**UNITED****STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K**

 
| **(Mark One)**                                                                                                                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                      | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                 | ** ** |
| **For the  fiscal year ended December 31, 2007**                                                                                                                      |
| ** **                                                                                                                                                                 |
| **OR**                                                                                                                                                                     |
| ** **                                                                                                                                                                 |
| **o**                                                                                                                                                                      | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                 | ** ** |
| **For the  transition period  from           to           ** |

 

**Commission file number 333-140510**

 

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**BarringtonBroadcasting Group LLC**

**BarringtonBroadcasting Capital Corporation**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                              | ** ** | **20-4841532****20-5172909**          |
|-------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of          |       | (I.R.S.  Employer Identification No.) |
| incorporation  or organization)           |       |                                  |
|                                      |       |                                  |
| **2500 W. Higgins Road, Suite 155**  | ** ** | ** **                            |
| **Hoffman Estates, Illinois**             | ** ** | **60169**                             |
| (Address  of principal executive offices) |       | (Zip  Code)                           |

 

**847-884-1877**

(Registrant’s telephonenumber, including area code)

 

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Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o  No x

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Securities Act. Yes o  No x

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x   No o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is notcontained herein, and will not be contained to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.Yes x  No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer”, “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one)

| Large accelerated  filer o |   | Accelerated  filer o         |   | Non-accelerated  filer x |
|---------------------------------|--------|-----------------------------------|--------|-------------------------------|
|                            |   | Smaller  reporting company o |   |                          |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

As of February 29,2008, there was one limited liability company unit of Barrington BroadcastingGroup LLC outstanding and 100 shares of common stock of Barrington BroadcastingCapital Corporation outstanding.

 

Documents incorporated byreference: **None**

 

 

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**BARRINGTON BROADCASTING GROUP LLC**

**BARRINGTON BROADCASTING CAPITAL CORPORATION**

**ANNUAL REPORT**

**FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007**

 
| PART I   |                                                                                                                    |
|---------------|-------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                    |   |
| Item 1.       | Business                                                                                                                | 1 |
| Item 1A.      | Risk Factors                                                                                                            | 15 |
| Item 1B.      | Unresolved  Staff Comments                                                                                              | 26 |
| Item 2.       | Properties                                                                                                              | 27 |
| Item 3.       | Legal Proceedings                                                                                                       | 29 |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                                    | 29 |
|          |                                                                                                                    |   |
| PART II  |                                                                                                                    |
|          |                                                                                                                    |   |
| Item 5.       | Market for  the Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities | 30 |
| 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                                                             | 44 |
| Item 8.       | Financial  Statements and Supplementary Data                                                                            | 46 |
| Item 9.       | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                                   | 72 |
| Item 9A(T).   | Controls and  Procedures                                                                                                | 72 |
| Item 9B.      | Other Information                                                                                                       | 72 |
|          |                                                                                                                    |   |
| PART III |                                                                                                                    |
|          |                                                                                                                    |   |
| Item 10.      | Directors,  Executive Officers and Corporate Governance                                                                 | 73 |
| Item 11.      | Executive  Compensation                                                                                                 | 77 |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                        | 84 |
| Item 13.      | Certain  Relationships and Related Transactions, and Director Independence                                              | 84 |
| Item 14.      | Principal  Accounting Fees and Services                                                                                 | 85 |
|          |                                                                                                                    |   |
| PART IV  |                                                                                                                    |
|          |                                                                                                                    |   |
| Item 15.      | Exhibits,  Financial Statement Schedules                                                                                | 86 |
|          |                                                                                                                    |   |
| Signatures    |                                                                                                                    | 90 |

 

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**CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

Some statements in this Annual Report on Form 10-K are known as “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933,as amended, or the Securities Act, and Section 21E of the SecuritiesExchange Act of 1934, as amended, or the Exchange Act. Forward-lookingstatements may relate to, among other things:

 

·      oursignificant amount of debt;

 

·      ourability to maintain our network affiliations;

 

·      ourability to generate advertising revenues;

 

·      cyclicalor other trends in advertising spending;

 

·      theregulatory environment for our industry;

 

·      competitionin the our markets; and

 

·      our ability to integraterecent and future acquisitions of television stations and achieve certainanticipated cost savings.

 

These forward-looking statements include, but are not limited to,statements about our plans, objectives, expectations and intentions and otherstatements contained in this Annual Report that are not historical facts. Whenused in this Annual Report, the words “expects,” “anticipates,” “intends,” “plans,”“believes,” “seeks,” “estimates” and similar expressions are generally intendedto identify forward-looking statements. Because these forward-lookingstatements involve known and unknown risks and uncertainties, there areimportant factors that could cause actual results, events or developments todiffer materially from those expressed or implied by these forward-looking statements,including our plans, objectives, expectations and intentions and other factorsdiscussed in the section entitled “Risk Factors” in this Annual Report andelsewhere in this Annual Report.  Youshould not place undue reliance on such forward-looking statements, which arebased on the information currently available to us and speak only as of thedate on which this Annual Report was filed with the Securities and ExchangeCommission, or SEC. We undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. However, your attention is directed to any furtherdisclosures made on related subjects in our subsequent periodic reports filedwith the SEC on Forms 10-K,10-Q and 8-K.

 

i

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#### **PART I**

#### ** **

*As usedin this Annual Report, the term “Issuers” refers to Barrington BroadcastingGroup LLC, a Delaware limited liability company, or Barrington Group, andBarrington Broadcasting Capital Corporation, a Delaware corporation, orBarrington Capital; the term “Barrington Corporation” refers to BarringtonBroadcasting Corporation, a Delaware corporation, and its consolidatedsubsidiaries prior to the merger of Barrington Broadcasting Corporation withBarrington Group; and unless the context otherwise requires, the terms “we,” “us”,“our” or similar terms refer to Barrington Group and its consolidatedsubsidiaries.*

 

#### **ITEM 1.**                                                     Business.

#### ** **

**CompanyOverview**

 

We are atelevision broadcasting company focused on smaller markets across the UnitedStates. We own or program 21 network television stations, many of which haveleading positions in 15 geographically diverse, smaller markets. In 10 of our15 markets, we operate a station ranked #1 or #2 in audience share, andtwo-thirds of our stations have a top three market share. All of our stationsare affiliated with national television networks—six with NBC, four with ABC,three with CBS, three with FOX and five with CW. In the markets where weoperate a CW station, we operate duopolies.

 

We believe smallermarkets are more attractive than larger markets. Our stations are located inmarkets that rank between the 66th and 199th largest in the United States. As aresult of our small market focus, our stations are able to achieve greateraudience share, higher advertising rates relative to their market size andlower programming costs than stations in larger markets.

 

We have acquiredstations where we have identified opportunities to improve revenue generationand implement cost controls. We believe our expertise in operating stations insmaller markets will allow us to increase local revenues generated by theacquired stations as well as to reduce costs at these stations.

 

**Our SmallMarket Focus**

 

We believe smallermarkets offer significant growth opportunities for television broadcastingcompanies. Traditional competitive local media, like Yellow Pages directoriesand newspapers, have experienced substantial declines in usage by both localand national advertisers. Local television is a cost effective substitute for theseadvertising dollars and has proven to be more efficient as well. In addition,small market rates for advertising time on television are more affordable tolocal advertisers than television advertising rates within larger markets. Thecoverage areas of smaller market television stations better fit the businesstrading areas of local advertisers than the coverage areas of televisionstations within the top 50 markets. New production and provisioningtechnologies allow smaller businesses to finally take advantage of televisionadvertising in smaller markets.

 

**CompetitiveStrengths**

 

We believe thatthe following competitive strengths allow us to successfully operate in smallermarkets:

 

***LeadingPositions Within Our Local Markets.***  Our leading positions in the markets we serveenable us to effectively sell advertising to local businesses. In 14 of our 15markets, we have a local newscast that is ranked #1 or #2, and in ten of ourmarkets we operate the #1 or #2 ranked station as 

 

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measured by audience share. In addition to our strong rankings, webelieve that our unique local content, identifiable local personalities anddeep-rooted community presence give us an advantage when competing for localadvertising revenues, which we believe are more stable than nationaladvertising revenues. Furthermore, the leading syndicated programs our stationstypically carry allow us to enhance our local brand. Lastly, our currentduopoly position in five of our markets includes a CW network-affiliatedstation that complements its primary station’s demographic by targeting viewersin the 18 to 34 age group.

 

***LimitedCompetition Within Our Markets.***  We operate in markets ranked 66 to 199.Generally, in these smaller markets, there are a limited number of competingtelevision stations and other alternatives for advertisers to effectively reacha broad audience. In seven of our 15 markets, we compete with four or fewerother stations. In addition, we believe that the reduced costs of producingtelevision commercials, together with declining cable penetration anddiminished effectiveness of print advertising, have and will continue toenhance the attractiveness of television advertising relative to other forms ofadvertising in our markets. Furthermore, with fewer competing televisionstations, we face less competition for syndicated programming, which enables usto have high quality programming while spending less than 4% of our 2007 grossrevenues on programming versus approximately 9% for the averagenetwork-affiliated television station in 2006 which is the most recent industryinformation available.

 

***DiverseOperations.***  Webelieve our operations are well diversified and are not dependent on anyspecific market, station or network. We operate 21 stations in 15 distinctmarkets across 14 states.  No singlemarket accounted for more than 14% of our 2007 net revenues. Our primarystations are affiliated with all four major networks with no network groupaccounting for more than approximately 38% of our 2007 net revenues.

 

***GrowingLocal Advertising Base.*** Due to the reduced costs of producing television commercials, we believethat our stations now appeal to an incremental advertising base that washistorically unable to afford local television advertising. We believe thattapping into this expanding base of potential advertisers will enable ourstations to increase gross revenues by increasing the amount of televisioncommercials produced within our stations and the competition for airtime soldto local advertisers for such commercials.

 

***Abilityto Deleverage.***  Webelieve our strong cash flow, minimal cash payments for taxes, and low workingcapital requirements will allow us to reduce leverage. We have substantiallycompleted our expenditures relating to our stations’ required conversion todigital transmission.

 

***ExperiencedManagement Team and Equity Sponsor.***  With an average of more than 25 years ofexperience in managing television stations in smaller markets, our managementteam has significant expertise in integrating acquisitions and improvingoperations at stations similar to our stations. Our management team is led byK. James Yager, who has 47 years of television experience withnetwork-affiliated television stations serving smaller markets. He serves onthe Board of Directors of the National Association of Broadcasters, or the NAB,and is a former Chairman of the Radio and Television Boards of the NAB; he is amember of the Broadcast Music Board of Directors and has testified numeroustimes before congressional committees regarding various broadcasting issues.Chris Cornelius, our Chief Operating Officer, has 24 years of televisionmanagement experience and serves on the NBC Affiliate Board of Directors.Warren Spector, our Chief Financial Officer, has 21 years of televisionexperience, having served as Chief Financial Officer of Retlaw Enterprisesbefore the sale of its television broadcasting assets to Fisher Communicationswhere he served as Chief Operating Officer. The principals of our equitysponsor, Pilot Group, add significant media experience, as they have operatedradio stations in larger and smaller markets and have held positions with AOLTime Warner, ABC, NBC, CBS and MTV.

 

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**OurStrategy**

 

The primaryaspects of our strategy include the following:

 

***Capitalizeon Strong Local Presence****.*  We expect to maintain strong local brands andmarket presence at our stations by continuing to provide programming focused onlocal news, community affairs and local events. We believe that these effortswill increase local viewership and allow us to effectively meet the needs ofour communities and local advertisers.

 

***Focuson Local Advertising****.*  We believe local advertising is a more stablesource of revenues than national advertising. Declining commercial production costs have made television advertisingmore attractive to potential local advertisers within our markets.  To target these local advertisers, we employhigh quality sales teams with significant expertise in their respectivemarkets.  We plan to increase localrevenues at our stations by continuing to focus on selling directly to localadvertisers and capturing a greater share of all market advertisingexpenditures.

 

***ImplementCost Reduction Initiatives****.*  We continue to use our expertise and scale inoperating smaller market stations to implement cost savings initiatives at ourstations. We will continue to emphasize strict cost controls with a focus onminimizing operating and programming expenses.

 

***LeverageStations for Internet Dissemination****.*  By employing unique, local-based content andleveraging our established brands, we plan to further develop local web portalswith minimal capital expenditures. We believe providing valuable local contentand cross promotion across our television stations and Internet sites willdrive advertising revenues and customer usage. We plan to expand our reach withuser created content that is specific to our local markets.

 

***SelectivelyPursue Acquisitions in Smaller Markets****.*  We believe ourtelevision station portfolio has reached our target scale. As a result, we planto only selectively pursue additional acquisitions, primarily in smallermarkets where we can realize benefits through shared infrastructure andpersonnel.

 

**OurStations**

 

The followingtable sets forth information about our stations.

 
| **Market Rank** | ** ** | **Market**                                  | ** ** | **Station** | ** ** | **Network   Affiliation** | ** ** | **Network  Affiliation  Agreement  Expiration  Date** | ** ** | **Station  Rank(1)** | ** ** | **No. of  Stations  in   Market(2)** | ** ** | **FCC License  Expiration  Date** | ** ** |
|-----------------|------------|---------------------------------------------|------------|-------------|------------|---------------------------|------------|-------------------------------------------------------|------------|----------------------|------------|-------------------------------------------|------------|-----------------------------------|------------|
| 66              |       | Flint/Saginaw/Bay City, MI                  |       | WEYI        |       | NBC                       |       | December 2015                                    |       | 3                    |       | 5                                         |       | October 2013                 |       |
| 66              |       | Flint/Saginaw/Bay City, MI                  |       | WBSF        |       | CW                        |       | August 2016                                      |       | 5                    |       | 5                                         |       | October 2013                 |       |
| 72              |       | Toledo, OH                                  |       | WNWO        |       | NBC                       |       | December 2015                                    |       | 3                    |       | 5                                         |       | October 2013                 |       |
| 80              |       | Syracuse, NY                                |       | WSTM        |       | NBC                       |       | December 2015                                    |       | 2                    |       | 6                                         |       | June 2015                    |       |
| 80              |       | Syracuse, NY                                |       | WSTQ(4)     |       | CW                        |       | August 2011                                      |       | 6                    |       | 6                                         |       | June 2015                    |       |
| 81              |       | Columbia, SC                                |       | WACH        |       | FOX                       |       | June   2009                                      |       | 4                    |       | 5                                         |       | December 2012                |       |
| 88              |       | Harlingen/Weslaco/McAllen/  Brownsville, TX |       | KGBT        |       | CBS                       |       | December 2013                                    |       | 2                    |       | 4  (3)                                    |       | August 2014                  |       |

 

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| **Market Rank** | ** ** | **Market**                           | ** ** | **Station** | ** ** | **Network   Affiliation** | ** ** | **Network  Affiliation  Agreement  Expiration  Date** | ** ** | **Station  Rank(1)** | ** ** | **No. of  Stations  in   Market(2)** | ** ** | **FCC License  Expiration  Date** | ** ** |
|-----------------|------------|--------------------------------------|------------|-------------|------------|---------------------------|------------|-------------------------------------------------------|------------|----------------------|------------|-------------------------------------------|------------|-----------------------------------|------------|
| 93              |       | Colorado Springs, CO                 |       | KXTU(4)     |       | CW                        |       | August 2011                                      |       | 5                    |       | 5                                         |       | April 2014                   |       |
| 93              |       | Colorado Springs/Pueblo, CO          |       | KXRM        |       | FOX                       |       | June   2009                                      |       | 4                    |       | 5                                         |       | April 2014                   |       |
| 103             |       | Myrtle Beach/Florence, SC            |       | WPDE        |       | ABC                       |       | December 2013                                    |       | 2                    |       | 4                                         |       | December 2012                |       |
| 103             |       | Myrtle Beach/Florence, SC            |       | WWMB(5)     |       | CW                        |       | August 2016                                      |       | 4                    |       | 4                                         |       | December 2012                |       |
| 116             |       | Traverse City/Cadillac, MI           |       | WPBN/ WTOM  |       | NBC                       |       | December 2015                                    |       | 2                    |       | 4                                         |       | October 2013                 |       |
| 117             |       | Peoria/Bloomington, IL               |       | WHOI        |       | ABC                       |       | December 2009                                    |       | 3                    |       | 6                                         |       | December 2013                |       |
| 131             |       | Amarillo, TX/Clovis, NM              |       | KVII        |       | ABC                       |       | August 2013                                      |       | 2                    |       | 5                                         |       | August  2014                      |       |
| 131             |       | Amarillo, TX/Clovis, NM              |       | KVIH        |       | CW                        |       | August 2008                                      |       | 5                    |       | 5                                         |       | October 2014                 |       |
| 137             |       | Columbia/Jefferson City, MO          |       | KRCG        |       | CBS                       |       | June   2015                                      |       | 1                    |       | 6                                         |       | February 2014                |       |
| 146             |       | Albany, GA                           |       | WFXL        |       | FOX                       |       | June   2009                                      |       | 2                    |       | 4                                         |       | April 2013                   |       |
| 171             |       | Quincy,  IL/Hannibal, MO/ Keokuk, IA |       | KHQA        |       | CBS                       |       | June   2015                                      |       | 1                    |       | 3                                         |       | February 2014                |       |
| 179             |       | Marquette, MI                        |       | WLUC        |       | NBC                       |       | December 2015                                    |       | 1                    |       | 4                                         |       | October 2013                 |       |
| 199             |       | Kirksville, MO/Ottumwa, IA           |       | KTVO        |       | ABC                       |       | December 2013                                    |       | 1                    |       | 2                                         |       | February 2014                |       |

 

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| (1) | Based on Nielsen Media Research data for the  February, May, July, and November 2007 rating periods, Sunday to  Saturday, 6 a.m. to 2 a.m.                                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Based on Nielsen Media Research data for stations  reporting over a one-half point average.                                                                                                     |
| (3) | Includes only U.S.-based stations.                                                                                                                                                              |
| (4) | Operates as a low power station.                                                                                                                                                                |
| (5) | The assets of WWMB are owned by SagamoreHill of  Carolina, LLC and its FCC license is held by SagamoreHill of Carolina  Licenses, LLC. We program WWMB pursuant to a local marketing agreement. |

 

**RecentDevelopments**

** **

***WGTU and WGTQ Acquisition andAssignment***

** **

On August 31,2007, we entered into an Asset Purchase Agreement, or the WGTU APA, with MaxMedia of Traverse City LLC and MTC License LLC to acquire television stationWGTU and its satellite WGTQ, which serve the Traverse City-Cadillac, Michiganmarket.  The acquisition is subject tothe approval of the Federal Communications Commission, or FCC, which wasinitially granted on January 29, 2008. The FCC’s approval was not disputed and became final on March 10,2008.  Under the terms of the WGTU APA,the acquisition is expected to be completed on April 1, 2008.  The purchase price for the acquisition ofWGTU and WGTQ is $10.0 million, of which $0.5 million is currently held inescrow.  Simultaneously with enteringinto the WGTU APA, we assigned our rights under the WGTU APA to TuckerBroadcasting of Traverse City, Inc., or Tucker, an unrelated third party.

 

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We and Tucker alsoentered into a Shared Services Agreement, or SSA, pursuant to which we will,following Tucker’s acquisition of WGTU and WGTQ, provide technical, engineeringand certain other support services to WGTU and WGTQ for a fee.  In addition, we and Tucker entered into aJoint Sales Agreement, or JSA, pursuant to which we will have the right toprovide up to 15% of WGTU and WGTQ’s weekly programming and we will sell WGTUand WGTQ’s local advertising on a commissioned basis.

 

**In connection with the WGTU APA,the SSA and the JSA, Tucker granted us an option to subsequently acquire all ofthe common stock of Tucker or all of WGTU and WGTQ’s assets, in each casesubject to certain conditions.**

** **

To fund theacquisition, Tucker will issue a $3.2 million convertible subordinated discountnote to our equity sponsor.  The balanceof the purchase price, up to $7.0 million, will be borrowed by Tucker under anew credit facility to be guaranteed by us. The credit facility will consist of a $4.0 million secured term loan Aand a $3.0 million unsecured term loan B.

 

**We believe that the JSA and the SSAprovide certain operating efficiencies with respect to WGTU, WGTQ and ourcurrent stations WPBN and WTOM that will enhance viewing opportunities in theTraverse City market and afford us the opportunity to increase cash flows.**

** **

*Consent Solicitation*

 

On March 19, 2008, we received consents fromholders of more than 50% of our outstanding 101⁄2% Senior Subordinated Notes, orthe notes, to adopt certain amendments to the reporting covenant under theindenture governing the notes.  Asupplemental indenture to effect the proposed amendments was executed on March 19,2008.  The supplemental indentureeliminated our requirement to file periodic and current reports with the SECand instead required that the type of information required to be reported onForms 10-K, 10-Q and 8-K (other than the disclosures and the certificationsrequired by Section 404 of the Sarbanes-Oxley Act of 2002, as amended) beprovided to the trustee for delivery to the holders of the notes and madeavailable via the internet.  We paid $1.6million in consent fees in connection with the consent solicitation.

 

**Revenues**

** **

We generate ourrevenues primarily from the sale of local and national advertising.  All network-affiliated stations are requiredto carry advertising sold by their networks, which reduces the amount ofadvertising time available for sale by our stations. Our stations sell theremaining advertising time in network programming and the advertising time innon-network programming, retaining all of the revenues received from these sales.

 

Advertiserswishing to reach a national audience usually purchase time directly from thenetworks, or advertise nationwide on a case-by-case basis. National advertiserswho wish to reach the audience within one of our markets often buy advertising timedirectly from our stations through national advertising sales representativefirms. Local businesses purchase advertising time directly from our stations’local sales staffs.

 

Our advertisingrevenues are positively affected by strong local economies, national, state andlocal political election campaigns, and certain events such as the Olympics orthe Super Bowl. Because television broadcast stations rely on advertisingrevenues, declines in advertising budgets, particularly in recessionaryperiods, adversely affect the broadcast industry, and as a result maycontribute to a decrease in the revenues of broadcast television stations. Thegross advertising revenues of our stations are generally highest in the secondand fourth quarters of each year, due in part to increases in consumer 

 

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advertising in the spring and retail advertising in the period leadingup to and including the holiday season. Additionally, our gross advertisingrevenues in even-numbered years can benefit from demand for advertising time inOlympic broadcasts and advertising placed by candidates for political officesas well as political issue-oriented advertising. A station’s local marketstrength, especially in local news ratings, is the primary factor that buyersuse when placing political advertising. Our stations experienced a greater thanexpected amount of political advertising for fiscal 2006, the most recent yearin which congressional elections were held.

 

We also deriverevenues from other sources, including trade and barter programming, Internetand network compensation. A national syndicated program distributor will oftenretain a portion of the available advertising time for programming it suppliesin exchange for no fees or reduced fees charged to the stations for suchprogramming. These programming arrangements are referred to as barterprogramming. Network compensation is the amount, if any, paid by a network toits affiliated stations for broadcasting network programs.

 

#### **Competition**

#### ** **

Competition in thetelevision industry takes place on several levels: competition for audience,competition for programming (including news) and competition foradvertisers.  In addition, thebroadcasting industry is continually faced with technological change andinnovation, the rise in popularity of competing entertainment andcommunications media, and governmental restrictions or actions of federalregulatory bodies, including the FCC and the Federal Trade Commission, any ofwhich could have a material effect on our operations.

 

Our stationsdirectly compete for audience share, programming and advertising revenues withthe other television broadcast stations in each of our markets, many of whichare owned by parent companies with greater financial resources than us.  We also compete generally for audience shareand advertising revenues with all other advertising outlets, including radiostations, cable television, newspapers and the Internet.

 

## ***Audience Share***

## *** ***

We compete forviewership generally against other leisure activities in which one could chooseto engage rather than watch television. Broadcast stations compete for audience share specifically on the basisof program popularity, which has a direct effect on advertising rates.  A portion of the daily programming on theNBC, CBS, ABC, FOX and CW affiliated stations that we own or provide servicesto is supplied by the network with which each station is affiliated.  In those periods, the stations are dependentupon the performance of the network programs in attracting viewers.  Stations compete for audience share duringnon-network time periods with a combination of locally originated news, publicaffairs and other entertainment programming, including syndicated programs.

 

## ***Programming***

## *** ***

We purchasenon-network programming for cash, cash and barter, or barter only.  Competition for non-network programminginvolves negotiating with national program distributors or syndicators thatsell first-run and rerun packages of programming.  We compete with other stations for exclusiveaccess to non-network reruns (such as *Seinfeld*) andfirst-run product (such as *Oprah*).  Additionally, stations try to produce uniquenewscasts that include local features and events, as well as a journalisticstyle that appeals to local viewers.  Wealso compete to secure program broadcast rights for local community andsporting events.

 

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## ***AdvertisingRevenues***

## *** ***

In addition tocompeting with other video programming outlets for audience share, we competefor advertising revenues with other television stations in our respectivemarkets and other advertising media, such as newspapers, radio stations,magazines, billboards and other outdoor advertising, transit advertising, theYellow Pages directories, direct mail, local cable systems and localInternet portals.

 

Advertiserswishing to reach a national audience may purchase time directly from thenetworks. However, competition for advertising dollars in the broadcastingindustry also occurs within individual markets. Generally, a television broadcasting station in a particular market doesnot compete with stations in other market areas, unless a station in a “distant”DMA is imported by a local cable television system or DBS service providerpursuant to certain provisions of the Satellite Home Viewer Improvements Act,the Satellite Home Viewer Extension and Reauthorization Act, and the FCC’srules.

 

#### **Employees**

#### ** **

As of December 31,2007, we had a total of 1,001 employees comprised of 903 full time and 98part-time or temporary employees. As of December 31, 2007, 135 of ouremployees were covered by collective bargaining agreements. We believe that ouremployee relations are satisfactory, and we have not experienced any work stoppages atany of our facilities. However, we cannot assure you that our collectivebargaining agreements will be renewed in the future, or that we will notexperience a prolonged labor dispute, which could have a material adverseeffect on our business, financial condition, or results of operations.

 

**Seasonality**

 

Our business hasexperienced and is expected to continue to experience significant seasonalitydue to, among other things, seasonal advertising patterns and seasonalinfluences on people’s viewing habits. The advertising revenue of television broadcasting stations is generallyhighest in the second and fourth quarters of each year, due in part toincreases in consumer advertising in the spring and retail advertising in theperiod leading up to and including the holiday season.  In addition, advertising revenue tends to behigher in even-numbered years, when national, state and local politicaladvertising is a significant element of advertising revenue.  Historically, in odd-numbered years, littleif any revenue is obtained from political advertising.

 

**Intellectual Property**

 

In order to producecertain news programs and provide content on our websites, we own or licensevarious domain names, trademarks and trade names.  In addition, certain programming and promotionsare provided to us for distribution under licenses secured from others.

 

**Regulatory Environment**

 

We are subject to federal regulation under theCommunications Act of 1934, as amended, or the Communications Act, and the FCC’sregulations and policies that affect the business operations of televisionbroadcasting stations.

 

***LicenseGrant and Renewal***

** **

Televisionbroadcast licenses are granted for a maximum term of eight years and aresubject to renewal upon application to the FCC. All of our television stationlicensees have recently completed the license renewal process and holdbroadcast licenses that expire in 2012 or later.

 

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The FCC isrequired to grant an application for license renewal if it finds that duringthe preceding license term, the licensee: (1) served the public interest,convenience, and necessity; (2) did not commit any serious violations ofthe Communications Act or the FCC’s rules; and (3) did not commit otherviolations of the Communications Act or the FCC’s rules which, takentogether, would constitute a pattern of abuse. The vast majority of renewalapplications are granted by the FCC under this standard.

 

During certainlimited periods after a renewal application is filed, interested parties,including members of the public, may file petitions with the FCC asking the FCCto deny the renewal application. The renewal applicant is entitled to respondto such petitions. After reviewing these submissions, the FCC may deny apetition, or it may determine that the petition raises a substantial andmaterial question of fact as to whether a grant of the renewal applicationwould serve the public interest and hold a hearing to determine whether thelicense should be renewed. In the vast majority of cases in which a petition todeny is filed against a license renewal application, the FCC ultimately grantsthe renewal without a hearing.

 

No competingapplication to the FCC for authority to operate a new station that wouldreplace the incumbent licensee may be filed against a renewal applicationunless the FCC first determines that the incumbent licensee is not entitled tothe renewal of its license.

 

Assignments of FCClicenses and transfers of control of companies that hold FCC licenses –including so-called “de facto” transfers of control, in which a party otherthan the FCC-approved licensee effectively supplants the FCC-approved licenseeas the party exercising functional control over the station – must be approvedin advance by the FCC.  Before grantingsuch approval, the FCC considers, among other factors, whether the proposedtransaction would comply with its rules restricting the number of mediainterest a single entity may hold.

 

Under its rules,the FCC will permit an entity to own two full-power commercial televisionstations in a Nielsen Media Research Designated Market Area, or DMA, only if (1) therewould still be eight independently-owned and operating, full-power, televisionstations or station combinations in the DMA; (2) the predicted Grade Bfield-strength signal of each such independently-owned station or stationcombination overlaps the predicted Grade B field-strength signal contour of oneof the two stations that would be under common ownership, and (3) at leastone of the two stations to be commonly owned is not ranked as one of the topfour stations in the DMA based upon its all-day audience share, as measured byNielsen. The FCC’s local television ownership rule also includes anexception allowing common ownership of stations in a single DMA where one ofthe stations is failing or unbuilt.

 

The FCC attributestoward the local television ownership limits a station owner’s involvement incertain arrangements through which it provides programming to or otherwiseexercises control over the operation of a second station in the same market.The FCC considers such an agreement, known as a time brokerage or localmarketing agreement, to be attributable if it allows the first station’s ownerto provide more than 15% of the second station’s weekly broadcast programming.However, local marketing agreements entered into prior to November 5, 1996are grandfathered, which means they are deemed to confer attributableinterests, but to the extent that those interests conflict with the FCC’s localstation ownership rule, they are exempted from the application of thatrule.  The FCC has indicated that itintends to revisit whether it will continue to allow these agreements to beexempted from this aspect of its ownership rule.

 

The FCC alsopermits ownership of two commonly-owned commercial television stations in thesame market if the FCC classifies one of the stations as a satellite of theother station.  This status is typicallygranted by the FCC if (1) there is no overlap of City Grade signal contourbetween the parent and the satellite; (2) the satellite would provideservice to an underserved area; and (3) no alternative operator is readyand able to construct or to purchase and operate the satellite as afull-service station.  In addition,television stations that are classified by the FCC as low-power televisionstations are not subject 

 

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to the local television ownership limits.

 

We currently havetwo markets in which we own two full-power television stations in the same DMAthat are under common ownership and that are programmed separately from eachother: WEYI in Saginaw, Michigan and WBSF in Bay City, Michigan, which are bothin the Flint-Saginaw-Bay City DMA and KVII in Amarillo, Texas and KVIH inClovis, New Mexico, both in the Amarillo, Texas/Clovis, New Mexico DMA. In theFlorence-Myrtle Beach, South Carolina DMA, we own WPDE and provide more than15% of the weekly programming broadcast by WWMB, which is owned by SagamoreHillof Carolina, LLC, or SagamoreHill, pursuant to a grandfathered local marketingagreement, or LMA.  In addition, we own atwo-station combination in the Traverse City/Cadillac, Michigan DMA, in whichthe authorized satellite station, WTOM in Cheboygan, Michigan, currentlyretransmits a majority of the programming of parent station WPBN, in TraverseCity, Michigan.  Finally, in two markets –the Syracuse, New York DMA and the Colorado Springs, Colorado DMA – we own botha full-power station and a low-power station, as permitted by FCC rules.

 

***CableMust-Carry  and Retransmission ConsentRights***

** **

Every three years,commercial television broadcasters may make an election with respect to thecarriage of their stations’ analog signals on local cable television systems intheir stations’ DMAs. A station may elect to exercise its so called must-carryrights, which generally compel the cable system to carry the station’s analogsignal, or alternatively may elect, at three-year intervals that began in October 1993,not to insist on such carriage and instead to negotiate with the cable systemfor the granting to that system of the station’s consent to the retransmissionof its analog and/or digital signals by the cable system to such system’ssubscribers.  These agreements with cablesystem operators are known as retransmission consent agreements.  If a broadcaster chooses to exercise itsretransmission consent rights, a cable television system that is subject tothat election may not carry the station’s signal without the station’s consent.  This generally requires the cable system andthe broadcaster to negotiate the terms under which the broadcaster will consentto the cable system’s carriage of the station’s signal.  Frequently the station obtains certainconcessions from the cable system in exchange for the granting ofretransmission consent rights.

 

If a broadcasterchooses to exercise its must-carry rights, it may request cable system carriageon its over-the-air channel or another channel on which it was carried on thecable system as of a specified date. A cable system generally must carry thestation’s signal in compliance with the station’s carriage request, and in amanner that makes the signal available to all cable subscribers. However,must-carry rights are not absolute, and whether a cable system is required tocarry the station on its system, or in the specific manner requested, dependsupon variables such as the location, size, and number of activated channels ofthe cable system and whether the station’s programming duplicates, orsubstantially duplicates, the programming of another station carried on thecable system. If certain conditions are met, a cable system may decline tocarry a television station that has elected must-carry status, although it isunusual for all of those conditions to be met.

 

Under the FCC’scurrent interpretation of the Communications Act, cable systems are required toretransmit only the analog signal of a must-carry station that broadcasts ananalog signal.  However, must-carrystations that do not broadcast an analog signal are entitled to carriage oftheir digital signals, but only a single stream of video (that is, a singlechannel of programming) is required to be carried even if the station offersmultiple streams of video (a practice known as multicasting).

 

When a cablesystem retransmits a television station’s digital signal, the FCC rules requirethe system to carry the digital signal in the format in which it was originallybroadcast.  Accordingly, digital stationsoffering high-definition television, or HDTV, content are entitled to carriagein HDTV format.  In addition, to ensurethat all cable subscribers have the ability to view the digital signals oflocal broadcast 

 

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stations, the FCC recently determined cable operators must eitherdown-convert the signals of must-carry stations to analog format for analogcable subscribers, or, if the cable system is all-digital, carry the must-carrysignals only in digital format, provided that all subscribers with analogtelevision sets have the necessary equipment to view the broadcastcontent.  This determination is subjectto challenge.  Although a cable systemthat is not all-digital will be required to carry analog versions of allmust-carry signals to ensure that analog subscribers can view the signals, thedigital signals of stations carried pursuant to retransmission consent may becarried in any manner that comports with the private agreements of the parties.

 

One of ourstations, KRCG in Jefferson City, Missouri, has elected to exercise itsmust-carry rights with several cable system operators. All of our otherstations have elected retransmission consent, and have negotiated agreementswith cable companies for the carriage of their signals through the currentthree-year cycle.  Our stations will maketheir next elections by October 1, 2008 for the three-year carriage cyclecommencing on January 1, 2009.

 

***Direct-to-HomeSatellite Services and Must-Carry***

** **

In November 1999,Congress enacted the Satellite Home Viewer Improvement Act of 1999, known asSHVIA. Congress later amended and extended SHVIA in December 2004 with theSatellite Home Viewer Extension and Reauthorization Act of 2004, known asSHVERA. SHVIA requires providers of DBS services such as DirecTV and EchoStarto carry upon request the signals of all local television stations in a DMA inwhich the satellite service provider is carrying at least one local televisionstation’s signal (sometimes referred to as carry-one, carry-all). SHVERA allowssatellite providers to also import the signal of a network-affiliated stationthat is outside of a local market to subscribers within the local market whoare deemed to be unserved by a local station affiliated with the same network,or if the station from outside of the local market is significantly viewed, asdetermined by the FCC, within the local market. Unserved generally refers to asatellite subscriber who is unable, using a conventional outdoor rooftopantenna, to receive the signal of the local network-affiliated station of atleast so-called Grade B strength. If a subscriber is able to receive a GradeB-quality signal from a local network affiliate, then, subject to certainexceptions, the subscriber is not eligible to receive that network’sprogramming from an out-of-market affiliate of the same network carried on thesatellite service.

 

Commercialtelevision stations made their first elections between retransmission consentand must-carry status for purposes of satellite carriage by July 1, 2001,for carriage commencing January 1, 2002. They continued making elections, beginning in October 2005 (forcarriage commencing January 1, 2006), on a three-year cycle that coincideswith the cable election period.

 

Satellite carriersare not required to carry duplicative network signals in a single, local DMA,unless the stations are licensed to different communities in different states.Satellite carriers are required to carry all local television stations in acontiguous manner on their channel line-ups and may not discriminate in theircarriage of stations.  The FCC isconsidering, in a pending proceeding, how it should apply satellite operators’signal carriage obligations in a digital television environment.

 

DirecTV andEchoStar currently provide satellite carriage of our stations in 10 and 13 orour markets, respectively, pursuant to retransmission consent agreements.  Our stations will make their next electionsby October 1, 2008 for the three-year carriage cycle commencing January 1,2009

 

***DigitalTelevision***

** **

The broadcasttelevision industry in the United States is currently in the process ofconverting from analog signals to digital television, or DTV, signals.  This process, known as the DTV transition, isscheduled to conclude in 2009, when full-power analog television service isscheduled to cease.  DTV 

 

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technology allows broadcasters to deliver video and audio signals ofhigher quality and resolution (including high definition television) than theexisting analog transmission system. DTV also has substantial capabilities formulticasting (the transmission of several program streams concurrently withinthe same channel bandwidth) and data transmission.

 

All full-powertelevision stations must discontinue analog service entirely by a “hard date”in February 2009 established by Congress. This transition to digital television will require consumers who rely onover-the-air reception of broadcast signals to purchase new televisionreceivers that are capable of displaying DTV signals or adapters that willreceive DTV signals and convert them into an analog signal for display on theirexisting analog receivers.

 

The FCC assignedtemporary DTV channels to existing and authorized analog broadcast stations inthe first half of 1997 that were different from the stations’ analog channels,and all of our stations received such temporary channels.  The FCC also conducted a complex channelelection process, through which stations were permitted to choose the channelthey wished to use for ongoing DTV operations after February 2009.  In general, stations chose either to remainon their temporary DTV channels after the close of the transition or to returnto their existing analog channels after abandoning analog service.  In a few instances, stations chose to operateon channels other than their pre-transition analog and DTV channels to avoidinterference to neighboring stations, or for other reasons.

 

Of the stations weown, 12 have elected to maintain DTV service after February 2009 on theirtemporary DTV channels, while six will return to their analog channels forpost-transition DTV service.  Onestation, WSTM, will operate on a third channel, channel 24, at the end of theDTV transition.

 

The FCC recentlyconcluded the channel election process and, in early 2008, it completed itsproceeding to establish each station’s channel allotment for post-transitionoperation.  As a part of this process,the FCC was required to coordinate the allotments for certain stations with theCanadian and Mexican governments in order to avoid interference to stations inthose countries.  Two of our stations,WBSF and WSTM, were subject to objections by the Canadian government.  We understand that the FCC has been able toresolve these objections, but this will not be formally confirmed until the FCCissues construction permits for these stations.

 

In general, eachstation’s allotment is intended to allow the station to continue to provideservice after the transition to the same number of viewers who previouslyreceived analog service.  However, anumber of variables affect the extent to which a station’s DTV operation willprovide such replication. Under certain circumstances, a station’s DTVoperation may cover a lesser geographic area than the station’s current analogsignal covers.

 

In December 2007,the FCC completed its third periodic review of the DTV transition, and itissued an order adopting the procedures that will govern broadcast stations’completion of the transition, including flexibility for stations in certaincircumstances to transition to their final facilities either before or after February 2009.  Among other changes, this order establisheddeadlines by which stations must construct their final, post-transitionfacilities.  Because stations that hadelected to return to their analog channels for post-transition operation (or tochange to a third channel after the transition) had not yet been permitted toapply to construct their final facilities, this order also adopted proceduresfor the submission of those applications. We have submitted applications for those of our stations that do notalready hold construction permits.

 

Full-power DTVstations, including our stations, may experience interference from a variety ofsources, such as other full-power stations and low-power televisionstations.  In addition, in the future,broadcast stations may experience interference from electronic devices that theFCC may allow to be operated on an unlicensed basis.  In connection with its third periodic review,the FCC adopted rules to 

 

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limit the amount of interference that full-power digital televisionstations may cause to other stations. Low-power stations are required to accept interference from and avoidinterference to full-power broadcasters. Certain low-power stations, known as “Class A” LPTV stations,however, have greater interference protection rights, and protecting suchstations may limit our stations’ ability to expand their service in thefuture.  Notwithstanding the FCC’sinterference protection rules, full-power broadcast stations may experienceinterference from other television stations.

 

The conversion toDTV has required an average initial capital expenditure of approximately$750,000 per station for transmission of digital signals. We have substantiallycompleted these initial capital expenditures. We estimate that additionalcapital expenditures of approximately $1,800,000 in the aggregate for 10 of ourstations (an average of $180,000 per station) will be required to convertexisting transmitters or install equipment that enable the stations to changetheir current digital channel.

 

Television stationoperators may use a portion of their DTV signals to provide ancillary services,such as computer software distribution, internet, interactive programming,e-commerce, paging services, audio signals, subscription video, or datatransmission services. To the extent a station provides such ancillary services,it is subject to the same regulations as are applicable to other analogousservices under the FCC’s rules and policies. A commercial televisionstation is also required to pay the FCC a fee equal to 5% of the gross revenuesderived from all ancillary services provided over such station’s DTV signal forwhich it received a fee in exchange for the service or received compensationfrom a third party in exchange for transmission of material from that thirdparty, not including commercial advertisements used to support broadcasting.

 

In order to notifyviewers of the impending transition to digital television, the FCC has requiredeach station to air certain public service announcements and other materialdesigned to increase awareness of the transition.  Under these new requirements, broadcastersmust air a minimum amount of specified announcements and must report theircompliance to the FCC on a quarterly basis.

 

***Programmingand Operations***

** **

The CommunicationsAct requires broadcasters to serve the public interest, including presentingprogramming that is responsive to community problems, needs and interests, andto maintain certain records demonstrating such responsiveness. Stations alsomust follow various rules promulgated under the Communications Act that regulate,among other things:

 

·                                          politicaladvertising, including pricing and availability to legally-qualified candidatesand their supporters;

 

·                                          sponsorshipidentification announcements;

 

·                                          station-conductedcontests, third-party-conducted contests, and lottery advertising;

 

·                                          thebroadcasting of obscene, indecent, or profane material;

 

·                                          variousoperational requirements, including the maintenance and staffing of a mainstudio within the station’s community of license or within its service area,and the maintenance at such studio of a file containing certain FCC-relatedrecords and other material that is required to be available for inspection bythe public; and

 

·                                          technicaloperations, including limits on human exposure (both on the part of the 

 

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general public and on thepart of installation and repair crews) to harmful levels of non-ionizingelectromagnetic radio frequency radiation.

 

Televisionstations are required to comply with the Children’s Television Act of 1990 andvarious FCC regulations that were adopted pursuant to that Act. These includelimits on the amount of commercial matter that can be included in programs thatare designed primarily for audiences comprised of children 12 years of ageand younger; restrictions on the station’s ability to display its InternetWorld Wide Web address on the screen during such programs; an affirmativerequirement to present at least three hours per week of so-called coreeducational and informational programming for viewers aged 16 years oldand younger (with restrictions on what times of day and under whatcircumstances such programming must be aired); affirmative obligations topublicize the broadcasting of such programs; and related record-keeping and FCCreporting obligations.  Under new rules thattook effect in January 2007, DTV stations must offer three hours per weekof core programming on each additional multicast stream of programming inaddition to the station’s primary digital stream.  The new rules also imposed additionallimits on the type of advertising that may be broadcast during programsintended for young children.

 

In addition,television stations are now required to provide (with certain limitedexceptions) closed captioning for virtually all of their analog programming firstshown on or after January 1, 1998 and digital programming first shown onor after January 1, 2002, and for 75% of programming first shown beforethese dates, in order to ensure that the content of such programming isaccessible to persons who are unable to hear the audio portion of stations’broadcasts.

 

In November 2007,the FCC imposed new public interest obligations for broadcasters.  Among other changes, the FCC announced thatit will require broadcasters to report on the amount and type of publicinterest programming they offer and to make their public inspection filesavailable over the Internet.  The FCC hasalso requested comment on additional proposals, including its tentativeconclusions to adopt “processing guidelines” that establish minimum amounts oflocally-oriented programming broadcasters should provide and to requirebroadcasters to establish permanent community advisory boards.

 

The BipartisanCampaign Reform Act of 2002 imposed various restrictions both on contributionsto political parties during federal elections and on certain broadcast, cabletelevision and DBS advertisements that refer to a candidate for federal office.Those restrictions may have the effect of reducing the advertising revenues ofthe Company’s television stations during campaigns for federal office below thelevels that otherwise would be realized in the absence of suchrestrictions.  However, the U.S. SupremeCourt’s June 2007 decision in *Federal ElectionCommission v. Wisconsin Right to Life, Inc.* limited the Act’srestrictions by allowing corporations and labor unions to finance more advocacycommunications than were previously permitted. Although the full effect of this decision is not yet clear, it mayprovide us with limited relief from any adverse effects of the Act.

 

Commercialbroadcast stations sell advertising time through a number of methods, and somestations use third-party brokers to sell otherwise unused inventory atbelow-market prices.  The FCC iscurrently considering a request that it declares that such sales, when madethrough Internet brokers, do not affect a broadcast station’s “lowest unitcharge” for advertising, the most favored advertising rate that such stationsmust offer to candidates for public office during pre-election periods.  It is unclear what effect this matter willhave on our operations because it is still pending at the FCC, but an adverseresult could limit our ability to obtain revenue from certain types ofbroadcast advertising.

 

During 2007, theFCC amended its rules, in response to the enactment of the Broadcast DecencyEnforcement Act of 2005, to increase the maximum monetary forfeiture for thebroadcast of indecent programming from $32,500 per occurrence to $325,000 peroccurrence.  In June 2007, the U.S.Court of Appeals for the Second Circuit issued a decision vacating certain ofthe FCC’s proposed forfeitures for 

 

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the broadcast of so-called “fleeting expletives,” which the FCC foundwere indecent.  The court concluded thatthe FCC had failed to articulate a reasoned basis for its decisions andremanded the relevant cases to the FCC for further consideration.  The Supreme Court has agreed to consider theFCC’s appeal of that decision.  Inaddition, the U.S. Court of Appeals for the Third Circuit is considering achallenge to the FCC’s proposal to impose monetary forfeitures in connectionwith CBS’s 2004 broadcast of a musical performance during the Super Bowlhalftime show, which the FCC also found to be indecent.  Particularly in light of the increase inmaximum forfeitures, the resolution of this litigation could affect the risksassociated with operation of our broadcast television stations.

 

It is notgenerally the FCC’s policy to notify licensees when it receives indecencycomplaints regarding their broadcasts before it issues a formal letter ofinquiry or takes other enforcement action. As a result, the FCC may have received complaints of which we are notaware alleging that one or more of our stations broadcast indecent material.

 

During 2006 and2007, a media watchdog group filed a series of complaints at the FCC allegingthat various broadcast stations and cable channels violated the FCC’ssponsorship identification rules by broadcasting material provided to themby a third party without disclosing the source of the material.  The first FCC decision concerning thesecomplaints was issued in September 2007, when the FCC proposed monetaryforfeitures against a cable operator in connection with a series of newsbroadcasts identified in the complaints. Although these complaints do not directly impact our stations, they arerelevant because the FCC typically uses similar standards to evaluate allegedsponsorship identification violations by broadcast stations and cableoperators.

 

Depending on therespective outcomes, the various rule changes, FCC proceedings and othermatters described in this section, as well as certain matters not describedhere, could adversely affect the profitability of our television broadcastingoperations.

 

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#### **ITEM 1A.**                                            RiskFactors.

#### ** **

Eachof the following factors as well as the other information in this Annual Reportshould be considered in evaluating our business and our prospects. The risksand uncertainties described below are not the only risks and uncertainties thatwe face. Additional risks and uncertainties not presently known to us or thatwe currently consider immaterial may also impair our business operations. Ifany of the following risks actually occur, our business, financial conditionand operating results could be harmed substantially.  Capitalized terms used but not defined hereinshall have the meanings ascribed to them in the Annual Report.

 

#### ***Risks Related to Our Business***

#### ** **

## ***Therevenues generated by stations we operate or provide programming to coulddecline substantially if they fail to maintain or renew their networkaffiliation agreements on favorable terms, or at all.***

## *** ***

Due to the quality of the programming provided by the networks,stations that are affiliated with a network generally have higher ratings thanunaffiliated independent stations in the same market. As a result, it isimportant for stations to maintain their network affiliations. All of thetelevision stations that we own and operate or which we program haveaffiliation agreements with a major network—six stations have affiliationagreements with NBC, three stations have affiliation agreements with CBS, fourstations have affiliation agreements with ABC, three stations have affiliationagreements with FOX and five stations have affiliation agreements with CW. Eachof NBC, CBS and ABC generally provides affiliated stations with up to22 hours of prime time programming per week, while each of FOX and CWprovides affiliated stations with up to 15 hours of prime time programmingper week.  In return, affiliated stationsbroadcast the respective network’s commercials during the network programming.

 

All of the network affiliation agreements of the stations that we ownand operate or to which we provide services are scheduled to expire at varioustimes beginning in August 2008 through August 2016. Networkaffiliation agreements are also subject to earlier termination by the networksunder limited circumstances.  We cannotassure you that our affiliation agreements will be renewed or that each networkwill continue to provide programming to affiliates on the same basis as itcurrently provides programming. The non-renewal or termination of a networkaffiliation could adversely affect our results of operations.

 

## ***Becausea high percentage of our operating expenses are fixed, a relatively smalldecrease in gross advertising revenues could have a significant negative impacton our results of operations.***

## *** ***

Other than commissions paid to our sales staff andoutside sales agencies, our expenses do not vary significantly with theincrease or decrease of gross advertising revenues. As a result, a relativelysmall change in gross advertising revenues could have a disproportionate effecton our financial results. Accordingly, a minor shortfall in expected grossrevenues could have a significant negative impact on our results of operations.

 

## ***Weare dependent to a significant degree on automotive advertising.***

## *** ***

Approximately 25% of our gross advertising revenues for the year ended December 31,2007 consisted of automotive advertising revenues.  A significant decrease in these revenues inthe future could materially and adversely affect our results of operations andcash flows, which could affect our ability to fund operations and service ourdebt obligations.

 

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## ***Ouradvertising revenues are subject to cyclical and seasonal variations.***

## *** ***

Our business is cyclical in nature. Because we depend upon the sale ofadvertising for a significant portion of our gross revenues, our operatingresults are sensitive to prevailing economic conditions, including changes inlocal, regional and national economic conditions, particularly as they mayaffect advertising expenditures. During periods of economic contraction, grossrevenues may decrease while some of our costs remain fixed, resulting indecreased earnings.

 

Our business has experienced and is expected to continue to experiencesignificant seasonality due to, among other things, seasonal advertisingpatterns and seasonal influences on people’s viewing habits. Typically, ourgross revenues are lowest during the first quarter and highest during thefourth quarter, of each calendar year.

 

Our gross revenues tend to be higher in even-numbered years, whennational, state and local political advertising is a significant element ofadvertising revenues. In odd-numbered years, little if any gross revenues areobtained from political advertising.  Inaddition our advertising revenue tends to be higher in even-numbered years dueto the positive impact of the Olympics.

 

## ***Weare dependent on our senior executives and our business would be negativelyimpacted if we were to lose their services.***

## *** ***

We believe that our success and our ability to maintain our competitiveposition depends on our ability to retain the services of K. James Yager andChris Cornelius, two of our senior executives who have entered into employmentagreements with Barrington Group effective as of January 1, 2008.  These individuals have extensive experiencein the television broadcasting industry and have been instrumental informulating and executing our business strategy. If we lost the services of K.James Yager or Chris Cornelius, we may not be able to timely identify andretain appropriate or suitable replacements to manage our operations. Thecomplete or partial loss of their services could adversely affect our abilityto manage effectively our overall operations and successfully execute currentor future business strategies.

 

## ***We face risks associated with acquiring stations andpotential acquisitions***.

## *** ***

We have grown rapidly through the acquisition oftelevision stations and we may continue to grow as a result of additionalacquisitions, some of which may be material. Growth of our business throughacquisitions entails numerous risks, including:

 

·                  we may not be able to successfullyreduce costs, increase gross advertising revenues or audience share or realizeanticipated synergies and economies of scale with respect to any acquiredstation;

 

·                  we may experience difficultiesintegrating operations and systems, as well as company policies and cultures;

 

·                  we may fail to retain and assimilateemployees of acquired stations;

 

·                  we may incur unbudgeted costs inconnection with pursuing potential acquisitions which are not consummated;

 

·                  ouroperating results may fluctuate due to our incurrence of considerable expensesto acquire stations before receiving the anticipated revenues expected toresult from the acquisitions;

 

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·                  our management may be reassigned fromoverseeing existing operations by the need to identify potential acquisitiontargets, conduct due diligence, negotiate acquisition agreements and integrateacquired stations;

 

·                  wemay experience difficulties in finding suitable acquisition candidates or inmaking acquisitions on attractive terms;

 

·                  wemay face difficulties in obtaining and maintaining any required regulatoryauthorizations in connection with acquisitions; and

 

·                  we may encounter problems in enteringnew television markets in which we have little or no experience.

 

In the future, we may need additional capital to continue growingthrough acquisitions. This additional capital may be raised in the form ofadditional debt, which would increase our leverage and could have an adverseeffect on our ability to pay interest on the notes. We may not be able to raisesufficient additional capital on terms that we consider acceptable, or at all.

 

There can be no assurance that we will be able to successfully integrateany stations that we have acquired or might acquire in the future. If we failto do so, or if we do so but at greater cost than anticipated, our business,financial condition and results of operations may be adversely affected.

 

## ***Ourbusiness may be adversely affected by strikes and other labor protests whichcould cause disruptions in our operations.***

## *** ***

As of December 31, 2007 approximately 13% of our employees wererepresented by various unions, including the United Auto Workers, theInternational Brotherhood of Electrical Workers, Radio & BroadcastEngineers and the National Broadcast Employees & Technicians /Communications Workers of America. If we were to experience a strike or workstoppage at one of our broadcasting stations, any resulting disruptions inoperations could cause us to lose viewers and advertisers and might havepermanent adverse effects on our business.

 

## ***Weare controlled by Pilot Group, and its interests may differ from the interestsof note holders.***

## *** ***

As a result of Pilot Group’s controlling interest in us, Pilot Group isable to exercise a controlling influence over our business and affairs. As themanaging member of Barrington Broadcasting, Pilot Group is able to unilaterallydetermine the outcome of many matters, including the election and removal ofdirectors, the acquisition of additional television stations and the approvalof any merger, consolidation or sale of all or substantially all of our assets.In addition, four of our directors are affiliated with Pilot Group. The interestsof Pilot Group may differ from the interests of the holders of the notes andPilot Group could take actions or make decisions that are not in the bestinterests of the note holders. Furthermore, this concentration of ownership byPilot Group may have the effect of impeding a merger, consolidation, takeoveror other business combination involving us.

 

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## ***Changesin FCC ownership rules may limit our ability to continue programming WWMBunder a “grandfathered” local marketing agreement and/or require materialmodifications to our joint sales and shared services arrangements with respectto WGTU/WGTQ which could adversely affect our results of operations.***

## *** ***

FCC ownership rules currently impose significant limitations onthe ability of broadcast licensees to have attributable interests in multiplemedia properties. The television duopoly rule limits licensees to theownership of one television station in most medium-sized and smaller televisionmarkets and two stations in most larger markets. In addition, the FCC ownershiplimitations currently restrict the programming by one station owner of a secondstation in the same market pursuant to a time brokerage agreement or localmarketing agreement. However, time brokerage agreements or local marketingagreements entered into prior to November 5, 1996 are currently “grandfathered”from such restrictions. We currently program WWMB pursuant to a “grandfathered”local marketing agreement.

 

In 2003, the FCC voted to revise and in most cases substantiallyliberalize several of its national and local ownership rules. In 2004, theUnited States Court of Appeals for the Third Circuit found virtually all ofthose actions to be without adequate support and remanded to the FCC forfurther deliberation. In 2005, the United States Supreme Court declined to hearan appeal of the Court of Appeals’ decision. The FCC commenced a furtherrulemaking in June 2006 in order to re-examine the ownership rules inlight of the Court’s decision. While the FCC has not indicated that it willreview its rules regarding “grandfathered” time brokerage agreements andlocal marketing agreements in its current rulemaking, it likely will do so in afuture proceeding. We are unable to predict the timing or outcome of any suchFCC deliberations. If the FCC’s duopoly rule is relaxed, we may be able toacquire full ownership of WWMB. If we are unable to acquire WWMB and the FCCdecides to prohibit grandfathered time brokerage agreements or local marketingagreements, our continued programming of WWMB through our local marketingagreement may not be permitted by the FCC, which could have a material adverseeffect on our operations.

 

Through our subsidiary that operates WPBN-TV, Traverse City, Michigan,and its satellite WTOM-TV, Cheboygan, Michigan, we have entered into a jointsales agreement and shared services agreement with  Tucker, wherebyfollowing Tucker’s pending acquisition of television station WGTU in TraverseCity and its satellite WGTQ in Sault Ste. Marie, Michigan, we would holdcertain programming and advertising sales rights with respect to these stationsas well as provide certain shared services to these stations.  Tucker’sacquisition of television stations WGTU and WGTQ is subject to the review andapproval of the FCC, and our joint sales and shared services arrangements withTucker are subject to the FCC’s review as part of its consideration of Tucker’sproposed acquisition.  The FCC has apending rulemaking pertaining to the attribution of joint sales agreements inwhich it may determine that a joint sales agreement involving the sale of 15%or more of a same-market television station’s advertising time will result inthat station being attributable to the party providing the sales services for multipleownership purposes. In the event that the FCC were to adopt such a rule, evensubsequent to its approval of Tucker’s acquisition of WGTU and WGTQ, it ispossible that the new rule could require material modification of ourjoint sales agreement and shared services agreement with Tucker.

 

#### ***Risks Related to Our Industry***

#### ** **

## ***Ourtelevision content may attract fewer viewers, limiting our ability to generateadvertising revenues.***

## *** ***

The success of each of our television stations is primarily dependentupon our ability to generate advertising revenues. The ability of televisionstations to generate advertising revenues depends to a significant degree uponaudience acceptance. Although we are diversified in our network affiliations by

 

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having affiliation agreements with all of the major televisionnetworks, our programming may not attract sufficient targeted viewership or wemay not achieve favorable ratings. Our ratings and audience acceptance isinfluenced by many factors, including the content offered, shifts inpopulation, demographics, general economic conditions, public tastes, reviewsby critics, promotions, the quality and acceptance of other competing contentin the marketplace at or near the same time, the availability of alternativeforms of entertainment and other intangible factors. All of these factors couldchange rapidly, and many are beyond our control. A shift in viewer preferencescould cause our programming not to gain popularity or to decline in popularity,which could cause our advertising revenues to decline. In addition, we, ournetworks and the others on whom we rely for programming, may not be able toanticipate and react effectively to shifts in viewer tastes and interests inthe markets. Such inability to anticipate shifts in viewer preferences couldnegatively impact our advertising revenues and our results of operations. Ouradvertising revenues will suffer if any of our broadcasting stations cannotmaintain their audience ratings or market share or cannot continue to commandthe advertising rates that we anticipate.

 

## ***Thecontinued development of alternative video program distribution channels mayadversely affect our ability to retain viewers.***

## *** ***

Several of the largest national television networks—including networkswith which some of our stations are affiliated—have recently begun providingaccess to popular network programs to viewers by means of platforms other thanlocal television stations affiliated with such networks. These platformsinclude portable playing devices (such as the iPod), streaming over theInternet, and delivery to portable receivers, including specially-equippedmobile telephone devices. This phenomenon is in its very early stages and it isdifficult to predict what impact it may have, if it continues or grows, uponthe traditional model for the delivery of network television programs toviewers through network-affiliated local stations and multichannel videoprogram distributors such as local cable systems and DBS service providers.However, if these platforms are successful in our markets, our revenues andresults of operations could be adversely impacted.

 

## ***Ourindustry is subject to significant syndicated and other programming costs, andincreased programming costs could adversely affect our results of operations.***

## *** ***

Our industry is subject to significant syndicated and other programmingcosts. Programming costs constitute one of the most significant operating costsin our industry. We may be exposed in the future to increased programmingcosts, which may adversely affect our operating results. We often acquireprogram rights two or three years in advance, making it difficult for us toaccurately predict how a program will perform. In some instances, we may haveto replace programs before their costs have been fully amortized, resulting inwrite-offs that increase station operating costs. If we are unable to obtainaudience-attracting programming in the future or if we are exposed to increasedprogramming costs, our operating results will be negatively impacted.

 

## ***The February 17,2009 “hard date” for the cessation of analog transmissions may adversely affectus.***

## *** ***

As described above, full-power television stations may no longerbroadcast their analog signals after February 17, 2009. Viewers who relyon over-the-air reception for television viewing will no longer be able to viewour programming unless they own or acquire television receivers with digitalreception capability or converter boxes that permit digital television, or DTV,signals to be viewed on analog television sets. While federal subsidies havebeen made available for purchasing such converter boxes, we cannot predict theextent to which our viewers will take advantage of such subsidies or purchaseconverter boxes without the use of subsidies. Further, the federal subsidyprogram will operate only from January 

 

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2008 through March 2009, and we cannot predict whether the latecommencement or short duration of this program will affect the number of ourviewers who purchase converter boxes using federal subsidies.  The February 17, 2009 analog cessationcould also encourage viewers to obtain video programming from other sources,especially the Internet. Any failure of viewers to adopt DTV technology couldreduce television viewing audiences and could adversely affect our operatingresults.

 

## ***Wemay be adversely affected by disruptions in our ability to receive or transmitprogramming.***

## *** ***

The transmission of programming is subject to risks of equipmentfailure, including those failures caused by satellite defects and destruction,natural disasters, power losses, low-flying aircraft, software errors ortelecommunications errors. Disruption of our programming transmissions mayoccur in the future and satellites or other comparable transmission equipmentmay not be available. Any natural disaster or extreme climatic event, such asan ice storm, could result in the loss of our ability to broadcast. Further, weown or lease antenna and transmitter space for each of our stations. If we wereto lose any of our antenna tower leases or if any of our towers or transmitterswere damaged, we may not be able to secure replacement leases on commerciallyreasonable terms, or at all, which could also prevent us from transmitting oursignals. Disruptions in our ability to receive or transmit our broadcastsignals could have a material adverse effect on our audience levels,advertising revenues and future results of operations.

 

## ***Anypotential hostilities, terrorist attacks or natural disasters may affect ourrevenues and results of operations.***

## *** ***

We may experience a loss of advertising revenues and incur additionalbroadcasting expenses in the event that the United States engages in foreignhostilities, in the event there is a terrorist attack against the United Statesor upon the occurrence of a natural disaster. A significant news event like awar, a terrorist attack or a natural disaster will likely result in thepreemption of regularly scheduled programming by network news coverage of theevent. As a result, advertising may not be aired and the revenues for suchadvertising may be lost unless the broadcasting station is able to run theadvertising at agreed-upon times in the future. We cannot assure you that theadvertisers will agree to run such advertising in future time periods or thatspace will be available for such advertising. We cannot predict the extent orduration of any preemption of local programming if it occurs. In addition, our broadcastingstations may incur additional expenses as a result of expanded news coverage ofthe local impact of a war, terrorist attack or natural disaster. The loss ofrevenues and increased expenses could negatively affect our results ofoperations.

 

## ***If weare unable to reach retransmission consent agreements with cable companies forthe carriage of our stations’ signals, we could lose revenues and audienceshare.***

## *** ***

As described above, the Communications Act permits the stations tochoose either mandatory carriage (“must-carry”) or retransmission consent.These elections are generally made at intervals of three years. Althoughretransmission consent agreements typically involve a concession by the cableoperator in exchange for carriage of a station’s signal, stations that electmust-carry may not receive such concessions. Likewise, if a station elects retransmission consent but does not reachan agreement with the cable operator as to which it has made this election, thecable system cannot distribute the station’s signal to the cable system’ssubscribers.

 

One of our stations, KRCG in Jefferson City, Missouri, has elected toexercise its so-called “must-carry” rights with several cable system operatorsunder which those cable companies serving the station’s market must carry itssignal. All of our other stations have elected retransmission consent, and 

 

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have negotiated agreements or extensions with cable companies for thecarriage of their signals.

 

## ***Ifdirect broadcast satellite companies do not carry our stations, we could loserevenues and audience share.***

## *** ***

As described above, federal law allows direct broadcast satellitetelevision service providers to transmit broadcast television signals tosubscribers in those stations’ local markets, provided that the satelliteservice providers offer to carry all local stations in that market. However,satellite providers have limited capacity to deliver all of the local stationsignals in all of the local markets. DirecTV and EchoStar’s Dish Network carryour stations in 10 and 13 of our markets, respectively. In those markets inwhich satellite providers do not carry local station signals, subscribers tothose satellite services are unable to view our stations without makingalternative arrangements, such as installing special antennas and switches. Inthe event that subscribers to satellite services do not receive signals fromthe stations that we own and operate, or that we provide programming to underlocal marketing agreements, we could lose audience share which would adverselyaffect our results of operations.

 

Federal law also permits satellite service providers to import intolocal markets the signals of same-network-affiliated stations from distantmarkets, under certain conditions where the local network-affiliated station’ssignal does not reach certain households in the market with sufficient strengthto be viewed or where the out-of-market station is “significantly viewed” inthe local market. Such distant signal importation could fragment the audiencefor any of our stations in local markets that might be so affected, by givingviewers in that market access to a potentially superior quality signal offeringthe same network programming as our station offers.

 

## ***TheFCC can sanction us for programming on our stations that is found to beindecent.***

## *** ***

Over the past several years, the FCC has  increased its efforts to impose substantialfines on television stations for their broadcasts of indecent material inviolation of the Communications Act and related FCC rules. As described above,the FCC’s recent decisions reflect an increased scrutiny with respect to theuse of certain language on broadcast television, and the agency has recentlyincreased the maximum forfeiture amount for indecency violations.  Moreover, the FCC’s recent decisions havebeen in several respects inconsistent with prior decisions, and the FCCtypically has not explained fully the basis on which it distinguishes betweenprogramming that it finds indecent and programming that it does not findindecent.  The ambiguity of this standardmakes it difficult for broadcasters and their programming providers to predictwhether a particular program may be found indecent.  As a result, we may not always be able toguard against broadcasting programming that the FCC may later find to beindecent and we may therefore be subject to the imposition of fines by the FCC.

 

As discussed above, the FCC is currently involved in litigation overthe validity of its indecency enforcement regime, and the Supreme Court hasindicated that it will consider a case involving these issues.  The resolution of this litigation couldmaterially affect the FCC’s indecency enforcement efforts going forward, eitherby increasing or decreasing the risk of an indecency finding relating to ourbroadcasts.  Because we are unable topredict the outcome of the litigation, we cannot fully estimate the impact thatindecency regulation will have on our business in the future.

 

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#### ***Risks Relating to OurIndebtedness***

#### ** **

## ***Weare highly leveraged and future cash flow may not be sufficient to meet ourobligations, including our obligations under the notes, and we might havedifficulty obtaining more financing.***

## *** ***

We have a substantial amount of indebtedness in relation to our equity.As of December 31, 2007, we had total indebtedness of approximately$273.6 million, comprising approximately 73% of our capitalization. Oursubstantial indebtedness could have important consequences. For example, itcould:

 

·                  adversely affect our cash flow andmake it more difficult for us to satisfy our obligations with respect to thenotes;

 

·                  limit our ability to pursueacquisition opportunities;

 

·                  limit our ability to respond tochanging business, economic and industry conditions and to withstandcompetitive pressures, which may affect our financial condition;

 

·                  require us to dedicate a substantialportion of our cash flow from operations to payments on our indebtedness,thereby reducing the availability of our cash flow to fund working capital,capital expenditures and other general corporate purposes;

 

·                  result in an event of default if wefail to comply with the financial and other restrictive covenants contained inthe indenture governing the notes, our credit facility or our otherindebtedness;

 

·                  limit our ability to borrowadditional funds or obtain additional financing in the future;

 

·                  expose us to greater interest raterisk since the interest rate on borrowings under our credit facility willfluctuate with the current market rates; and

 

·                  place us at a competitivedisadvantage to our competitors who are not as highly leveraged.

 

Under the terms of the indenture and our credit facility, we arepermitted, subject to certain conditions and limitations, to incur additionalindebtedness. If we incur additional indebtedness, the risks described abovewill be exacerbated.

 

If there were an event of default under one of our debt instruments,the holders of the defaulted debt could cause all amounts outstanding withrespect to that debt to be due and payable immediately. We cannot assure youthat our assets or cash flow would be sufficient to fully repay borrowingsunder our outstanding debt instruments, if accelerated upon an event ofdefault, or that we would be able to repay, refinance or restructure thepayments on those debt instruments.

 

## ***TheIssuers’ ability to make payments under the notes substantially depends on cashflow from our operating subsidiaries. If such subsidiaries cannot makedistributions to the Issuers, or such distributions decrease, the Issuers maynot be able to make payments on the notes.***

## *** ***

Barrington Group and Barrington Capital have no revenue generatingoperations except for those conducted through Barrington Group’s operatingsubsidiaries. Accordingly, our only material source of cash, including cash tomake payments on or redeem the notes, is distributions with respect to our 

 

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ownership interests in our operating subsidiaries that are derived fromthe earnings and cash flow generated by such operating subsidiaries.Distributions to Barrington Group from its operating subsidiaries will dependon:

 

·                  the financial performance of ouroperating subsidiaries;

 

·                  covenants contained in our debtagreements, including the agreements governing our credit facility and theindenture governing the notes;

 

·                  covenants contained in otheragreements to which we or our subsidiaries are or may become subject;

 

·                  business and tax considerations; and

 

·                  applicable law, including lawsregarding the payment of distributions.

 

The operating results of our operating subsidiaries at any given timemay not be sufficient to make distributions or other payments to us and anydistributions and/or payments to us may not be adequate to pay any amounts dueunder the notes or our other indebtedness. If the cash flows and capitalresources of our operating subsidiaries are insufficient to fund our debtservice obligations, we may be forced to reduce or delay capital expenditures,sell assets, seek additional capital or restructure or refinance ourindebtedness, including the notes. These alternative measures may not besuccessful and may not permit us to meet our scheduled debt serviceobligations. In the absence of such operating results and resources, we couldface substantial liquidity problems and our operating subsidiaries might berequired to dispose of material assets or operations to meet our debt serviceand other obligations. Our credit facility and the indenture governing thenotes restrict our ability to dispose of assets and use the proceeds from thedisposition. Our operating subsidiaries may not be able to consummate thosedispositions or to obtain the proceeds which could be realized from them andthese proceeds may not be adequate to meet any debt service obligations thendue. Any inability to meet our debt service obligations would have a materialadverse effect on our results of operations.

 

## ***Ourability to engage in certain transactions is restricted by the agreementsgoverning our credit facility and the indenture governing the notes.***

## *** ***

The agreements governing our credit facility and the indenturegoverning the notes contain covenants that limit our and our restrictedsubsidiaries’ ability to engage in specific types of transactions. Thecovenants include, among other things, limitations on our ability to:

 

·                  make distributions on our equityinterests, repurchase, repay or redeem our equity interests or prepaysubordinated indebtedness;

 

·                  issue preferred equity;

 

·                  make certain investments;

 

·                  incur additional indebtedness;

 

·                  create liens on assets to secureindebtedness;

 

·                  transfer or sell all or substantiallyall of our assets;

 

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·                  merge or consolidate with anotherentity;

 

·                  enter into certain transactions withaffiliates; and

 

·                  enter into sale and leasebacktransactions.

 

The agreements governing our credit facility require us to satisfyvarious financial covenants, including maximum total leverage, minimum interestcoverage ratios, and limit our total capital expenditures. Future indebtednessor other contracts could contain financial or other covenants more restrictivethan those applicable to our credit facility and the notes. These restrictivecovenants may limit our ability to expand our operations, pursue our businessstrategies and react to events and opportunities as they unfold or presentthemselves. If we are unable to capitalize on future business opportunities,our business may be harmed.

 

Our ability to comply with these provisions may be affected by generaleconomic conditions, industry conditions and other events beyond our control.As a result, we cannot assure you that we will be able to comply with thesecovenants. Our failure to comply with the covenants contained in our creditfacility or the indenture governing the notes could result in an event ofdefault, which could materially and adversely affect our operating results andour financial condition.

 

## ***Floatingrate indebtedness subjects us to interest rate risk, which could cause our debtservice obligations to increase significantly.***

## *** ***

Our credit facility is subject to floating rates of interest. If thereis a rise in interest rates, our debt service obligations on the borrowingsunder our credit facility would increase even though the amount borrowedremained the same, which would affect our results of operations. A 1% change inLIBOR would result in our interest expense under our credit facilityfluctuating approximately $1.5 million per year without taking intoaccount the effect of any hedging instruments. We entered into interest ratehedging agreements which effectively fixed the interest rate on the majority ofour borrowings under our credit facility at no greater than 5.5%. There can beno assurance that when the interest rate hedging agreements expire we will beable to enter into other interest rate hedging agreements on favorable terms orat all.  In addition, if LIBOR decreasesto a rate lower than 4.845%, our interest expense will increase as we will oweadditional interest to the counterparty to our interest rate hedgingagreements.

 

#### ***Risks Relating to the Notes***

#### ** **

## ***Thenotes are contractually junior in right of payment to our senior indebtedness,and the guarantees are contractually junior in right of payment to all seniorindebtedness of the guarantors.***

## *** ***

The notes are contractually junior in right of payment to all of ourexisting and future senior indebtedness, and the guarantees are contractuallyjunior in right of payment to all existing and future senior indebtedness ofthe guarantors. As of December 31, 2007, we had approximately$148.1 million of senior indebtedness, consisting of indebtedness underour credit facility (excluding an additional $25.0 million of borrowingsavailable thereunder), and our guarantee of a $2.4 million term loan ofSagamoreHill, which owns WWMB, a station we program pursuant to a LMA.  In addition, we expect to guarantee up to$7.0 million of additional debt to be incurred by Tucker in connection withTucker’s acquisition of WGTU, to which we will provide services pursuant to theJSA and SSA.  We may not pay principal,premium, if any, interest or other amounts on the notes in the event of apayment default in respect of certain senior indebtedness, including debt underour credit facility, unless that indebtedness 

 

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has been paid in full or the default has been cured or waived. Inaddition, if certain other defaults regarding certain senior indebtednessoccur, we may be prohibited from paying any amount on the notes and theguarantors may be prohibited from paying any amount on the guarantees for adesignated period of time. In the event of bankruptcy, liquidation ordissolution, our assets would be available to pay obligations on the notes onlyafter all payments had been made on our senior indebtedness. Similarly, in theevent of bankruptcy, liquidation or dissolution of any guarantor, its assetswould be available to pay obligations on its guarantee of the notes only afterall payments had been made on its senior indebtedness. Accordingly, we may nothave enough assets remaining after payments to holders of our seniorindebtedness to make any payments on the notes.

 

## ***Thenotes are not secured by our assets or the assets of our subsidiaries.***

## *** ***

The notes and the guarantees are not secured by the Issuers’ assets orthe assets of the guarantors. However, the indebtedness incurred under ourcredit facility and the guarantees of the SagamoreHill term loan are secured bya security interest in all or substantially all of the Issuers’ assets, and allor substantially all of the assets of the guarantors. In addition, futureindebtedness that the Issuers and the guarantors incur may be secured by theIssuers’ assets and those of the guarantors. If the Issuers or the guarantorsbecome insolvent, or are liquidated, or if payment of any secured indebtednessis accelerated, the holders of the secured indebtedness will be entitled toexercise the remedies available to secured lenders under applicable lawsincluding the ability to foreclose on and sell the Issuers’ and the guarantors’collateral securing the indebtedness in order to satisfy the securedindebtedness. In such circumstances, we may not have sufficient assets to repaythe notes.

 

## ***Federaland state fraudulent transfer and conveyance laws allow courts, under specificcircumstances, to void guarantees and to require note holders to returnpayments received from us or the guarantors.***

## *** ***

The Issuers’ creditors or the creditors of our guarantors couldchallenge the note guarantees issued by the guarantors as fraudulent transfersor conveyances or on other grounds. Under the federal bankruptcy law andcomparable provisions of state fraudulent transfer or conveyance laws, thedelivery of the guarantees could be voided as fraudulent transfers orconveyances if a court determined that the guarantor, at the time it incurredthe indebtedness evidenced by its guarantees:

 

·                  delivered the guarantees with theintent to hinder, delay or defraud its existing or future creditors; or

 

·                  received less than reasonablyequivalent value or did not receive fair consideration for the delivery of theguarantees, and if the guarantor:

 

·                  wasinsolvent or rendered insolvent at the time it delivered the guarantees;

 

·                  wasengaged in a business or transaction for which the guarantor’s remaining assetsconstituted unreasonably small capital; or

 

·                  intendedto incur, or believed that it would incur, debts beyond its ability to pay suchdebts as they mature.

 

If the guarantees issued by the guarantors were voided or limited underfraudulent transfer or conveyance or other laws, any claim noteholders may makeagainst such guarantors for amounts payable on the notes would be effectivelysubordinated to all of the indebtedness and other obligations of suchguarantors, including trade payables and any subordinated indebtedness. If thegranting of liens to secure 

 

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the guarantees issued by the guarantors were voided or limited underfraudulent transfer or conveyance or other laws, the guarantees would becomeunsecured claims to the extent of the avoidance or limitation, ranking equallywith all general unsecured claims of such guarantors.

 

The measures of insolvency for purposes of these fraudulent transferlaws will vary depending upon the law applied in any proceeding to determinewhether a fraudulent transfer has occurred. Generally, however, a guarantorwould be considered insolvent if:

 

·                  the sum of its debts, includingcontingent liabilities, is greater than the fair saleable value of all of itsassets;

 

·                  the present fair saleable value ofits assets was less than the amount that would be required to pay its probableliability on its existing debts, including contingent liabilities, as theybecome absolute and mature; or

 

·                  it could not pay its debts, includingcontingent liabilities, as they become due.

 

We cannot be sure what standard a court would apply in making thesedeterminations or, regardless of the standard, that a court would not void theguarantees issued by the guarantors or that any such guarantees would not besubordinated to a guarantor’s other indebtedness.

 

## ***Noteholdersmay not be entitled to require us to repurchase the notes in connection withcertain transactions because the term “all or substantially all” in the contextof a change of control has no established meaning under the relevant law.***

## *** ***

One of the ways a change of control can occur under the indenturegoverning the notes is upon a sale of all or substantially all of our assets.The meaning of the phrase “all or substantially all” as used in that definitionvaries according to the facts and circumstances of the subject transaction, hasno clearly established meaning under applicable law and is subject to judicialinterpretation. Accordingly, in certain circumstances there may be a degree ofuncertainty in ascertaining whether a particular transaction would involve adisposition of “all or substantially all” of the assets of a person andtherefore it may be unclear whether a change of control has occurred andwhether noteholders have the right to require us to repurchase the notes.

 

## ***Wemay not have the ability to raise the funds necessary to finance the change ofcontrol offer required by the indenture.***

## *** ***

Upon the occurrence of certain specific kinds of change of controlevents, we are required to offer to repurchase all of our outstanding notes at101% of the principal amount thereof plus accrued and unpaid interest to thedate of repurchase. However, it is possible that we will not have sufficientfunds at the time of the change of control to make the required repurchase ofthe notes or that restrictions in our credit facility will not allow suchrepurchases. In addition, certain important corporate events, such as leveragedrecapitalizations, that would increase the level of our indebtedness, would notconstitute a change of control under the indenture.

 

#### **ITEM 1B.**                                            UnresolvedStaff Comments.

#### ** **

We have received no written comments from the SEC staff regarding ourperiodic or current reports less than 180 days before the end of our fiscalyear ended December 31, 2007 that remain unresolved.

 

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**ITEM 2.****                                                Properties.**

 

We lease our principal executive offices, which are located at 2500 W.Higgins Road, Suite 155, Hoffman Estates, Illinois 60169. In addition, weown or lease facilities in the following locations.

 
| **Station—Metropolitan Area**                        | ** ** | **Use—Location**                                       | ** ** | **Owned or****Leased**     | ** ** | **Mortgage** |
|-----------------------------------------------------------|------------|-------------------------------------------------------------|------------|----------------------------|------------|--------------|
| WEYI / WBSF—Flint / Saginaw / Bay City, MI           |       | Studio and tower site—Clio, MI                         |       | Owned                      |       | Yes          |
|                                                      |       | Tower site—Bay City, MI                                |       | Leased                     |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| WNWO—Toledo, OH                                      |       | Studio and office—Toledo, OH                           |       | Owned                      |       | Yes          |
|                                                      |       | Tower and transmitter site—Oregon, OH                  |       | Owned                      |       | Yes          |
|                                                      |       |                                                        |       |                       |       |         |
| WSTM / WSTQ-LP—Syracuse, NY                          |       | Studio and office—Onondaga, NY                         |       | Owned                      |       | Yes          |
|                                                      |       | Tower and transmitter site—Syracuse, NY                |       | Owned                      |       | Yes          |
|                                                      |       | Transmitter site—Syracuse, NY                          |       | Leased                     |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| WACH—Columbia, SC                                    |       | Studio—Columbia, SC                                    |       | Leased                     |       | No           |
|                                                      |       | Tower site—Elgin, SC                                   |       | Leased                     |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| KGBT—Harlingen / Weslaco / McAllen / Brownsville, TX |       | Studio—Harlingen, TX                                   |       | Owned                      |       | Yes          |
|                                                      |       | Transmitter site—La Feria, TX                          |       | Owned                      |       | Yes          |
|                                                      |       | News bureau—Pharr (McAllen), TX                        |       | Owned                      |       | Yes          |
|                                                      |       | News bureau—Brownsville, TX                            |       | Leased                     |       | No           |
|                                                      |       | Tower site—La Feria, TX                                |       | Owned  (via joint venture) |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| KXRM / KXTU-LP—Colorado Springs / Pueblo, CO         |       | Studio and office—Colorado Springs, CO                 |       | Owned                      |       | Yes          |
|                                                      |       | Transmitter site—Colorado Springs, CO                  |       | Leased                     |       | No           |
|                                                      |       | Transmitter site—Florence, CO                          |       | Leased                     |       | No           |
|                                                      |       | Translator site—Woodland Park, CO                      |       | Leased                     |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| WPDE / WWMB—Myrtle Beach / Florence, SC              |       | News bureau and sales office—Florence, SC              |       | Owned                      |       | Yes          |
|                                                      |       | Tower, transmitter and antennae site—Dillon County, SC |       | Owned                      |       | Yes          |
|                                                      |       | Main studio and office facility—Conway, SC             |       | Leasehold                  |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| WPBN / WTOM—Traverse City / Cadillac, MI             |       | Microwave relay site—Fingerboard Corners, MI           |       | Owned                      |       | Yes          |
|                                                      |       | Tower and transmitter site—Cheboygan, MI               |       | Owned                      |       | Yes          |
|                                                      |       | Microwave relay site—Leetsville,  MI                   |       | Owned                      |       | Yes          |
|                                                      |       | Studio—Traverse City, MI                               |       | Owned                      |       | Yes          |
|                                                      |       | Microwave relay site—Gaylord, MI                       |       | Leasehold                  |       | No           |
|                                                      |       | Tower and transmitter site—Slagle Township, MI         |       | Leased                     |       | No           |
|                                                      |       | News and sales office—Cadillac, MI                     |       | Leased                     |       | No           |
|                                                      |       | News bureau—Gaylord, MI                                |       | Leased                     |       | No           |
|                                                      |       |                                                        |       |                       |       |         |
| WHOI—Peoria / Bloomington, IL                        |       | Tower and studio site—Creve Coeur, IL                  |       | Owned                      |       | Yes          |
|                                                      |       | Sales office—Normal, IL                                |       | Leased                     |       | No           |

 

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| **Station—Metropolitan Area**                |   | **Use—Location**                                    |   | **Owned or****Leased**         |   | **Mortgage** |
|---------------------------------------------------|--------|----------------------------------------------------------|--------|--------------------------------|--------|--------------|
| KVII/KVIH—Amarillo, TX                       |   | Studio and tower site—Amarillo, TX                  |   | Owned                          |   | Yes          |
|                                              |   | Tower and booster site—Guymon, OK                   |   | Owned  (via joint venture)     |   | No           |
|                                              |   | Tower site—Potter County, TX                        |   | Leasehold                      |   | No           |
|                                              |   | Tower site—Clovis, NM                               |   | Owned                          |   | Yes          |
|                                              |   | Tower site—Roosevelt County, NM                     |   | Leasehold                      |   | No           |
|                                              |   | Tower / booster site—Bovina, TX                     |   | Leasehold  (via joint venture) |   | No           |
|                                              |   | Tower site—Hereford, TX                             |   | Leasehold                      |   | No           |
|                                              |   |                                                     |   |                           |   |         |
| KRCG—Columbia / Jefferson City, MO           |   | Studio and tower site—New Bloomfield, MI            |   | Owned                          |   | Yes          |
|                                              |   |                                                     |   |                           |   |         |
|                                              |   | Sales office—Columbia, MO                           |   | Leased                         |   | No           |
|                                              |   | Weather radar—Fulton, MO                            |   | Leased                         |   | No           |
|                                              |   | Tower site, Sedelia, MO                                  |   | Leased                         |   | No           |
|                                              |   |                                                     |   |                           |   |         |
| WFXL—Albany, GA                              |   | Studio—Albany, GA                                   |   | Leased                         |   | No           |
|                                              |   | Tower site—Doerun, GA                               |   | Owned  (via joint venture)     |   | No           |
|                                              |   | Tower site—Albany, GA                               |   | Owned                          |   | No           |
|                                              |   |                                                     |   |                           |   |         |
| KHQA—Quincy, IL / Hannibal, MO /  Keokuk, IA |   | Studio—Hannibal, MO                                 |   | Owned                          |   | Yes          |
|                                              |   | Tower site—Quincy, IL                               |   | Owned                          |   | Yes          |
|                                              |   | Studio and tower site—Quincy, IL                    |   | Owned                          |   | Yes          |
|                                              |   | Remote studio—Keokuk, IA                            |   | Leased                         |   | No           |
|                                              |   | Tower site—Carthage, IL                             |   | Leased                         |   | No           |
|                                              |   |                                                     |   |                           |   |         |
| WLUC—Marquette, MI                           |   | Tower and transmitter site—Ely, MI                  |   | Owned                          |   | Yes          |
|                                              |   | Studio—Negaunee, MI                                 |   | Owned                          |   | Yes          |
|                                              |   | Parking lot—Negaunee, MI                            |   | Leasehold                      |   | No           |
|                                              |   | Passive reflector screen site—Ishpemning, MI        |   | Leasehold                      |   | No           |
|                                              |   | Microwave / camera site—Marquette,  MI              |   | Leased                         |   | No           |
|                                              |   | News and sales office—Escanaba, MI                  |   | Leased                         |   | No           |
|                                              |   | News and sales office—Iron Mountain, MI             |   | Leased                         |   | No           |
|                                              |   | Harbor Tower site —Escanaba, MI                     |   | Leased                         |   | No           |
|                                              |   | News and sales office—Houghton, MI                  |   | Leased                         |   | No           |
|                                              |   |                                                     |   |                           |   |         |
| KTVO – Kirksville, MO / Ottumwa,  IA         |   | Studio – Kirksville, MO                             |   | Owned                          |   | Yes          |
|                                              |   | Tower and transmitter site—Lancaster, MO            |   | Owned                          |   | Yes          |
|                                              |   | Studio—Ottumwa, IA                                  |   | Owned                          |   | Yes          |
|                                              |   | Microwave relay site—Soap Creek, IA                 |   | Owned                          |   | Yes          |
|                                              |   | Tower site—Knox County, Colony, MO                  |   | Leasehold                      |   | No           |
|                                              |   | Sales office and microwave antenna site—Ottumwa, IA |   | Owned                          |   | No           |
|                                              |   | Antenna site—Quincy, IL                             |   | Leased                         |   | No           |

 

28

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#### ** **

**ITEM 3.****                                                LegalProceedings.**

#### ** **

From time to time, we are involved in litigation arising out of ouroperations. Management believes that we are not currently party to any legalproceedings, the adverse outcome of which, individually or in the aggregate,would have a material adverse effect on our financial position or results ofoperations.

 

**ITEM 4.****                                                Submissionof Matters to a Vote of Security Holders.**

#### ** **

Not applicable.

 

29

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#### **PART II**

#### ** **

| **ITEM 5.** | **Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities.** |
|-------------|-------------------------------------------------------------------------------------------------------------------------|

#### ** **

Not applicable.

 

#### **ITEM 6.**                                                SelectedFinancial Data.

#### ** **

The following table presents the selected historical financial data forBarrington Group.  The selectedhistorical financial data of Barrington Group should be read in conjunctionwith “Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations” and ourconsolidated financial statements and the notes thereto included elsewhere inthis Annual Report.

 

Barrington Group, which was formed in October 2003 to acquirebroadcasting stations, acquired:

 

·                  WHOIand KHQA in April 2004;

 

·                  WEYIin May 2004;

 

·                  KRCGin February 2005;

 

·                  aconstruction permit for WBSF in April 2005;

 

·                  KVIIand KVIH in August 2005;

 

·                  WPDEand a local marketing agreement for WWMB in February 2006; and

 

·                  theRaycom stations in August 2006.

 

AsBarrington Group had no operations prior to its acquisition of WHOI and KHQA,WHOI and KHQA are deemed to be the predecessor company to Barrington Group. Thepredecessor company includes WHOI and KHQA for the year ended December 31,2003 and for the period from January 1, 2004 to April 30, 2004.  

 

30

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| ** ** | ** ** | **Predecessor Company** | ** ** | **Barrington Group** | ** ** |
|------------|------------|------------------------------|------------|---------------------------|------------|
| ** ** | ** ** | ** **                   | ** ** | **Period from**      | ** ** | **Period from** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | ** **                   | ** ** | **January 1,**       | ** ** | **May 1, 2004** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Year Ended**          | ** ** | **2004 to**          | ** ** | **to** | ** ** | **Year Ended** | ** ** | **Year Ended** | ** ** | **Year Ended** | ** ** |
| ** ** | ** ** | **December 31,**        | ** ** | **April 30,**        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31.** | ** ** |
| ** ** | ** ** | **2003**                     | ** ** | **2004**                  | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |

 
| ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | **(dollars in thousads)** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|-------------------------------------|------------|------------|------------|------------|------------|
| **Statement  of Operations Data:** |       |       |       |       |       |                                |       |       |       |       |       |   |   |
| Net revenues                       |       | $          | 9,422      |       | $          | 3,161                               |       | $          | 13,486     |       | $          | 25,288 |   | $ | 76,063 |   | $ | 112,539 |   |
| Expenses:                          |       |       |       |       |       |                                |       |       |       |       |       |   |   |
| Operating(1)                       |       | 7,698      |       | 2,611      |       | 8,498                               |       | 17,813     |       | 46,423     |       | 77,529 |   |
| Depreciation and  amortization     |       | 689        |       | 256        |       | 3,162                               |       | 7,648      |       | 19,875     |       | 29,459 |   |
| Corporate                          |       | 55         |       | 61         |       | 718                                 |       | 1,720      |       | 4,367      |       | 4,663 |   |
| Total operating  expenses          |       | 8,442      |       | 2,928      |       | 12,378                              |       | 27,181     |       | 70,665     |       | 111,651 |   |
| Income (loss)  from operations     |       | 980        |       | 233        |       | 1,108                               |       | (1,893     | )          | 5,398      |       | 888 |   |
| Total net  interest expense (2)    |       | 87         |       | 22         |       | 1,527                               |       | 5,070      |       | 13,773     |       | 26,537 |   |
| Other expense  (income)(3)         |       | 72         |       | —     |       | —                              |       | —     |       | —     |       | (256 | ) |
| Income (loss)  before income taxes |       | 821        |       | 211        |       | (419                                | )          | (6,963     | )          | (8,375     | )          | (25,393 | ) |
| Income tax  expense (benefit)      |       | —     |       | —     |       | (108                                | )          | 159        |       | 2,920      |       | (64 | ) |
| Net income  (loss)                 |       | $          | 821        |       | $          | 211                                 |       | $          | (311       | )          | $          | (7,122 | ) | $ | (11,295 | ) | $ | (25,329 | ) |

 

 
| ** **                                        | ** ** | **Predecessor Company** | ** ** | **Barrington Group** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|---------------------------|------------|
| ** **                                        | ** ** | **December 31,**        | ** ** | **April 30,**        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                        | ** ** | **2003**                     | ** ** | **2004**                  | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                        | ** ** | ** **                   | ** ** | ** **                | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance  Sheet Data:**                          |       |                         |       |                      |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                        |       | $                            | 359        |                      | $          | 398 |   | $ | 1,828 |   | $ | 1,737 |   | $ | 4,920 |   | $ | 2,268 |   |
| Total assets                                      |       | 12,112                       |       | 11,593                    |       | 53,298 |   | 118,234 |   | 424,621 |   | 398,149 |   |
| Total long-term  debt, including current portions |       | 944                          |       | 926                       |       | 25,500 |   | 54,018 |   | 274,576 |   | 273,579 |   |
| Total member’s/stockholder’s  equity    |       | 10,169                       |       | 9,697                     |       | 25,247 |   | 60,006 |   | 128,489 |   | 99,487 |   |
|                                                   |            |                              |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

| (1) | Includes selling, technical, programming (including  amortization of program broadcast rights), general and administrative  expenses.         |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes $2,047 and $575 loss on early  extinguishment of debt in 2005 and 2006, respectively.                                                |
| (3) | Represents the non-cash gain on exchange of  newsgathering equipment between WHOI in Peoria, Illinois and Sprint Nextel  Corporation in 2007. |

 

31

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#### **ITEM 7.**                                                Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

#### ** **

The following discussion and analysis should be read in conjunctionwith Barrington Group’s consolidated financial statements and the notes theretoincluded elsewhere in this Annual Report.

 

**Introduction**

** **

We are a television broadcasting company focused on smaller marketsacross the United States. We own or program 21 network television stations,many of which have leading positions in 15 geographically diverse, smallermarkets. In 10 of our 15 markets, we operate a station ranked #1 or #2 inaudience share, and all but six of our stations have a top three market share.All of our stations are affiliated with national television networks—six withNBC, four with ABC, three with CBS, three with FOX, and five with CW.   In the markets where we operate a CWstation, we operate duopolies.

 

We are subject to regulation by the FCC.  In addition, we face risks that couldmaterially adversely affect our business, consolidated financial condition,results of operations or liquidity.  Fora discussion of certain of the risks facing us, see the risk factors set forthin “Item 1A, “Risk Factors” in this Annual Report.

 

**WGTU and WGTQ Acquisition and Assignment**

** **

On August 31, 2007, we entered into the WGTU APA to acquiretelevision station WGTU and its satellite WGTQ, which serve the TraverseCity-Cadillac, Michigan market.  Thepurchase price for the acquisition of WGTU and WGTQ is $10.0 million, of which$0.5 million is currently held in escrow. Simultaneously with entering into the WGTU APA, we assigned our rightsunder the WGTU APA to Tucker.  We expectto guarantee up to $7.0 million of indebtedness to be incurred by Tucker tofinance the acquisition of WGTU and WGTQ.

 

**Raycom Acquisition and Related Transactions**

 

On March 24, 2006, we entered into an Asset Purchase Agreement, orthe Raycom Asset Purchase Agreement, with Raycom Media, Inc., or Raycomand certain of Raycom’s subsidiaries, pursuant to which we purchasedsubstantially all of the assets of 12 television stations, or the Raycomstations, from Raycom. We refer to the purchase of the Raycom stations fromRaycom as the Raycom acquisition. Pursuant to the Raycom Asset Purchase Agreement, the purchase pricepayable in connection with the Raycom acquisition was $264.9 million,including final transaction fees of $3.3 million. The Raycom acquisition wasconsummated on August 11, 2006.

 

Concurrently with the closing of the Raycom acquisition, all of BarringtonCorporation’s existing operating subsidiaries merged with and into newly-formedlimited liability company subsidiaries of Barrington Corporation and BarringtonCorporation merged with and into Barrington Group.  Such mergers are referred to herein as theLLC conversion.

 

In connection with the Raycom acquisition, we issued the notes, repaidour old credit facility and entered into our credit facility. Our creditfacility is comprised of a $147.5 million senior secured term loanfacility, or term facility, and a $25.0 million senior secured revolvingcredit facility, or revolving facility. The term facility has a seven-year maturity and the revolving facilityhas a six-year maturity. Our obligations under our credit facility areguaranteed by Barrington Broadcasting LLC, our parent, or BarringtonBroadcasting, and all of our direct and indirect subsidiaries.  In addition, Barrington Group and theguarantors of the notes guaranteed a $2.5 million term loan of SagamoreHill.  Such guarantees are secured by a firstpriority lien on substantially all of the assets of Barrington Group and theguarantors of the notes.  We did notreceive any proceeds from the SagamoreHill term loan, but SagamoreHill wasrequired to apply the proceeds it received to repay in full its old creditfacility. In addition, concurrently with the closing of the Raycom acquisition,our equity sponsor contributed $60.5 million in additional

 

32

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equity capital to Barrington Broadcasting that wasimmediately contributed to Barrington Group.

 

The Raycom acquisition has been accounted for using the purchase methodof accounting under Statement of Financial Accounting Standards, or SFAS, No. 141,***Business Combinations******, or SFAS No. 141***.As a result, the Raycom acquisition will continue to affect our future resultsof operations in certain significant respects. The aggregate acquisitionconsideration has been allocated to the tangible and intangible assets acquiredand liabilities assumed by us based upon their respective fair values as of theacquisition date which will increase amortization and depreciation expenses. Inaddition, our corporate overhead expenses have increased and, due to theeffects of the increased borrowings to finance the Raycom acquisition, ourinterest expense has increased significantly in the periods following theRaycom acquisition.

 

**Other Recent Acquisitions**

 

**·**                                          On February 6, 2006, we completed theacquisition of the assets of WPDE-TV, the ABC affiliate serving Myrtle Beach,South Carolina from Diversified Communications. In addition to the assets of WPDE, we acquired the rights to operate andan option to acquire WWMB-TV, the CW affiliate serving Myrtle Beach, SouthCarolina, from SagamoreHill.  The totalcost of the acquisition was approximately $24.8 million, which included relatedfees and costs of $0.6 million.  Wefinanced this acquisition with capital contributed by our equity sponsor andborrowings under our old credit facility.

** **

**·**                                          On August 1, 2005, we completed the acquisitionof the assets of KVII-TV, the CBS affiliate in Amarillo, Texas, and KVIH-TV, inClovis, New Mexico, from New Vision Group for a purchase price of approximately$22.3 million plus related fees and costs of $0.4 million.  The acquisition was financed using capitalcontributed by our equity sponsor and borrowings under our old credit facility.

** **

**·**                                          On April 14, 2005, we completed the acquisitionof a construction permit issued by the FCC for a full-power broadcastingfacility in Flint-Saginaw-Bay City, Michigan, from ACME Television, Inc.  The purchase price for the permit was $4.5million plus approximately $0.2 million in related fees and was financed withcapital contributed by our equity sponsor and borrowings under our old creditfacility.

** **

**·**                                          On February 28, 2005, we completed theacquisition of the television broadcast assets of KRCG-TV, the CBS affiliateserving Columbia-Jefferson City, Missouri, from Mel Wheeler, Inc.  The funding for the acquisition was providedby capital contributed by our equity sponsor and borrowings under our oldcredit facility.  The total cost of theacquisition was approximately $38.5 million, which included related fees ofapproximately $0.5 million.

** **

**·**                                          On May 14, 2004, we completed the acquisitionof the assets of WEYI-TV, the NBC affiliate serving Flint-Saginaw-Bay City,Michigan, from LIN Television, Inc. The total cost of the acquisition was approximately $24.4 million, whichincluded related fees of approximately $0.4 million.  The funding for the acquisition was providedby capital contributed by our equity sponsor and borrowings under our oldcredit facility.

** **

**·**                                          On April 30, 2004, we completed the acquisitionof the television broadcast assets of WHOI-TV, the ABC affiliate in Peoria,Illinois, and KHQA-TV, the CBS affiliate in Quincy, Illinois, from ChelseyBroadcasting Company, LLC.  The totalcost of the acquisition was approximately $24.1 million, which included relatedfees of approximately $0.6 million.  Thefunding for the acquisition was provided by capital contributed by our equitysponsor and borrowings under our old credit facility.

** **

**33**

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** **

**Revenues**

** **

Our revenues are primarily derived from the sale of local and nationaladvertising. In addition to competing with other video programming outlets foraudience share, we compete for advertising revenues with other televisionbroadcasting stations in our respective markets and other advertising media,such as newspapers, radio stations, magazines, billboards and other outdooradvertising, transit advertising, the Yellow Pages directories, directmail, local cable systems and local Internet portals. All network-affiliatedstations are required to carry advertising sold by their networks, whichreduces the amount of advertising time available for sale by our stations. Ourstations sell the remaining advertising time in network programming and theadvertising time in non-network programming, retaining all of the revenuesreceived from these sales.

 

Advertisers wishing to reach a national audience usually purchase timedirectly from the networks, or advertise nationwide on a case-by-case basis.National advertisers who wish to reach the audience within one of our marketsoften buy advertising time directly from our stations through nationaladvertising sales representative firms. Local businesses purchase advertisingtime directly from our stations’ local sales staffs.

 

Advertising rates are based upon a number of factors, including:

 

·                  a program’spopularity among the viewers that an advertiser wishes to target (demographicratings);

 

·                  the number ofadvertisers competing for the available time;

 

·                  the size of themarket served by the station;

 

·                  the availabilityof alternative advertising media in the market area;

 

·                  theeffectiveness of the sales forces; and

 

·                  development ofprojects, features and programs that tie advertiser messages to programming.

 

Our advertising revenues are positively affected by strong localeconomies, national, state and local political election campaigns, and certainevents such as the Olympics or the Super Bowl. Because television broadcaststations rely on advertising revenues, declines in advertising budgets,particularly in recessionary periods, adversely affect the broadcast industry,and as a result may contribute to a decrease in the revenues of broadcasttelevision stations. The gross advertising revenues of our stations aregenerally highest in the second and fourth quarters of each year, due in partto increases in consumer advertising in the spring and retail advertising inthe period leading up to and including the holiday season. Additionally, ourgross advertising revenues in even-numbered years can benefit from demand foradvertising time in Olympic broadcasts and advertising placed by candidates forpolitical offices as well as political issue-oriented advertising. A station’slocal market strength, especially in local news ratings, is the primary factorthat buyers use when placing political advertising. From time to time,proposals have been advanced in Congress to require television broadcaststations to provide some advertising time to political candidates at no charge,which could potentially reduce advertising revenues from political candidates.Our stations experienced a greater than expected amount of politicaladvertising for the fiscal year 2006.

 

Local and regional advertising is sold by each station’s own salesrepresentatives to local and other non-national advertisers or agencies.Generally, these contracts are short-term, although 

 

34

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occasionally, longer-term packages will be sold.National spot advertising (generally a series of spot announcements betweenprograms or within the station’s own programs) is sold by the station or itssales representatives directly to agencies representing national advertisers.Political advertising is generated by national, state and local elections,which can vary greatly from both market to market and year to year.

 

We also derive revenues from other sources, including trade and barterprogramming, Internet and network compensation. A national syndicated programdistributor will often retain a portion of the available advertising time forprogramming it supplies in exchange for no fees or reduced fees charged to thestations for such programming. These programming arrangements are referred toas barter programming. Network compensation is the amount, if any, paid by anetwork to its affiliated stations for broadcasting network programs.

 

Compared to revenues from national advertising accounts, revenues fromlocal advertising is generally more stable and more controllable. We seek toattract new advertisers to television and to increase the amount of advertisingtime sold to existing local advertisers by relying on experienced local salesforces with strong community ties, producing news and other programming withlocal advertising appeal and sponsoring or co-promoting local events andactivities.

 

A television station’srates are primarily determined by the estimated number of television homes itcan provide for an advertiser’s message. The estimates of the total number oftelevision homes in a market and the station’s share of those homes are basedon the Nielsen Media Research industry-wide television rating service. Thedemographic make-up of the viewing audience is equally important to advertisers.A station’s rate card for national and local advertisers takes into account, inaddition to audience delivered, such variables as the length of the commercialannouncements and the quantity purchased. Because television stations rely onadvertising revenues, they are sensitive to cyclical changes in the nationaland local economy. The sizes of advertisers’ budgets, which are affected bybroad economic trends, affect the broadcastindustry in general. The strength of the local economy in each station’s marketalso significantly impacts revenues.

 

**Resultsof Operations**

** **

***Combined Results of Barrington Group***

*** ***

We were formed in October 2003 to acquire broadcasting stationsand began operations on April 30, 2004 with the acquisition of WHOI andKHQA.  We acquired WEYI on May 14,2004, KRCG on February 28, 2005 and KVII/KVIH on August 1, 2005.  In addition, we acquired WPDE and a localmarketing agreement for WWMB on February 5, 2006 and we consummated theRaycom acquisition on August 11, 2006. Therefore, the historical results set forth below are not comparablefrom year to year.  The results ofoperations for the fiscal year ended December 31, 2006 include a fullfiscal year of operations for WHOI, KHQA,WEYI, KRCG and KVII/KVIH, as well asthe operations for WPDE and WWMB for the period February 5,  2006 through December 31, 2006 and theRaycom stations from August 11, 2006 through December 31, 2006.  The results of operations for the fiscal yearended December 31, 2007 include a full fiscal year of operations for allthe aforementioned stations.

 

***Year Ended December 31,2007 Compared to Year Ended December 31, 2006***

*** ***

The following table sets forth our operating results for the year endedDecember 31, 2007 as compared to the year ended December 31, 2006.

 

35

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| ** **                               | ** ** | **Years Ended December 31,**          | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **                               | ** ** | **(dollars**** ****in**** ****thousands)** | ** ** |
| Revenue:                                 |       |                                                 |       |   |   |   |   |   |   |
| Local                                    |       | $                                                    | 81,275     |   | $ | 45,476 |   | $ | 35,799 |   | 78.7 | % |
| National                                 |       | 38,594                                               |       | 24,005 |   | 14,589 |   | 60.8 |   |
| Political                                |       | 1,712                                                |       | 14,746 |   | (13,034 | ) | (88.4 | ) |
| Other                                    |       | 10,071                                               |       | 6,003 |   | 4,068 |   | 67.8 |   |
| Gross revenue                            |       | 131,652                                              |       | 90,230 |   | 41,422 |   | 45.9 |   |
| Direct costs                             |       | 19,113                                               |       | 14,167 |   | 4,946 |   | 34.9 |   |
| Net revenue                              |       | 112,539                                              |       | 76,063 |   | 36,476 |   | 48.0 |   |
| Operating  expenses:                     |       |                                                 |       |   |   |   |   |   |   |
| Selling, technical and  program expenses |       | 58,089                                               |       | 33,876 |   | 24,213 |   | 71.5 |   |
| General and  administrative              |       | 19,440                                               |       | 12,289 |   | 7,151 |   | 58.2 |   |
| Depreciation and  amortization           |       | 29,459                                               |       | 20,133 |   | 9,326 |   | 46.3 |   |
| Corporate                                |       | 4,663                                                |       | 4,367 |   | 296 |   | 6.8 |   |
|                                     |       | 111,651                                              |       | 70,665 |   | 40,986 |   | 58.0 |   |
| Income from  operations                  |       | 888                                                  |       | 5,398 |   | (4,510 | ) | (83.5 | ) |
|                                     |       |                                                 |       |   |   |   |   |   |   |
| Interest expense                         |       | (24,924                                              | )          | (12,606 | ) | (12,318 | ) | 97.7 |   |
| Amortization of debt  issuance costs     |       | (1,693                                               | )          | (735 | ) | (958 | ) | 130.3 |   |
| Interest income                          |       | 80                                                   |       | 143 |   | (63 | ) | (44.1 | ) |
| Loss on early  extinguishment of debt    |       | —                                               |       | (575 | ) | 575 |   | (100.0 | ) |
| Net interest  expense                    |       | (26,537                                              | )          | (13,773 | ) | (12,764 | ) | 92.7 |   |
| Non-cash gain                            |       | 256                                                  |       | — |   | 256 |   | 100.0 |   |
| Loss before  income taxes                |       | (25,393                                              | )          | (8,375 | ) | (17,018 | ) | 203.2 |   |
| Income tax  benefit (expense)            |       | 64                                                   |       | (2,920 | ) | 2,984 |   | (102.2 | ) |
| Net loss                                 |       | $                                                    | (25,329    | ) | $ | (11,295 | ) | $ | (14,034 | ) | 124.2 | % |

 

Our net revenue for the year ended December 31, 2007 was $112.5million, as compared to $76.1 million for the year ended December 31,2006, an increase of $36.5 million, or 48.0%. The major components of, and changes to, net revenue were as follows:

 

·                  We acquired WPDE/WWMB in February 2006and the Raycom stations in August 2006. The WPDE/WWMB acquisition and the Raycom acquisition are included in ourresults of operations since the respective acquisition dates. For the yearended December 31, 2007, the WPDE/WWMB acquisition and the Raycomacquisition increased our net revenue by $39.8 million.

 

·                  Our gross political revenue for theyear ended December 31, 2007 was $1.7 million, as compared to $14.7million for the year ended December 31, 2006, a decrease of approximately$13.0 million, or 88.4%.  Politicalrevenue for all of our stations for the year ended December 31, 2006consisted of revenues associated with the mid-term congressional andgubernatorial races in Missouri, Michigan, New York, Ohio, and Illinois.  For the year ended December 31, 2007,gross political revenue was comprised primarily of political advertisingassociated with local political campaigns.

 

·                  Gross national revenue decreased by$0.5 million, or 5.2%, for the stations that were part of the group for theentire year ended December 31, 2006. The decrease was primarily due to decreased spending by nationalautomotive accounts and the reduction in national revenue caused by Olympicadvertising in the first quarter of 2006.

 

36

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Our operatingexpenses for the year ended December 31, 2007 were $111.7 million, ascompared to $70.7 million for the year ended December 31, 2006, anincrease of $41.0 million, or 58.0%.  Themajor changes to operating expenses were as follows:

 

·                 The expenses ofWPDE/WWMB and the Raycom stations increased operating expenses by $41.2 millionfor the year ended December 31, 2007. Because all of these stations wereacquired during the year ended December 31, 2006, the comparison for theyear ended December 31, 2007 and the year ended December 31, 2006 wasaffected.

 

·                 Excluding theeffect of the WPDE/WWMB acquisition and the Raycom acquisition, our selling,technical and programming expenses increased $1.1 million, or 6.9%, for theyear ended December 31, 2007 caused equally by the continued investmentsin the development of centrally-coordinated websites and front end costsassociated with the establishment of a centralized processing center for salesscheduling and the incremental expenses of WBSF, which was launched as a fullpower station in October 2006.  Theincrease in selling, technical and programming expenses was partially offset bydecreases in general and administrative expenses and depreciation andamortization totaling $1.5 million.

 

·                 Total corporateexpenses increased by $0.3 million to $4.7 million for the year ended December 31,2007 from $4.4 million for the year ended December 31, 2006, primarily asresult of staffing additions, increased compensation and additionalprofessional fees and partially offset by a decrease in bonuses.

 

Our net interestexpense, including amortization of debt issuance costs, for the year ended December 31,2007 was $26.5 million as compared to $13.8 million for the year ended December 31,2006, an increase of $12.7 million, or 92.7%. The increase was primarily causedby additional borrowings and a full year of interest costs associated with theissuance of the notes to fund the Raycom acquisition.

 

Non-cash gain forthe year ended December 31, 2007 is attributable to the exchange ofnewsgathering equipment between WHOI in Peoria, Illinois and Sprint NextelCorporation, or Nextel.  The FCC grantedNextel the right to reclaim a portion of the spectrum in the 2GHz band frombroadcasters’ across the country.  Inorder to claim this spectrum, Nextel must exchange all the broadcasters’electronic newsgathering equipment currently using this spectrum with digitalequipment capable of operating in the reformatted portion of the 2GHz bandretained by the broadcasters.  A gain hasbeen recorded in 2007 to the extent that the fair market value of the equipmentreceived exceeded the book value of the analog equipment exchanged.  We expect to complete the Nextel exchange inour remaining 14 markets in 2008.

 

We had a nominalincome tax benefit for the year ended December 31, 2007 compared to incometax expense of $2.9 million for the year ended December 31, 2006.  Income tax expense in 2006 related to the LLCconversion.

 

Our net loss was$25.3 million for the year ended December 31, 2007, compared to a loss of$11.3 million for the year ended December 31, 2006, a change of $14.0million, or 124.2%.

 

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

*** ***

The followingtable sets forth our operating results for the year ended December 31,2006 as compared to the year ended December 31, 2005.  The results of operations for the fiscal yearended 

 

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December 31, 2005 include a full fiscal year of operations forWHOI, KHQA and WEYI, ten months of operations for KRCG and five months ofoperations for KVII.  For the fiscal yearended December 31, 2006, the results of operations set forth below includea full fiscal year of operations for the aforementioned stations as well as theoperations for WPDE/WWMB from February 5, 2006 through December 31,2006 and the Raycom stations from August 11, 2006 through December 31,2006.

 
| ** **                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **                               | ** ** | ** **                                  | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** |
| Revenue:                                 |       |                                        |       |   |   |   |   |   |   |
| Local                                    |       | $                                           | 45,476     |   | $ | 17,866 |   | $ | 27,610 |   | 154.5 | % |
| National                                 |       | 24,005                                      |       | 9,073 |   | 14,932 |   | 164.6 |   |
| Political                                |       | 14,746                                      |       | 100 |   | 14,646 |   | 14,646.0 |   |
| Other                                    |       | 6,003                                       |       | 2,745 |   | 3,258 |   | 118.7 |   |
| Gross revenue                            |       | 90,230                                      |       | 29,784 |   | 60,446 |   | 202.9 |   |
| Direct costs                             |       | 14,167                                      |       | 4,496 |   | 9,671 |   | 215.1 |   |
| Net revenue                              |       | 76,063                                      |       | 25,288 |   | 50,775 |   | 200.8 |   |
| Operating  expenses:                     |       |                                        |       |   |   |   |   |   |   |
| Selling,  technical and program expenses |       | 33,876                                      |       | 12,914 |   | 20,962 |   | 162.3 |   |
| General and  administrative              |       | 12,289                                      |       | 4,899 |   | 7,390 |   | 150.8 |   |
| Depreciation and  amortization           |       | 20,133                                      |       | 7,648 |   | 12,485 |   | 163.2 |   |
| Corporate                                |       | 4,367                                       |       | 1,720 |   | 2,647 |   | 153.9 |   |
|                                     |       | 70,665                                      |       | 27,181 |   | 43,484 |   | 160.0 |   |
| Income (loss)  from operations           |       | 5,398                                       |       | (1,893 | ) | 7,291 |   | 385.2 |   |
|                                     |       |                                        |       |   |   |   |   |   |   |
| Interest expense                         |       | (12,606                                     | )          | (2,990 | ) | (9,616 | ) | 321.6 |   |
| Amortization of  debt issuance costs     |       | (735                                        | )          | (67 | ) | (668 | ) | 997.0 |   |
| Interest income                          |       | 143                                         |       | 34 |   | 109 |   | 320.6 |   |
| Loss on early  extinguishment of debt    |       | (575                                        | )          | (2,047 | ) | 1,472 |   | (71.9 | ) |
| Net interest  expense                    |       | (13,773                                     | )          | (5,070 | ) | (8,703 | ) | 171.7 |   |
| Loss before  income taxes                |       | (8,375                                      | )          | (6,963 | ) | (1,412 | ) | 20.3 |   |
| Income tax  expense                      |       | (2,920                                      | )          | (159 | ) | (2,761 | ) | 1,736.5 |   |
| Net loss                                 |       | $                                           | (11,295    | ) | $ | (7,122 | ) | $ | (4,173 | ) | 58.6 | % |

 

Our net revenues for the year ended December 31, 2006 were $76.1million, as compared to $25.3 million for the year ended December 31,2005, an increase of $50.8 million or 200.8%. The major components of, and changes to, net revenue were as follows:

 

·                  We acquired KRCGin March 2005, KVII in August 2005, WPDE/WWMB in February 2006and the Raycom stations in August of 2006. The KRCG acquisition, theKVII/KVIH acquisition, the WPDE/WWMB acquisition and the Raycom acquisition areincluded in our results of operations since the respective acquisition dates.For the year ended December 31, 2006, the KRCG acquisition, the KVII/KVIHacquisition, the WPDE/WWMB acquisition and the Raycom acquisition increased ournet revenues by $49.1 million.

 

·                  Our gross politicalrevenues for the year ended December 31, 2006 were $14.7 million, ascompared to $0.1 million for the year ended December 31, 2005, an increaseof approximately $14.6 million. Approximately 83% of the increase, or $12.1 million, was attributable tothe KRCG acquisition, the KVII/KVIH acquisition, the WPDE/WWMB acquisition andthe Raycom acquisition.  Politicalrevenues for the year ended December 31, 2006 were positively impacted 

 

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by the mid-term congressionaland gubernatorial races in Missouri, Michigan, New York, Ohio, and Illinois.

 

·                  For the stationsthat were part of the group during 2005, gross local revenues increased by $0.3million, or 2.9%. The increase in gross local revenues was caused by anincreased focus on local accounts and improved selling strategies.

 

·                  Our grossnational revenues decreased by $0.5 million, or 7.6%, for the stations thatwere part of the group during 2005.  Thedecrease in gross national revenues for the years ended December 31, 2006was primarily due to decreased spending by national automotive accounts.

 

Our operatingexpenses for the years ended December 31, 2006 were $70.7 million, ascompared to $27.2 million for the years ended December 31, 2005, anincrease of $43.5 million, or 160.0%. The major changes to operating expenses were as follows:

 

·                  The expenses ofKRCG, KVII, WPDE/WWMB and the Raycom stations were $46.9 million for the yearended December 31, 2006. The expenses of KRCG and KVII, which are includedin our results of operations from March 1, 2005 and August 1, 2005,respectively, totaled $7.6 million for the year ended December 31, 2005.In addition, because Barrington Group acquired WPDE/WWMB and the Raycomstations subsequent to December 31, 2005, the comparison between the yearsended December 31, 2006 and December 31, 2005 was also affected bythese acquisitions.

 

·                  Excluding theeffect of the KRCG acquisition, the KVII/KVIH acquisition, the WPDE/WWMBacquisition and the Raycom acquisition, our selling, technical and programmingexpenses and general and administrative expenses increased $1.4 million, or10.3%, for the year ended December 31, 2006, as a result of increasedcosts associated with restructured sales management at WEYI and scheduledpayroll increases.

 

·                  Our corporateexpenses increased by $2.7 million for the year ended December 31, 2006 to$4.4 million from $1.7 million for the year ended December 31, 2005primarily as result of $1.0 million of bonuses paid to certain members ofmanagement, $0.3 million of fees in connection with the merger of BarringtonCorporation with and into Barrington Group, increased personnel in connectionwith the Raycom acquisition, and increased professional fees.

 

Our net interestexpense for the year ended December 31, 2006 was $13.8 million as comparedto $5.1 million for the year ended December 31, 2005, an increase of $8.7million, or 171.7%. The increase was caused by the additional interest expenseassociated with the additional debt incurred and the issuance of the notes tofund the Raycom acquisition.  Therefinancing also resulted in the write-off of unamortized debt issuance costsof $0.6 million for the year ended December 31, 2006. For the year ended December 31,2005, material modifications of Barrington Group’s debt associated with the2005 acquisitions resulted in a write-off of unamortized debt issuance coststotaling $2.0 million.

 

Our income taxexpense for the year ended December 31, 2006 was approximately $2.9million which included additional federal and state taxes of $2.4 million paidin connection with the merger of Barrington Corporation with and into BarringtonGroup and accruals for additional state income taxes of approximately $0.5million as a result of the LLC conversion.

 

Our net loss was$11.3 million for the year ended December 31, 2006, as compared to $7.1million for the year ended December 31, 2005, an increase of $4.2 million,or 58.6%.

 

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**Liquidity andCapital Resources**

** **

Our primarysources of liquidity are cash flow from operating activities, borrowings underour credit facility and capital contributions. Our need for liquidity arises primarily from acquisitions, capitalexpenditures and interest payable on our credit facility and the notes.  In the first quarter of 2008, we utilized$5.0 million of our revolving facility to fund seasonal working capitalneeds.  We expect that cash fromoperations and borrowings under our revolving facility will be sufficient tocover our liquidity requirements and those required for debt service needs andcapital expenditure needs during the next twelve months.

 

*Cashflows from operating activities.*  Our cash flows provided by operatingactivities for year ended December 31, 2007 were $6.1 million as comparedto $12.3 million for the year ended December 31, 2006.  The decrease in cash flows provided byoperating activities of $6.2 million was primarily caused by the increase of$5.2 million in accrued interest in 2006 related to the financing for theRaycom acquisition, which was paid in 2007. Additionally, cash film payments increased $2.6 million for the yearended December 31, 2007 also due to the acquisition of the Raycomstations.  These increases were partiallyoffset by the build up in working capital associated with the addition of theRaycom stations.

 

*Cashflows from investing activities.*  Our cash flows used in investing activitieswere $7.0 million for the year ended December 31, 2007, as compared to$297.3 million for the year ended December 31, 2006.   The WPDE/WWMB acquisition was completed in February 2006for $24.8 million, of which $24.5 million was incurred in 2006.  In addition, the Raycom acquisition wascompleted in August 2006, with costs totaling $264.1 million for the yearended December 31, 2006 and $0.8 million for the year ended December 31,2007.  Purchases of property andequipment for the year ended December 31, 2007 were $6.2 million ascompared to $8.7 million for the year ended December 31, 2006.  The decrease of $2.5 million reflects thereduction of initial property and equipment investments needed at the Raycomstations.

 

*Cash flowsfrom financing activities.* Our cash flows used in financing activities were $1.7 million for theyear ended December 31, 2007, compared to $288.6 million provided byfinancing activities for the year ended December 31, 2006.  The cash flows used in financing activitiesfor the year ended December 31, 2007 were primarily used to pay $1.5million in scheduled principal payments on the term facility.  In addition, in August 2007, we receiveda loan of $0.5 million from our equity sponsor to offset costs of the pendingacquisition of WGTU and WGTQ.  The cashflows provided by financing activities for the year ended December 31,2006 were primarily due to the $79.8 million in capital contributionsassociated with the acquisition of WPDE/WWMB and the Raycom stations.  In addition, we borrowed $7.0 million in February 2006to partially fund the WPDE/WWMB acquisition and in August 2006 borrowed$150.0 million and issued $125.0 million aggregate principal amount of thenotes to fund the Raycom acquisition and repay our existing long-term debt.

 

*Ourcredit facility and notes*. In order to finance the Raycom acquisition, we entered into a creditfacility on August 11, 2006. Our credit facility is comprised of a $147.5million senior secured term facility and a $25.0 million senior securedrevolving facility. Together with $125.0 million of funds from our offering ofthe notes and capital contributions from our equity sponsor in the amount of$60.5 million, our credit facility provided the resources to complete the Raycomacquisition, as well as to repay $61.0 million of our existing long-termdebt.  As of December 31, 2007, thebalance on the term facility was $145.7 million.  Borrowings against the revolving facilityduring the year ended December 31, 2007 totaled $9.4 million and wererepaid in full by December 31, 2007 with cash flows from operations.

 

The term facilityhas a seven-year maturity and the revolving facility has a six-year maturity.The obligations under our credit facility are guaranteed by BarringtonBroadcasting and all of our direct and indirect subsidiaries. Our creditfacility is secured by a first priority lien on substantially all of our andour 

 

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direct and indirect subsidiaries’ existing and future assets.

 

Borrowings underour credit facility bear interest at a floating rate, which can be either LIBORplus an applicable margin or, at our option, a base rate plus an applicablemargin payable at least annually.  Baserate is defined as the higher of (i) the Bank of America prime rate or (ii) thefederal funds effective rate plus 0.50%. The applicable margin for (x) the term facility is 2.25% for LIBORloans and 1.25% for base rate loans and (y) the revolving facility is2.25% for LIBOR loans and 1.25% for base rate loans for the first nine monthsand subject to a pricing grid thereafter based on total leverage.  The interest rate payable under our creditfacility will increase by 2.0% per annum during the continuance of an event ofdefault. The unused portion of the revolving facility is subject to acommitment fee of 0.50% per year.

 

In addition, on August 11,2006, we issued $125.0 million aggregate principal amount of the notes and usedthe net proceeds of such offering to consummate the Raycom acquisition.  The notes mature on August 15,2014.  Interest is payable on the notessemi-annually in cash on February 15 and August 15 of each year.  The notes are unconditionally guaranteed onan unsecured senior subordinated basis by all of our current and futurerestricted subsidiaries (other than Barrington Capital) that guarantee our andour subsidiaries’ other indebtedness. The notes bear interest at a fixed rate of 10.5%.

 

Our credit facility and the indenture governing the notes limit ourability to:

 

·                  incur additionalindebtedness and issue certain preferred stock;

 

·                  pay dividends onour capital stock or repurchase our capital stock or subordinated debt;

 

·                  makeinvestments;

 

·                  create certainliens;

 

·                  sell certainassets or merge or consolidate with or into other companies;

 

·                  incurrestriction on the ability of our subsidiaries to make distributions ortransfer assets to us; and

 

·                  enter intotransactions with affiliates.

 

Our creditfacility also contains certain defined conditions of default and covenants,including requirements to maintain various financial ratios and manage ourbusiness prudently.  Continuedavailability of the revolving facility will be predicated on compliance withthese covenants. For additional information regarding our credit facility andthe notes, see Note E to our consolidated financial statements includedelsewhere in this Annual Report.

 

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**ContractualObligations**

** **

The followingtable summarizes our contractual obligations at December 31, 2007, and theeffect such obligations are expected to have on our liquidity and cash flow infuture periods.

 
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2013 and** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|
| ** **                                                       | ** ** | **Total**  | ** ** | **2008**   | ** ** | **2009**                             | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **After**         | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Term facility                                                    |       | $          | 145,656    |       | $          | 1,475                                |       | $          | 1,475      |       | $          | 1,475      |       | $                 | 1,475      |   | $ | 1,475 |   | $ | 138,281 |   |
| Senior  subordinated notes                                       |       | 125,000    |       | —     |       | —                               |       | —     |       | —     |       | —     |       | 125,000           |       |
| SagamoreHill  term loan                                          |       | 2,420      |       | 25         |       | 25                                   |       | 25         |       | 25         |       | 25         |       | 2,295             |       |
| Related party  loan                                              |       | 503        |       | 503        |       | —                               |       | —     |       | —     |       | —     |       | —            |       |
| Contracts  payable                                               |       | 1,423      |       | 138        |       | 115                                  |       | 112        |       | 108        |       | 555        |       | 395               |       |
| Program  broadcast payables                                      |       | 6,086      |       | 4,523      |       | 646                                  |       | 504        |       | 197        |       | 121        |       | 95                |       |
| Total  obligations reported as liabilities                       |       | 281,088    |       | 6,664      |       | 2,261                                |       | 2,116      |       | 1,805      |       | 2,176      |       | 266,066           |       |
|                                                             |       |       |       |       |       |                                 |       |       |       |       |       |       |       |              |       |
| Interest on  long-term debt obligations(1)                       |       | 145,460    |       | 23,795     |       | 23,687                               |       | 23,578     |       | 23,469     |       | 23,361     |       | 27,570            |       |
| Non-cancelable  commitments to purchase program broadcast rights |       | 10,915     |       | 955        |       | 3,824                                |       | 3,333      |       | 2,002      |       | 705        |       | 96                |       |
| Operating lease  obligations                                     |       | 7,160      |       | 1,026      |       | 943                                  |       | 873        |       | 714        |       | 665        |       | 2,939             |       |
| Total  contractual obligations                                   |       | $          | 444,623    |       | $          | 32,440                               |       | $          | 30,715     |       | $          | 29,900     |       | $                 | 27,990     |   | $ | 26,907 |   | $ | 296,671 |   |

 

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(1)               Representsestimated interest expense on the term facility of our credit facility and theSagamoreHill term loan based on the expected future debt balances and using thefloating interest rates on the obligations as of December 31, 2007.  Additionally, interest expense on the noteswas calculated at 10.5% annually through maturity.

 

**Seasonality**

** **

Our business hasexperienced and is expected to continue to experience significant seasonalitydue to, among other things, seasonal advertising patterns and seasonalinfluences on people’s viewing habits. The advertising revenue of television broadcasting stations is generallyhighest in the second and fourth quarters of each year, due in part toincreases in consumer advertising in the spring and retail advertising in theperiod leading up to and including the holiday season.  In addition, advertising revenue tends to behigher in even-numbered years, when national, state and local politicaladvertising is a significant element of advertising revenue.  Historically, in odd-numbered years, littleif any revenue is obtained from political advertising.

 

**Off-Balance Sheet Arrangements**

 

We have various operating lease obligations forequipment, land and office space that expire through March 2022. Inaddition, we account for program rights and obligations in accordance with SFASNo. 63, “Financial Reporting by Broadcasters”, or SFAS 63, which requiresus to record program rights agreements on our balance sheet on the firstbroadcast date of the program. We have commitments for future program rightsagreements not recorded on our balance sheet at December 31, 2007. For asummary of these non-cancelable commitments, see the Summary of ContractualObligations table included in this Annual Report.  Other than theseoperating leases and program rights agreements, we do not have any off-balancesheet arrangements as of December 31, 2007.

 

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**Inflation**

 

We do not believe inflation has a significant effecton our operations.

 

**CriticalAccounting Policies and Estimates**

** **

Financialstatements prepared in accordance with generally accepted accounting principlesrequire management to make estimates and assumptions that affect the amountsreported in our consolidated financial statements and accompanyingdisclosures.  Actual results could differfrom those assumptions and estimates. The accounting policies that are most significant and sensitive toassumptions and estimates include allocation of a station’s purchase price toidentifiable assets, and the procedures used to evaluate various assets forimpairment.

 

*Purchaseaccounting.*  Thepurchase of stations involves allocation of the purchase price according to theestimated fair market values of the monetary, tangible, and intangible assetsacquired.  The allocated values are “pushed-down”to become the restated asset costs on the books of the subsidiary companiesrepresenting the individual stations.  We obtain outside appraisals following our purchases of stations.  The values assigned by the appraisals maydiffer from the estimates initially assigned by us at the time ofpurchase.  Generally accepted accountingprincipals allow up to one year for completion of the determination ofallocation of values, so changes to the estimated purchase price allocationsmay materially change the depreciation and amortization expenses reported up toone year from purchase.  All purchaseprice allocations were finalized prior to December 31, 2007.

 

*Impairmentof long-lived assets.* Generally accepted accounting principles require that most long-livedassets are carried at the lower of cost or fair value.  Such assets compose the major portion ofBarrington Group’s total assets and exceed member’s equity.  We review and test our indefinite livedassets for potential impairment at least annually and tests its long-livedassets for impairment when events or changes in circumstances indicate thecarrying amount may not be recoverable. This review requires assumptions and estimates of future cash flows tobe generated by its stations, discount rates to be used in present valuecalculations, expected future benefits from network affiliation contracts, andother future conditions.  Changes inmarket conditions or our plans could change management’s judgments regardingimpairment of assets.

 

*DerivativeFinancial Instruments.* We invest in derivative financial instruments to limit our exposure tointerest rate increases on our floating rate debt.  We recognize at fair value all derivatives,whether designated in hedging relationships or not, in the balance sheet aseither an asset or liability.  Theaccounting for changes in the fair value of a derivative, including certainderivative instruments embedded in other contracts, depends on the intended useof the derivative and the resulting designation.  If the derivative is designated as a fair valuehedge, the changes in the fair value of the derivative and the hedged item arerecognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in thefair value of the derivative are recorded in other comprehensive income and arerecognized in the statement of operations when the hedged item affects netincome.  If the derivative does notqualify as a hedge, its carrying value must be periodically adjusted to fairvalue, with any gain or loss recognized in operating results.

 

**Recent Issued Accounting Pronouncements**

 

In September 2006,the Financial Accounting Standards Board, or FASB, issued SFAS No. 157, *Fair Value Measurements,* or SFAS No. 157, which iseffective for fiscal years beginning after November 15, 2007. **SFAS No. 157 establishes acomprehensive definition of fair value and provides measurement standards anddisclosure requirements for entities to use in the application of the conceptas is already required or permitted in other accounting standards.**

 

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**In February 2007, FASB**issued SFAS No. 159, *The**Fair Value Option for Financial Assets and Financial Liabilities,*or SFAS No. 159, which is effective for fiscal years beginning after November 15,2007. SFAS No. 159 establishes as optional but irrevocable once elected,the accounting application of fair value for financial assets and liabilities.

 

We are currentlyevaluating the impact of SFAS Nos. 157 and 159 and do not believe they willhave a significant impact on our financial position or results of operations.

 

**In December 2007, FASB issued SFAS No. 141(R),*“Business Combinations”,*or SFAS No. 141(R),which establishes principles and requirements for how the acquirer of abusiness recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, and any noncontrolling interest inthe acquiree.  SFAS 141(R) alsoprovides guidance for recognizing and measuring the goodwill acquired in thebusiness combination and determines what information to disclose to enableusers of the financial statements to evaluate the nature and financial effectsof the business combination.  SFAS 141(R) iseffective for fiscal years beginning after December 15, 2008.  Early adoption is not permitted.  We are currently evaluating the impact theadoption of SFAS No. 141(R) will have on our consolidated financialstatements.  We expect the adoption ofSFAS No. 141(R) to have a significant impact on any futureacquisitions.**

 

In December 2007,FASB issued SFAS No. 160, *Noncontrolling Interest inConsolidated Financial Statements – an amendment of ARB No. 51”,*orSFAS No. 160, which is effective for fiscal years beginning after December 15,2008.  SFAS No. 160 establishesaccounting and reporting standards with regard to noncontrolling, or minorityinterests, in consolidated financial statements.  It clarifies that a noncontrolling interestin a subsidiary is an ownership interest in the consolidated entity that shouldbe reported as equity in the consolidated financial statements.  **We are currently assessing the impact of SFASNo. 160 on our consolidated financial statements for the year ending December 31,2009 and beyond, but do not presently anticipate it will have a material effecton our consolidated financial position and results of operations.**

 

#### **ITEM 7A.**                                       Quantitativeand Qualitative Disclosures About Market Risk.

#### ** **

Market risk is therisk of loss arising from adverse changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices. We haveno cash flow exposure due to rate changes on the notes because they bearinterest at fixed rates.  However, ourcredit facility bears interest at floating rates based on LIBOR.  Accordingly, we are exposed to potentiallosses related to changes in interest rates. If there is a rise in interest rates, our debt service obligations onthe borrowings under our credit facility would increase even though the amountborrowed remained the same, which would affect our results of operations. A 1%change in LIBOR would result in our interest expense under our credit facilityfluctuating approximately $1.5 million per year, without taking intoaccount any hedging instruments.

 

We do not enterinto derivatives or other financial instruments for trading or speculativepurposes; however, in order to manage our interest rate risk, we entered intotwo interest rate cap agreements to effectively fix the interest rate on theborrowings under our credit facility. The agreement governing our 5.0% interestrate cap dated June 1, 2005, specified a notional amount of $44.0 millionand expired on May 31, 2007.  Theagreement governing our 5.5% interest rate cap dated November 9, 2005,specified a notional amount of $20.0 million and expired on November 14,2007. We are required to reflect our interest rate caps on our balance sheet atfair market value. As such, we are exposed to potential gains and losses due tochanges in interest rates. As a result of the mark-to market adjustmentrequired each quarter, we recorded a $0.1 million loss on the interest ratecaps for the year ended December 31, 2007, a nominal loss for the yearended December 31, 2006 and a nominal gain on the interest rate cap forthe year ended December 31, 2005.

 

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In January 2007,we entered into two interest rate collar agreements, each effective on February 12,2007, to limit our exposure to fluctuation in short-term interest rates on aportion of our variable rate debt by locking in a range of interest rates.    The notional amount of each interest ratecollar agreement is $40,000,000 and both expire on February 12, 2011.

 

In May 2007,we entered into two additional interest rate collar agreements, each effectiveon August 14, 2007, to further limit the exposure to fluctuation inshort-term interest rates on a portion of our variable rate debt by locking ina range of interest rates and to replace the $44,000,000 interest rate capagreement that expired in May 2007. The notional amount of each interest rate collar agreement is$20,000,000.  The agreements expire on August 14,2010 and August 16, 2010.

 

The collaragreements are designated as hedging instruments under SFAS No. 133 *Accounting for Derivatives and Hedging Activities,*or SFAS No. 133.  In accordance with SFAS No. 133,unrealized changes in the fair value of these agreements are recorded in othercomprehensive income. The interest rate collars consist of a purchased optionand a sold option, which have been entered into simultaneously with the samecounterparties.

 

The interest ratecollar agreements provide that we will receive payment when the three-monthLIBOR rises above 5.5% and requires payment when the three-month LIBOR fallsbelow 4.84% on the first $80,000,000 and 4.845% on the subsequent$40,000,000.  During the year ended December 31,2007, payments received on the interest rate collars totaled $8,000.  At December 31, 2007, the value of theinterest rate collar agreements was reflected as a liability in the amount of$3.7 million based on the fair value of the collars as of that date.  In the event that interest rate expectationschange, the effect of the change in the valuation of the interest rate collarsto maturity will be reflected through other comprehensive income or loss.

 

45

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#### **ITEM8.**                             ConsolidatedFinancial Statements and Supplementary Data.

#### ** **

**BARRINGTONBROADCASTING GROUP LLC**

**Index to Financial Statements**

 
| ** **                                                                                                                     | **Page**   |
|--------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                     | ** ** |
| CONSOLIDATED  FINANCIAL STATEMENTS OF BARRINGTON BROADCASTING GROUP LLC FOR THE YEAR ENDED  DECEMBER 31, 2007                  |       |
| Report  of Independent Registered Public Accounting Firm                                                                       | 47         |
| Consolidated Balance Sheets as of December 31,  2007 and December 31, 2006                                           | 48         |
| Consolidated Statements of  Operations for the Years Ended December 31, 2007, 2006 and 2005                               | 49         |
| Consolidated Statements of  Member’s/Stockholder’s Equity for the Years Ended December 31, 2007,  2006 and 2005 | 50         |
| Consolidated Statements of  Cash Flows for the Years Ended December 31, 2007, 2006 and 2005                               | 51         |
| Notes to Consolidated  Financial Statements                                                                                    | 53         |

 

46

----

** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

The Board of Directors and Member

Barrington Broadcasting Group LLC

 

We have auditedthe accompanying consolidated balance sheets of Barrington Broadcasting GroupLLC, (the “Company”) as of December 31, 2007 and 2006 and the relatedconsolidated statements of operations, cash flows and member’s/stockholder’sequity for each of the three years in the period ended December 31, 2007.These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements basedon our audits.

 

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  We were not engaged toperform an audit of the Company’s internal control over financialreporting.  Our audits includedconsideration of internal control over financial reporting as a basis for designingaudit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Barrington Broadcasting GroupLLC at December 31, 2007 and 2006 and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31,2007, in conformity with U.S. generally accepted accounting principles.

 

 
| */s/ Ernst & Young, LLP* |   |
|-----------------------------------|--------|
| Milwaukee, Wisconsin              |   |
| March 17, 2008               |   |

 

47

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**BARRINGTON BROADCASTING GROUP LLC**

**Consolidated Balance Sheets**

**(in thousands)**

 
| ** **                                                                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **2007**              | ** ** | **2006** | ** ** |
| **ASSETS**                                                                                        |       |                  |       |   |   |
| CURRENT ASSETS                                                                                    |       |                  |       |   |   |
| Cash and cash  equivalents                                                                        |       | $                     | 2,268      |   | $ | 4,920 |   |
| Trade  receivables, less allowance for doubtful accounts of $553 and $744,  respectively          |       | 22,837                |       | 23,229 |   |
| Current portion  of program broadcast rights                                                      |       | 3,149                 |       | 3,599 |   |
| Prepaid expenses  and other current assets                                                        |       | 1,842                 |       | 1,436 |   |
|                                                                                              |       | 30,096                |       | 33,184 |   |
|                                                                                              |       |                  |       |   |   |
| Program  broadcast rights                                                                         |       | 1,169                 |       | 1,068 |   |
| Debt issuance  costs                                                                              |       | 10,152                |       | 11,318 |   |
| Investment in  joint ventures                                                                     |       | 1,440                 |       | 1,498 |   |
| Other                                                                                             |       | 38                    |       | 708 |   |
|                                                                                              |       |                  |       |   |   |
| Property and  equipment, net                                                                      |       | 77,579                |       | 95,425 |   |
|                                                                                              |       |                  |       |   |   |
| Goodwill                                                                                          |       | 9,922                 |       | 9,278 |   |
| Other  intangibles, net                                                                           |       | 267,753               |       | 272,142 |   |
| TOTAL ASSETS                                                                                      |       | $                     | 398,149    |   | $ | 424,621 |   |
|                                                                                              |       |                  |       |   |   |
| **LIABILITIES AND MEMBER’S EQUITY**                                                          |       |                  |       |   |   |
| CURRENT  LIABILITIES                                                                              |       |                  |       |   |   |
| Accounts payable                                                                                  |       | $                     | 1,318      |   | $ | 1,721 |   |
| Current portion  of program broadcast payable                                                     |       | 4,523                 |       | 4,449 |   |
| Current  maturities of long-term debt, including related party loan of $503 and $0,  respectively |       | 2,003                 |       | 1,500 |   |
| Current portion  of contracts payable                                                             |       | 138                   |       | 327 |   |
| Accrued interest                                                                                  |       | 6,314                 |       | 5,722 |   |
| Accrued expenses  and other liabilities                                                           |       | 4,696                 |       | 4,963 |   |
| Deferred revenue  - current                                                                       |       | 143                   |       | 149 |   |
| Total current  liabilities                                                                        |       | 19,135                |       | 18,831 |   |
|                                                                                              |       |                  |       |   |   |
| Long-term debt                                                                                    |       | 271,576               |       | 273,076 |   |
| Contracts  payable                                                                                |       | 1,285                 |       | 1,502 |   |
| Program  broadcast payable                                                                        |       | 1,563                 |       | 1,434 |   |
| Interest rate  collar                                                                             |       | 3,673                 |       | — |   |
| Deferred revenue                                                                                  |       | 1,430                 |       | 1,289 |   |
|                                                                                              |       |                  |       |   |   |
| MEMBER’S EQUITY                                                                              |       |                  |       |   |   |
| Member’s equity                                                                              |       | 103,160               |       | 128,489 |   |
| Other  comprehensive loss                                                                         |       | (3,673                | )          | — |   |
| Total member’s  equity                                                                       |       | 99,487                |       | 128,489 |   |
|                                                                                              |       |                  |       |   |   |
| TOTAL  LIABILITIES AND MEMBER’S EQUITY                                                       |       | $                     | 398,149    |   | $ | 424,621 |   |

 

See accompanying notes toconsolidated financial statements

 

48

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**BARRINGTON BROADCASTING GROUP LLC**

**Consolidated Statements ofOperations**

**(in thousands)**

** **
| ** **                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                               | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| NET REVENUES                             |       | $                                           | 112,539    |   | $ | 76,063 |   | $ | 25,288 |   |
|                                     |       |                                        |       |   |   |   |   |
| OPERATING  EXPENSES                      |       |                                        |       |   |   |   |   |
| Selling,  technical and program expenses |       | 58,089                                      |       | 33,876 |   | 12,914 |   |
| General and  administrative              |       | 19,440                                      |       | 12,289 |   | 4,899 |   |
| Depreciation and  amortization           |       | 29,459                                      |       | 20,133 |   | 7,648 |   |
| Corporate                                |       | 4,663                                       |       | 4,367 |   | 1,720 |   |
| Total operating  expenses                |       | 111,651                                     |       | 70,665 |   | 27,181 |   |
|                                     |       |                                        |       |   |   |   |   |
| INCOME (LOSS)  FROM OPERATIONS           |       | 888                                         |       | 5,398 |   | (1,893 | ) |
|                                     |       |                                        |       |   |   |   |   |
| INTEREST  (EXPENSE) INCOME               |       |                                        |       |   |   |   |   |
| Interest expense                         |       | (24,924                                     | )          | (12,606 | ) | (2,990 | ) |
| Amortization of  debt issuance costs     |       | (1,693                                      | )          | (735 | ) | (67 | ) |
| Interest income                          |       | 80                                          |       | 143 |   | 34 |   |
| Loss on early  extinguishment of debt    |       | —                                      |       | (575 | ) | (2,047 | ) |
| Total net  interest expense              |       | (26,537                                     | )          | (13,773 | ) | (5,070 | ) |
|                                     |       |                                        |       |   |   |   |   |
| OTHER  NON-OPERATING INCOME              |       |                                        |       |   |   |   |   |
| Non-cash gain                            |       | 256                                         |       | — |   | — |   |
| Total  non-operating income              |       | 256                                         |       | — |   | — |   |
|                                     |       |                                        |       |   |   |   |   |
| LOSS BEFORE  INCOME TAXES                |       | (25,393                                     | )          | (8,375 | ) | (6,963 | ) |
|                                     |       |                                        |       |   |   |   |   |
| INCOME TAX  BENEFIT (EXPENSE)            |       | 64                                          |       | (2,920 | ) | (159 | ) |
|                                     |       |                                        |       |   |   |   |   |
| NET LOSS                                 |       | $                                           | (25,329    | ) | $ | (11,295 | ) | $ | (7,122 | ) |

 

See accompanying notes toconsolidated financial statements

 

49

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**BARRINGTON BROADCASTING GROUP LLC**

**Consolidated Statement of Member’s/Stockholder’s Equity**

**For the Years EndedDecember 31, 2007, 2006 and 2005**

**(in thousands)**

 
| ** **                                                                       | ** ** | ** **        | ** ** | **Additional** | ** ** | ** **      | ** ** | **Other**        | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------|------------|
| ** **                                                                       | ** ** | **Member’s** | ** ** | **Paid-In**    | ** ** | **Accumulated** | ** ** | **Comprehesive** | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **Equity**        | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Loss**         | ** ** | **Total**  | ** ** |
| ** **                                                                       | ** ** | ** **        | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Balance at  December 31, 2004                                               |       | $                 | —     |           | $          | 25,558          |       | $                | (311       | )          | $          | — |   | $ | 25,247 |   |
|                                                                             |       |              |       |           |       |            |       |             |       |       |       |
| Contributed  capital                                                             |       | —            |       | 41,881         |       | —          |       | —           |       | 41,881     |       |
| Net loss                                                                         |       | —            |       | —         |       | (7,122          | )          | —           |       | (7,122     | )          |
| Balance at  December 31, 2005                                               |       | $                 | —     |           | $          | 67,439          |       | $                | (7,433     | )          | $          | — |   | $ | 60,006 |   |
|                                                                             |       |              |       |           |       |            |       |             |       |       |       |
| Conversion to  LLC                                                               |       | 60,006            |       | (67,439        | )          | 7,433           |       | —           |       | —     |       |
| Contributed  members equity                                                      |       | 79,778            |       | —         |       | —          |       | —           |       | 79,778     |       |
| Net loss                                                                         |       | (11,295           | )          | —         |       | —          |       | —           |       | (11,295    | )          |
| Balance at  December 31, 2006                                               |       | $                 | 128,489    |           | $          | —          |       | $                | —     |       | $          | — |   | $ | 128,489 |   |
|                                                                             |       |              |       |           |       |            |       |             |       |       |       |
| Net loss                                                                         |       | (25,329           | )          | —         |       | —          |       | —           |       | (25,329    | )          |
| Other  comprehensive loss - change in fair market value of interest rate collars |       | —            |       | —         |       | —          |       | (3,673           | )          | (3,673     | )          |
| Balance at  December 31, 2007                                               |       | $                 | 103,160    |           | $          | —          |       | $                | —     |       | $          | (3,673 | ) | $ | 99,487 |   |

 

See accompanying notes toconsolidated financial statements

 

50

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**BARRINGTON BROADCASTING GROUP LLC**

**Consolidated Statements of CashFlows**

**(in thousands)**

 
| ** **                                                                                    | ** ** | **Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                    | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                        | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                                                                      |       | $                                           | (25,329    | ) | $ | (11,295 | ) | $ | (7,122 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities:              |       |                                        |       |   |   |   |   |
| Depreciation                                                                                  |       | 24,164                                      |       | 16,032 |   | 6,727 |   |
| Amortization of  program broadcast rights                                                     |       | 5,153                                       |       | 3,053 |   | 1,246 |   |
| Payments of  program broadcast payable                                                        |       | (4,709                                      | )          | (2,130 | ) | (1,067 | ) |
| Amortization of  intangibles, debt issuance costs and network contract                        |       | 6,171                                       |       | 4,607 |   | 983 |   |
| Loss on early  extinguishment of debt                                                         |       | —                                      |       | 575 |   | 2,047 |   |
| Loss on  non-hedge interest rate caps                                                         |       | 83                                          |       | 6 |   | 20 |   |
| Barter revenue  net of expenses                                                               |       | (352                                        | )          | (618 | ) | (214 | ) |
| Loss on  disposal, exchange and impairment of property and equipment                          |       | 565                                         |       | 220 |   | 5 |   |
| Imputed interest  on long term contracts                                                      |       | 15                                          |       | 52 |   | — |   |
| Equity in loss  of joint ventures                                                             |       | 85                                          |       | 9 |   | — |   |
| Changes in  assets and liabilities that relate to operations, net of effect of  acquisitions: |       |                                        |       |   |   |   |   |
| Trade  receivables                                                                            |       | 392                                         |       | (4,759 | ) | (2,636 | ) |
| Prepaid expenses  and other                                                                   |       | (386                                        | )          | 101 |   | (890 | ) |
| Accounts payable                                                                              |       | (235                                        | )          | 696 |   | 485 |   |
| Accrued interest                                                                              |       | 592                                         |       | 5,249 |   | — |   |
| Accrued expenses                                                                              |       | (267                                        | )          | 548 |   | 685 |   |
| Deferred revenue                                                                              |       | 135                                         |       | (70 | ) | 526 |   |
| Net cash  provided by operating activities                                                    |       | 6,077                                       |       | 12,276 |   | 905 |   |
|                                                                                          |       |                                        |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                        |       |                                        |       |   |   |   |   |
| Purchases of  property and equipment                                                          |       | (6,175                                      | )          | (8,720 | ) | (2,812 | ) |
| Proceeds from  disposition of assets                                                          |       | 43                                          |       | 58 |   | 12 |   |
| Acquisition of  television stations, net of cash acquired                                     |       | (831                                        | )          | (288,614 | ) | (66,134 | ) |
| Investment in  joint ventures                                                                 |       | (27                                         | )          | — |   | — |   |
| Net cash used in  investing activities                                                        |       | (6,990                                      | )          | (297,276 | ) | (68,934 | ) |
|                                                                                          |       |                                        |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                        |       |                                        |       |   |   |   |   |
| Restricted cash                                                                               |       | —                                      |       | 400 |   | (8 | ) |
| Issuance of  senior subordinated notes                                                        |       | —                                      |       | 125,000 |   | — |   |
| Proceeds from  SagamoreHill term loan                                                         |       | —                                      |       | 4,900 |   | — |   |
| Repayment of  SagamoreHill term loan                                                          |       | —                                      |       | (2,450 | ) | — |   |
| Repayment of  long term debt                                                                  |       | —                                      |       | (58,568 | ) | — |   |
| Proceeds from  long-term debt                                                                 |       | —                                      |       | 152,050 |   | 28,518 |   |
| Proceeds from  related party loan                                                             |       | 503                                         |       | — |   | — |   |
| Principal  payments on long-term debt and capital leases                                      |       | (1,500                                      | )          | (375 | ) | (3 | ) |
| Payments of  contracts payable                                                                |       | (215                                        | )          | (33 | ) | (109 | ) |
| Contributed  capital                                                                          |       | —                                      |       | 79,778 |   | 41,881 |   |
| Payment of debt  issuance costs                                                               |       | (527                                        | )          | (12,119 | ) | (1,850 | ) |
| Net cash (used  in) provided by financing activities                                          |       | (1,739                                      | )          | 288,583 |   | 67,929 |   |
|                                                                                          |       |                                        |       |   |   |   |   |
| NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                                         |       | (2,652                                      | )          | 3,583 |   | (100 | ) |
| Cash and cash  equivalents, beginning of year                                                 |       | 4,920                                       |       | 1,337 |   | 1,437 |   |
| Cash and cash  equivalents, end of year                                                       |       | $                                           | 2,268      |   | $ | 4,920 |   | $ | 1,337 |   |

 

See accompanying notes toconsolidated financial statements

 

51

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| ** **                                                              | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                              | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION                       | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash payments of  interest                                              |       | $                                           | 24,234     |   | $ | 7,299 |   | $ | 2,629 |   |
|                                                                    |       |                                        |       |   |   |   |   |
| Cash (refunds)  payments of income taxes                                |       | $                                           | (64        | ) | $ | 2,344 |   | $ | — |   |
|                                                                    |       |                                        |       |   |   |   |   |
| SUPPLEMENTAL  DISCLOSURE OF NONCASH INVESTING AND FINANCING  ACTIVITIES | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisition of  program broadcast rights                                |       | $                                           | (4,894     | ) | $ | (2,720 | ) | $ | (935 | ) |
|                                                                    |       |                                        |       |   |   |   |   |
| Equipment  acquired by barter transactions                              |       | $                                           | (184       | ) | $ | (119 | ) | $ | (191 | ) |
|                                                                    |       |                                        |       |   |   |   |   |
| Fair market  value of equipment acquired in exchange                    |       | $                                           | (258       | ) | $ | — |   | $ | — |   |
|                                                                    |       |                                        |       |   |   |   |   |
| ACQUISITION OF  TELEVISION STATIONS                                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets  acquired                                                |       | $                                           | —     |   | $ | 12,386 |   | $ | — |   |
| Property and  equipment acquired                                        |       | —                                      |       | 72,014 |   | 16,152 |   |
| Joint venture  interests and other long term receivables                |       | —                                      |       | 2,074 |   | — |   |
| Intangible  assets acquired                                             |       | 644                                         |       | 209,212 |   | 49,880 |   |
| Current  liablities assumed                                             |       | —                                      |       | (3,979 | ) | (99 | ) |
| Program  broadcast rights acquired                                      |       | (90                                         | )          | 3,944 |   | 505 |   |
| Program  broadcast liabilities assumed                                  |       | (18                                         | )          | (4,042 | ) | (526 | ) |
| Other long term  liabilities assumed                                    |       | 295                                         |       | (2,792 | ) | — |   |
| Total cost of  acquisition of stations, net                             |       | $                                           | 831        |   | $ | 288,817 |   | $ | 65,912 |   |
| Amounts received  in 2006 pertaining to 2005 acquisitions               |       | —                                      |       | (203 | ) | 203 |   |
| Total payment  for station acquisitions in current period               |       | $                                           | 831        |   | $ | 288,614 |   | $ | 66,134 |   |

 

See accompanying notes toconsolidated financial statements

 

52

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements**

 

**(Note A) – Basis ofPresentation and Accounting Policies**

 

***Nature of Business –*******BarringtonBroadcasting Group LLC, or Barrington Group, owns and operates 21 televisionstations located in 15 markets in the United States.  Barrington Group’s revenues are derivedprimarily from the sale of advertising time and, to a lesser extent, internetadvertising, network compensation and barter transactions for goods andservices.  The stations sell commercialtime during programs to national, regional and local advertisers.  The networks also sell commercial time duringthe programs to national advertisers.

 

The advertising revenue of the stations is generally highest in thesecond and fourth quarters of each year, due in part to increases in consumeradvertising in the spring and retail advertising in the period leading up toand including the holiday season. Additionally, advertising revenue in even-numbered years can benefitfrom demand for advertising time in Olympic broadcasts and advertising placedby candidates for political offices as well as political issue-orientedadvertising.  Credit arrangements aredetermined on an individual customer basis. Segment information is not presented because all of Barrington Group’srevenue is attributed to a single reportable segment.

 

***Basis of Presentation –***The consolidated financial statements include theaccounts of Barrington Group and its television stations consisting of WEYI,Flint, Michigan; WBSF, Bay City, Michigan; WNWO, Toledo, Ohio;  WSTM andWSTQ, Syracuse, New York; WACH, Columbia, South Carolina; KGBT, Harlingen,Texas; KXRM and KXTU, Colorado Springs, Colorado;  WPDE, Myrtle Beach, South Carolina; WPBN and WTOM, Traverse City, Michigan;  WHOI Peoria, Illinois;  KVII and KVIH,Amarillo, Texas;  KRCG, Columbia,Missouri;  WFXL, Albany, Georgia; KHQA,Quincy, Illinois; WLUC, Marquette, Michigan; and KTVO, Kirksville, Missouri,all of which are wholly-owned. Barrington Group also programs WWMB, owned by SagamoreHill of Carolina,LLC, or SagamoreHill, in South Carolina, under a local marketing agreement, orLMA.  SagamoreHill is consolidated as avariable interest entity in accordance with Financial Accounting StandardsBoard Interpretation No. 46 (R), or FIN 46R, *Consolidationof Variable Interest Entities-an Interpretation of ARB No. 51*.  All significant intercompany accounts andtransactions have been eliminated. Certain prior year financial statement amounts have been reclassified toconform to the current year presentation.

 

On August 11, 2006all of Barrington Broadcasting Corporation’s, or Barrington Corporation’s,existing operating subsidiaries merged with and into newly-formed limitedliability company subsidiaries of Barrington Corporation and BarringtonCorporation merged with and into Barrington Group.  Barrington Group, the survivor of suchmerger, acquired twelve television stations from Raycom Media Inc., or Raycom,and Barrington Group entered into a new credit facility with a $147,500,000term loan facility and a $25,000,000 revolving facility.  In addition, Barrington Capital Corporation,or Barrington Capital, was formed on August 11, 2006 to be a co-issuer ofthe $125,000,000 10.5% Senior Subordinated Notes due 2014, or the notes, inconnection with the Raycom transaction. The financial statements include the consolidated financial statementsof Barrington Group (formerly Barrington Corporation).

 

***SignificantAccounting Policies***

 

(1) Accountingestimates

 

The preparation of consolidated financial statementsin conformity with generally accepted accounting principles in the UnitedStates requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.  Barrington Group’s actual results coulddiffer from those estimates.

 

53

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** **

**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

(2)          Cash equivalents and concentration

 

Barrington Group considers all highly liquidinstruments with an original maturity of three months or less to be cashequivalents. Barrington Group’s excess cash is invested primarily in mutualfunds consisting of U.S. government securities and money market funds.

 

At various times during the periods, Barrington Grouphad cash and cash equivalents on deposit with a financial institution in excessof federal depository insurance limits. Barrington Group has not experienced any credit losses on thesedeposits.

 

(3)          Accounts receivable and allowance fordoubtful accounts

 

Barrington Group’s accounts receivable consistsprimarily of billings to its customers for advertising spots aired and alsoincludes amounts for production and other similar activities.  Trade receivables normally have terms of 30days and Barrington Group has no interest provision for customer accounts thatare past due.  Barrington Group maintainsan allowance for estimated losses resulting from the inability of customers tomake required payments.  Barrington Groupmakes estimates of the amount of uncollectible accounts receivable andspecifically reviews historical write-off activity by market, large customerconcentrations, customer creditworthiness, and changes in customer paymentpractices when evaluating the adequacy of the allowance for doubtful accounts.  Accounts receivable are charged to theallowance when the company determines that the receivable will not becollectible.  Barrington Group recordedbad debt expense of $403,000, $371,000 and $131,000 for the years ended December 31,2007, 2006 and 2005, respectively, which are included in general andadministrative expenses in Barrington Group’s consolidated statements ofoperations.

 

The following table summarizes the changes in theallowance for doubtful accounts for the years ended December 31, 2007,2006 and 2005 (in thousands):

 
| ** **                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------|------------|------------------|------------|
| ** **                                        | ** ** | **2007**         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Allowance for  doubtful accounts                  |       |             |       |   |   |   |   |
| Balance at  beginning of year                     |       | $                | 744        |   | $ | 127 |   | $ | 92 |   |
| Additions  charged to expense                     |       | 403              |       | 371 |   | 134 |   |
| Increase in  allowance due to acquisitions        |       | —           |       | 585 |   | — |   |
| Balances written  off, net of fees and recoveries |       | (594             | )          | (339 | ) | (99 | ) |
| Balance at end  of year                           |       | $                | 553        |   | $ | 744 |   | $ | 127 |   |

 

(4)          Revenues

 

Revenue related to the sale of advertising isrecognized at the time of broadcast.  Netrevenues are shown net of agency and national representatives’ commissions.Revenue is recognized on network affiliation agreements over the term of eachcontract on a straight-line basis. Payments received from networks in advanceof the period in which they are earned are recognized as deferred revenue andclassified between current and long-term.

 

Approximately 25% of gross revenues for the year endedDecember 31, 2007 consisted of automotive advertising revenues.  A significant decrease in these revenues inthe future could

 

54

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

materiallyand adversely affect our results of operations and cash flows, which couldaffect our ability to fund operations and service our debt obligations.

 

(5)          Barter transactions

 

Revenuefrom barter transactions (advertising provided in exchange for goods andservices) is recognized as income when advertisements are broadcast andmerchandise or services received are charged to expense (or capitalized asappropriate) when received or used.  Inaddition, revenue and expense from barter transactions include the recognitionof revenue and expense pursuant to programming contracts whereby advertisingtime is given in exchange for the license to broadcast a program. Bartertransactions are recorded at the fair market value of the asset or servicereceived.  For the year ended December 31,2007, barter revenue and expenses totaled $5,300,000 and $4,954,000,respectively. For the period ended December 31, 2006, revenues from bartertransactions totaled $3,627,000 and barter expenses totaled $3,006,000.  Barter revenue and expense for the year endedDecember 31, 2005 totaled $1,303,000 and $1,089,000, respectively.

 

(6)          Program broadcast rights and liabilities

 

Program broadcast rights represent rights for thetelecast of feature length motion pictures, series produced for television, andother films and are presented at the lower of amortized cost or estimated netrealizable value.  Each agreement isrecorded as an asset and liability when the license period begins, and theprogram is available for its first showing. Program broadcast rights are amortized on the straight-line method overthe life of the contract, which is included in selling, technical and programexpenses.  The agreements are classifiedbetween current and long-term assets according to the estimated time of futureusage.  The related liability isclassified between current and long-term on the basis of the payment terms.

 

(7)          Advertising expense

 

Advertisingcosts are expensed as incurred. Barrington Group incurred advertising costs inthe amounts of $1,451,000, $627,000 and $222,000 for the years ended December 31,2007, 2006 and 2005, respectively.

 

(8)          Debt issuance costs and stationacquisition costs

 

Debt issuance costs are amounts incurred in connectionwith long-term financing.  The costs areamortized using the straight line method over the terms of the related debtwhich approximates the effective interest method.  Costs incurred in connection with long-termfinancing that is not consummated are expensed at the point in time when thenegotiation regarding the financing ceases.

 

Acquisition costs are amounts incurred in connectionwith acquiring additional television stations. Costs incurred in connectionwith acquisitions not consummated are expensed at the point in time when thenegotiation regarding the acquisition ceases. Acquisition costs related to successful acquisitions are treated as partof the purchase price and are allocated to the assets purchased.

 

(9)          Property and equipment and intangibleassets

 

(a)          Property and equipment are recorded at cost anddepreciated using the straight-line method over their estimated useful lives.Intangible assets are amortized over their estimated lives as described below.

 

55

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

The following are the estimated ranges of the usefullives of the assets:

 
| ** **                              | **Years** |
|-----------------------------------------|-----------|
| Building and  improvements              | 5 - 40    |
| Towers                                  | 5 - 10    |
| Transmission  equipment                 | 3 - 10    |
| Other equipment                         | 1 - 5     |
| Furniture and  fixtures                 | 4 - 10    |
| Network  affiliation agreements         | 5 - 11    |
| Advertiser  contracts and income leases | 1 - 39    |

 

Expenditures for repairsand maintenance that do not extend the useful life of assets are charged tooperations when incurred.  When assetsare sold or retired, the cost of the asset and the related accumulateddepreciation are eliminated, and any gain or loss is recognized at such time.

 

The FCC has granted toSprint Nextel Corporation, or Nextel, the right to reclaim a portion of thespectrum in the 2 GHz band from broadcasters across the country.  In order to claim this spectrum, Nextel mustexchange all of the broadcasters’ electronic newsgathering equipment currentlyusing this spectrum with digital equipment capable of operating in thereformatted portion of the 2 GHz band retained by the broadcasters.  As the equipment is exchanged into service ineach of Barrington Group’s markets, a gain or loss will be recorded to theextent that the fair market value of the equipment received exceeds or is lessthan the book value of the analog equipment exchanged.

 

During the year ended December 31,2007, one of Barrington Group’s stations had completed the exchange ofequipment with Nextel.  The fair marketvalue of the equipment received and placed into service during the year ended December 31,2007 was $258,000.  The excess of fairmarket value as compared to the carrying value of equipment exchanged of$256,000 was recorded as a non-cash gain in other, non-operating income in theaccompanying consolidated statement of operations.

 

(b)         Intangible assets and goodwill totaled $277,675,000and $281,420,000 at December 31, 2007 and 2006, respectively.  Intangible assets are principally comprisedof network affiliation agreements and Federal Communications Commission, orFCC, licenses.  FCC licenses areconsidered indefinite-lived and are not amortized for financial reportingpurposes in accordance with generally accepted accounting principles in theUnited States.  Network affiliationagreements are recorded at appraised value at the time of acquisition andamortized over the remaining life of the network contract. Advertiser lists andtrademarks have been recorded at appraised value when acquired and areamortized over three years.  Advertisercontracts and income leases have been recorded at appraised value when acquiredand are amortized over the life of the contract or lease.

 

(c)          Barrington Group applies the provisions of Statementof Financial Accounting Standards (SFAS) No. 142, *Goodwill andOther Intangible Assets,*which requires that indefinite-livedintangible assets be tested for impairment at least annually.  Barrington Group considers each one of itstelevision stations a reporting unit and as such tests its goodwill andindefinite-lived assets annually for impairment each September 30 unlessevents or circumstances would require an additional interim review.  Annual impairment tests made by BarringtonGroup resulted in no adjustment to the carrying value.

 

56

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

(d)  In accordancewith SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived**Assets,*otherlong-lived assets are reviewed for potential impairment when events or changesin circumstances indicate that the carrying amount of the asset may not berecoverable.  Any impairment loss wouldbe recognized when the sum of the expected, undiscounted future net cash flowsis less than the carrying amount of the asset. If the asset is determined to be impaired, the impairment recognized ismeasured by the amount by which the carrying value of the asset exceeds itsfair value.

 

(10) Income taxes

 

BarringtonBroadcasting Corporation was organized as a C-corporation for income taxpurposes.  As such, deferred taxes wereprovided based on the liability method whereby deferred tax assets wererecognized for deductible temporary differences, operating losses and taxcredit carryforwards.  Deferred taxliabilities were recognized for taxable temporary differences.  Temporary differences consisted of thedifferences between the reported amounts of assets and liabilities and theirtax bases.  Deferred tax assets werereduced by a valuation allowance when, in the opinion of management, it wasmore likely than not that some portion or all of the deferred tax assets wouldnot be realized.  As a result of themerger of Barrington Corporation into Barrington Group on August 11, 2006,Barrington Group now passes all taxable profits or losses directly to itsmember, in a manner similar to a partnership. Accordingly, Barrington Group is not subject to federal income taxes butremains taxable for certain state taxes in some jurisdictions.

 

(11)  Employee benefits

 

Barrington Group has a defined contribution plancovering all eligible employees. Barrington Group’s contribution is at the discretion of the Board ofDirectors.

 

Barrington Group is self-insured for health benefits,which are offered to all full-time employees with specified periods ofservice.  Insurance coverage ismaintained by Barrington Group for claims in excess of specific and annualaggregate limits.

 

(12)  Derivative Financial Instruments

 

Barrington Group accounts for derivative financialinstruments under the provisions of SFAS No. 133, *Accountingfor Derivative and Hedging Activities,* which was amended by SFAS No. 137and SFAS No. 138.  SFAS No. 133established accounting and reporting standards for: (1) derivativeinstruments, including certain derivative instruments embedded in othercontracts, which are collectively referred to as derivatives; and (2) hedgingactivities.  (See Note F).

 

(13)  Financial Instruments

 

Barrington Group’s financial instruments consist ofcash, trade receivables, accounts payable and long-term debt. Barrington Group’sestimate of fair value of these instruments approximates their carrying amountat December 31, 2007, 2006 and 2005.

 

**(Note B) – Acquisition of Television Stations**

** **

On August 31, 2007, Barrington Group entered into an AssetPurchase Agreement, or the WGTU APA, with Max Media of Traverse City LLC andMTC License LLC to acquire television station WGTU

 

57

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

and its satellite WGTQ, which serve the TraverseCity-Cadillac, Michigan market.  Theacquisition is subject to FCC approval which was initially granted on January 29,2008.  Without any objection, final grantis generally forty days from the initial grant date.  Under the terms of the WGTU APA theacquisition will be completed the first of the month after the finalgrant.  The purchase price for theacquisition of WGTU and WGTQ is $10,000,000, of which $500,000 is being held inescrow pending the closing. Simultaneously with entering into the WGTU APA, Barrington Groupassigned its rights under the WGTU APA to Tucker Broadcasting of Traverse City,Inc, or Tucker, an unrelated third party. Barrington Group expects to guarantee up to $7,000,000 of indebtednessto be incurred by Tucker to finance the acquisition of WGTU/WGTQ

 

Barrington Group and Tucker also entered into a Shared ServicesAgreement, or SSA, pursuant to which Barrington Group will, following Tucker’sacquisition of WGTU/WGTQ, provide technical, engineering and certain othersupport services to WGTU/WGTQ for a fee. In addition, Barrington Group and Tucker entered into a Joint SalesAgreement, or JSA, pursuant to which Barrington Group will have the right toprovide up to 15% of WGTU/WGTQ’s weekly programming and will sell WGTU/WGTQ’slocal advertising on a commissioned basis.

 

In connection with the WGTU APA, the SSA and the JSA, Tucker grantedBarrington Group an option to subsequently acquire the equity of Tucker orWGTU/WGTQ’s assets subject to certain conditions.

 

On February 6, 2006, Barrington Group completed the acquisition ofall of the television broadcasting assets of WPDE, Myrtle Beach, South Carolinafrom Diversified Communications, referred to as the WPDE/WWMB acquisition. Inaddition to the assets of WPDE, Barrington Group acquired the rights to operateWWMB, Myrtle Beach, South Carolina and an option to purchase the station fromSagamoreHill.  The WPDE/WWMB acquisitionwas funded with cash provided by contributed capital and bank financing.Concurrently with the WPDE transaction, WWMB, the CW affiliate serving MyrtleBeach was purchased by SagamoreHill. Barrington Group operates WWMB on behalf of SagamoreHill under anLMA.  Under the terms of the LMA,Barrington Group makes periodic payments to SagamoreHill for the right toprovide programming and sell advertising on WWMB.  SagamoreHill retains ultimate control andresponsibility for the operation of the station.  Barrington Group guarantees full payment ofall obligations incurred by SagamoreHill and SagamoreHill of Carolina Licenses,LLC, which owns WWMB’s FCC license, under a $2,450,000 senior credit facilityentered into by SagamoreHill and SagamoreHill of Carolina Licenses, LLC.  SagamoreHill is considered a variableinterest entity and in accordance with FIN 46R*,*ourinterest in SagamoreHill is included in the consolidated financial statementsas of February 6, 2006.  BarringtonGroup acquired an option to acquire the assets of SagamoreHill for a base valueof $2,367,000. The option price increases by 5% annually until it expires in2021. The option term can be extended through 2029. The total purchase pricefor WPDE and the option to acquire WWMB, including costs of the acquisition,was $24,791,000, which consisted of the fair market value of the assets of$24,166,000 and fees and costs of the transaction amounting to $625,000.  The purchase price was allocated to acquiredassets and liabilities at fair value based on an appraisal of the acquiredassets.

 

On August 11, 2006, Barrington Group completed the acquisition ofthe television broadcasting assets of certain television stations owned byRaycom Media, Inc., referred to herein as the Raycom acquisition.  The stations Barrington Group acquired fromRaycom include WNWO, the NBC affiliate in Toledo, Ohio; WSTM and WSTQ, the NBCand CW affiliates, respectively, in Syracuse, New York; WACH, the FOX affiliatein Columbia, South Carolina; KGBT, the CBS affiliate in Harlingen, Texas; KXRMand KXTU, the FOX and CW affiliates, respectively, in Colorado Springs,Colorado; WPBN and WTOM, the NBC affiliates in Traverse City and Cheboygan,Michigan; WFXL, the FOX affiliate in Albany, Georgia; WLUC, the NBC affiliatein Marquette, Michigan and KTVO, the ABC affiliate in 

 

58

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

Kirksville, Missouri, referred to collectively as theRaycom stations.

 

The total purchase price of the Raycom acquisition including costs was$264,857,000, which consisted of the fair market value of the assets of$261,582,000 and fees and costs of the transaction of $3,275,000, of which$831,000 were incurred during the year ended December 31, 2007. Thepurchase price was allocated to acquired assets and liabilities at fair valuebased on an appraisal of the acquired assets.

 

The Raycom acquisition was financed with the proceeds from the$125,000,000 offering of the notes, a $60,458,000 member’s equity contributionand the proceeds from Barrington Group’s new credit facility in the form of a$147,500,000 senior secured term loan B and a $25,000,000 revolving creditfacility. The revolving credit facility was not used to finance the Raycomacquisition.

 

A portion of the Raycom acquisition was comprised of 50% equityinterests in two joint ventures formed to co-own and maintain television towersin two of our markets.  The first, TallTower LLC, operates in Harlingen, Texas and the second, Albany Tower LLC,represents our 50% interest in a newly-constructed tower in Albany, Georgia.

 

The aggregate purchase price for the stations acquired in 2006 (theRaycom acquisition and the WPDE/WWMB acquisition are referred to collectivelyas the 2006 acquisitions) was allocated as follows (in thousands):

 
| ** **                                      | ** ** | **2006 Acquisitions**   | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|
| * *                                        | ** ** | **Raycom  Acquisition** | ** ** | **WPDE/WWMB  Acquisition** | ** ** |
|                                            |       |                    |       |   |   |
| Current assets                                  |       | $                       | 12,343     |   | $ | 43 |   |
| Program  broadcast rights                       |       | 3,644                   |       | 210 |   |
| Joint ventures  and long-term assets            |       | 1,507                   |       | — |   |
| Total property  and equipment                   |       | 61,721                  |       | 10,293 |   |
| Other long term  assets                         |       | 567                     |       | — |   |
|                                            |       |                    |       |   |   |
| Intangible  Assets                              |       |                    |       |   |   |
| FCC licenses                                    |       | 182,354                 |       | 2,183 |   |
| Goodwill                                        |       | 4,130                   |       | 1,341 |   |
| Other  intangibles, subject to amortization     |       | 8,878                   |       | 8,787 |   |
| Other  intangibles, not subject to amortization |       | —                  |       | 2,183 |   |
| Total intangible  assets acquired               |       | 195,362                 |       | 14,494 |   |
|                                            |       |                    |       |   |   |
| Total assets                                    |       | 275,144                 |       | 25,040 |   |
|                                            |       |                    |       |   |   |
| Current  liabilities                            |       | 3,948                   |       | 31 |   |
| Other  liabilities                              |       | 2,497                   |       | — |   |
| Program  broadcast payables                     |       | 3,842                   |       | 218 |   |
| Total  liabilities                              |       | 10,287                  |       | 249 |   |
| Total purchase  price, including costs          |       | $                       | 264,857    |   | $ | 24,791 |   |

 

On February 28, 2005, Barrington Group completed the purchase ofthe television broadcast assets of KRCG, the CBS affiliate servingColumbia-Jefferson City, Missouri (referred to as the KRCG

 

59

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

acquisition). The KRCG acquisition was funded withcash provided from contributed capital and bank financing.  The total purchase price including costs ofthe KRCG acquisition was $38,482,000. The total purchase price consisted of thefair market value of the assets of $38,000,000 and fees and costs of thetransaction of $482,000. The purchase price was allocated to acquired assetsand liabilities at fair value based on an appraisal of the acquired assets.  The purchase price was subject to resolutionof certain contingencies, of which final costs of $5,000 were reflected duringthe year ended December 31, 2006.

 

On April 14, 2005, Barrington Group completed the acquisition of aconstruction permit, or the Permit acquisition, issued by the FCC forconstructing a full-power broadcasting facility in the Flint-Saginaw-Bay City,Michigan area, (referred to as the Construction permit), and certain otherrights under various contracts from ACME Television, Inc. for $4,500,000.Construction of the transmission facility was completed during the thirdquarter of 2006.  The total purchaseprice including costs of the Permit acquisition was $4,694,000, which consistedof the purchase price of the Construction permit and various other licenses of $4,500,000plus assumed liabilities, fees and costs of the transaction totaling$194,000.  The purchase price was subjectto resolution of certain contingencies, of which a final reduction of $8,000was reflected during the year ended December 31, 2006.

 

On August 1, 2005, Barrington Group completed the purchase of thetelevision broadcast assets of KVII, the CBS affiliate in Amarillo, Texas, andKVIH, its satellite in Clovis, New Mexico, or the KVII/KVIH acquisition and,together with the KRCG acquisition and the Permit acquisition, the 2005acquisitions.  The total purchase priceincluding costs of the KVII/KVIH acquisition was $22,736,000, which consistedof the purchase price of the assets of $22,275,000 including the acquiredliabilities and fees and costs of the transaction of $461,000.  The purchase price was subject to resolutionof certain contingencies, of which a reduction of $200,000 was reflected duringthe year ended December 31, 2006. The purchase price was allocated to acquired assets and liabilities atfair value based on an appraisal of the acquired assets. The KVII/KVIHacquisition was funded with cash provided by contributed capital and bankfinancing.

 

The aggregate purchase price for each of the 2005 acquisitions wasallocated as follows (in thousands):

 
| ** **                                  | ** ** | **2005 Acquisitions**      | ** ** |
|---------------------------------------------|------------|----------------------------|------------|
| * *                                    | ** ** | **KVII/KVIH  Acquisition** | ** ** | **Permit   Acquisition** | ** ** | **KRCG   Acquisition** | ** ** |
| ** **                                  | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Program  broadcast rights                   |       | $                          | 448        |   | $ | — |   | $ | 57 |   |
| Total property  and equipment               |       | 7,717                      |       | — |   | 8,435 |   |
|                                        |       |                       |       |   |   |   |   |
| Intangible  Assets                          |       |                       |       |   |   |   |   |
| FCC licenses                                |       | 13,491                     |       | 4,500 |   | 28,024 |   |
| Goodwill                                    |       | 605                        |       | 194 |   | 1,032 |   |
| Other  intangibles, subject to amortization |       | 1,023                      |       | — |   | 1,011 |   |
| Total intangible  assets acquired           |       | 15,119                     |       | 4,694 |   | 30,067 |   |
|                                        |       |                       |       |   |   |   |   |
| Total assets                                |       | 23,284                     |       | 4,694 |   | 38,559 |   |
|                                        |       |                       |       |   |   |   |   |
| Other  liabilities                          |       | 79                         |       | — |   | 20 |   |
| Program  broadcast payables                 |       | 469                        |       | — |   | 57 |   |
| Total  liabilities                          |       | 548                        |       | — |   | 77 |   |
| Total purchase  price, including costs      |       | $                          | 22,736     |   | $ | 4,694 |   | $ | 38,482 |   |
|                                             |            |                            |            |  |  |  |  |  |  |  |  |  |

 

60

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

All of the acquisitions have been recorded under the purchase method ofaccounting and are included in the operating results from the acquisition dateforward.  The FCC licenses and goodwillare considered indefinite-lived assets and as such are not subject toamortization.  The definite-livedintangible assets are being amortized over a weighted average period ofapproximately six years.

 

The following information summarizes the unaudited consolidated proforma results of operations data for the year ended December 31, 2006 asif the 2006 acquisitions had occurred on January 1, 2006 (in thousands):

 
| Net revenues           |   | $       | 120,872 |   |
|------------------------|--------|---------|---------|--------|
| Income from operations |   | 6,961   |    |
| Net loss               |   | (19,865 | )       |

 

**(Note C) – Property andEquipment**

** **

Property and equipment consists of the following (in thousands):

 
| ** **                            | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|------------------|------------|
| ** **                            | ** ** | **2007**         | ** ** | **2006** | ** ** |
| * *                              | * *   | * *         | * *   | * * | * * |
| Land                                  |       | $                | 6,316      |   | $ | 6,250 |   |
| Building and  improvements            |       | 15,112           |       | 14,760 |   |
| Towers                                |       | 10,802           |       | 9,981 |   |
| Transmission  equipment               |       | 29,669           |       | 29,657 |   |
| Studio technical  equipment           |       | 54,715           |       | 51,070 |   |
| Office equipment                      |       | 7,288            |       | 4,745 |   |
| Automotive  equipment                 |       | 1,665            |       | 1,231 |   |
| Other                                 |       | 258              |       | 3,093 |   |
| Total property,  plant, and equipment |       | 125,825          |       | 120,787 |   |
| Less accumulated  depreciation        |       | (48,246          | )          | (25,362 | ) |
| Property, plant,  and equipment - net |       | $                | 77,579     |   | $ | 95,425 |   |

 

Barrington Group recorded depreciation expense of $24,164,000,$16,032,000 and $6,727,000 for the years ended December 31, 2007, 2006 and2005, respectively.  In addition, equityin loss of joint ventures of $85,000 and $9,000 for the years ended December 31,2007 and 2006 respectively was included in depreciation and amortizationexpenses in the consolidated statements of operations.

 

During the year ended December 31, 2006, Barrington Group recordedan impairment loss on a property consisting of land and a building that wastaken out of service during 2007. Barrington Group estimated the fair market value of the assets based onan appraisal resulting in an impairment loss of $258,000.  Total loss on the disposal and impairment ofproperty and equipment for the years ended December 31, 2007, 2006 and2005 was $565,000, $220,000 and $5,000, respectively.  Loss on the disposal and impairment ofproperty and equipment is included in the consolidated statements of operationsin depreciation and amortization expenses.

 

61

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**BARRINGTONBROADCASTING GROUP LLC**

**Notes tothe Consolidated Financial Statements  -(continued)**

 

**(Note D) – OtherIntangible Assets**

** **

The following table summarizes the carrying amount of each majorclassification of intangible assets (in thousands):

 
| ** **                            | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|------------------|------------|
| ** **                            | ** ** | **2007**         | ** ** | **2006** | ** ** |
| * *                              | ** ** | ** **       | ** ** | ** ** | ** ** |
| *Indefinite-Lived  Intangible Assets* | * *   | * *         | * *   | * * | * * |
| FCC licenses                          |       | $                | 251,920    |   | $ | 251,920 |   |
| Other  intangibles                    |       | 2,183            |       | 2,183 |   |
| *Definite-Lived  Intangible Assets*   | * *   | * *         | * *   | * * | * * |
| Network  affiliation agreements       |       | 17,426           |       | 17,426 |   |
| Other  intangibles                    |       | 5,936            |       | 5,936 |   |
| Accumulated  amortization             |       | (9,712           | )          | (5,323 | ) |
|                                  |       | $                | 267,753    |   | $ | 272,142 |   |

 

Amortization of intangible assets was $4,389,000, $3,872,000 and$916,000 for the years ended December 31, 2007, 2006 and 2005,respectively.  The weighted averageamortization period at December 31, 2007 was approximately six years.

 

The change in the carrying amount of goodwill for the years ended December 31,2007 and 2006 was as follows (in thousands):

 
| ** **        | ** ** | **December 31,** | ** ** |
|-------------------|------------|------------------|------------|
| ** **        | ** ** | **2007**         | ** ** | **2006** | ** ** |
| * *          | ** ** | ** **       | ** ** | ** ** | ** ** |
| Beginning balance |       | $                | 9,278      |   | $ | 4,653 |   |
| Acquisitions      |       | 644              |       | 4,625 |   |
| Ending Balance    |       | $                | 9,922      |   | $ | 9,278 |   |

 

Final costs relating to the Raycom acquisition increased goodwill by$644,000 for the year ended December 31, 2007.  The acquisition of the Raycom stations during2006 increased goodwill by $3,488,000. The acquisition of WPDE/WWMB during 2006 increased goodwill byapproximately $1,340,000.  Purchase pricereductions to goodwill during the year ended December 31, 2006 relating tothe 2005 acquisitions totaled $203,000.

 

At December 31, 2007, the estimated future amortization ofintangible assets was as follows (in thousands):

 
| ** **                     | ** ** | **Estimated Future Amortization** | ** ** |
|--------------------------------|------------|-----------------------------------|------------|
| ** **                     | ** ** | **Network**                       | ** ** | **Other** | ** ** |
| * *                       | ** ** | **Affiliation**                   | ** ** | **Intangibles** | ** ** |
| **Period Ending December 31,** | ** ** | ** **                        | ** ** | ** ** | ** ** |
| 2008                           |       | $                                 | 2,417      |   | $ | 214 |   |
| 2009                           |       | 2,290                             |       | 139 |   |
| 2010                           |       | 2,116                             |       | 94 |   |
| 2011                           |       | 2,115                             |       | 85 |   |
| 2012                           |       | 1,619                             |       | 77 |   |
| Thereafter                     |       | 1,839                             |       | 645 |   |
|                           |       | $                                 | 12,396     |   | $ | 1,254 |   |

 

62

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

**(Note E)–Long-Term Debt**

 

Long-term debtconsists of the following (in thousands):

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                          |       |                  |       |   |   |
| Senior secured  term loan B   |       | $                     | 145,656    |   | $ | 147,131 |   |
| Senior  subordinated notes    |       | 125,000               |       | 125,000 |   |
| SagamoreHill  term loan       |       | 2,420                 |       | 2,445 |   |
| Related party  loan           |       | 503                   |       | — |   |
|                          |       | 273,579               |       | 274,576 |   |
| Less current  portion of debt |       | 2,003                 |       | 1,500 |   |
|                          |       | $                     | 271,576    |   | $ | 273,076 |   |

 

The creditfacility consists of a $147,500,000 senior secured term loan B with aseven-year maturity and a $25,000,000 revolving credit facility with a six-yearmaturity. The obligations under the credit facility are guaranteed byBarrington Broadcasting LLC, the parent of Barrington Group, and all ofBarrington Group’s direct and indirect subsidiaries. The credit facility issecured by a first priority lien on substantially all of our existing andfuture assets and those of our direct and indirect subsidiaries. As of December 31,2007, there were no outstanding borrowings on the revolving credit facility.

 

Borrowings underthe credit facility bear interest at a floating rate, which can be either LIBORplus an applicable margin or, at our option, a base rate plus an applicable marginpayable at least quarterly.  Base rate isdefined as the higher of (i) the Bank of America prime rate or (ii) thefederal funds effective rate plus 0.50%. The applicable margin for (x) the term loan is 2.25% for LIBORloans and 1.25% for base rate loans and (y) the revolving facility is2.25% for LIBOR loans and 1.25% for base rate loans for the first nine monthsand subject to a pricing grid thereafter based on total leverage.  The interest rate payable under the credit facilitywill increase by 2.0% per annum during the continuance of an event of default.The unused portion of the revolving credit facility is subject to a commitmentfee of 0.50%. The weighted average interest rate on the outstanding balancesunder the credit facility and the guaranteed loan was 7.65% as of December 31,2007.

 

Barrington Groupissued $125,000,000 aggregate principal amount of the notes.  The notes mature on August 15,2014.  Interest is payable on the notessemi-annually in cash on February 15 and August 15 of each year.  The notes are unconditionally guaranteed onan unsecured senior subordinated basis by all of Barrington Group’s current andfuture restricted subsidiaries (other than Barrington Capital) that guaranteeour and our subsidiaries’ other indebtedness. The notes bear interest at a fixed rate of 10.5% and principal is due atmaturity.

 

The creditfacility and the indenture governing the notes limit our ability to incuradditional indebtedness and issue certain preferred stock; pay dividends on ourcapital stock or repurchase our capital stock or subordinated debt; makeinvestments; create certain liens; sell certain assets or merge or consolidatewith or into other companies; incur restriction on the ability of oursubsidiaries to make distributions or transfer assets to us; and enter intotransactions with affiliates.

 

The loan agreementcontains certain financial covenants, including, but not limited to, covenantsrelated to interest coverage and total leverage.  In addition, the loan agreement contains otheraffirmative and negative covenants relating to, among other things,preservation of assets, compliance with laws, maintenance of insurance,financial statements and reporting, liens, payments on other debt, dispositionof assets, transactions with affiliates, mergers and acquisitions, sales ofassets, guarantees, and investments.  

 

63

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

The loan agreement containscustomary events of default for bank facilities of this kind, including defaulton payment of the loans or other indebtedness, certain changes in ownership,control or management of Barrington Group, bankruptcy, and loss of FCClicenses, among others.  The loans aresecured by Barrington Group’s present and future property and mortgages onsubstantially all presently owned and hereafter acquired real estate,guarantees by and security interests in the assets of each of the subsidiariesof Barrington Group.  Barrington Group iscurrently in compliance with these financial covenants.

 

BarringtonCorporation had previously financed a portion of its acquisitions withborrowings in the form of a term loan pursuant to a loan facility dated May 14,2004.  The loan facility dated May 14,2004 was amended during 2005 to reduce the interest rate on the facility, toextend the maturity and to restructure the covenants to reflect the 2005acquisitions (see Note B).  The loanfacility also provided a $5,000,000 revolving credit line.  On August 11,2006, the outstanding balance of the term loan and the guaranteed loan totaled$61,018,000 and was refinanced concurrently with the Raycom Acquisition.

 

The amendment ofthe loan facility during 2005 was considered a material modification ofBarrington Group’s debt consistent with EITF Issue No. 96-19, *Debtor’s Accounting for a Modification or Exchange of Debt Instruments.*  Barrington Group incurred $1,850,000 ofadditional debt issuance costs related to the amendment, which together withthe balance of the unamortized debt issuance costs of the original loanfacility resulted in a loss on the early extinguishment of debt of $2,047,000for the year ended December 31, 2005. In addition, concurrently with theRaycom acquisition on August 11, 2006, Barrington Group refinanced all ofits existing debt resulting in a loss on the early extinguishment of debt of$575,000 which consisted of the unamortized balance of its existing debtissuance costs as of the date of the Raycom acquisition.  In relation to the August 11, 2006refinancing, Barrington Group incurred $12,646,000 of new debt issuance costs,$527,000 of which was recorded in 2007.

 

At December 31,2007, our outstanding long-term debt provided for annual payments as follows(in thousands):

 

 
| ** **                 | ** ** | **Senior**                | ** ** | ** ** | ** ** | ** **         | ** ** | ** **          | ** ** | ** ** | ** ** |
|----------------------------|------------|---------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|------------|------------|
| ** **                 | ** ** | **Secured**               | ** ** | ** ** | ** ** | **SagamoreHill**   | ** ** | **Related**         | ** ** | ** ** | ** ** |
| **,**                      | ** ** | **Term Loan B** | ** ** | **Notes**  | ** ** | **Term Loan** | ** ** | **Party Loan** | ** ** | **Total**  | ** ** |
| **Year Ended December 31** | ** ** | ** **                | ** ** | ** ** | ** ** | ** **         | ** ** | ** **          | ** ** | ** ** | ** ** |
| 2008                       |       | $                         | 1,475      |       | $          | —             |       | $                   | 25         |       | $          | 503 |   | $ | 2,003 |   |
| 2009                       |       | 1,475                     |       | —     |       | 25                 |       | —              |       | 1,500      |       |
| 2010                       |       | 1,475                     |       | —     |       | 25                 |       | —              |       | 1,500      |       |
| 2011                       |       | 1,475                     |       | —     |       | 25                 |       | —              |       | 1,500      |       |
| 2012                       |       | 1,475                     |       | —     |       | 25                 |       | —              |       | 1,500      |       |
| Thereafter                 |       | 138,281                   |       | 125,000    |       | 2,295              |       | —              |       | 265,576    |       |
|                       |       | $                         | 145,656    |       | $          | 125,000            |       | $                   | 2,420      |       | $          | 503 |   | $ | 273,579 |   |

 

**(Note F) – Accounting for Derivative Instrumentsand Hedging Activities**

 

Under theprovisions of SFAS No. 133, *Accounting for DerivativeInstruments and Hedging Activities,* as amended and interpreted,Barrington Group recognizes all derivatives at fair value, whether designatedin hedging relationships or not, in the balance sheet as either an asset orliability.  The accounting for changes inthe fair value of a derivative, including certain derivative instrumentsembedded in other contracts, depends on the intended use of the derivative andthe resulting designation.  If thederivative is designated as a fair value hedge, the changes in the fair valueof the derivative and the hedged item are recognized in the statement ofoperations.  If the derivative isdesignated as a cash flow

 

64

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

hedge, changes in the fair value of the derivative are recorded inother comprehensive income and are recognized in the statement of operationswhen the hedged item affects net income. If a derivative does not qualify as a hedge, it is marked to fair valuethrough the statement of operations.  Anyfees associated with these derivatives are amortized over their term.  Under these derivatives, the differentials tobe received or paid are recognized as an adjustment to interest expense overthe life of the contract.  Gains andlosses on termination of these instruments are recognized as interest expensewhen terminated.

 

SFAS No. 133defines requirements for designation and documentation of hedgingrelationships, as well as ongoing effectiveness assessments in order to usehedge accounting under this standard. Barrington Group formally documents all relationships between hedginginstruments and hedged items, as well as its risk-management objective andstrategy for undertaking various hedge transactions.  This process includes relating allderivatives that are designated as fair value or cash flow hedges to specificassets and liabilities on the balance sheet or to specific firm commitments orforecasted transactions.  BarringtonGroup’s derivative activities, all of which are for purposes other thantrading, are initiated within the guidelines of corporate risk-managementpolicies.  Management reviews thecorrelation and effectiveness of its derivatives on a periodic basis.

 

***Non Hedge Accounting Treatment***

 

During the yearended December 31, 2005, Barrington Group entered into two interest ratecap agreements containing notional amounts of $44,000,000 and $20,000,000,respectively, which did not qualify for hedge accounting treatment.

 

These interestrate cap agreements, with a combined original cost of $109,000, limitedBarrington Group’s exposure to interest rate increases on its floating ratedebt, thus reducing the impact of interest rate increases on futureincome.  The 5.0% interest rate cap datedJune 1, 2005 contained a notional amount of $44,000,000 and expired May 31,2007.  The 5.5% interest rate cap dated November 9,2005, contained a notional amount of $20,000,000 and expired November 14,2007.

 

The agreementsprovided payment to Barrington Group as of specified dates, without an exchangeof the underlying principal, of a differential which represented the interestat the three-month LIBOR rate on the notional amounts in excess of 5.0% or5.5%, as the case may be, during the term of the agreements.  The differential to be received is accrued asinterest rates increase above the stated LIBOR rate and is recognized as a reductionto interest expense related to debt.

 

The fair value ofthe interest rate caps was $83,000 and $35,000 at December 31, 2006 and2005, respectively. Barrington Group received payments on the interest caps inthe amount of $85,000 and $70,000 during the years 2007 and 2006,respectively.  No payments were receivedon the interest caps during the year ended December 31, 2005.  In addition, as a result of adjustments tofair value, Barrington Group recorded losses on the interest rate caps of$83,000, $6,000 and $20,000 for the years ended December 31, 2007, 2006and 2005, respectively.

 

***Hedge Accounting Treatment***

 

In January 2007,Barrington Group entered into two interest rate collar agreements, eacheffective on February 12, 2007, to limit the exposure to fluctuation inshort-term interest rates on a portion of our variable rate debt by locking ina range of interest rates.  The collaragreements are designated as hedging instruments under SFAS No. 133 andunrealized changes in the fair value of these agreements are recorded in othercomprehensive income.  The interest ratecollars consist of a purchased option and a sold option, which have beenentered into simultaneously with the same counterparties.  The notional amount of each interest ratecollar agreement is $40,000,000 and both expire on February 12, 2011.

 

65

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** **

**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

In May 2007,Barrington Group entered into two additional interest rate collar agreements,each effective on August 14, 2007, to further limit the exposure tofluctuation in short-term interest rates on a portion of our variable rate debtby locking in a range of interest rates and to replace the $44,000,000 interestrate cap agreement that expired in May 2007.  Both collar agreements are designated ashedging instruments under SFAS No. 133 and unrealized changes in the fairvalue of these agreements are recorded in other comprehensive income.  The interest rate collars consist of apurchased option and a sold option, which have been entered into simultaneouslywith the same counterparties.  Thenotional amount of each interest rate collar agreement is $20,000,000.  The agreements expire on August 14, 2010and August 16, 2010.

 

The interest ratecollar agreements provide that Barrington Group will receive payment when thethree-month LIBOR rises above 5.5% and requires payment when the three-monthLIBOR falls below 4.84% on the first $80,000,000 and 4.845% on the subsequent$40,000,000.  During the year ended December 31,2007, payments received on the interest rate collars totaled $8,000.  At December 31, 2007, the value of theinterest rate collar agreements was reflected as a liability in the amount of$3,673,000 based on the fair value of the collars as of that date.  In the event that interest rate expectationschange, the effect of the change in the valuation of the interest rate collarsto maturity will be reflected through other comprehensive income or loss.

 

**(Note G) – Program Broadcast Rights andLiabilities**

 

Program broadcastrights and program broadcast liabilities consist of the following (inthousands):

 
| ** **                           | ** ** | **December 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **Program**                     | ** ** | **Program**                     | ** ** | **Program** | ** ** | **Program** | ** ** |
| ** **                           | ** ** | **Rights**                      | ** ** | **Liabilities**                 | ** ** | **Rights** | ** ** | **Liabilities** | ** ** |
|                                 |       |                            |       |                            |       |   |   |   |   |
| Beginning  Balance                   |       | $                               | 4,667      |                            | $          | 5,883 |   | $ | 1,055 |   | $ | 1,251 |   |
| Station  acquisitions                |       | (90                             | )          | 18                              |       | 3,945 |   | 4,042 |   |
| Contracts  acquired                  |       | 4,894                           |       | 4,894                           |       | 2,720 |   | 2,720 |   |
| Amortization                         |       | (5,153                          | )          |                            |       | (3,053 | ) | — |   |
| Amounts paid                         |       |                            |       | (4,709                          | )          | — |   | (2,130 | ) |
| Total film  contracts                |       | 4,318                           |       | 6,086                           |       | 4,667 |   | 5,883 |   |
| Less long term  maturities           |       | (1,169                          | )          | (1,563                          | )          | (1,068 | ) | (1,434 | ) |
| Current  contracts as of December 31 |       | $                               | 3,149      |                            | $          | 4,523 |   | $ | 3,599 |   | $ | 4,449 |   |

 

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

The maturities ofthe contracts in progress are as follows at December 31, 2007 (inthousands):

 
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| **(dollars in thousands)**        | ** ** | ** ** | ** ** |
| 2008                                        |       | $          | 4,523      |   |
| 2009                                        |       | 646        |       |
| 2010                                        |       | 504        |       |
| 2011                                        |       | 197        |       |
| 2012                                        |       | 121        |       |
| Thereafter                                  |       | 95         |       |
|                                        |       | $          | 6,086      |   |

 

In addition, the Company has entered into non-cancelable commitmentsfor future program broadcast rights aggregating $10,915,000 as of December 31,2007, with total future payments as follows (in thousands):

 
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| **(dollars in thousands)**        | ** ** | ** ** | ** ** |
| 2008                                        |       | $          | 955        |   |
| 2009                                        |       | 3,824      |       |
| 2010                                        |       | 3,333      |       |
| 2011                                        |       | 2,002      |       |
| 2012                                        |       | 705        |       |
| Thereafter                                  |       | 96         |       |
|                                        |       | $          | 10,915     |   |

 

**(Note H) – Accrued Expenses and Other Liabilities**

 

Accrued expensesand other liabilities consist of the following (in thousands):

 
| ** **                 | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                       |       |                  |       |   |   |
| Compensation and  benefits |       | $                     | 1,965      |   | $ | 1,793 |   |
| Other                      |       | 2,731                 |       | 3,170 |   |
|                       |       | $                     | 4,696      |   | $ | 4,963 |   |

 

**(Note I) – Related Party Loan**

 

On August 31,2007, Barrington Group borrowed $503,000 from its member to fund a portion ofthe purchase price of the WGTU/WGTQ acquisition.  The loan is unsecured and payable upondemand.  The loan is subject to interestannually at a rate equal to the rate of the interest for the revolving creditfacility.  As of December 31, 2007,the interest rate on the related party loan was 7.278%.  Accrued interest on the loan as of December 31,2007 was $13,000. (See Note P)

 

**(Note J) – Comprehensive Loss**

 

Comprehensive lossincludes net loss and changes in member’s equity from non-owner sources.  For Barrington Group, the difference betweennet loss and comprehensive loss is due to the impact of changes in the fairmarket value of the interest rate collars.

 

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

Comprehensive lossconsists of the following (in thousands):

 
| ** **                        | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
|                              |       |                  |       |   |   |   |   |
| Net loss                          |       | $                     | (25,329    | ) | $ | (11,295 | ) | $ | (7,122 | ) |
| Interest rate  collar adjustments |       | (3,673                | )          | — |   | — |   |
| Comprehensive  loss               |       | $                     | (29,002    | ) | $ | (11,295 | ) | $ | (7,122 | ) |

 

**(Note K) – Leases**

 

Barrington Groupleases certain land, office facilities, and office and transportation equipmentunder non-cancelable operating lease arrangements expiring through March of2022.  The leases also require payment ofthe normal maintenance, real estate taxes and insurance on the properties.  Future minimum lease payments for theoperating leases at December 31, 2007 are as follows (in thousands):

 
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008                                        |       | $          | 1,026      |   |
| 2009                                        |       | 943        |       |
| 2010                                        |       | 873        |       |
| 2011                                        |       | 714        |       |
| 2012                                        |       | 665        |       |
| Thereafter                                  |       | 2,939      |       |
|                                        |       | $          | 7,160      |   |

 

Charges tooperations for these leases totaled $1,164,000, $524,000 and $61,000 for theyears ending December 31, 2007, 2006 and 2005, respectively.

 

Barrington Groupleases certain portions of its facilities to various organizations.  Total rental income under these agreementswas $463,000 for the year ended December 31, 2007; $348,000 for the yearended December 31, 2006 and $159,000 for the year ended December 31,2005.

 

**(Note L) – Employee Benefit Plan**

 

Barrington Grouphas a qualified 401(k) profit sharing plan in which substantially all ofthe employees of the Company meeting certain service requirements are eligibleto participate.  Barrington Groupdeclared matching contributions of $119,000, $211,000 and $46,000 for the yearsended December 31, 2007, 2006 and 2005, respectively.  For the years ended December 31, 2007,2006 and 2005, employee contributions were $2,040,000, $1,064,000 and $356,000,respectively.

 

**(Note M) – Management Agreement and ContingentInterest**

 

On December 30,2003, the member of Barrington Group entered into a Management Agreement withBarrington Broadcasting Company, LLC, or BBCLC. The members of BBCLC are officers of Barrington Group.  The agreement provides that BBCLC willprovide management services to television stations acquired by BarringtonGroup.  The fees charged by BBCLCapproximate actual expenses incurred by BBCLC, including designated amounts forservices provided by the members.  TheManagement Agreement expired December 31, 2007.  (See Note P)

 

BBCLC has acontingent interest in the parent of Barrington Group.  Upon the occurrence of a

 

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

sale of broadcast assets or similar liquidity events, BBCLC is entitledto proceeds, if distributed, after the member of Barrington Group receives thereturn of its cumulative capital contributions. BBCLC’s contingent profits interest is limited to 10% of totalprofits.  As liquidation is not probableat December 31, 2007, Barrington Group has not recorded compensationexpense related to this agreement.  (SeeNote P)

 

**(Note N) – Income Taxes**

 

Concurrently with theclosing of the Raycom acquisition, Barrington Corporation and each of itssubsidiaries were merged into newly-formed limited liability companiesresulting in a gain of $22,900,000. Barrington Corporation had provided a valuation allowance for itsdeferred tax assets as their realization through future taxable earnings wasnot certain. The previously unrecognized tax benefits generated from netoperating loss carryforwards, or NOLs and other book-tax differences generatedthrough the date of the merger totaled approximately $18,000,000 and were usedto offset a portion of the taxable gain during the year ended December 31,2006.  The resulting federal and statetax liabilities of $2,441,000 were recognized as an expense for the year ended December 31,2006. Subsequent to the merger, the newly-formed LLCs are allowed to pass alltaxable profits or losses directly to its members, in a manner similar to apartnership.  As such, Barrington Groupwas not subject to federal income taxes after August 11, 2006.  Accordingly, no federal tax provision wasrecorded for the period subsequent to the merger date through December 31,2007.  In addition to the tax liabilityrelated to the merger, provisions for various other state revenue and franchisetaxes were $478,000 for the year ended December 31, 2006.

 

Income tax expense forthe years ended December 31, 2006 and 2005 was $2,920,000 and $159,000,respectively.  For the year ended December 31,2007, expected income tax refunds in the amount of $304,000 related toBarrington Group’s LLC conversion that occurred in 2006.  This refund offsets current year state incometax provisions totaling $240,000, resulting in a $64,000 net income taxbenefit.

 

The provision for incometax consists of the following (in thousands):

 
| ** **                 | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------|------------|---------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Current  income tax:**   |       |                                        |       |   |   |   |   |
| Federal                    |       | $                                           | 45         |   | $ | (1,700 | ) | $ | — |   |
| State                      |       | 19                                          |       | (1,220 | ) | (49 | ) |
|                       |       | 64                                          |       | (2,920 | ) | (49 | ) |
| **Deferred  income tax:**  |       |                                        |       |   |   |   |   |
| Federal                    |       | —                                      |       | — |   | 2,757 |   |
| State                      |       | —                                      |       | — |   | — |   |
|                       |       | —                                      |       | — |   | 2,757 |   |
|                       |       | 64                                          |       | (2,920 | ) | 2,708 |   |
| Less: valuation  allowance |       | —                                      |       | — |   | (2,867 | ) |
| Net tax  (expense) benefit |       | $                                           | 64         |   | $ | (2,920 | ) | $ | (159 | ) |

 

**(Note O) – Recently Issued AccountingPronouncements**

 

In September 2006,the Financial Accounting Standards Board issued SFAS No. 157, *Fair Value Measurements,*which is effective for fiscal yearsbeginning after November 15, 2007. **SFAS No. 157 establishes a comprehensivedefinition of fair value and provides measurement standards and disclosurerequirements for entities to use in the application of the concept as isalready required or permitted in**

** **

**69**

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** **

**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

** **

**other accounting standards.**

 

**In February 2007, the**FinancialAccounting Standards Board issued SFAS No. 159, *The**Fair Value Option for Financial Assets andFinancial Liabilities,*which is effective for fiscal years beginningafter November 15, 2007. SFAS No. 159 establishes as optional butirrevocable once elected, the accounting application of fair value forfinancial assets and liabilities.

 

**Barrington Group is currently evaluating theimpact of SFAS Nos. 157 and 159 and does not believe they will have asignificant impact on its financial position or results of operations**

 

**In December 2007, FASB issued SFAS No. 141(R),*“Business Combinations”,*or SFAS No. 141(R),which establishes principles and requirements for how the acquirer of abusiness recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, and any noncontrolling interest inthe acquiree.  SFAS 141(R) alsoprovides guidance for recognizing and measuring the goodwill acquired in thebusiness combination and determines what information to disclose to enableusers of the financial statements to evaluate the nature and financial effectsof the business combination.  SFAS 141(R) iseffective for fiscal years beginning after December 15, 2008.  Early adoption is not permitted.  We are currently evaluating the impact theadoption of SFAS No. 141(R) will have on our consolidated financialstatements.  We expect the adoption ofSFAS No. 141(R) to have a significant impact on any futureacquisitions.**

 

In December 2007,FASB issued SFAS No. 160, *Noncontrolling Interest inConsolidated Financial Statements — an amendment of ARB No. 51”,*orSFAS No. 160, which is effective for fiscal years beginning after December 15,2008.  SFAS No. 160 establishesaccounting and reporting standards with regard to noncontrolling, or minorityinterests, in consolidated financial statements.  It clarifies that a noncontrolling interestin a subsidiary is an ownership interest in the consolidated entity that shouldbe reported as equity in the consolidated financial statements.  **We are currently assessing the impact of SFASNo. 160 on our consolidated financial statements for the year ending December 31,2009 and beyond, but do not presently anticipate it will have a material effecton our consolidated financial position and results of operations.**

 

**(Note P) – Subsequent Events**

 

***ManagementAgreement and Contingent Interest***

 

On December 30,2003 Barrington Broadcasting LLC, the member of Barrington Group, entered intoa Management Agreement with BBCLC, which is owned by Barrington Group’sexecutive management team.  Pursuant tothe Management Agreement, BBCLC was retained as the exclusive manager of thetelevision stations owned by and acquired by Barrington Group.  The term of the Management Agreement expiredon December 31, 2007.  In connectionwith the expiration of the Management Agreement, as of January 1, 2008,Barrington Group entered into employment agreements with each of K. JamesYager, its Chief Executive Officer, Chris Cornelius, its Chief OperatingOfficer, Warren Spector, its Chief Financial Officer, Keith Bland, its VicePresident and Mary Flodin, its Vice President.

 

In addition, on January 1,2008, the member of Barrington LLC and BBCLC entered into the First Amendmentto the Amended and Restated Limited Liability Company Operating Agreement (asamended, the Parent Operating Agreement) of Barrington LLC.  Pursuant to the Parent Operating Agreement,BBCLC’s contingent profits interest in Barrington was amended.  Upon the occurrence of a sale of broadcastassets or similar liquidity events, BBCLC is entitled to proceeds, ifdistributed, after the member of Barrington Group receives the return of itscumulative capital contributions.  BBCLC’s

 

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**BARRINGTON BROADCASTING GROUP LLC**

**Notes to the Consolidated Financial Statements  - (continued)**

 

contingent profits interest is limited to 11% of total profits.

 

***WGTU /WGTQ Acquistion***

 

On August 31, 2007, Barrington Group entered intothe WGTU APA, with Max Media of Traverse City LLC and MTC License LLC toacquire television station WGTU and its satellite WGTQ, which serve theTraverse City-Cadillac, Michigan market. The acquisition was subject to FCC approval which was initially grantedon January 29, 2008.  The FCC’sapproval was not disputed and it became final on March 10, 2008.  Under the terms of the WGTU APA theacquisition is expected to be completed on April 1, 2008.  The purchase price for the acquisition ofWGTU and WGTQ is $10,000,000, of which $500,000 is being held in escrow pendingthe closing.  Simultaneously withentering into the WGTU APA, Barrington Group assigned its rights under the WGTUAPA to Tucker Broadcasting of Traverse City, Inc, or Tucker, an unrelated thirdparty.

 

Barrington Group’s equity sponsor will contribute toTucker an amount equal to $3,200,000, which includes the $503,000 deposit onWGTU borrowed by Barrington Group from its equity sponsor.  The $3,200,000 contribution will be in theform of a convertible subordinated discount note, the proceeds of which will beused by Tucker to partially fund the purchase price of WGTU and WGTQ.  The balance of the purchase price, or up to$7,000,000, will be financed by Tucker in the form of a credit facilityguaranteed by Barrington Group.  Thecredit facility will consist of a $4,000,000 secured term loan A and a$3,000,000 unsecured term loan B.

 

***Consent Solicitation***

 

On March 19,2008, Barrington Group received consents from holders of more than 50% of itsoutstanding 101⁄2% Senior Subordinated Notes to adopt certain amendments to thereporting covenant under the indenture governing the notes.  A supplemental indenture to effect theproposed amendments was executed on March 19, 2008.  The supplemental indenture eliminatedBarrington Group’s requirement to file periodic and current reports with theSEC and instead required that the type of information required to be reportedon Forms 10-K, 10-Q and 8-K (other than the disclosures and the certificationsrequired by Section 404 of the Sarbanes-Oxley Act of 2002, as amended) beprovided to the trustee for delivery to the holders of the notes, and madeavailable via the internet.

 

Barrington Group paid each consenting holder of thenotes 1.25% of the face value of the notes held as consideration for theiracceptance of the amendments in the form of a consent fee for an aggregate of$1,563,000. In addition Barrington Group expects other fees and costs ofapproximately $760,000 in association with the solicitation.  

 

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#### **ITEM 9.                  Changesin and Disagreements With Accountants on Accounting and Financial Disclosure.**

#### ** **

None.

 

#### **ITEM 9A(T).         Controlsand Procedures.**

#### ** **

As of the end ofthe period covered by this Annual Report, we carried out an evaluation, underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, of the effectiveness thedesign and operation of our “disclosure controls and procedures” (as defined inRule 13a-15(e) of the Exchange Act). Disclosure controls andprocedures are controls and other procedures of an issuer that are designed toprovide reasonable assurance that information required to be disclosed by theissuer in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the SEC.

 

Based upon this evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that the design andoperation of our disclosure controls and procedures as of December 31,2007 (a) were effective to provide reasonable assurance that materialfinancial and non-financial information required to be disclosed by us in ourreports filed or submitted under the Exchange Act has been timely recorded,processed, summarized and reported within the time periods specified in the rules ofthe SEC and (b) include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by us in reportsfiled or submitted under the Exchange Act is accumulated and communicated toour management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

As permitted by applicable rules and regulationsof the SEC for newly public companies, this Annual Report does not include areport of management’s assessment regarding internal control over financialreporting or an attestation report of Barrington Group’s registered publicaccounting firm.

 

#### **ITEM 9B.               OtherInformation.**

#### ** **

None.

 

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** **

**PART III**

 

#### **ITEM 10.               Directors,Executive Officers and Corporate Governance.**

#### ** **

For the year ended December 31, 2007, ourexecutive officers were employed by Barrington Broadcasting Company, LLC, orBarrington Company, and provided services to us pursuant to a managementagreement. The management agreement expired on December 31, 2007.  As of January 1, 2008, Barrington Groupentered into employment agreements with each of K. James Yager, ChrisCornelius, Warren Spector, Keith Bland and Mary Flodin.  The following table sets forth the names andpositions of our current directors and executive officers and their ages.

 
| **Name**                 | ** ** | **Age** | ** ** | **Position**                                                                             |
|--------------------------|------------|---------|------------|------------------------------------------------------------------------------------------|
| K. James Yager           |       | 72      |       | President and Chief Executive  Officer of Barrington Group; Director of Barrington Group |
| Chris Cornelius          |       | 48      |       | Chief Operating Officer of  Barrington Group; Director of Barrington Group               |
| Warren Spector           |       | 49      |       | Chief Financial Officer of  Barrington Group; Director of Barrington Group               |
| Keith Bland              |       | 52      |       | Vice President of Barrington  Group                                                      |
| Mary Flodin              |       | 52      |       | Vice President of Barrington  Group                                                      |
| Robert B. Sherman        |       | 65      |       | Director of Barrington Group                                                             |
| Mayo S. Stuntz, Jr. |       | 58      |       | Director of Barrington Group                                                             |
| Paul M. McNicol          |       | 51      |       | Director of Barrington Group                                                             |
| Andrew Russell           |       | 36      |       | Director of Barrington Group                                                             |

 

*K. James Yager.*  Mr. Yagerco-founded Barrington Corporation (prior to its merger with Barrington Group)in May 2003 and has served as Chief Executive Officer and a director sinceits formation and President since January 2004. In addition, Mr. Yagerserves as Chief Executive Officer of Barrington Company and became a directorof Barrington Group in May 2006. Previously, Mr. Yager served asPresident and Chief Operating Officer of Benedek Broadcasting Corporationwhere, from 1986 to October 2002, he helped grow the company from four totwenty-eight network-affiliated television stations and led the company’s$503 million merger with Gray Television, Inc. From 1980 to 1986, Mr. Yagerheld the position of Executive Vice President and Chief Operating Officer ofSpartan Communications Corporation. Prior to joining Spartan CommunicationsCorporation, Mr. Yager served as General Manager and then Senior VicePresident for Cosmos Broadcasting Corporation from 1960 to 1980, managingaffiliates in Columbia, South Carolina, Montgomery, Alabama and New Orleans,Louisiana. Mr. Yager is currently a member of the board of directors ofthe Television Operators Caucus and the Maximum Service for Television. Inaddition, Mr. Yager serves on the compensation committee  of the boards of directors of Broadcast MusicIncorporated and the audit committee of the board of directors of the NationalAssociation of Broadcasters. In 2005, Mr. Yager received the NationalAssociation of Broadcasters’ Chuck Sherman award for Television Leadership. Mr. Yagerholds a bachelor’s degree from Colgate University and is a U.S. Army veteran.

 

*Chris Cornelius.*  Mr. Corneliusco-founded Barrington Corporation (prior to its merger with Barrington Group)in May 2003 and has served as Chief Operating Officer and a director sinceits formation. In addition, Mr. Cornelius serves as President and ChiefOperating Officer of Barrington Company and became a director of BarringtonGroup in May 2006. Prior to the formation of Barrington Corporation, Mr. Corneliusserved as Senior Vice President of Benedek Broadcasting Corporation since 1999,after having served as the Vice President and General Manager of WILX-TV,Benedek’s NBC affiliate in Lansing, Michigan, since 1997. In his capacity asSenior Vice President of Benedek Broadcasting Group, Mr. Corneliussuccessfully improved the market rank of five of the six stations involved inthe merger with Gray Television, Inc. in 2002 to the number one positionin their respective markets. From 1989 to 1997, Mr. Cornelius served as anaccount executive and General Sales Manager 

 

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for Gillette Broadcasting Company and helpedtransition the CBS affiliate WWMT-TV to the ownership of Granite BroadcastingCorporation. Mr. Cornelius was elected to the NBC Affiliates Board in thespring of 2006. Mr. Cornelius holds a B.A. in Marketing and Advertisingfrom Western Michigan University.

 

*Warren Spector.*  Mr. Spectorhas served as Chief Financial Officer of Barrington Corporation (prior to itsmerger with Barrington Group) since May 2006.  He has served as a director of BarringtonGroup since August 2006. Prior to joining Barrington Group, Mr. Spectorserved as Managing Director of Lydian Wealth Management from 2004 to July 2005.From 1999 to 2003, Mr. Spector was Executive Vice President and ChiefOperating Officer of Fisher Communications, Inc. Mr. Spector alsoserved as the Chief Financial Officer of Retlaw Enterprises, Inc. from1992 to 1999, where he secured over $130 million in financing for acquisitionsand negotiated the sale of broadcasting assets for $215 million. In 1991, Mr. Spectorwas a financial consultant for legal arbitration cases, and from 1986 to 1991, Mr. Spectorserved as the Senior Vice President of Finance and Administration for Act IIICommunications, Inc. From 1979 to 1986, Mr. Spector was employed byPrice Waterhouse. Mr. Spector is a C.P.A. certified in the State ofCalifornia and holds a B.A. in Economics and a M.B.A. from the University ofCalifornia at Los Angeles. Mr. Spector is a member of the board ofdirectors of Liqcrytech, LLC and a member of the investment committee of aDisney family private foundation.  Mr. Spectorpreviously served as a member of the compensation committee of BroadstreamCommunications, Inc.  Mr. Spectorwas a member of the board of directors of Communications Corporation of Americauntil October 2007.  CommunicationsCorporation of America filed for bankruptcy in June 2006.

 

*Keith Bland.*  Mr. Blandco-founded Barrington Corporation (prior to its merger with Barrington Group)in May 2003 and has served as Vice President, Acquisitions andDevelopment, since its formation. In addition, Mr. Bland serves as SeniorVice President, Acquisitions and Development of Barrington Company. From 1987to 2002, Mr. Bland was employed by Benedek Broadcasting Corporation asSales Manager, Vice President and General Manager and then Senior VicePresident for Planning and Technical Operations of Benedek BroadcastingCorporation, in which capacity he designed and oversaw the construction of fivedigital television studios and guided the company through the transition to newdigital transmission systems. Before joining Benedek, Mr. Bland worked asa Sales Manager for Gilmore Broadcasting Corporation in Rockford, Illinois from1986 to 1987.

 

*Mary Flodin.*  Ms. Flodinco-founded Barrington Corporation (prior to its merger with Barrington Group)in May 2003 and has served as Vice President of Finance and Administrationsince its formation. In addition, Ms. Flodin serves as Senior VicePresident, Finance and Administration of Barrington Company. Previously, Ms. Flodinserved as Controller, Vice President, and then Senior Vice President of BenedekBroadcasting Corporation since 1988. During her tenure at Benedek, Ms. Flodinprovided financial leadership to a team that integrated seventeen televisionstations into a nine-station group in four months, implemented centralizedpayroll processing and implemented corporate processing of significant paymentsand oversight of station financial information. In 2000, Ms. Flodinmanaged the financial aspects of a tri-party swap of Benedek’s station inSpringfield, Massachusetts, WWLP-TV, for KAKE-TV in Wichita, Kansas and WOWT-TVin Omaha, Nebraska. Prior to 1988, Ms. Flodin worked for AMCORE Financial, Inc.,a bank holding company, where she participated in merger and acquisitionactivity and secondary public stock offerings, and for Grant Thornton,International in Chicago. Ms. Flodin earned a B.B.A. with an accountingemphasis in 1980 from the University of Wisconsin and is a member and formerdirector of the Broadcast and Cable Financial Managers Association.

 

*Robert B. Sherman.*  Mr. Shermanhas served as a director of Barrington Corporation (prior to its merger withBarrington Group) since its formation and has served as a director ofBarrington Group since May 2006. Mr. Sherman is a member of PilotGroup, the parent of Barrington Broadcasting. Mr. Sherman previouslyserved as President of Interactive Marketing for America Online from April 2001to March 2005 as well as President of Time Warner Cable Advertising Sales.Mr. Sherman previously served as Executive Vice-President of NBC’s ownedand operated radio stations, Vice-President and General Manager of CBS’s WCAUPhiladelphia and Vice-President and General Manager of NBC’s 

 

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WNBC New York. In the early 1990s, Mr. Shermanset up the sponsorship sales organization of Six Flags Theme Parks andco-founded and served as Chief Executive Officer of the advertising agency,Della Femina Sherman. In addition, Mr. Sherman founded, operated and soldthree radio station holding companies, including Roberts Radio, which wasacquired by Clear Channel Communications in 2000.  Mr. Sherman serves on the on the boardof directors and the audit and compensation committees of Artes Medical.

 

*Mayo S. Stuntz, Jr.*  Mr. Stuntzhas served as a director of Barrington Corporation (prior to its merger withBarrington Group) since its formation and has served as a director ofBarrington Group since May 2006. Mr. Stuntz is a member of PilotGroup, the parent of Barrington Broadcasting. Most recently at AOL Time Warner,Mr. Stuntz served as Executive Vice President from January 2001 tolate 2002, as Chief Operating Officer of AOL’s Interactive Services Group from1999 to January 2001 and as President of CompuServe (an AOL subsidiary)from early 1998 to 1999. Prior to joining AOL Time Warner, Mr. Stuntz wasthe Chief Operating Officer of Century 21 Real Estate and Executive VicePresident responsible for Operations at Six Flags Theme Parks. Mr. Stuntzalso served as Executive Vice President of Business and Strategic Developmentat Time Warner Enterprises and was employed as Executive Vice President ofQuantum Media. Mr. Stuntz started his career as Marketing Manager forAmerican Airlines and went on to serve in management capacities at ABC and NBCand later served as Senior Vice President of Business Management andDevelopment at MTV, where he was responsible for the company’s new networkdevelopment and international expansion. A graduate of Cornell University, Mr. Stuntzreceived his M.B.A. from Harvard Business School.

 

*Paul M. McNicol.*  Mr. McNicolhas served as a director of Barrington Corporation (prior to its merger with BarringtonGroup) since its formation and has served as a director of Barrington Groupsince May 2006. Mr. McNicol is a member of Pilot Group, the parent ofBarrington Broadcasting. Most recently, Mr. McNicol served as Senior VicePresident of the AOL Time Warner Global Marketing Solutions Group from April 2001to November 2002 and as Senior Vice President of America Online’sInteractive Marketing Division from March 2000 to April 2001. From1997 to 2000, Mr. McNicol was Senior Vice President and General Counsel ofthe Real Estate Division of the Cendant Corporation. Previously, Mr. McNicolserved as Senior Vice President and General Counsel of Six Flags Theme Parks, Inc.,where he was also responsible for the oversight of the company’s HumanResources functions. From 1982 to 1994, Mr. McNicol practiced corporateand securities law in New York City. Mr. McNicol is a graduate of HarvardUniversity, and received his J.D. from Fordham University Law School.

 

*Andrew Russell.*  Mr. Russellbecame a director of Barrington Group in May 2006 and is a member of PilotGroup, the parent of Barrington Broadcasting. Most recently, Mr. Russellwas a partner at East River Ventures, a venture capital firm in New Yorkfocusing on early stage information technology companies, where he beganworking in 1999. Previously, Mr. Russell started Epinard LLC, ahospitality company, with the flagship restaurant MOOMBA and worked as aninvestment banker at Chemical Bank from 1993 to 1996.  In 2004, Russell Restaurant Group, an entityof which Mr. Russell was a member, filed for bankruptcy.  A graduate of Cornell University, Mr. Russellreceived his M.B.A. from Columbia University Business School.

 

## ***Contingent Equity Plan***

## *** ***

On December 30, 2003, Pilot Group and Barrington Company enteredinto the Amended and Restated Limited Liability Company Operating Agreement ofBarrington Broadcasting, as amended on January 1, 2008, which is referredto in this Annual Report as the parent operating agreement. Pursuant to theparent operating agreement, Barrington Company, which is owned by K. JamesYager, Chris Cornelius, Warren Spector, Keith Bland and Mary Flodin, members ofour executive management team, has a contingent profits interest in BarringtonBroadcasting and Barrington Broadcasting is required to make distributions uponthe occurrence of certain capital events as follows:

 

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(i)            first, to Pilot Group until it has received a returnof all of its capital contributions to Barrington Broadcasting;

 

(ii)           second, 95% to Pilot Group and 5% to BarringtonCompany, until Pilot Group has received an amount, calculated like interest ata rate of 9% per annum, on all of its capital contributions to BarringtonBroadcasting, which amount is calculated from the date of any such capitalcontribution;

 

(iii)          third, 100% to Barrington Company, until BarringtonCompany has received a cumulative distribution pursuant to clause (ii) aboveand this clause (iii) equal to 11% of the amounts distributedpursuant to clause (ii) above and this clause (iii); and

 

(iv)          fourth, 89% to Pilot Group and 11% to BarringtonCompany.

 

## ***Committees of the Board of Directors***

## *** ***

We have two standing committees of the board of directors:  an audit committee and a compensationcommittee.

 

Our audit committee consists of Robert B. Sherman, Mayo S. Stuntz, Jr.,Paul M. McNicol and Andrew Russell. Among other functions, the principal dutiesof our audit committee are to appoint our independent auditors, oversee thequality and integrity of our financial reporting and the audit of ourconsolidated financial statements by our independent auditors and, infulfilling its obligations, our audit committee will review with our managementand independent auditors the scope and results of our annual audit, our auditors’independence and our accounting policies. None of the members of the audit committee are financial experts.

 

Our compensation committee consists of Robert B. Sherman, Mayo S.Stuntz, Jr., Paul M. McNicol and Andrew Russell.  Among other functions, the principal duty ofour compensation committee is to oversee the compensation of our ChiefExecutive Officer and other executive officers, including plans and programsrelating to cash compensation, incentive compensation and other benefits.

 

## ***Code of Ethics***

## *** ***

We have adopted a Code of Ethics for Financial Professionals thatapplies to our principal executive officer, principal financial officer,principal accounting officer or controller, or persons performing similarfunctions.  We have posted our Code ofEthics for Financial Professionals on our website (www.barringtontv.com).  We intend to post any amendments to or anywaivers from a provision of our Code of Ethics for Financial Professionals onour website.

 

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#### **ITEM 11.               ExecutiveCompensation.**

#### ** **

During the years ended December 31,2007 and 2006, our executive officers were employed by Barrington Company andprovided services to us pursuant to a management agreement, or the ManagementAgreement.  The following table setsforth information regarding the compensation that we paid to our ChiefExecutive Officer, Chief Financial Officer and each of our three other mosthighly compensated executive officers for the years ended December 31,2007 and 2006.  We refer to theseofficers in this Annual Report as the named executive officers, or theNEOs.  The Management Agreement expiredon December 31, 2007.  As of January 1,2008, we entered into employment agreements with each of K. James Yager, ourChief Executive Officer, Chris Cornelius, our Chief Operating Officer, WarrenSpector, our Chief Financial Officer, Keith Bland, our Vice President, and MaryFlodin, our Vice President.

 

**Summary Compensation Table**

 

The table belowsummarizes the total compensation paid to or earned by each of the NEOs for thefiscal years ended December 31, 2007 and 2006.

 
| **Name and Principal Position** | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus****(2)** | ** ** | **Non-Equity   Incentive Plan  Compensation**** ****(3)** | ** ** | **All Other  Compensation****(4)** | ** ** | **Total**  | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **                                                               | ** ** | ** **                              | ** ** | ** ** | ** ** |
| K. James Yager                                 |       | 2007       |       | $          | 425,000    |             | $          | —                                                                   |       | $                                       | —     |       | $          | 43,018 |   | $ | 468,018 |   |
| President and  Chief Executive Officer         |       | 2006       |       | 208,000    |       | 208,000          |       | 83,200                                                                   |       | 38,548                                  |       | 537,548    |       |
|                                           |       |       |       |       |       |             |       |                                                                     |       |                                    |       |       |       |
| Chris Cornelius                                |       | 2007       |       | $          | 375,000    |             | $          | —                                                                   |       | $                                       | —     |       | $          | 40,290 |   | $ | 415,290 |   |
| Chief Operating  Officer                       |       | 2006       |       | 197,600    |       | 197,600          |       | 79,040                                                                   |       | 27,710                                  |       | 501,910    |       |
|                                           |       |       |       |       |       |             |       |                                                                     |       |                                    |       |       |       |
| Warren Spector                                 |       | 2007       |       | $          | 328,077    |             | $          | —                                                                   |       | $                                       | —     |       | $          | 29,267 |   | $ | 357,344 |   |
| Chief Financial  Officer(1)                    |       | 2006       |       | 187,539    |       | —           |       | 40,000                                                                   |       | 25,047                                  |       | 252,586    |       |
|                                           |       |       |       |       |       |             |       |                                                                     |       |                                    |       |       |       |
| Keith Bland                                    |       | 2007       |       | $          | 165,000    |             | $          | —                                                                   |       | $                                       | —     |       | $          | 39,524 |   | $ | 204,524 |   |
| Vice President                                 |       | 2006       |       | 156,000    |       | 156,000          |       | 20,000                                                                   |       | 26,975                                  |       | 358,975    |       |
|                                           |       |       |       |       |       |             |       |                                                                     |       |                                    |       |       |       |
| Mary Flodin                                    |       | 2007       |       | $          | 155,000    |             | $          | —                                                                   |       | $                                       | —     |       | $          | 26,766 |   | $ | 181,766 |   |
| Vice President                                 |       | 2006       |       | 130,000    |       | 130,000          |       | 20,000                                                                   |       | 23,497                                  |       | 303,497    |       |

 

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(1)           Mr. Spector’semployment with Barrington Company began in May 2006.

 

(2)           NEOs did notearn discretionary bonuses in 2007.  In2006 the Compensation Committee approved a one-time transaction bonus, in connectionwith our successful completion of the Raycom acquisition, equal to 100% ofsalary for Mr. Yager, Mr. Cornelius, Mr. Bland and Ms. Flodinthat was paid shortly after the closing.

 

(3)           NEOs did notearn performance-based bonuses in 2007. In 2006, the NEOs earned performance bonuses based on Barrington Group’sachievement of certain performance goals and financial targets.  The financial targets for 2006 were submittedto the Board by the NEOs in the annual budget in December of 2005.  Mr. Yager and Mr. Cornelius earned40% of base salary in the form of performance bonuses; Mr. Spector earneda performance bonus equal to 20% of his base salary, prorated for the period oftime he was employed by us in 2006.  Mr. Blandearned 13% of base salary in the form of a performance bonus and Ms. Flodinearned  15% of base salary in the form ofa performance bonus. During 2006, we made performance-based awards to the NEOsthat were previously reported under the “bonus” column and are currentlydisclosed in the “non-equity incentive plan compensation” column.

 

(4)           Othercompensation for the year ended December 31, 2007 includes amounts forreimbursement of taxes or tax gross-ups paid to the members of BarringtonCompany for Mr. Yager, Mr. Cornelius, Mr. Bland and Ms. Flodinin the amount of, $18,322, $14,945, $10,923 and $11,966, respectively.  Country club membership fees for Mr. Yagerof $8,850 are also included in other compensation. In addition, automobileallowances for Mr. Yager, Mr. Cornelius, Mr. Spector, Mr. Bland,and Ms. Flodin in the amount of $6,050 each are included in othercompensation.  Medical, dental and lifeinsurance premiums paid on behalf of the officers totaled $9,796, $19,295,$20,330, $22,551 and $8,750 for Mr. Yager, Mr. Cornelius, Mr. Spector,Mr. Bland and Ms. Flodin, respectively.  Remaining amounts include employercontributions to Barrington Group’s 401(k) plan and reimbursed livingexpenses for Mr. Spector.

 

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## ***Compensation Discussion and Analysis***

## *** ***

***GeneralPrinciples and Procedures***

 

The objectives of our executive compensation program are to attract andretain highly qualified individuals at all levels.  Our success depends on developing, motivatingand retaining individuals who have the skills and expertise to lead us.  The compensation program is designed toreflect our performance.  It is comprisedof the following components: (1) salary, (2) bonuses and (3) otheremployee benefits.  Our NEOs do notcurrently receive long-term incentives in the form of stock awards and optionawards.

 

***Specific Principles forDetermining Executive Compensation***

 

The amount of each NEOs salary is based on his or her responsibilities,experience, expertise and position and is designed to reward the NEOs on aday-to-day basis for the time they spend and the services they perform.  Additionally, salaries for our NEOs aredesigned to be competitive with comparable companies in the broadcastingbusiness, which is consistent with our goal to retain the highly qualifiedindividuals for their skill and expertise.

 

*Salary.*  The amount ofeach of our NEOs salary in 2007 was based on the recommendations of Mr. Yagerand approved by the Board of Directors.  Mr. Yager’ssalary was based on the recommendation of the compensation committee andapproved by the Board of Directors. Salary recommendations are made to the Board of Directors during thefall of each year for the following year. In 2007, we increased the base salaries of our NEOs to more closelyreflect salaries earned by similarly-qualified executives within comparablepublicly held broadcasting companies of like size and to compensate our NEOsfor expanded responsibilities related to our growth.  Our CEO reviewed the salaries of executiveofficers who held comparable positions with like experience as our NEOs andmade recommendations to the Compensation Committee.  The Compensation Committee also compared thebase salaries of executives from comparable publicly held broadcastingcompanies using published compensation reports and publicly available executivecompensation disclosures. Although salaries are currently below the mean ofcompensation paid to similarly-qualified executives we feel that the contingentequity interest held by our NEOs offsets the salary disparity.  We did not use an independent compensationconsultant or advisor in 2007.

 

*Bonus.*  Consistentwith our objective of motivating and rewarding our NEOs for achievement of ourfinancial performance objectives, each officer is eligible to receive annualincentive cash compensation based on financial performance objectivesestablished in the annual financial plan, approved by the Board of Directors atthe beginning of each year.   Annualbonuses are based on a percentage of the NEOs salaries and are paid in cash.

 

Our executive officers submit an annual financial plan with recommendedperformance targets each fall for the upcoming year.  In 2007 and 2006 the recommendations made bythe NEOs were approved, without revision by the Compensation Committee and theBoard of Directors.  Our performancetargets are based on achieving a certain targeted cash flow fromoperations.  After the close of eachfiscal year, the Compensation Committee determines whether the performancetarget was met.  We have determined thatdisclosing the specific performance target would result in competitive harm byrevealing to our competitors our cash flow targets, which are based onconfidential, competitively sensitive business plans and financial information.The fiscal year 2007 payout threshold was considered challenging whenestablished.  We believe the performancegoals were difficult to achieve based on the limited economic growth in smallertelevision markets.  In the absence ofour attainment of our threshold performance in 2007, bonus maximums were neverset and the NEOs did not receive bonuses in 2007.

 

*Other Employee Benefits*. All of our NEOs are eligible to receive group health, dental and life 

 

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insurance benefits without charge under our employeebenefit plans. Our NEOs can participate in our 401(k) plan on the samebasis as all of our employees.

 

When employed by the management company, certain NEOs received taxgross-ups in connection with the NEOs’ additional tax liabilities caused by themethod of taxation applied to members of a limited liability company.  In addition Mr. Yager receivesreimbursement of his country club membership fees.

 

*Interrelationship of Elements*. The amount of each NEO’s salary is not based on the level of potentialbonus the NEO may receive.  The amount ofthe bonus each NEO may receive is a certain percentage of his or her salary.

 

*Tax Considerations*.  In 2007, ourexecutive officers were paid by Barrington Company. Because Barrington Companyoperates as a limited liability company, members were compensated in the formof guaranteed payments and each member was therefore personally responsible forcertain taxes consisting primarily of self-employment taxes. We reimbursed Mr. Yager,Mr. Cornelius, Mr. Bland and Ms. Flodin as members of BarringtonCompany for their incremental tax liability in the form of tax gross-ups.

 

Section 162(m) of the Internal Revenue Code of 1986, asamended, or the Code, generally disallows a tax deduction for compensation inexcess of $1 million paid to the NEOs of most public companies.  All compensation paid to our NEOs has notapproached the Section 162(m) limitation.

 

Going forward, the Compensation Committee remains aware of Section 162(m) and409A limitations and the available exemptions and special rules, and willaddress the issue of Section 162(m) deductibility and 409A compliancewhen and if circumstances warrant the use of such exemptions or otherconsiderations.

 

*Policy Regarding Release of Information.* We do not time, or plan to time, itsrelease of non-public information for the purpose of affecting the value ofexecutive compensation.

 

*Policy Regarding Recovering Awards.*We do not currently have a policy toadjust or recover awards or payments if our consolidated financial statementsare restated.

 

***Post 2007 Actions***

 

On March 24, 2008 the Compensation Committee established thefollowing 2008 target bonuses for K. James Yager, Chris Cornelius, WarrenSpector, Keith Bland and Mary Flodin:

 

·                  If we achieve less than 95% of budgeted broadcast cash flow, or BCF,for 2008, these executive officers will not be entitled to a bonus.

 

·                  If we achieve 95% to 99.9% of budgeted BCF for 2008, each of these executiveofficers will be entitled to a bonus of 25% of their respective annualsalaries.

 

·                  If we achieve 100% of budgeted BCF for 2008, each of these executiveofficers will be entitled to a bonus of 50% of their respective annualsalaries.

 

·                  If we achieve over 100% of budgeted BCF for 2008, the CompensationCommittee may decide, in its sole discretion, to award an additional bonus toeach of these executive officers.

 

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**Employment Agreements**

 

In connection with theexpiration of the Management Agreement, as of January 1, 2008, we enteredinto employment agreements with each of the NEOs.  The material terms of these employmentagreements is summarized below and further below is a table, which provides anestimate of the value of the benefits that would be provided to the NEOs upontermination of employment.

 

**K. James Yager**

 

Mr. Yager’semployment agreement provides for the employment of Mr. Yager as our ChiefExecutive Officer through December 31, 2010, unless sooner terminatedpursuant to the terms thereof. The employment agreement provides that Mr. Yagerwill receive an annual base salary of $425,000, subject to annual review by thecompensation committee, and he will be eligible for an annual bonus if we meetcertain annual financial targets. If Mr. Yager’s employment is terminatedwithout cause (defined below) or Mr. Yager leaves for good reason (definedbelow) during the term of his employment agreement or during the one yearperiod following a change of control (defined below), he is entitled to receivea lump sum payment equal to the greater of (x) $550,000 or (y) histhen current annual salary. In the event of Mr. Yager’s permanentincapacity (defined below) or death, he, or his estate, is entitled to receive (a) allcompensation accrued but unpaid through the date of such event, (b) anamount equal to his annual bonus for the year in which such event occurred,prorated for the partial fiscal year during which Mr. Yager worked, (c) sixmonths of his then current annual salary and (d) the amounts specified inany benefit and insurance plans applicable to Mr. Yager as being payablein the event of the permanent incapacity, disability or death of Mr. Yager.The employment agreement also restricts Mr. Yager for a period of eighteenmonths from the termination date of the employment agreement, subject tocertain limited exceptions, from: (a) performing managerial or employeeservices for any person that directly or indirectly competes with our businesswithin the television markets then operated by us, (b) having any interestin any business that competes with the us, (c) soliciting our employees toleave us, or (d) soliciting our customers or clients or our prospectivecustomers or clients on behalf of any person in connection with any businessthat competes with us.

 

**ChrisCornelius**

 

Mr. Cornelius’employment agreement provides for the employment of Mr. Cornelius as ourChief Operating Officer through December 31, 2010, unless soonerterminated pursuant to the terms thereof. The employment agreement providesthat Mr. Cornelius will receive an annual base salary of $375,000, subjectto annual review by the compensation committee, and he will be eligible for anannual bonus if we meet certain annual financial targets. If Mr. Cornelius’semployment is terminated without cause (defined below) or Mr. Corneliusleaves for good reason (defined below) during the term of his employmentagreement or during the one year period following a change of control (definedbelow), he is entitled to receive a lump sum payment equal to his then currentannual salary.  In the event of Mr. Cornelius’spermanent incapacity (defined below) or death, he, or his estate, is entitledto receive (a) all compensation accrued but unpaid through the date ofsuch event, (b) an amount equal to his annual bonus for the year in whichsuch event occurred, prorated for the partial fiscal year during which Mr. Corneliusworked and (c) the amounts specified in any benefit and insurance plansapplicable to Mr. Cornelius as being payable in the event of the permanentincapacity, disability or death of Mr. Cornelius. The employment agreementalso restricts Mr. Cornelius for a period of eighteen months from thetermination date of the employment agreement, subject to certain limitedexceptions, from: (a) performing managerial or employee services for anyperson that directly or indirectly competes with our business within thetelevision markets then operated by us, (b) having any interest in anybusiness that competes with the us, (c) soliciting our employees to leaveus, or (d) soliciting our customers or clients or our prospective 

 

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customers or clients onbehalf of any person in connection with any business that competes with us.

 

**Warren Spector**

 

Mr. Spector’semployment agreement provides for the employment of Mr. Spector as ourChief Financial Officer through December 31, 2010, unless soonerterminated pursuant to the terms thereof. The employment agreement providesthat Mr. Spector will receive an annual base salary of $350,000, subjectto annual review by the compensation committee, and he will be eligible for anannual bonus if we meet certain annual financial targets. If Mr. Spector’semployment is terminated without cause (defined below) or Mr. Spectorleaves for good reason (defined below) during the term of his employmentagreement or during the one year period following a change of control definedbelow), he is entitled to receive a lump sum payment equal to his then currentannual salary. In the event of Mr. Spector’s permanent incapacity (definedbelow) or death, he, or his estate, is entitled to receive (a) allcompensation accrued but unpaid through the date of such event, (b) anamount equal to his annual bonus for the year in which such event occurred,prorated for the partial fiscal year during which Mr. Spector worked and (c) theamounts specified in any benefit and insurance plans applicable to Mr. Spectoras being payable in the event of the permanent incapacity, disability or deathof Mr. Spector. The employment agreement also restricts Mr. Spectorfor a period of eighteen months from the termination date of the employmentagreement, subject to certain limited exceptions, from: (a) performingmanagerial or employee services for any person that directly or indirectlycompetes with our business within the television markets then operated by us, (b) havingany interest in any business that competes with the us, (c) soliciting ouremployees to leave us, or (d) soliciting our customers or clients or ourprospective customers or clients on behalf of any person in connection with anybusiness that competes with us

 

**Keith Bland**

 

Mr. Bland’semployment agreement provides for the employment of Mr. Bland as our VicePresident through December 31, 2010, unless sooner terminated pursuant tothe terms thereof. The employment agreement provides that Mr. Bland willreceive an annual base salary of $165,000, subject to annual review by thecompensation committee, and he will be eligible for an annual bonus if we meetcertain annual financial targets. If Mr. Bland’s employment is terminatedwithout cause (defined below) or Mr. Bland leaves for good reason (definedbelow) during the term of his employment agreement or during the one yearperiod following a change of control (defined below), he is entitled to receivea lump sum payment equal to his then current annual salary. In the event of Mr. Bland’spermanent incapacity (defined below) or death, he, or his estate, is entitledto receive (a) all compensation accrued but unpaid through the date ofsuch event, (b) an amount equal to his annual bonus for the year in whichsuch event occurred, prorated for the partial fiscal year during which Mr. Blandworked and (c) the amounts specified in any benefit and insurance plansapplicable to Mr. Bland as being payable in the event of the permanentincapacity, disability or death of Mr. Bland. The employment agreementalso restricts Mr. Bland for a period of eighteen months from thetermination date of the employment agreement, subject to certain limitedexceptions, from: (a) performing managerial or employee services for anyperson that directly or indirectly competes with our business within thetelevision markets then operated by us, (b) having any interest in anybusiness that competes with the us, (c) soliciting our employees to leaveus, or (d) soliciting our customers or clients or our prospectivecustomers or clients on behalf of any person in connection with any businessthat competes with us

 

**Mary Flodin**

 

Ms. Flodin’semployment agreement provides for the employment of Ms. Flodin as our VicePresident through December 31, 2010, unless sooner terminated pursuant tothe terms thereof. The employment agreement provides that Ms. Flodin willreceive an annual base salary of $155,000, subject to annual review by thecompensation committee, and she will be eligible for an annual bonus if we meetcertain annual financial targets. If Ms. Flodin’s employment is terminatedwithout cause (defined below) or Ms. Flodin leaves for good reason (definedbelow) during the term of her employment agreement or 

 

81

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during the one yearperiod following a change of control (defined below), she is entitled toreceive a lump sum payment equal to her then current annual salary. In theevent of Ms. Flodin’s permanent incapacity (defined below) or death, she,or her estate, is entitled to receive (a) all compensation accrued butunpaid through the date of such event, (b) an amount equal to her annualbonus for the year in which such event occurred, prorated for the partialfiscal year during which Ms. Flodin worked and (c) the amountsspecified in any benefit and insurance plans applicable to Ms. Flodin asbeing payable in the event of the permanent incapacity, disability or death of Ms. Flodin.The employment agreement also restricts Ms. Flodin for a period ofeighteen months from the termination date of the employment agreement, subjectto certain limited exceptions, from: (a) performing managerial or employeeservices for any person that directly or indirectly competes with our businesswithin the television markets then operated by us, (b) having any interestin any business that competes with the us, (c) soliciting our employees toleave us, or (d) soliciting our customers or clients or our prospectivecustomers or clients on behalf of any person in connection with any businessthat competes with us

 

***DefinedTerms in Employment Agreements***

 

“Cause” is defined ineach employment agreement as the executive officer’s (a) willfulmisconduct which is materially detrimental to Barrington Group and whichcontinues for 30 days after notice thereof from the Board of Directors, (b) breachof fiduciary duty involving personal profit, (c) intentional failure toperform stated duties****which is materiallydetrimental to the Company**** and which continues for 30 daysafter notice thereof from the Board of Directors, or (d) conviction for afelony.

 

“Change in Control” isdefined in each employment agreement as the satisfaction of any one or more ofthe following conditions (and the “*Change of Control*”shall be deemed to have occurred as of the first day that any one or more ofthe following conditions shall have been satisfied):

 

(a)           any person (as such term is used inparagraphs 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,as amended (the “*Exchange Act*”) (hereinafter inthis definition, “*Person*”), other than Pilot GroupLP (the “*Partnership*”), or an affiliate of thePartnership, becomes the beneficial owner (as defined in Rule 13d-3 underthe Exchange Act), directly or indirectly, of securities of Barrington Group orthe Barrington Group’s parent, representing more than 50% of the combinedvoting power of Barrington Group’s or such parent’s then outstandingsecurities;

 

(b)           Barrington Group’s members or themembers of its parent approve a merger, consolidation or other businesscombination (a “*Business Combination*”), otherthan a Business Combination in which the holders of the equity securities ofBarrington Group or its parent immediately prior to the Business Combinationhave substantially the same proportionate ownership of the equity securities ofthe applicable surviving corporation immediately after the BusinessCombination;

 

(c)           Barrington Group’s members or themembers of its parent approve either (i) an agreement for the sale ordisposition of all or substantially all of Barrington Group’s assets or theassets of its parent to any entity that is not an Affiliate of BarringtonGroup, or (ii) a plan of complete liquidation of Barrington Group or itsparent; or

 

(d)           the persons who were members of theBoard immediately before a tender offer by any Person other than BarringtonGroup or an Affiliate of Barrington Group, or before a merger, consolidation orcontested election, or before any combination of such transactions, cease toconstitute a majority of the members of the Board as a result of suchtransaction or transactions.

 

“Good Reason” is definedin each employment agreement as any of the following events, which has not beeneither consented to in advance by the employee in writing or cured byBarrington Group within a reasonable period of time, not to exceed 30 days,after the employee provides written notice within 60 days of the initialexistence of one or more of the following events:  (i) the requirement that the employee’sprincipal employee function be performed more than 50 miles from the employee’sprimary 

 

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office as of January 1,2008 hereof; (ii) a material reduction in the employee’s annual salary asthe same may be increased from time to time; (iii) a material diminutionor reduction in the employee’s responsibilities, duties or authority, includingreporting responsibilities in connection with his employment with BarringtonGroup;****or  (iv) anyother action or inaction that constitutes a material breach by****BarringtonGroup****of this Agreement under which the employeeprovides services.  Good Reason shall notexist unless the employee separates from service within 180 days following theinitial existence of the condition or conditions that****BarringtonGroup****has failed to cure.****

 

****“Permanent Incapacity” is definedin each employment agreement as****a physical or mental illness or injury of a permanentnature which prevents the employee from performing her essential duties andother services for which he is employed by Barrington Group under theemployment agreement for a period of 90 or more continuous days or 90 or morenon-continuous days within a 120 day period, as verified and confirmed bywritten medical evidence reasonably satisfactory to the Board of Directors.

 

**Potential Payments Payable Upon aDecember 31, 2007 Termination Event**

 

The following tableprovides information with respect to potential severance benefits.  Under the employment agreements, benefits arepayable to an executive officer upon permanent incapacity, death, dischargewithout cause, resignation with good reason or within one year following achange in control.  Post-terminationbenefits consist of:

 
| ** **                                                                                                     | ** ** | **K. James  Yager** | ** ** | **Chris  Cornelius** | ** ** | **Warren  Spector** | ** ** | **Keith  Bland** | ** ** | **Mary  Flodin** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------|------------|---------------------|------------|------------------|------------|------------------|------------|
| **Permanant  Incapacity**                                                                                      |       |                     |       |                 |       |                |       |             |       |             |       |
| Salary  continuation                                                                                           |       | $                        | 213,000    |                 | $          | —              |       | $                | —     |             | $          | — |   | $ | — |   |
| Disability  insurance (1)                                                                                      |       | 108,000                  |       | 108,000              |       | 108,000             |       | 99,000           |       | 93,000           |       |
|                                                                                                           |       |                     |       |                 |       |                |       |             |       |             |       |
| **Death**                                                                                                      |       |                     |       |                 |       |                |       |             |       |             |       |
| Salary  continuation                                                                                           |       | $                        | 213,000    |                 | $          | —              |       | $                | —     |             | $          | — |   | $ | — |   |
| Life insurance                                                                                                 |       | 97,500                   |       | 150,000              |       | 150,000             |       | 150,000          |       | 150,000          |       |
| Accidental  death and dismemberment insurance                                                                  |       | 97,500                   |       | 150,000              |       | 150,000             |       | 150,000          |       | 150,000          |       |
|                                                                                                           |       |                     |       |                 |       |                |       |             |       |             |       |
| **Discharge  Without Cause or Resignation With Good Reason or Within One Year Following a  Change in Control** |       |                     |       |                 |       |                |       |             |       |             |       |
| Lump sum cash  payment                                                                                         |       | $                        | 425,000    |                 | $          | 375,000             |       | $                | 350,000    |             | $          | 165,000 |   | $ | 155,000 |   |

 

----

## ***(1)  Represents the amount to be paid in the event oflong term disability and is an annual amount based on a monthly payment of$9,000.  The actual amount to be paid inthe event of permanent incapacity or disability would be based on the NEO’s ageat the time the disability occurs.  Mr. Yager’sdisability benefit would reach its maximum amount at 12 months.***

## *** ***

## ***DirectorCompensation***

## *** ***

Our directors are not compensated for their service on the board ofdirectors.

 

83

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## ***CompensationCommittee Interlocks and Insider Participation***

## *** ***

None of themembers of our compensation committee will be one of our officers or employees.None of our executive officers serve, or in the past year have served, as amember of the board of directors or compensation committee of any entity thathas one or more executive officers serving on our board of directors orcompensation committee.

 

## ***CompensationCommittee Report***

## *** ***

The compensationcommittee has reviewed and discussed the “Compensation Discussion and Analysis”with management and the compensation committee has recommended to our Board ofDirectors that the “Compensation Discussion and Analysis” be included in thisAnnual Report.  Among other functions,the principal duties of the compensation committee are to oversee thecompensation of our chief executive officer and other executive officers,including plans and programs relating to cash compensation, incentivecompensation and other benefits.

 
|   | THE COMPENSATION COMMITTEE |
|--------|----------------------------|
|   |                       |
|   | Paul M. McNicol            |
|   | Andrew Russell             |
|   | Robert B. Sherman          |
|   | Mayo Stuntz                |

 

#### **ITEM 12.**                                              SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.

#### ** **

Barrington Capitalis a wholly owned subsidiary of Barrington Group.  Barrington Group is a wholly owned subsidiaryof Barrington Broadcasting.  Pilot Groupis the sole member of Barrington Broadcasting. The general partner of Pilot Group is Pilot Group GP LLC.  Each of Robert B. Sherman, Mayo S. Stuntz, Jr.,Paul M. McNicol and Andrew Russell, who serve as directors of Barrington Group,may be deemed to share beneficial ownership of limited liability company unitsowned of record by Barrington Broadcasting by virtue of their status as membersof Pilot Group.  Each of Mr. Sherman,Mr. Stuntz, Mr. McNicol and Mr. Russell disclaim beneficialownership of such limited liability company units, except to the extent oftheir pecuniary interests.

 

Certain members of our executive management hold a contingent profitsinterest in Barrington Broadcasting, see “Item 10.  Directors, Executive Officers and CorporateGovernance—Contingent Equity Plan” in this Annual Report.

 

#### **ITEM 13.**                                              CertainRelationships and Related Transactions, and Director Independence.

#### ** **

## ***ManagementAgreement***

## *** ***

On December 30,2003, we entered into the Management Agreement with Barrington Company, whichis owned by K. James Yager, Chris Cornelius, Warren Spector, Keith Bland andMary Flodin, members of our executive management team.  Pursuant to the Management Agreement, weretained Barrington Company as the exclusive manager of the television stationsowned by and acquired by us. The Management Agreement required us to payBarrington Company an annual management fee equal to budgeted overhead expensesand a discretionary performance-based management fee. We paid management feesto Barrington Company of $4.7 million in 2007 and $4.4 million in 2006. Themanagement agreement expired on December 31, 2007.

 

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In connection withthe expiration of the Management Agreement, as of January 1, 2008,Barrington Broadcasting entered into employment agreements with each of K.James Yager, its Chief Executive Officer, Chris Cornelius, its Chief OperatingOfficer, Warren Spector, its Chief Financial Officer, Keith Bland, its VicePresident, and Mary Flodin, its Vice President.

 

## ***Contingent EquityPlan***

## *** ***

BarringtonCompany, owned by members of our executive management, is a member ofBarrington Broadcasting. Pursuant to the parent operating agreement, BarringtonCompany is entitled to receive certain profit distributions from BarringtonBroadcasting. No such distributions have been made.  For additional information, see “Item10.  Directors, Executive Officers andCorporate Governance—Contingent Equity Plan” in this Annual Report.

 

***Director Independence***

 

None of ourdirectors would be considered independent under the independence standards ofthe New York Stock Exchange.

 

#### **ITEM 14.**                                              PrincipalAccounting Fees and Services.

#### ** **

The followingtable presents fees for professional audit services rendered by Ernst &Young for the audit of our consolidated financial statements for the yearsended December 31, 2007 and 2006, and fees billed for other servicesrendered by Ernst & Young during those periods (in thousands):

 
| **Fee Type**      | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit fees(1)          |       | $        | 528        |     | $          | 502 |   |
| Audit related  fees(2) |       | 142      |       | 753      |       |
| Tax fees(3)            |       | 48       |       | 91       |       |
| Total                  |       | $        | 718        |     | $          | 1,346 |   |

 

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(1)          Audit feesrepresent the aggregate fees billed for the years ended December 31, 2007and 2006 in connection with the audit of our annual consolidated financialstatements and review of the condensed consolidated financial statementsincluded in our Quarterly Reports.

 

(2)          Auditrelated fees consist of assurance and related services that are reasonablyrelated to the performance of the audit or review of our financial statementsor internal control over reporting.  Thiscategory primarily includes fees related to due diligence related to the Raycomacquisition, issuance of the notes and subsequent filings.

 

(3)          Tax fees generallyconsist of tax compliance and tax return preparation including review ofprojected tax liabilities.

 

The auditcommittee was formed on August 11, 2006. Since its inception the audit committee has approved all audit andpermissible non-audit services provided by the independent auditor.  Prior to the inception of the audit committeethe Board of Directors was apprised of audit related fees. The audit committeeapproves the terms on which the independent auditor is engaged for the ensuingfiscal year and receives a projection of projected fees for the ensuing year.

 

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**PART IV**

 

#### **ITEM 15.**                                              Exhibitsand Financial Statement Schedules.

#### ** **

## ***(a)***                                  Documents filed as part of this report

## *** ***

## ***(1)  Consolidated Financial Statements:***

## *** ***

The consolidated financial statements of BarringtonGroup filed as part of this Annual Report are listed in the index toconsolidated financial statements under “Item 8.  Financial Statements and Supplementary Data”in this Annual Report which index to the consolidated financial statements isincorporated herein by reference.

 

***(2)  Exhibits:***  See Exhibit Indexbeginning on page 87 of this Annual Report for a listing of the exhibits.

 

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**EXHIBIT INDEX**

 
| **Exhibit****Number** | ** ** | **Title**                                                                                                                                                                                                                                                                  |
|-----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |       |                                                                                                                                                                                                                                                                       |
| 2.1                   |       | Asset Purchase Agreement, dated  as of March 24, 2006, by and among Raycom Media, Inc., certain  subsidiaries thereof and Barrington Broadcasting Corporation(1)                                                                                                 |
|                  |       |                                                                                                                                                                                                                                                                       |
| 2.2                   |       | Amendment No. 1 to Asset  Purchase Agreement, dated as of August 11, 2006, by and among Raycom  Media, Inc., certain subsidiaries thereof and Barrington Broadcasting  Corporation(1)                                                                       |
|                  |       |                                                                                                                                                                                                                                                                       |
| 2.3                   |       | Asset Purchase Agreement dated  as of August 31, 2007, by and between Max Media of Traverse City LLC,  MTC License LLC and Barrington Traverse City LLC(2)                                                                                                            |
|                  |       |                                                                                                                                                                                                                                                                       |
| 2.4                   |       | Assignment and Assumption  Agreement dated August 31, 2007, by and between Tucker Broadcasting of  Traverse City, Inc. and Barrington Traverse City LLC*                                                                                                         |
|                  |       |                                                                                                                                                                                                                                                                       |
| 3.1                   |       | Certificate of Formation of  Barrington Broadcasting Group LLC(1)                                                                                                                                                                                                          |
|                  |       |                                                                                                                                                                                                                                                                       |
| 3.2                   |       | Certificate of Incorporation of  Barrington Broadcasting Capital Corporation(1)                                                                                                                                                                                            |
|                  |       |                                                                                                                                                                                                                                                                       |
| 3.3                   |       | Limited Liability Company  Agreement of Barrington Broadcasting Group LLC(1)                                                                                                                                                                                               |
|                  |       |                                                                                                                                                                                                                                                                       |
| 3.4                   |       | Bylaws of Barrington  Broadcasting Capital Corporation(1)                                                                                                                                                                                                                  |
|                  |       |                                                                                                                                                                                                                                                                       |
| 4.1                   |       | Indenture, dated as of  August 11, 2006, by and among Barrington Broadcasting Group LLC,  Barrington Broadcasting Capital Corporation and U.S. Bank National  Association, as trustee(1)                                                                              |
|                  |       |                                                                                                                                                                                                                                                                       |
| 4.2                   |       | Form of 101⁄2% Senior  Subordinated Note due 2014 (included in exhibit 4.1 to this annual report)(1)                                                                                                                                                               |
|                  |       |                                                                                                                                                                                                                                                                       |
| 4.3                   |       | Registration Rights Agreement, dated as of  August 11, 2006, by and among Barrington  Broadcasting Group LLC, Barrington Broadcasting Capital Corporation and Banc  of America Securities LLC and Wachovia Capital Markets, LLC, as  initial purchasers(1)            |
|                  |       |                                                                                                                                                                                                                                                                       |
| 10.1                  |       | Credit Agreement, dated as of  August 11, 2006, by and among Barrington Broadcasting Group LLC, as  borrower, all subsidiaries thereof and Barrington Broadcasting LLC, as  guarantors, Bank of America, N.A., as administrative agent, and lenders party  thereto(1) |
|                  |       |                                                                                                                                                                                                                                                                       |
| 10.2                  |       | Guaranty Agreement, dated as of August 11,  2006, by and among Barrington Broadcasting Group LLC, as borrower, all  subsidiaries thereof and Barrington Broadcasting LLC, as guarantors, and Bank  of America, N.A., as collateral agent(1)                           |
|                  |       |                                                                                                                                                                                                                                                                       |
| 10.3                  |       | Security Agreement, dated as of August 11,  2006, by and among Barrington Broadcasting Group LLC, as borrower, all  subsidiaries thereof and Barrington Broadcasting LLC, as guarantors, and Bank  of America, N.A., as collateral agent(1)                           |
|                  |       |                                                                                                                                                                                                                                                                       |
| 10.4                  |       | Credit Agreement, dated as of August 11, 2006,  by and among SagamoreHill of Carolina, LLC, as borrower, Bank of America,  N.A., as administrative agent, and lenders party thereto(1)                                                                                |
|                  |       |                                                                                                                                                                                                                                                                       |
| 10.5                  |       | Barrington Guaranty, dated as of August 11,  2006, by and among Barrington Broadcasting Group LLC, as borrower, all  subsidiaries thereof and Barrington Broadcasting LLC, as guarantors, and Bank  of America, N.A., as collateral agent(1)                          |

 

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| 10.6   |   | Amended and Restated Limited  Liability Company Operating Agreement of Barrington Broadcasting LLC, dated  December 30, 2003, by and between Pilot Group LP and Barrington  Broadcasting Company, LLC.(1)    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                              |
| 10.7   |   | First Amendment to Amended and  Restated Limited Liability Company Operating Agreement of Barrington  Broadcasting LLC dated January 1, 2008, by and among Pilot Group LP and  Barrington Broadcasting LLC.* |
|   |   |                                                                                                                                                                                                              |
| 10.8   |   | Management Agreement dated as  of December 30, 2003, by and between Barrington Broadcasting LLC and  Barrington Broadcasting Company, LLC, as amended(1)                                                     |
|   |   |                                                                                                                                                                                                              |
| 10.9   |   | Transition Services Agreement,  dated as of August 11, 2006, by and among Raycom Media, Inc.,  certain subsidiaries thereof and Barrington Broadcasting Group LLC(1)                                    |
|   |   |                                                                                                                                                                                                              |
| 10.10  |   | Time Brokerage Agreement dated  as of April 28, 1994, as amended, by and between Atlantic Media  Group, Inc. and Vision Communications, Inc. (1)                                                   |
|   |   |                                                                                                                                                                                                              |
| 10.11  |   | Amendment to and Extension of  Time Brokerage Agreement, dated as of December 9, 2003, by and between  Atlantic Media Group, Inc. and Diversified Communications(1)                                     |
|   |   |                                                                                                                                                                                                              |
| 10.12  |   | Second Amendment to Time  Brokerage Agreement, dated as of July 19, 2005, by and between Atlantic  Media Group, Inc. and Diversified Communications(1)                                                  |
|   |   |                                                                                                                                                                                                              |
| 10.13  |   | Third Amendment to Time  Brokerage Agreement, dated as of July 19, 2005, by and between  SagamoreHill of Carolina LLC and Barrington Broadcasting South Carolina  Corporation (1)                            |
|   |   |                                                                                                                                                                                                              |
| 10.14  |   | Fourth Amendment to Time  Brokerage Agreement, dated as of February 6, 2006, by and between  SagamoreHill of Carolina LLC and Barrington Broadcasting South Carolina  Corporation(1)                         |
|   |   |                                                                                                                                                                                                              |
| 10.15  |   | Option Agreement, dated as of  July 19, 2005, by and among SagamoreHill of Carolina LLC, SagamoreHill  of Carolina Licenses LLC and Barrington Broadcasting South Carolina  Corporation(1)                   |
|   |   |                                                                                                                                                                                                              |
| 10.16  |   | Joint Sales Agreement, dated as  of August 31, 2007, by and among Barrington Traverse City LLC and Tucker  Broadcasting of Traverse City, Inc.(2)                                                       |
|   |   |                                                                                                                                                                                                              |
| 10.17  |   | Option Agreement, dated as of  August 31, 2007, by and among Barrington Traverse City LLC, Tucker  Broadcasting of Traverse City, Inc. and Tucker Media and Management  Consulting LLC(2)               |
|   |   |                                                                                                                                                                                                              |
| 10.18  |   | Shared Services Agreement,  dated as of August 31, 2007, by and among Barrington Traverse City LLC  and Tucker Broadcasting of Traverse City, Inc.(2)                                                   |
|   |   |                                                                                                                                                                                                              |
| 10.19  |   | Employment Agreement dated as  of January 1, 2008, by and between Barrington Broadcasting Group LLC and  K. James Yager.*                                                                                    |
|   |   |                                                                                                                                                                                                              |
| 10.20  |   | Employment Agreement dated as  of January 1, 2008, by and between Barrington Broadcasting Group LLC and  Chris Cornelius.*                                                                                   |
|   |   |                                                                                                                                                                                                              |
| 10.21  |   | Employment Agreement dated as  of January 1, 2008, by and between Barrington Broadcasting Group LLC and  Warren Spector.*                                                                                    |
|   |   |                                                                                                                                                                                                              |
| 10.22  |   | Employment Agreement dated as  of January 1, 2008, by and between Barrington Broadcasting Group LLC and  Keith Bland.*                                                                                       |

 

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| 10.23  |   | Employment Agreement dated as  of January 1, 2008, by and between Barrington Broadcasting Group LLC and  Mary Flodin.*                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                   |
| 21     |   | Subsidiaries of Barrington  Broadcasting Group LLC(1)                                                                                                  |
|   |   |                                                                                                                                                   |
| 31.1   |   | Certification as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                             |
|   |   |                                                                                                                                                   |
| 31.2   |   | Certification as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                             |
|   |   |                                                                                                                                                   |
| 32.1   |   | Certification required by 18  United States Code Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.*† |
|   |   |                                                                                                                                                   |
| 32.2   |   | Certification required by 18  United States Code Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.*† |

 

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*                 Filed herewith.

(1)          Incorporated byreference to our Registration Statement on Form S-4 declared effective asof August 6, 2007.

(2)          Incorporatedby reference to our Quarterly Report on Form 10-Q for the quarter ended September 30,2007.

†                  Pursuant toSecurities and Exchange Commission Release No. 33-8238, this certificationwill be treated as “accompanying” this Annual Report on Form 10-K and not “filed”as part of such report for purposes  of Section 18of the Securities Exchange Act of 1934, or otherwise subject to the liabilityof Section 18 of the Securities Exchange Act of 1934 and thiscertification will not be deemed to be incorporated by reference into anyfiling under the Securities Act of 1933 or the Securities Exchange Act of 1934,except to the extent that the registrant specifically incorporates it byreference.

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrants have duly caused this Annual Report to be signed on theirbehalf by the undersigned, thereunto duly authorized.

 

 
|                             | BARRINGTON BROADCASTING GROUP LLC  BARRINGTON BROADCASTING CAPITAL CORPORATION |
|----------------------------------|--------------------------------------------------------------------------------|
|                             |                                                                           |
|                             |                                                                           |
|                             | By:                                                                            | /s/ Warren Spector |
|                             |                                                                           |   |
|  Date:  March 27, 2008 |                                                                           | Name: Warren Spector |
|                             |                                                                           | Title: Director and Chief Financial Officer |
|                             |                                                                           |   | (Principal Financial Officer) |

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this Annual Report hasbeen signed below by the following persons on behalf of the Registrants and inthe capacities and on the dates indicated.

 
| **Signatures**               | ** ** | **Title**                                   | ** ** | **Date**            |
|------------------------------|------------|---------------------------------------------|------------|---------------------|
|                         |       |                                        |       |                |
| /s/ K. James Yager           |       | President and Chief Executive Officer of    |       | March 27, 2008 |
| K. James Yager               |       | Barrington Group; Director of Barrington    |       |                |
|                         |       | Group (Principal Executive Officer)         |       |                |
|                         |       |                                        |       |                |
| /s/ Warren Spector           |       | Chief Financial Officer of Barrington  |       | March 27, 2008 |
| Warren Spector               |       | Group; Director of Barrington               |       |                |
|                         |       | Group(Principal Financial Officer)          |       |                |
|                         |       |                                        |       |                |
| /s/ Mary Flodin              |       | Vice President of Barrington Group          |       | March 27, 2008 |
| Mary Flodin                  |       | (Principal Accounting Officer)              |       |                |
|                         |       |                                        |       |                |
| /s/ Chris Cornelius          |       | Chief Operating Officer of Barrington       |       | March 27, 2008 |
| Chris Cornelius              |       | Group; Director of Barrington Group         |       |                |
|                         |       |                                        |       |                |
| /s/ Robert B. Sherman        |       | Director of Barrington Group                |       | March 27, 2008 |
| Robert B. Sherman            |       |                                        |       |                |
|                         |       |                                        |       |                |
| /s/ Mayo S. Stuntz, Jr. |       | Director of Barrington Group                |       | March 27, 2008 |
| Mayo S. Stuntz, Jr.     |       |                                        |       |                |
|                         |       |                                        |       |                |
| /s/ Paul M. McNicol          |       | Director of Barrington Group                |       | March 27, 2008 |
| Paul M. McNicol              |       |                                        |       |                |
|                         |       |                                        |       |                |
| /s/ Andrew Russell           |       | Director of Barrington Group                |       | March 27, 2008 |
| Andrew Russell               |       |                                        |       |                |

 

90

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