, respectively.

**Common StockDividends**

Duringthe year ended December 31, 2006, the Company’s Board of Directorsdeclared cash dividends as follows:

| **Dividend   Amount** | ** ** | ** **               | ** ** | **Declaration   Date** | ** ** | **Record   Date** | ** ** | **Payment   Date** | ** ** | **Total   Dividend** | ** ** | **Hearst   Portion** | ** ** |
|----------------------------|------------|--------------------------|------------|-----------------------------|------------|------------------------|------------|-------------------------|------------|---------------------------|------------|---------------------------|------------|
| $0.07                      |       | March 31,  2006     |       | April 5,  2006         |       | April 15,  2006   |       |                    | $          | 6,485                     |       |                      | $          | 4,636 |   |
| $0.07                      |       | May 4,  2006        |       | July 5,  2006          |       | July 15,  2006    |       |                    | $          | 6,493                     |       |                      | $          | 4,768 |   |
| $0.07                      |       | September 21,  2006 |       | October 5,  2006       |       | October 15,  2006 |       |                    | $          | 6,490                     |       |                      | $          | 4,816 |   |
| $0.07                      |       | December 7, 2006    |       | January 5, 2007        |       | January 15, 2007  |       |                    | $          | 6,523                     |       |                      | $          | 4,816 |   |

 

**11.**          PreferredStock

Under the Company’s Certificate of Incorporation, theCompany has one million authorized shares of Preferred Stock, par value $.01per share. At December 31, 2006 and 2005, there was no Preferred Stockoutstanding. There were 5,470,000 shares of Series B Preferred Stock and5,781,000 shares of Series A Preferred Stock issued and outstanding as of December 31,2004. The Preferred Stock had a cash dividend feature whereby each shareaccrued $65 per share annually, to be paid quarterly.

On January 1, 2004,the Company redeemed 1,600,000 shares of Series A Preferred Stock and on December 10,2004, the Company redeemed 5,468,000 shares of Series B Preferred Stock. OnJanuary 1, 2005, 5,781,000 shares of Series A Preferred Stock and5,470,000 shares of Series B Preferred Stock were redeemed.

**12.**          EmployeeStock Plans

On January 1, 2006, the Company adopted FASBStatement No. 123(R), *Share-Based Payment*(“SFAS 123(R)”) using a modified prospective transition method. Accordingly,because we have adopted a prospective method prior periods have not beenrestated. For the year ended December 31, 2006, the adoption of SFAS 123(R) resultedin incremental stock-based compensation expense, as well as a decrease inincome before income taxes of $7.6 million, and a decrease in net income of$4.8 million. Additionally, the incremental stock-based compensation expensecaused both basic and diluted earnings per share to decrease by $0.05 for theyear ended December 31, 2006.

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

On May 5, 2004, the Company’s stockholders andBoard of Directors approved the 2004 Long Term Incentive Compensation Plan,which the Board further amended in July 2006 (as amended, the “IncentiveCompensation Plan”). The Incentive Compensation Plan is intended to replace theAmended and Restated 1997 Stock Option Plan (the “Stock Option Plan”) withrespect to new grants and all grants made after May 5, 2004 are made underthe new Incentive Compensation Plan. Under the Incentive Compensation Plan theCompany may award various forms of incentive compensation, including stockoptions and restricted stock, to officers, other key employees and non-employeedirectors of the Company and its subsidiaries. The Company reserved forissuance under the Incentive Compensation Plan 3.6 million shares of Series ACommon Stock. As of December 31, 2006, under the Incentive CompensationPlan stock options were granted with exercise prices equal to the market priceof the underlying stock as of the date of grant. Each option is exercisableafter the period or periods specified in the applicable option agreement, butno option can be exercised after the expiration of 10 years from the date ofgrant. Generally, options granted to employees under the Incentive CompensationPlan cliff-vest after three years commencing on the effective date of thegrant.

Under the Stock Option Plan, 8.7 million shares of Series ACommon Stock were reserved for issuance. Under the Stock Option Plan, stockoptions were granted with exercise prices equal to the market price of theunderlying stock on the date of grant. Generally, options granted prior to December 2000either (i) cliff-vest after three years commencing on the effective dateof the grant or (ii) vest either after nine years or in one-thirdincrements upon attainment of certain market price goals of the Company’s Series ACommon Stock. Options granted in December 2000 vest in one-thirdincrements per year commencing one year from the date of the grant. Generally,options granted after December 2000 cliff-vest after three yearscommencing on the effective date of the grant. All options granted pursuant tothe Stock Option Plan will expire no later than ten years from the date ofgrant.

Asummary of the status of the Company’s Stock Option Plan and IncentiveCompensation Plan, and changes for the years ended December 31, 2006, 2005and 2004 is presented below (not in thousands):

| ** **                             | ** ** | ** **  | ** ** | **Weighted Average** | ** ** |
|----------------------------------------|------------|-------------|------------|---------------------------|------------|
| ** **                             | ** ** | **Options** | ** ** | **Exercise Price**   | ** ** |
| Outstanding at  December 31, 2003 |       | 7,424,472   |       |                      | $          | 22.71 |   |   |
| Granted                                |       | 1,272,900   |       |                      | 25.63      |   |   |
| Exercised                              |       | (455,056    | )          |                      | 18.97      |   |   |
| Forfeited                              |       | (181,887    | )          |                      | 24.06      |   |   |
| Outstanding at  December 31, 2004 |       | 8,060,429   |       |                      | $          | 23.36 |   |   |
| Granted                                |       | 1,273,400   |       |                      | 24.14      |   |   |
| Exercised                              |       | (362,719    | )          |                      | 18.64      |   |   |
| Forfeited                              |       | (450,263    | )          |                      | 26.02      |   |   |
| Outstanding at  December 31, 2005 |       | 8,520,847   |       |                      | $          | 23.53 |   |   |
| Granted                                |       | 756,650     |       |                      | 25.40      |   |   |
| Exercised                              |       | (391,213    | )          |                      | 19.70      |   |   |
| Forfeited                              |       | (79,988     | )          |                      | 24.92      |   |   |
| Outstanding at  December 31, 2006 |       | 8,806,296   |       |                      | $          | 23.85 |   |   |
| Exercisable at December 31, 2004  |       | 4,392,112   |       |                      | $          | 21.84 |   |   |
| Exercisable at  December 31, 2005 |       | 4,720,837   |       |                      | $          | 22.25 |   |   |
| Exercisable at  December 31, 2006 |       | 5,490,211   |       |                      | $          | 23.10 |   |   |

 

75

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

Thefollowing table summarizes information about stock options outstanding andexercisable at December 31, 2006 (not in thousands):

| ** **                                  | ** ** | **Options Outstanding** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|
| **Range of Exercise Prices** | ** ** | ** **                   | ** ** | **Number Outstanding   at December 31, 2006** | ** ** | **Weighted   Average   Remaining   Contractual Life** | ** ** | **Intrinsic Value of In the   Money Outstanding   Options at  December 31, 2006** | ** ** | **Weighted Average   Outstanding Price** | ** ** |
| $18.56-$21.59                               |       |                         | 2,206,760  |   |   |   | 4.35 |   |   |   | $ | 13,084,646 |   |   |   | $ | 19.57 |   |   |
| $22.08-$24.89                               |       |                         | 2,345,400  |   |   |   | 7.61 |   |   |   | 3,327,950 |   |   |   | $ | 24.08 |   |   |
| $25.13-$26.81                               |       |                         | 4,092,022  |   |   |   | 6.01 |   |   |   | 222,163 |   |   |   | $ | 25.80 |   |   |
| $27.75-$29.00                               |       |                         | 148,114    |   |   |   | 1.21 |   |   |   | — |   |   |   | $ | 28.87 |   |   |
| $35.25-$36.44                               |       |                         | 14,000     |   |   |   | 1.61 |   |   |   | — |   |   |   | $ | 36.44 |   |   |
|                                        |       |                         | 8,806,296  |   |   |   | 5.93 |   |   |   | $ | 16,634,759 |   |   |   | $ | 23.85 |   |   |
|                                             |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                  | ** ** | **Options Exercisable** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|
| **Range of Exercise Prices** | ** ** | ** **                   | ** ** | **Number Exercisable   at December 31, 2006** | ** ** | **Weighted   Average   Remaining   Contractual Life** | ** ** | **Intrinsic Value of In the   Money Outstanding   Options at  December 31, 2006** | ** ** | **Weighted Average   Exercise Price** | ** ** |
| $18.56-$21.59                               |       |                         | 2,186,760  |   |   |   | 4.30 |   |   |   | $ | 12,996,046 |   |   |   | $ | 19.56 |   |   |
| $22.08-$24.89                               |       |                         | 1,062,000  |   |   |   | 6.04 |   |   |   | 1,506,220 |   |   |   | $ | 24.08 |   |   |
| $25.13-$26.81                               |       |                         | 2,095,837  |   |   |   | 4.08 |   |   |   | 222,103 |   |   |   | $ | 25.85 |   |   |
| $27.75-$29.00                               |       |                         | 131,614    |   |   |   | 1.10 |   |   |   | — |   |   |   | $ | 28.93 |   |   |
| $35.25-$36.44                               |       |                         | 14,000     |   |   |   | 1.61 |   |   |   | — |   |   |   | $ | 36.44 |   |   |
|                                        |       |                         | 5,490,211  |   |   |   | 4.47 |   |   |   | $ | 14,724,369 |   |   |   | $ | 23.10 |   |   |
|                                             |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Under SFAS No. 123(R), options are valued at theirdate of grant and then expensed over their vesting period. The values of theCompany’s options were calculated at the date of grant using the Black-Scholesoption-pricing model. The weighted average grant date fair value of optionsgranted was $7.49 for the year ended December 31, 2006. The weightedaverage grant date fair value of options granted was $7.63 for the year ended December 31,2005. The total intrinsic value (the difference between market price andexercise price) of options exercised during the year ended December 31,2006 was $2.0 million. The total intrinsic value (the difference between marketprice and exercise price) of options exercised during the year ended December 31,2005 was $4.2 million. The total fair value of shares vested during the yearended December 31, 2006 was $7.7 million. The total fair value of sharesvested during the year ended December 31, 2005 was $7.4 million.

Thefollowing assumptions were used in the Black Scholes option-pricing model tovalue options granted during the years ended December 31, 2006, 2005 and2004:

| ** **               | ** ** | **2006**  | ** ** | **2005**       | ** ** | **2004**       | ** ** |
|--------------------------|------------|-----------|------------|----------------|------------|----------------|------------|
| Expected life            |       | 5.9 Years |       | 5.9 years |       | 5.0 years |       |
| Volatility factor        |       | 25.09     | %          | 27.71          | %          | 30.14          | %          |
| Risk-free  interest rate |       | 4.45      | %          | 4.43           | %          | 3.72           | %          |
| Dividend yield           |       | 1.20      | %          | 1.12           | %          | 0.94           | %          |

 

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

The expected life of options granted was estimatedbased on the historical exercise behavior of employees. The expected volatilityfactor was based on historical volatility over the period equal to the stockoption’s expected life. The risk-free interest rate is based on the U.S.treasury yield curve in effect at the date of the grant for a period equal tothe expected term of the option.

Underthe Incentive Compensation Plan, the Company awarded an aggregate of 167,000restricted stock units to certain non-employee directors and employees duringthe year ended December 31, 2006. Non-employee directors received 5,000shares which will vest two years from their grant date. Certain employees ofthe Company received 162,000 shares which will vest three years from theirgrant date. The fair value is equal to the market value on the date of grant. Asummary of the outstanding unvested restricted stock units as of December 31,2006 and activity during the year ended December 31, 2006 is presentedbelow:

| ** **                         | ** ** | **Restricted Stock Outstanding** | ** ** |
|------------------------------------|------------|--------------------------------------------|------------|
| ** **                         | ** ** | **Number of Restricted**         | ** ** | **Weighted Average** | ** ** |
| ** **                         | ** ** | **Stock Units**                       | ** ** | **Common Stock Price** | ** ** |
| Balance at  January 1, 2006   |       |                                       | —     |   |   |   | $ | — |   |   |
| Granted                            |       |                                       | 167,000    |   |   |   | 25.62 |   |   |
| Vested                             |       |                                       | —     |   |   |   | — |   |   |
| Forfeited                          |       |                                       | —     |   |   |   | — |   |   |
| Balance at  December 31, 2006 |       |                                       | 167,000    |   |   |   | $ | 25.62 |   |   |

 

The grant date fair value of restricted stock unitsgranted to non-employee directors was $21.07. The grant date fair value ofrestricted stock units granted to employees was $25.64. Because this is a timebased award, the expense is charged ratably over the vesting period.

In April 1999, we implemented a non-compensatoryemployee stock purchase plan (“ESPP”) in accordance with Internal Revenue Code Section 423.The ESPP allows employees to purchase shares of our Series A Common Stock,at 85% of its market price, through after-tax payroll deductions. We reservedand made available for issuance and purchases under the Stock Purchase Plan5,000,000 shares of Series A Common Stock. Employees purchased 107,702 and102,934 shares for aggregate proceeds of approximately $2.1 million and $2.2million in the years ended December 31, 2006 and 2005, respectively.  In accordance with SFAS 123(R), we recorded$0.4 million in stock-based compensation expense for the year ended December 31,2006.

The total compensationcost of share-based awards recognized for the year ended December 31, 2006was $7.6 million. The total tax benefit related thereto was $2.8 million forthe year ended December 31, 2006. For the year ended December 31,2006 the tax benefit realized from the exercise of stock options was $0.8million. As of December 31 2006, there was $16.1 million of totalunrecognized compensation cost related to unvested share-based compensationawards granted under the equity compensation plans which does not include theeffect of future grants of equity compensation, if any. Of the total $16.1million, we expect to recognize approximately 49% in 2007, 35% in 2008 and 16%in 2009, assuming average forfeitures. We received $7.7 million upon theexercise of stock options during the year ended December 31, 2006, and wereceived $6.8 million upon the exercise of stock options during the year ended December 31,2005.

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

**13.   RelatedParty Transactions**

*The Hearst Corporation.*   Asof December 31, 2006, Hearst beneficially owned approximately 53.0% of ourSeries A Common Stock and 100% of our Series B Common Stock,representing in the aggregate approximately 73.8% of the outstanding votingpower of our common stock, except with regard to the election of directors. Withregard to the election of directors, Hearst’s beneficial ownership of our Series BCommon Stock entitles Hearst to elect as a class 11 of the 13 directors of ourBoard of Directors. During the years ended December 31, 2006, 2005 and2004, we entered into the following transactions with Hearst or parties relatedto Hearst:

·       *Hearst Lease.  *On May 5, 2006 the Company enteredinto a Lease Agreement with Hearst to lease one floor of the newly constructedHearst Tower in Manhattan for our corporate offices. Under the terms of thelease we are entitled to a tenant improvement allowance of $1.9 million. Weexpect to record approximately $1.4 million in rent expense annually under theterms of the Lease Agreement with Hearst, net of the tenant improvementallowance, which we will amortize over the lease term.

·       *Management Agreement*.   We recordedrevenue of approximately $6.7 million, $4.6 million, and $4.2 million in theyears ended December 31, 2006, 2005 and 2004, respectively, relating to amanagement agreement with Hearst (the “Management Agreement”). Pursuant to theManagement Agreement, we provide certain management services, such as sales,news, programming, and financial and accounting management services, to certainHearst owned or operated television and radio stations. We believe that theterms of the Management Agreement are reasonable to both parties; however,there can be no assurance that more favorable terms would not be available fromthird parties.

·       *Services Agreement*.   We incurredexpenses of approximately $5.0 million, $4.8 million and $3.8 million inthe years ended December 31, 2006, 2005 and 2004, respectively, relatingto a services agreement with Hearst (the “Services Agreement”). Pursuant to theServices Agreement, Hearst provides the Company certain administrative servicessuch as accounting, financial, legal, insurance, data processing, and employeebenefits administration. We believe that the terms of the Services Agreementare reasonable to both parties; however, there can be no assurance that morefavorable terms would not be available from third parties.

·       *Interest Expense, Net—Capital Trust.  *We incurred interest expense, net,relating to the Subordinated Debentures issued to our wholly-ownedunconsolidated subsidiary, the Capital Trust, of $9.8 million, $9.8 million and$18.7 million in the years ended December 31, 2006, 2005 and 2004, respectively.The Capital Trust then paid comparable amounts to its Redeemable ConvertiblePreferred Securities holders of which $1.9 million, $1.9 million and $3.7million in the years ended December 31, 2006, 2005 and 2004, respectively,was paid to Hearst.

·       *Dividend on Common Stock.  *Our Boardof Directors declared quarterly cash dividends of $0.07 per share on our Series Aand Series B Common Stock, respectively, for a total amount of $26.0 million.Included in this amount was $19.0 million payable to Hearst. On December 7,2006, our Board declared a cash dividend of $0.07 per share on our Series Aand Series B Common Stock for a total of $6.5 million. Included in thisamount was $4.8 million payable to Hearst. In the year ended December 31,2005, the Company paid cash dividends of $26.0 million. Included in this amountwas $18.0 million payable to Hearst. See Note 10.

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

·       *Radio Facilities Lease.  *Pursuant toa lease agreement, Hearst paid us approximately $0.8 million, $0.9 million and$0.7 million in the years ended December 31, 2006, 2005 and 2004,respectively. Under this agreement, Hearst leases from the Company premises forWBAL-AM and WIYY-FM, Hearst’s Baltimore, Maryland radio stations.

·       *Lifetime Entertainment Services*.   Wehave agreements with Lifetime Entertainment Services (“Lifetime”), an entityowned 50% by an affiliate of Hearst and 50% by The Walt Disney Company, whereby(i) we assist Lifetime in securing distribution and subscribers for theLifetime Television, Lifetime Movie Network and/or Lifetime Real Womenprogramming services; and (ii) Lifetime acts as our agent with respect tothe negotiation of our agreements with cable, satellite and certain othermulti-channel video programming distributors. Amounts payable to us by Lifetimedepend on the specific terms of these agreements. In certain instances, revenueis a fixed amount and, to a larger extent, revenue is recognized based on thenumber of subscribers over the contract period.  We have recorded revenue from the agreementsof $17.7 million, $6.7 million and $1.8 million in the years ended December 31,2006, 2005 and 2004, respectively.

·       *Wide Orbit, Inc.  *In November 2004, we enteredinto an agreement with Wide Orbit, Inc. (“Wide Orbit”) for licensing andservicing of Wide Orbit’s Traffic Sales and Billing Solutions software. Hearstowns approximately 8% of Wide Orbit, Inc. In the years ended December 31,2006, 2005 and 2004, we paid Wide Orbit approximately $1.4 million, $1.7million and $0.9 million, respectively, under the agreement.

·       *Other Transactions with Hearst*.   Inthe years ended December 31, 2006 and 2005, we recorded net revenue ofapproximately $0.1 million and $0.1 million, respectively, relating toadvertising sales to Hearst on behalf of Good Housekeeping, which is owned byHearst. In the year ended December 31, 2004, we did not receiveadvertising revenue from Hearst.

*InternetBroadcasting.*   As of December 31, 2006, weowned 39.2% of Internet Broadcasting. Our share of the (income) loss ofInternet Broadcasting included in Equity in (income) loss of affiliates, net oftax was ($1.5) million, $0.2 million and $0.4 million for the years ended December 31,2006, 2005 and 2004, respectively. Our share of income for IBS/HATV LLCincluded in Equity in (income) loss of affiliates, net of tax, was $1.9 millionand $1.4 million for the years ended December 31, 2005 and 2004,respectively. We also have an agreement with Internet Broadcasting pursuant towhich they provide hosting services for our corporate Internet site for anominal amount. Since January 2001, Harry T. Hawks, our Executive VicePresident and Chief Financial Officer, since October 2002, Terry Mackin,our Executive Vice President, and since December 2005, Steven A. Hobbs,our Executive Vice President and Chief Legal and Development Officer, haveserved on the Board of Directors of Internet Broadcasting, from which they donot receive compensation for their services.

*SmallBusiness Television.*   The Company utilizes SmallBusiness Television’s (“SBTV”) services to provide television stations withadditional revenue through the marketing and sale of commercial time to smallerbusinesses that do not traditionally use television advertising due to costs. Inthe year ended December 31, 2006 these sales generated revenue ofapproximately $1.6 million, of which approximately $0.9 million was distributedto the Company. In the year ended December 31, 2005 these sales generatedrevenue of approximately $1.4 million, of which approximately $0.8 million wasdistributed to the Company. In the year ended December 31, 2004 thesesales generated revenue of approximately $1.2 million, of which approximately$0.7 million was distributed to the Company. Mr. Dean Conomikes, the ownerof SBTV, is the son of John G. Conomikes, a member of the Company’s Board ofDirectors.

79

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

*NBCWeather Plus.**  *In 2004,we invested in Weather Network Affiliates Company, LLC (“WNAC”), which owns theNBC Weather Plus Network (“Weather Plus”). We have launched Weather Plus in allof our NBC-affiliated markets. Terry Mackin, one of our executive officers,serves as the past Chairman of the Board of the NBC Television AffiliatesAssociation, which is the managing member and the owner of certain ownershipinterests in WNAC. As past NBC Affiliate Chairman, Mr. Mackin serves aschairman of the NBC Affiliates “Futures” committee, which is responsible fordeveloping strategic projects between NBC and the NBC Affiliates. Mr. Mackinserved as the Chairman of the NBC Television Affiliates Association Board from May 2004to May 2006. Additionally, since May 2006, Mr. Mackin has servedas a member of the Board of Directors of NBC Weather Plus Network LLC.Mr. Mackin does not receive compensation for his Board service.

*USDTV.*   Duringthe year ended December 31, 2006, we and Hearst each owned approximately6.175% of USDTV. In addition, our station KOAT-TV in Albuquerque, New Mexico,had an agreement to lease a portion of its digital spectrum to USDTV. In July 2006,USDTV filed for Chapter 7 bankruptcy and the Company wrote off its investment. InSeptember 2006, USDTV sold substantially all its assets to a third partyand assigned its spectrum lease with KOAT to the buyer.  From September 23, 2005 to June 20,2006, Steven A. Hobbs, our Executive Vice President and Chief Legal andDevelopment Officer, served on the Board of Directors of USDTV, from which hedid not receive compensation for his services.

*Other Related Parties.*   Inthe ordinary course of business, the Company enters into transactions withother related parties, none of which were significant to our financial resultsin the years ended December 31, 2006, 2005 and 2004.

**14.   OtherCommitments and Contingencies**

We haveobligations to various program syndicators and distributors in accordance withcurrent contracts for the rights to broadcast programs. Future payments andbarter obligations as of December 31, 2006, scheduled under contracts forprograms which are currently available are as follows (in thousands):

| ** ** | ** ** | **Program Rights** | ** ** | **Barter Rights** | ** ** |
|------------|------------|-------------------------|------------|------------------------|------------|
| 2007       |       |                    | $          | 50,693                 |       |   |   | $ | 14,780 |   |   |
| 2008       |       |                    | 8,094      |                   |       |   | 147 |   |   |
| 2009       |       |                    | 5,602      |                   |       |   | 78 |   |   |
| 2010       |       |                    | 4,793      |                   |       |   | 77 |   |   |
| 2011       |       |                    | 2,632      |                   |       |   | 14 |   |   |
| Thereafter |       |                    | 974        |                   |       |   | — |   |   |
| Total      |       |                    | $          | 72,788                 |       |   |   | $ | 15,096 |   |   |

 

80

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

TheCompany has various agreements relating to non-cancelable operating leases withan initial term of one year or more (some of which contain renewal options),future barter and program rights not available for broadcast at December 31,2006, and employment contracts for key employees. Future minimum cash payments(and barter obligations) under the terms of these agreements as of December 31,2006 are as follows:

| ** ** | ** ** | ** **                | ** ** | ** **              | ** ** | ** **             | ** ** | **Employment and**   | ** ** |
|------------|------------|---------------------------|------------|-------------------------|------------|------------------------|------------|---------------------------|------------|
| ** ** | ** ** | **Operating Leases** | ** ** | **Program Rights** | ** ** | **Barter Rights** | ** ** | **Talent Contracts** | ** ** |
| 2007       |       |                      | $          | 6,157                   |       |                   |       | $                         | 34,345     |   |   |   | $ | 10,846 |   |   |   | $ | 75,909 |   |   |
| 2008       |       |                      | 4,875      |                    |       |                   | 62,574     |                      |       |   | 17,960 |   |   |   | 43,642 |   |   |
| 2009       |       |                      | 4,019      |                    |       |                   | 54,909     |                      |       |   | 17,690 |   |   |   | 15,870 |   |   |
| 2010       |       |                      | 2,805      |                    |       |                   | 49,881     |                      |       |   | 15,768 |   |   |   | 3,999 |   |   |
| 2011       |       |                      | 2,078      |                    |       |                   | 30,132     |                      |       |   | 12,169 |   |   |   | 1,416 |   |   |
| Thereafter |       |                      | 7,929      |                    |       |                   | 15,073     |                      |       |   | 8,975 |   |   |   | 291 |   |   |
| Total      |       |                      | $          | 27,863                  |       |                   |       | $                         | 246,914    |   |   |   | $ | 83,408 |   |   |   | $ | 141,127 |   |   |

 

Rent expense, net, for operating leases wasapproximately $8.4 million, $10.4 million and $9.4 million for the years ended December 31,2006, 2005 and 2004, respectively.

From time to time, the Company becomes involved invarious claims and lawsuits that are incidental to its business. In the opinionof the Company, there are no legal proceedings pending against the Company orany of its subsidiaries that are likely to have a material adverse effect onthe Company’s consolidated financial condition or results of operations.

The Company has guaranteedthe payments by its wholly-owned unconsolidated subsidiary trust (the CapitalTrust) on the Redeemable Convertible Preferred Securities in the amount of$134.0 million (see Note 7). The guarantee is irrevocable and unconditional,and guarantees the payment in full of all (i) distributions on theRedeemable Convertible Preferred Securities to the extent of available funds ofthe Capital Trust; (ii) amounts payable upon redemption of the RedeemableConvertible Preferred Securities to the extent of available funds of theCapital Trust; and (iii) amounts payable upon a dissolution of the CapitalTrust. The guarantee is unsecured and ranks (i) subordinate to all otherliabilities of the Company, except liabilities that are expressly made *pari passu*; (ii) *pari passu* with the most senior preferredstock issued by the Company, and *pari passu*with any guarantee of the Company in respect of any preferred stock of theCompany or any preferred security of any of the Company’s controlledaffiliates; and (iii) senior to the Company’s Common Stock. The Companymade the guarantee in 2001 to enable the Capital Trust to issue the RedeemableConvertible Preferred Securities in the amount of $200.0 million to theholders, of which $70 million par amount was redeemed in 2004.

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

***Overview***

The Company maintainsseven defined benefit pension plans, 12 employee savings plans, and otherpost-retirement benefit plans for active, retired and former employees. Theseven defined benefit pension plans are hereafter collectively referred to asthe “Pension Plans.” In addition, the Company makes contributions to threemulti-employer union pension plan that provide retirement benefits to certainunion employees.

81

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**HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements (Continued)**

***Pension Plans and Other Post-Retirement Benefits***

Benefits under the PensionPlans are generally based on years of credited service, age at retirement andaverage of the highest five consecutive years’ compensation. The cost of thePension Plans is computed on the basis of the Project Unit Credit ActuarialCost Method. Past service cost is amortized over the expected future serviceperiods of the employees.

*Pension Plan Assets*

ThePension Plans’ weighted average asset allocations as of the measurement dates September 30,2006 and 2005, by asset category, are as follows:

| ** **              | ** ** | **Percentage of Plan**                   | ** ** |
|-------------------------|------------|----------------------------------------------------|------------|
| ** **              | ** ** | **Assets as of September 30,** | ** ** |
| **Asset Category** | ** ** | ** **                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Equity                  |       |                                               | 73.5       | % |   |   | 69.3 | % |   |
| Fixed income            |       |                                               | 22.8       | % |   |   | 25.2 | % |   |
| Real estate             |       |                                               | 3.7        | % |   |   | 2.3 | % |   |
| Other                   |       |                                               | 0.0        | % |   |   | 3.2 | % |   |
| Total                   |       |                                               | 100.0      | % |   |   | 100.0 | % |   |
|                         |            |                                                    |            |  |  |  |  |  |  |  |  |

 

The assets of the PensionPlans are invested with the objective of being able to meet current and futurebenefit payment needs while controlling pension expense volatility. Plan assetsare invested with a number of investment managers and are diversified amongequities, fixed income, real estate and other investments, as shown in thetable above. Approximately 80% of the assets of the Pension Plans are investedin a master trust, which has a target allocation of approximately 70% equitiesand 30% fixed income. When adding the remaining 20% of the assets of thePension Plans which are outside of the master trust, the aggregate allocationis comparable to that of the master trust, but with a slightly higherallocation percentage for fixed income investments. Each of the Pension Plansemploys active investment management programs, and each has an InvestmentCommittee which reviews the respective plan’s asset allocation on a periodicbasis and determines when and how to re-balance the portfolio when appropriate.None of the Pension Plans has any dedicated target allocation to the Company’sCommon Stock.

*Net PeriodicPension and Post-Retirement Cost*

Thefollowing schedule presents net periodic pension cost for the Company’s PensionPlans in the years ended December 31, 2006, 2005 and 2004:

| ** **                              | ** ** | **Pension Benefits** | ** ** |
|-----------------------------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **2006**                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                              | ** ** | **(In thousands)**   | ** ** |
| Service cost                            |       | $                         | 9,985      |   | $ | 9,031 |   | $ | 7,376 |   |
| Interest cost                           |       | 9,419                     |       | 8,660 |   | 7,663 |   |
| Expected return  on plan assets         |       | (11,116                   | )          | (9,789 | ) | (8,940 | ) |
| Amortization of  initial net obligation |       | 1                         |       | 5 |   | (95 | ) |
| Amortization of  prior service cost     |       | 432                       |       | 432 |   | 493 |   |
| Amortization of  net loss               |       | 3,868                     |       | 2,955 |   | 1,435 |   |
| Net periodic pension  cost              |       | $                         | 12,589     |   | $ | 11,294 |   | $ | 7,932 |   |

 

82

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**HEARST-ARGYLE TELEVISION, INC.  Notes to Consolidated Financial Statements (Continued)**

Thefollowing schedule presents net periodic pension cost for the Company’spost-retirement benefit plan in the years ended December 31, 2006, 2005and 2004:

| ** **                              | ** ** | **Post-Retirement Benefits** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| ** **                              | ** ** | **2006**                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                              | ** ** | **(In thousands)**           | ** ** |
| Service cost                            |       | $ 132                        |       | $ 94 |   | $ 55 |   |
| Interest cost                           |       | 462                               |       | 374 |   | 307 |   |
| Amortization of  initial net obligation |       | 18                                |       | 18 |   | 18 |   |
| Amortization of  prior service cost     |       | 18                                |       | 18 |   | 17 |   |
| Amortization of  net loss               |       | 243                               |       | 120 |   | 15 |   |
| Net periodic pension  cost              |       | $ 873                        |       | $ 624 |   | $ 412 |   |

 

*Summary Disclosure Schedule*

The following schedule (inthousands) presents the change in benefit obligation, change in plan assets, areconciliation of the funded status, amounts recognized in the ConsolidatedBalance Sheet, and additional year-end information for the Company’s PensionPlans and post-retirement benefit plan. The measurement dates for thedetermination of the benefit obligation, plan assets, and assumptions wereSeptember 30, 2006 and 2005.

| ** **                                      | ** ** | **Pension Benefits** | ** ** | **Post-Retirement   Benefits** | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **2006**                  | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Change in benefit obligation:**               |       |                      |       |                           |       |   |   |   | ** ** |
| Benefit obligation  at beginning of year        |       | $ 166,048            |       | $ 146,398                 |       | $ 6,577 |   | $ 5,137 |   |
| Service cost                                    |       | 9,985                     |       | 9,031                          |       | 132 |   | 94 |   |
| Interest cost                                   |       | 9,419                     |       | 8,660                          |       | 461 |   | 373 |   |
| Participant  contributions                      |       | 9                         |       | 8                              |       | — |   | 8 |   |
| Benefits and  administrative expenses paid      |       | (4,949                    | )          | (4,334                         | )          | (575 | ) | (502 | ) |
| Actuarial loss                                  |       | 2,079                     |       | 6,284                          |       | 1,472 |   | 1,467 |   |
| Benefit obligation  at end of year              |       | $ 182,591            |       | $ 166,047                 |       | $ 8,067 |   | $ 6,577 |   |
| **Change in plan assets:**                      |       |                      |       |                           |       |   |   |   |   |
| Fair value of plan  assets at beginning of year |       | $ 148,460            |       | $ 117,633                 |       | — |   | — |   |
| Actual gain on  plan assets, net                |       | 12,613                    |       | 15,589                         |       | — |   | — |   |
| Employer  contributions                         |       | 1,554                     |       | 19,562                         |       | 575 |   | 502 |   |
| Participant  contributions                      |       | 9                         |       | 8                              |       | — |   | — |   |
| Benefits and  administrative expenses paid      |       | (4,949                    | )          | (4,334                         | )          | (575 | ) | (502 | ) |
| Fair value of plan  assets at end of year       |       | $ 157,687            |       | $ 148,458                 |       | — |   | — |   |
| **Reconciliation of funded  status:**           |       |                      |       |                           |       |   |   |   |   |
| Funded status                                   |       | $ (24,904            | )          | $ (17,589                 | )          | $ (8,067 | ) | $ (6,577 | ) |
| Contributions paid  during the fourth quarter   |       | 11                        |       | 787                            |       | 138 |   | 110 |   |
| Unrecognized  actuarial loss                    |       | 0                         |       | 53,014                         |       | — |   | 2,262 |   |
| Unrecognized prior  service cost                |       | 0                         |       | 2,033                          |       | — |   | 106 |   |
| Unrecognized  transition asset                  |       | 0                         |       | 1                              |       | — |   | 111 |   |
| Net amount  recognized at end of year           |       | $ (24,893            | )          | $ 38,246                  |       | $ (7,929 | ) | $ (3,988 | ) |

83

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**HEARST-ARGYLE TELEVISION, INC.  Notes to Consolidated Financial Statements (Continued)**

 

| **Amounts recognized in the Consolidated Balance  Sheet (as of December 31) for years prior to the adoption of  SFAS 158:** |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|--------|
| Other assets                                                                                                                                    |   | N/A                                                     |   | $ 42,204                                           |   | N/A                                         |   | —                                      |   |
| Other liabilities                                                                                                                               |   | N/A                                                     |   | (14,438                                                 | )      | N/A                                         |   | (3,988                                      | )      |
| Accumulated other comprehensive loss                                                                                                            |   | N/A                                                     |   | 10,480                                                  |   | N/A                                         |   |                                        |   |
| Net amount recognized at end of year                                                                                                            |   | N/A                                                     |   | $ 38,246                                           |   | N/A                                         |   | $ (3,988                               | )      |
| **Amounts recognized in the Consolidated Balance  Sheet (as of December 31) for years after the adoption of SFAS 158:**     |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Other assets                                                                                                                                    |   | $      893                |   | N/A                                                     |   | —                                      |   | N/A                                         |   |
| Other liabilities                                                                                                                               |   | (25,786                                                 | )      | N/A                                                     |   | (7,929                                      | )      | N/A                                         |   |
| Accumulated other comprehensive loss                                                                                                            |   | —                                                  |   | N/A                                                     |   | —                                      |   | N/A                                         |   |
| Net amount recognized at end of year                                                                                                            |   | $ 24,893                                           |   | N/A                                                     |   | $ (7,929                               | )      | N/A                                         |   |
| **Amounts not yet recognized as a component of net  periodic benefit cost and recognized in Accumulated other comprehensive  income:**          |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Initial net obligation                                                                                                                          |   | $        — |   | $        — |   | $    (93                | )      | N/A                                         |   |
| Prior service cost                                                                                                                              |   | (1,601                                                  | )      | N/A                                                     |   | (88                                         | )      | N/A                                         |   |
| Net loss                                                                                                                                        |   | (49,726                                                 | )      | N/A                                                     |   | (3,491                                      | )      | N/A                                         |   |
| Accumulated other comprehensive loss                                                                                                            |   | $ (51,327                                          | )      | N/A                                                     |   | $ (3,672                               | )      | N/A                                         |   |
| Cumulative employer contributions in excess of net  periodic benefit cost                                                                  |   | $ 26,434                                           |   | N/A                                                     |   | $ (4,257                               | )      | N/A                                         |   |
| Net amount recognized at end of year                                                                                                            |   | $ (24,893                                          | )      | N/A                                                     |   | $ (7,929                               | )      | N/A                                         |   |
| **Components of net periodic benefit cost**                                                                                                     |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Service cost                                                                                                                                    |   | $  9,985                                      |   | $  9,030                                      |   | $   133                      |   | $     94           |   |
| Interest cost                                                                                                                                   |   | 9,419                                                   |   | 8,661                                                   |   | 461                                         |   | 373                                         |   |
| Expected return on plan assets                                                                                                                  |   | (11,116                                                 | )      | (9,789                                                  | )      | —                                      |   | —                                      |   |
| Amortization of initial net asset                                                                                                               |   | 1                                                       |   | 5                                                       |   | 18                                          |   | 18                                          |   |
| Amortization of prior service cost                                                                                                              |   | 432                                                     |   | 432                                                     |   | 18                                          |   | 18                                          |   |
| Amortization of net loss                                                                                                                        |   | 3,868                                                   |   | 2,955                                                   |   | 243                                         |   | 121                                         |   |
| Net periodic benefit cost                                                                                                                       |   | $ 12,589                                           |   | $ 11,294                                           |   | $   873                      |   | $   624                      |   |
| **Changes recognized in other comprehensive income**                                                                                            |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Other comprehensive (income) loss                                                                                                               |   | $      (39                | )      | $      243                |   | $      — |   | $      — |   |
| Increase in Accumulated other comprehensive income (before  tax) to reflect the adoption of SFAS 158                                            |   | 40,886                                                  |   | N/A                                                     |   | 3,672                                       |   | N/A                                         |   |
| Total recognized in other comprehensive loss                                                                                                    |   | $ 40,847                                           |   | $      243                |   | $ 3,672                                |   | $      — |   |
| **Estimated amounts that will be amortized from  Accumulated other comprehensive income for the year ended  December 31, 2007**       |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Initial net asset                                                                                                                               |   | $        — |   |                                                    |   | $     18           |   |                                        |   |
| Prior service cost                                                                                                                              |   | $      431                |   |                                                    |   | $     18           |   |                                        |   |
| Net loss                                                                                                                                        |   | $  3,693                                      |   |                                                    |   | $   269                      |   |                                        |   |
| **Additional year-end information for all defined  benefit plans**                                                                              |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Accumulated benefit obligation                                                                                                                  |   | $ 160,236                                          |   | $ 147,662                                          |   |                                        |   |                                        |   |
| **Additional year-end information for pension  plans with accumulated benefit obligations in excess of plan assets:**                           |   |                                                    |   |                                                    |   |                                        |   |                                        |   |
| Projected benefit obligation                                                                                                                    |   | $ 68,070                                           |   | $ 62,349                                           |   |                                        |   |                                        |   |
| Accumulated benefit obligation                                                                                                                  |   | $ 58,491                                           |   | $ 54,758                                           |   |                                        |   |                                        |   |
| Fair value of plan assets                                                                                                                       |   | $ 42,274                                           |   | $ 40,958                                           |   |                                        |   |                                        |   |

 

84

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**HEARST-ARGYLE TELEVISION, INC.  Notes to Consolidated Financial Statements (Continued)**

*Contributions*

During the year 2007, theCompany expects to contribute approximately $6 million to the Pension Plans andapproximately $0.5 million to the post-retirement benefit plan.

*Expected BenefitPayments*

Benefit payments for thepension plans and post retirement benefit plan for the next 10 years areexpected to be as follows (in thousands):

| **Pension Benefits**                   | ** ** | ** ** | **Post-Retirement Benefits**           | ** ** |
|---------------------------------------------|------------|------------|---------------------------------------------|------------|
| **Year ending December 31,** | ** ** | ** ** | **Year ending December 31,** | ** ** |
| 2007                                        |       |       | $ 5,130                                |       |   | 2007 |   | $  544 |   |
| 2008                                        |       |       | $ 5,547                                |       |   | 2008 |   | $  503 |   |
| 2009                                        |       |       | $ 6,449                                |       |   | 2009 |   | $  521 |   |
| 2010                                        |       |       | $ 7,484                                |       |   | 2010 |   | $  540 |   |
| 2011                                        |       |       | $ 8,244                                |       |   | 2011 |   | $  547 |   |
| 2012-2016                                   |       |       | $ 58,039                               |       |   | 2012-2016 |   | $ 2,836 |   |

 

*Assumptions*

Theweighted-average assumptions used for computing the projected benefitobligation for the Company’s Pension Plans as of the measurement dates of September 30,2006 and 2005 were as follows: 

| ** **                     | ** ** | **Pension Benefits**        | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **  2006  ** | ** ** | **  2005  ** | ** ** |
| Discount rate                  |       |                             | 6.00       | % |   |   | 5.75 | % |   |
| Rate of compensation  increase |       |                             | 4.00       | % |   |   | 4.00 | % |   |

 

Theweighted-average assumptions used for computing the net periodic pension costfor the Company’s Pension Plans in the years ended December 31, 2006, 2005and 2004 were as follows:

| ** **                                        | ** ** | **Pension Benefits** | ** ** |
|---------------------------------------------------|------------|---------------------------|------------|
| ** **                                        | ** ** | **2006**                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Discount rate                                     |       | 5.75                      | %          | 6.00 | % | 6.25 | % |
| Expected  long-term rate of return on plan assets |       | 7.75                      | %          | 7.75 | % | 7.75 | % |
| Rate of compensation  increase                    |       | 4.00                      | %          | 4.00 | % | 4.00 | % |

 

To develop the expected long-term rate of return onassets assumptions, the Company considered the current level of expectedreturns on risk free investments (primarily government bonds), the historicallevel of the risk premium associated with the other asset classes in which theportfolio is invested, and the expectations for future returns of each assetclass. The expected return for each asset class was then weighted based on theaggregate target asset allocation to develop the expected long-term rate ofreturn on assets assumption for the portfolio. The expected rate of returnassumption is then adjusted to reflect investment and trading expenses. Sincethe Company’s investment policy is to actively manage certain asset classeswhere the potential exists to outperform the broader market, the expectedreturns for those asset classes were adjusted to reflect the expectedadditional returns. The Company reviews the expected long-term rate ofreturn on an annual basis and revises it as appropriate.

85

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**HEARST-ARGYLE TELEVISION, INC.  Notes to Consolidated Financial Statements (Continued)**

Theweighted-average assumptions used for computing the projected benefitobligation for the Company’s post-retirement benefit plan as of the measurementdates of September 30, 2006 and 2005 are as follows:

| ** **    | ** ** | **Post-Retirement Benefits**                                          | ** ** |
|---------------|------------|----------------------------------------------------------------------------|------------|
| ** **    | ** ** | **     2006      ** | ** ** | **      2005      ** | ** ** |
| Discount rate |       |                                                                       | 6.00       | % |   |   | 5.75 | % |   |
|               |            |                                                                            |            |  |  |  |  |  |  |

 

Theweighted-average assumptions used for computing the net periodic benefit costfor the Company’s post-retirement benefit plan in the years ended December 31,2006, 2005 and 2004 are as follows:

| ** **    | ** ** | **Post-Retirement Benefits** | ** ** |
|---------------|------------|-----------------------------------|------------|
| ** **    | ** ** | **2006**                          | ** ** | **2005** | ** ** | **2004 ** | ** ** |
| Discount rate |       | 5.75                              | %          | 6.00 | % |   | 6.25 | % |   |
|               |            |                                   |            |  |  |  |  |  |  |

 

For measurement purposes, the Company assumed a percapita health care benefit cost trend rate of 9.4% and 10.2% for personsretiring before and after age 65, respectively. These rates are assumed todecrease gradually to 5% in 2013 and remain level thereafter. A Part DSubsidy trend rate of 12% was assumed for the Company. These rates are assumedto decrease gradually to 5% in 2013 and remain level thereafter. Previously, aper capita health care benefit cost trend rate of 10.3% and 11% for personsretiring before and after age 65, respectively was assumed for 2005. Theserates are assumed to decrease gradually to 5% by 2013 and remain at that levelthereafter. 

Theassumed health care cost trend rates have a significant effect on the amountsreported for the health care plan. A one-percentage-point change in assumedhealth care cost trend rates would have the following effects:

| ** **                                                         | ** ** | **One-Percentage-  Point Increase** | ** ** | **One-Percentage-  Point Decrease** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                         | ** ** | **(In thousands)**                  | ** ** |
| Effect on total  of service cost and interest cost components |       |                                     | $ 72  |                                     |       |   | $ (60 | ) |   |
| Effect on postretirement  benefit obligation                       |       |                                     | $ 895 |                                     |       |   | $ (757 | ) |   |

 

**Savings Plans**

The Company’s qualifiedemployees may contribute from 2% to 16% of their compensation up to certaindollar limits to self-directed 401(k) savings plans. In certain of theCompany’s (but not all) 401(k) savings plans, the Company matches in cash,one-half of the employee contribution up to 6% (i.e. the Company matches up to3%) of the employee’s compensation. The assets in the 401(k) savings plansare invested in a variety of diversified mutual funds. The Companycontributions to the 401(k) savings plans in the years ended December 31,2006, 2005 and 2004 were approximately $2.8 million, $2.7 million and $2.5million, respectively. 

**Multi-EmployerPension Plan**

The Company participatesin three multi-employer pension plans providing retirement benefits to certainunion employees. The Company’s contributions to the multiemployer union pensionplans were 

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**HEARST-ARGYLE TELEVISION, INC.  Notes to Consolidated Financial Statements (Continued)**

$0.9million, $0.8 million and $0.8 million in the years ended December 31,2006, 2005 and 2004. No information is available for each of the othercontributing employers for this plan. 

**16.**          FairValue of Financial Instruments 

Thecarrying amounts and the estimated fair values of the Company’s financialinstruments for which it is practicable to estimate fair value are as follows(in thousands): 

| ** **                     | ** ** | **December 31, 2006** | ** **     | **December 31, 2005** | ** ** |
|--------------------------------|------------|---------------------------------|----------------|---------------------------------|------------|
| ** **                     | ** ** | **Carrying Value**         | ** **     | **Fair Value**             | ** ** | **Carrying Value** | ** ** | **Fair Value** | ** ** |
| Senior Notes                   |       |                            | $ 407,110 |                            |       | $ 427,487 |   |   | $ 417,110 |   |   | $ 434,830 |   |
| Private Placement  Debt        |       |                            | $ 360,000 |                            |       | $ 372,147 |   |   | $ 450,000 |   |   | $ 484,676 |   |
| Note Payable to Capital  Trust |       |                            | $ 134,021 |                            |       | $ 143,302 |   |   | $ 134,021 |   |   | $ 144,546 |   |

 

The fair values of the Senior Notes were determinedbased on the quoted market prices and the fair values of the Private PlacementDebt and the Note Payable to Capital Trust were determined using quoted marketprices on comparable debt instruments. 

For instruments includingcash and cash equivalents, accounts receivable, accounts payable and other debtthe carrying amount approximates fair value because of the short maturity ofthese instruments. In accordance with the requirements of SFAS No. 107,*Disclosures About Fair Value of FinancialInstruments*, the Company believes it is not practicable to estimatethe current fair value of the related party receivables and related partypayables because of the related party nature of the transactions. 

**17.**          QuarterlyInformation (unaudited) 

| ** **                                      | ** ** | **1st Quarter**                                               | ** ** | **2nd Quarter**                      | ** ** | **3rd Quarter**                      | ** ** | **4th Quarter**                      | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                           | ** ** | **2005**                                  | ** ** | **2006**                                  | ** ** | **2005(b)**                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005(c)** | ** ** |
| ** **                                      | ** ** | **(In thousands, except per share data)** | ** ** |
| Total revenue                                   |       | $ 174,017                                                     |       | $ 162,279                            |       | $ 193,964                            |       | $ 188,453                            |       | $ 182,993 |   | $ 164,173 |   | $ 234,428 |   | $ 191,978 |   |
| Operating income                                |       | $ 39,237                                                      |       | $ 39,268                             |       | $ 56,653                             |       | $ 63,700                             |       | $ 43,166 |   | $ 36,538 |   | $ 89,719 |   | $ 37,935 |   |
| Net income                                      |       | $ 13,017                                                      |       | $ 13,075                             |       | $ 25,017                             |       | $ 65,614                             |       | $ 16,543 |   | $ 11,678 |   | $ 44,146 |   | $   9,850 |   |
| Income applicable to common stockholders        |       | $ 13,017                                                      |       | $ 13,073                             |       | $ 25,017                             |       | $ 65,614                             |       | $ 16,543 |   | $ 11,678 |   | $ 44,146 |   | $   9,850 |   |
| **Income per common share basic:(a)**           |       |                                                               |       |                                      |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income                                      |       | $      0.14                          |       | $      0.14 |       | $      0.27 |       | $      0.71 |       | $      0.18 |   | $      0.13 |   | $      0.48 |   | $      0.11 |   |
| Number of common shares used in the calculation |       | 92,655                                                             |       | 92,849                                    |       | 92,733                                    |       | 92,810                                    |       | 92,721 |   | 92,867 |   | 92,871 |   | 92,777 |   |
| **Income per common share diluted:(a)**         |       |                                                               |       |                                      |       |                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income                                      |       | $      0.14                          |       | $      0.14 |       | $      0.27 |       | $      0.68 |       | $      0.18 |   | $      0.13 |   | $      0.46 |   | $      0.11 |   |
| Number of common shares used in the calculation |       | 93,191                                                             |       | 93,319                                    |       | 93,197                                    |       | 98,334                                    |       | 93,154 |   | 93,254 |   | 98,971 |   | 93,076 |   |
| Dividends declared  per share                   |       | $      0.07                          |       | $      0.07 |       | $      0.07 |       | $      0.07 |       | $      0.07 |   | $      0.07 |   | $      0.07 |   | $      0.07 |   |

----

(a)                 Per common share amounts for the quarters and the fullyears have each been calculated separately. Accordingly, quarterly amounts maynot add to the annual amounts because of differences in the average commonshares outstanding during each period and, with regard to diluted per commonshare amounts only, because of the inclusion of the effect of potentiallydilutive securities only in the periods in which such effect would have beendilutive.

(b)                During the second quarter of 2005, $31.9 million in taxbenefits were recorded as a result of the settlement of certain tax returnexaminations and $5.5 million in tax benefits were recorded as a result of achange in Ohio tax law.

(c)                 In December 2005, we recorded an impairment chargeof $29.2 million to write down to fair value WDSU’s FCC license and goodwill.

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**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

**ITEM 9A.**        CONTROLSAND PROCEDURES

(a)   *Evaluation of Disclosure Controls and Procedures.  *Ourmanagement performed an evaluation under the supervision and with theparticipation of the Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”) of the effectiveness of the design and operation of ourdisclosure controls and procedures (as that term is defined in Exchange Act Rule 13a-15(e))as of December 31, 2006. Based on that evaluation, our management,including the CEO and CFO, concluded that our disclosure controls andprocedures were effective as of December 31, 2006.

(b)   *Management’s Annual Report on Internal Control OverFinancial Reporting.  *Our management is responsible forestablishing and maintaining adequate internal control over financial reporting(as that term is defined in Exchange Act Rule 13a-15(f)). Toevaluate the effectiveness of our internal control over financial reporting, theCompany uses the framework in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (the “COSO Framework”). Using the COSO Framework ourmanagement, including the CEO and CFO, evaluated the Company’s internal controlover financial reporting and concluded that our internal control over financialreporting was effective as of December 31, 2006. Deloitte &Touche LLP, the independent registered public accounting firm that audits ourconsolidated financial statements included in this annual report, has issued anattestation report on our management’s assessment of internal control overfinancial reporting, which is included below.

(c)   *Attestation Report of the Independent Registered Public AccountingFirm.*

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

To the Board of Directors and Stockholders ofHearst-Argyle Television, Inc.

We have audited management’s assessment, included inthe accompanying Management’s Annual Report on Internal Control over FinancialReporting, that Hearst-Argyle Television, Inc. and subsidiaries (the “Company”)maintained effective internal control over financial reporting as of December 31,2006, based on the**criteriaestablished in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to 

88

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provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that theCompany maintained effective internal control over financial reporting as of December 31,2006, is fairly stated, in all material respects, based on the criteriaestablished in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. Also in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of December 31,2006, based on the criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements and financial statementschedule as of and for the year ended December 31, 2006 of the Company andour report dated February 26, 2007 expressed an unqualified opinion onthose consolidated financial statements and financial statement schedule andincluded an explanatory paragraph regarding the Company’s adoption of Statementof Financial Accounting Standards No. 123(R), *Share-BasedPayment*, and Statement of Financial Accounting StandardsNo. 158, *Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans*.

/s/ DELOITTE & TOUCHE LLP

New York, New YorkFebruary 26, 2007

(d)   *Changes inInternal Control Over Financial Reporting.  *Ourmanagement, including the CEO and CFO, performed an evaluation of any changesthat occurred in our internal control over financial reporting during thefiscal quarter ended December 31, 2006. That evaluation did not identifyany changes in our internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

**ITEM 9B.**       OTHERINFORMATION

Not applicable.

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**PART III**

**ITEM 10.**         DIRECTORS, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE

Information called for byItem 10 will be set forth in our definitive Proxy Statement relating to the2007 Annual Meeting of Stockholders to be held on May 3, 2007, which willbe filed within 120 days of the end of our fiscal year ended December 31,2006 (the “2007 Proxy Statement”), and is incorporated by reference into thisreport.

**ITEM 11.**         EXECUTIVECOMPENSATION

Information called for byItem 11 will be set forth in the 2007 Proxy Statement, and is incorporated byreference into this report.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Information called for byItem 12 will be set forth in our 2007 Proxy Statement, and is incorporated by referenceinto this report.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information called for byItem 13 will be set forth in our 2007 Proxy Statement, and is incorporated byreference into this report.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

Information called for byItem 14 will be set forth in the 2007 Proxy Statement, and is incorporated byreference into this report.

**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

**(a)****         FinancialStatements, Schedules and Exhibits**

(1)         The financial statementslisted in the Index for Item 8 hereof are filed as part of this report.

(2)         Thefinancial statement schedules required by Regulation S-X are included as partof this report or are included in the information provided in the Notes toConsolidated Financial Statements, which are filed as part of this report.

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**SCHEDULE II VALUATION AND QUALIFYING ACCOUNTSHEARST-ARGYLE TELEVISION, INC.**

| ** **                            | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **   | ** ** | ** **          | ** ** |
|---------------------------------------|------------|-----------------------|------------|---------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **Balance at**   | ** ** | **Charged to** | ** ** | ** **   | ** ** | **Balance at** | ** ** |
| ** **                            | ** ** | **Beginning of** | ** ** | **Costs and**  | ** ** | ** **   | ** ** | **End of**     | ** ** |
| **Description**                       | ** ** | ** **            | ** ** | **Year**            | ** ** | **Expenses** | ** ** | **Deductions(1)**   | ** ** | **Year** | ** ** |
| Year Ended  December 31, 2004:   |       |                  |       |                |       |         |       |                |       |   |   |   |   |
| Allowance for uncollectible accounts  |       | $                     | 4,109,000  |                |       | $            | 125,000    |                |       |   | $ | (950,000 | ) |   | $ | 3,284,000 |   |
| Year Ended  December 31, 2005:   |       |                  |       |                |       |         |       |                |       |   |   |   |   |
| Allowance for uncollectible accounts  |       | $                     | 3,284,000  |                |       | $            | 888,000    |                |       |   | $ | (1,229,000 | ) |   | $ | 2,943,000 |   |
| Year Ended  December 31, 2006:   |       |                  |       |                |       |         |       |                |       |   |   |   |   |
| Allowance for  uncollectible accounts |       | $                     | 2,943,000  |                |       | $            | 916,000    |                |       |   | $ | (1,479,000 | ) |   | $ | 2,380,000 |   |
|                                       |            |                       |            |                     |            |              |            |                     |            |  |  |  |  |  |  |  |  |  |  |

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(1)          Net write-off ofaccounts receivable.

(3)   The following exhibits are filed as a part ofthis report:
| Exhibit | ** ** | ** **                                                                                                                                                                                                             | ** ** |
|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **No.** | ** ** | ** **                                                                                                                                                                                                             | ** ** | **Description** | ** ** |
| 10.5    |       | Amendment No. 9 to  Service Agreement, dated as January 1, 2007, between the Company and The  Hearst Corporation.                                                                                            |       |
| 10.6    |       | Fourth Extension  of the Amended and Renewed Option Agreement, dated as of January 1,  2007, between the Company and The Hearst Corporation.                                                                      |       |
| 10.7    |       | Fourth Extension  of the Amended Studio Lease Agreement, dated as of January 1, 2007,  between the Company and The Hearst Corporation.                                                                            |       |
| 10.10   |       | Incremental  Credit Agreement dated as of November 21, 2006, among the Company, the  Incremental Lenders party thereto, and JPMorgan Chase Bank, N.A. as  Administrative Agent.                                   |       |
| 10.15   |       | Amended and  Restated Employment Agreement, dated as of January 1, 2005, between the  Company and Harry T. Hawks.                                                                                                 |       |
| 10.18   |       | Employment  Agreement, dated as of January 1, 2007, between the Company and Philip M. Stolz.                                                                                                            |       |
| 21.1    |       | List of  Subsidiaries of the Company.                                                                                                                                                                                  |       |
| 23.1    |       | Consent of  Independent Registered Public Accounting Firm.                                                                                                                                                             |       |
| 24.1    |       | Powers of  Attorney (contained on signature page).                                                                                                                                                                     |       |
| 31.1    |       | Certification by  David J. Barrett, President and Chief Executive Officer, pursuant to  Section 302 of the Sarbanes Oxley Act of 2002.                                                                            |       |
| 31.2    |       | Certification by  Harry T. Hawks, Executive Vice President and Chief Financial Officer,  pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                               |       |
| 32.1    |       | Certification by David  J. Barrett, President and Chief Executive Officer, and Harry T. Hawks,  Executive Vice President and Chief Financial Officer, pursuant to  Section 906 of the Sarbanes Oxley Act of 2002. |       |
|         |            |                                                                                                                                                                                                                        |            |  |  |

 

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**(b)    Exhibits**

Thefollowing documents are filed or incorporated by reference as exhibits to thisreport.
| Exhibit | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                  |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **No.** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                  | ** ** | **Description** |
| 2.1     |       | Amended and Restated  Agreement and Plan of Merger, dated as of March 26, 1997, among The  Hearst Corporation, HAT Merger Sub, Inc., HAT Contribution  Sub, Inc. and Argyle (incorporated by reference to Appendix A of the  proxy statement/prospectus included in our Registration Statement on  Form S-4 (File No. 333-32487)). |
| 2.2     |       | Amended and  Restated Agreement and Plan of Merger, dated as of May 25, 1998, by and  among Pulitzer Publishing Company, Pulitzer Inc. and the Company  (incorporated by reference to Annex I to our Registration Statement on  Form S-4 (File No. 333-72207)).                                                                              |
| 3.1     |       | Amended and  Restated Certificate of Incorporation of the Company (incorporated by  reference to Appendix C the proxy statement/prospectus included in our  Registration Statement on Form S-4 (File No. 333-32487)).                                                                                                                             |
| 3.2     |       | Amendment  No. 1 to the Amended and Restated Certificate of Incorporation of the  Company (incorporated by reference to Exhibit 3.3 of our Annual Report  on Form 10-K for the fiscal year ended December 31, 1998).                                                                                                                    |
| 3.3     |       | Amended and  Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2  of our Registration Statement on Form S-4 (File No. 333-72207)).                                                                                                                                                                                      |
| 4.1     |       | Indenture, dated  as of November 13, 1997, between the Company and Bank of Montreal Trust  Company, as trustee (incorporated by reference to Exhibit 4.1 of our  Current Report on Form 8-K dated November 12, 1997 (File  No. 000-27000)).                                                                                        |
| 4.2     |       | First  Supplemental Indenture, dated as of November 13, 1997, between the  Company and Bank of Montreal Trust Company, as trustee (incorporated by  reference to Exhibit 4.2 of our Current Report on Form 8-K  dated November 12, 1997 (File No. 000-27000)).                                                                     |
| 4.3     |       | Global Note  representing $125,000,000 of 7% Senior Notes Due November 15, 2007  (incorporated by reference to Exhibit 4.3 of our Current Report on  Form 8-K dated November 12, 1997 (File No. 000-27000)).                                                                                                                       |
| 4.4     |       | Global Note  representing $175,000,000 of 71⁄2% Debentures Due November 15, 2027  (incorporated by reference to Exhibit 4.4 of our Current Report on  Form 8-K dated November 12, 1997 (File No. 000-27000)).                                                                                                                   |
| 4.5     |       | Second  Supplemental Indenture, dated as of January 13, 1998, between the  Company and Bank of Montreal Trust Company, as trustee (incorporated by  reference to Exhibit 4.3 of our Current Report on Form 8-K  dated January 13, 1998 (File No. 000-27000)).                                                                      |
| 4.6     |       | Specimen of the  stock certificate for the Company’s Series A Common Stock, $.01 par  value per share (incorporated by reference to Exhibit 4.11 of our Annual  Report on Form 10-K for the fiscal year ended December 31,  1998).                                                                                                 |
| 4.7     |       | Form of  Registration Rights Agreement among the Company and the Holders (incorporated  by reference to Exhibit B to Exhibit 2.1 of our Schedule 13D/A,  filed on September 5, 1997 (File No. 005-45627)).                                                                                                                         |
| 4.8     |       | Form of Note  Purchase Agreement, dated December 1, 1998, by and among the Company, as  issuer of the notes, and the note purchasers named therein (including form of  note attached as an exhibit thereto) (incorporated by reference to  Exhibit 4.13 of our Registration Statement on Form S-4 (File  No. 333-72207)).          |
|         |            |                                                                                                                                                                                                                                                                                                                                                             |  |  |

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| 4.9   |   | Amended and Restated  Declaration of Trust of Hearst-Argyle Capital Trust (incorporated by  reference to Exhibit 99.1 of our Current Report on Form 8-K  dated December 20, 2001).                                                                                                                                                                                                                                      |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.10  |   | Terms of 7.5%  Series B Convertible Preferred Securities and 7.5% Series B  Convertible Common Securities (incorporated by reference to Exhibit 99.2  of our Current Report on Form 8-K dated December 20, 2001).                                                                                                                                                                                             |
| 4.11  |   | Indenture, dated  as of December 20, 2001, by Hearst-Argyle Television, Inc. to  Wilmington Trust Company, as Trustee (incorporated by reference to  Exhibit 99.3 of our Current Report on Form 8-K dated  December 20, 2001).                                                                                                                                                                                |
| 4.12  |   | Registration  Rights Agreement, by and among Hearst-Argyle Television, Inc. and the  purchasers of the Trust Preferred Securities (incorporated by reference to  Exhibit 99.4 of our Current Report on Form 8-K dated  December 20, 2001).                                                                                                                                                                         |
| 10.1  |   | Letter Agreement  between the Company and NBC Television Network dated June 30, 2000  (incorporated by reference to Exhibit 10.2 of our Quarterly Report for  the fiscal quarter ended September 30, 2000).                                                                                                                                                                                                             |
| 10.2  |   | Affiliation  Agreement, dated as of December 4, 2005, between the ABC Television  Network and the Company (incorporated by reference to Exhibit 10.2 of  our Annual Report on Form 10-K for the fiscal year ended December 31,  2005).                                                                                                                                                                             |
| 10.3  |   | Affiliation  Agreement, dated as of November 28, 2005, between Hearst-Argyle  Properties, Inc. and CBS Broadcasting, Inc. (incorporated by  reference to Exhibit 10.1 of our Current Report on Form 8-K  filed November 29, 2005).                                                                                                                                                                       |
| 10.4  |   | Affiliation  Agreement, dated as of November 28, 2005, between the Company and CBS  Broadcasting, Inc. (incorporated by reference to Exhibit 10.2 of  our Current Report on Form 8-K filed November 29, 2005).                                                                                                                                                                                                |
| 10.5  |   | Amendment  No. 9 to Service Agreement, dated as of January 1, 2007, between  the Company and The Hearst Corporation.                                                                                                                                                                                                                                                                                                         |
| 10.6  |   | Fourth Extension  of the Amended and Renewed Option Agreement, dated as of January 1,  2007, between the Company and The Hearst Corporation.                                                                                                                                                                                                                                                                                      |
| 10.7  |   | Fourth Extension  of the Amended Studio Lease Agreement, dated as of January 1, 2007,  between the Company and The Hearst Corporation.                                                                                                                                                                                                                                                                                            |
| 10.8  |   | Amended and  Restated Retransmission Rights Agency Agreement, dated as of January 31,  2006, between Lifetime Entertainment Services and the Company (incorporated  by reference to Exhibit 10.10 of our Annual Report on Form 10-K  for the fiscal year ended December 31, 2005).                                                                                                                                 |
| 10.9  |   | Five-Year Credit  Agreement dated April 15, 2005, among the Company, the Lenders party  thereto, JPMorgan Chase Bank, N.A. as Administrative Agent, Bank of America,  N.A., and Wachovia Bank, National Association as Co-Syndication Agents, and  Harris Nesbitt and BNP Paribas as Co-Documentation Agents (incorporated by  reference to Exhibit 10.1 of our Current Report on Form 8-K  filed April 21, 2005). |
| 10.10 |   | Incremental Credit Agreement dated as of  November 21, 2006, among the Company, the Incremental Lenders party  thereto, and JPMorgan Chase Bank, N.A. as Administrative Agent.                                                                                                                                                                                                                                                    |
| 10.11 |   | Amended and Restated 1997 Stock Option Plan (incorporated  by reference to Exhibit 10.21 of our Annual Report on Form 10-K  for the fiscal year ended December 31, 2002).                                                                                                                                                                                                                                               |

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| 10.12 |   | 2003 Incentive Compensation Plan (incorporated by  reference to Exhibit 10.22 of our Annual Report on Form 10-K  for the fiscal year ended December 31, 2002).                                               |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13 |   | 2004 Long Term Incentive Compensation Plan  (incorporated by reference to Exhibit 99.2 of our Current Report on  Form 8-K filed October 28, 2004).                                                           |
| 10.14 |   | Employment Agreement, dated as of December 22,  2005, between the Company and David J. Barrett (incorporated by reference to  Exhibit 10.1 of our Current Report on Form 8-K filed  December 22, 2005). |
| 10.15 |   | Amended and  Restated Employment Agreement, dated as of January 1, 2005, between the  Company and Harry T. Hawks.                                                                                                      |
| 10.16 |   | Employment  Agreement, dated as of January 1, 2006, between the Company and Steven  A. Hobbs (incorporated by reference to Exhibit 10.1 of our Current  Report on Form 8-K filed February 10, 2006).    |
| 10.17 |   | Employment  Agreement, dated as of January 1, 2006, between the Company and Terry  Mackin (incorporated by reference to Exhibit 10.2 of our Current Report  on Form 8-K filed February 10, 2006).       |
| 10.18 |   | Employment  Agreement, dated as of January 1, 2007, between the Company and Philip M. Stolz.                                                                                                                 |
| 21.1  |   | List of Subsidiaries  of the Company.                                                                                                                                                                                       |
| 23.1  |   | Consent of  Independent Registered Public Accounting Firm.                                                                                                                                                                  |
| 24.1  |   | Powers of  Attorney (contained on signature page).                                                                                                                                                                          |
| 31.1  |   | Certification by  David J. Barrett, President and Chief Executive Officer, pursuant to  Section 302 of the Sarbanes Oxley Act of 2002.                                                                                 |
| 31.2  |   | Certification by  Harry T. Hawks, Executive Vice President and Chief Financial Officer,  pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                    |
| 32.1  |   | Certification by David  J. Barrett, President and Chief Executive Officer, and Harry T. Hawks,  Executive Vice President and Chief Financial Officer, pursuant to  Section 906 of the Sarbanes Oxley Act of 2002.      |

 

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Company has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.
|        | HEARST-ARGYLE TELEVISION,  INC. |
|--------|---------------------------------|
|   | By:                             | /s/ JONATHAN C. MINTZER |
|   | ** **                      | **Name: Jonathan C. Mintzer** |
|   | ** **                      | **Title:  *Vice President, General Counsel and Secretary*** |
|   | Dated: February 23,  2007  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Company in thecapacities indicated.
|                                 | **Signatures** | ** **                                  | ** ** | ** **              | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|---------------------------------|----------------|---------------------------------------------|------------|-------------------------|-----------|------------|------------|------------|----------|------------|
| /s/ DAVID J. BARRETT            |           | President,  Chief Executive                 |       | February 23,  2007 |
| **David J. Barrett**            |           | Officer and  Director                  |       |                    |
| ** **                      |           | (Principal Executive  Officer)         |       |                    |
| /s/ HARRY T. HAWKS              |           | Executive Vice President and |       | February 23,  2007 |
| **Harry T. Hawks**              |           | Chief Financial  Officer                    |       |                    |
|                            |           | (Principal  Financial Officer)              |       |                    |
| /s/ LYDIA G. BROWN              |           | Corporate  Controller                       |       | February 23,  2007 |
| **Lydia G. Brown**              |           | (Principal  Accounting Officer)             |       |                    |
| /s/ VICTOR F. GANZI             |           | Chairman  of the Board                      |       | February 23,  2007 |
| **Victor F. Ganzi**             |           |                                        |       |                    |
| /s/ FRANK A. BENNACK, JR.  |           | Director                                    |       | February 23,  2007 |
| **Frank A. Bennack, Jr.**  |           |                                        |       |                    |
| /s/ JOHN G. CONOMIKES           |           | Director                                    |       | February 23,  2007 |
| **John G. Conomikes**           |           |                                        |       |                    |
| /s/ KEN J. ELKINS               |           | Director                                    |       | February 23,  2007 |
| **Ken J. Elkins**               |           |                                        |       |                    |
| /s/ GEORGE R. HEARST, JR.  |           | Director                                    |       | February 23,  2007 |
| **George R. Hearst, Jr.**  |           |                                        |       |                    |
| /s/ WILLIAM R. HEARST, III |           | Director                                    |       | February 23,  2007 |
| **William R. Hearst, III** |           |                                        |       |                    |
| /s/ BOB MARBUT                  |           | Director                                    |       | February 23,  2007 |
| **Bob Marbut**                  |           |                                        |       |                    |

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| /s/ GILBERT C. MAURER             |   | Director |   | February 23,  2007 |
|-----------------------------------|--------|----------|--------|-------------------------|
| **Gilbert C. Maurer**             |   |     |   |                    |
| /s/ MICHAEL E. PULITZER, SR. |   | Director |   | February 23,  2007 |
| **Michael E. Pulitzer, Sr.** |   |     |   |                    |
| /s/ DAVID PULVER                  |   | Director |   | February 23,  2007 |
| **David Pulver**                  |   |     |   |                    |
| /s/ CAROLINE L. WILLIAMS          |   | Director |   | February 23,  2007 |
| **Caroline L. Williams**          |   |     |   |                    |

 

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