**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**FORM 10-Q**

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**Quarterly Report Pursuant to Section 13or 15 (d) of theSecurities Exchange Act of 1934**

| **For the quarterly period ended** |   | **Commission  file number:** |
|------------------------------------|--------|------------------------------|
| **June 30,  2007**            |   | **0-25042**                  |

 

**YOUNG BROADCASTING INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                     |   | **13-3339681**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. employer     |
| incorporation or  organization)  |   | identification  no.) |

 

**599 Lexington Avenue**

**New York, New York 10022**

(Address of principalexecutive offices)

**Registrant’s telephone number,including area code:**(212) 754-7070

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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 for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definitions of “accelerated file and largeaccelerated filer” in Rule 12b-2 of the Exchange Act).

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

 

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

Number of shares of Common Stock outstanding as of July 27,2007: 20,764,514 shares of Class A Common Stock, and 1,941,414 shares of Class BCommon Stock.

 

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**YOUNG BROADCASTINGINC.FORM 10-QTable of Contents**
|                                | ** ** | ** **                                                                                             | **Page** | ** ** |
|--------------------------------|------------|--------------------------------------------------------------------------------------------------------|----------|------------|
| Part I Financial Information   |       |                                                                                                   |     |       |   |
|                           | Item 1.    | Financial  Statements (unaudited)                                                                      |     |       |   |   |   |
|                           |       | Consolidated  Balance Sheets as of December 31, 2006 and June 30, 2007                       |     |       | 2 |   |   |
|                           |       | Consolidated  Statements of Operations for the Three and Six Months Ended  June 30, 2006 and 2007 |     |       | 3 |   |   |
|                           |       | Consolidated  Statements of Stockholders’ Equity for the Six Months Ended June 30, 2007 |     |       | 4 |   |   |
|                           |       | Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 2006  and 2007           |     |       | 5 |   |   |
|                           |       | Notes to Consolidated Financial Statements                                                             |     |       | 6 |   |   |
|                           | Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations            |     |       | 13 |   |   |
|                           | Item 3.    | Quantitative  and Qualitative Disclosure About Market Risk                                             |     |       | 25 |   |   |
|                           | Item 4.    | Controls  and Procedures                                                                               |     |       | 25 |   |   |
| Part II Other Information |       |                                                                                                   |     |       |   |
|                           | Item 1.    | Legal Proceedings                                                                                      |     |       | 26 |   |   |
|                           | Item 1A.   | Risk Factors                                                                                           |     |       | 26 |   |   |
|                           | Item  4.   | Submission  of Matters to a Vote of Security Holders                                                   |     |       | 26 |   |   |
|                           | Item 6.    | Exhibits                                                                                               |     |       | 27 |   |   |
|                           | Signatures |                                                                                                   |     | 28         |   |   |

 

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**Part I   FinancialInformation**

**Item 1.**                        *Financial Statements*

**Young Broadcasting Inc. and SubsidiariesConsolidated Balance Sheets**

| ** **                                                                                                                                                 | ** ** | **December 31,** | ** **  | **June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|-------------------|------------|
| ** **                                                                                                                                                 | ** ** | **2006**              | ** **  | **2007**          | ** ** |
| ** **                                                                                                                                                 | ** ** | ** **            | ** **  | **(Unaudited)**   | ** ** |
| **Assets**                                                                                                                                                 |       |                  | ** **  | ** **        | ** ** |
| Current assets:                                                                                                                                            |       |                  | ** **  | ** **        | ** ** |
| Cash and cash equivalents                                                                                                                                  |       | $                     | 66,545,612  | ** **        | **$**      | **43,017,880** | ** ** |
| Short term investments                                                                                                                                     |       | 40,793,628            | ** **  | **38,454,229**    | ** ** |
| Trade accounts  receivable, less allowance for doubtful accounts of $1,206,000 in 2006 and  $1,036,000 in 2007                                             |       | 39,660,950            | ** **  | **38,195,435**    | ** ** |
| Current portion of  program license rights                                                                                                                 |       | 19,688,256            | ** **  | **6,748,846**     | ** ** |
| Prepaid expenses                                                                                                                                           |       | 2,888,298             | ** **  | **2,102,390**     | ** ** |
| Total current  assets                                                                                                                                      |       | 169,576,744           | ** **  | **128,518,780**   | ** ** |
| Property and  equipment, less accumulated depreciation and amortization of $191,516,000 in  2006 and $196,637,000 in 2007                                  |       | 67,591,170            | ** **  | **64,514,686**    | ** ** |
| Program license  rights, excluding current portion                                                                                                         |       | 2,781,183             | ** **  | **1,998,742**     | ** ** |
| Deposits and other  assets                                                                                                                                 |       | 4,106,555             | ** **  | **4,024,031**     | ** ** |
| Investments in  unconsolidated subsidiaries                                                                                                                |       | 3,369,077             | ** **  | **3,378,278**     | ** ** |
| Indefinite lived  intangible assets                                                                                                                        |       | 475,928,822           | ** **  | **475,928,822**   | ** ** |
| Definite lived  intangible assets                                                                                                                          |       | 61,250,371            | ** **  | **59,166,673**    | ** ** |
| Deferred charges,  less accumulated amortization of $4,945,000 in 2006 and $5,813,000 in 2007                                                              |       | 10,097,789            | ** **  | **9,234,679**     | ** ** |
| **Total  Assets**                                                                                                                                          |       | $                     | 794,701,711 | ** **        | **$**      | **746,764,691** | ** ** |
| **Liabilities and stockholders’ deficit**                                                                                                             |       |                  | ** **  | ** **        | ** ** |
| Current liabilities:                                                                                                                                       |       |                  | ** **  | ** **        | ** ** |
| Trade accounts payable                                                                                                                                     |       | $                     | 8,639,954   | ** **        | **$**      | **5,557,446** | ** ** |
| Accrued interest                                                                                                                                           |       | 21,066,771            | ** **  | **21,041,711**    | ** ** |
| Accrued salaries and  wages                                                                                                                                |       | 5,961,662             | ** **  | **4,250,399**     | ** ** |
| Accrued expenses                                                                                                                                           |       | 7,666,161             | ** **  | **7,276,466**     | ** ** |
| Current installments of  program license liability                                                                                                         |       | 19,290,164            | ** **  | **7,418,233**     | ** ** |
| Current installment of  long term debt                                                                                                                     |       | 3,500,000             | ** **  | **3,500,000**     | ** ** |
| Total current  liabilities                                                                                                                                 |       | 66,124,712            | ** **  | **49,044,255**    | ** ** |
| Program license  liability, excluding current installments                                                                                                 |       | 6,032,066             | ** **  | **4,510,343**     | ** ** |
| Long-term debt,  excluding current installments                                                                                                            |       | 828,337,529           | ** **  | **826,297,903**   | ** ** |
| Deferred tax  liability and other long-term tax liabilities                                                                                                |       | 38,311,413            | ** **  | **51,985,163**    | ** ** |
| Other liabilities                                                                                                                                          |       | 8,085,896             | ** **  | **8,235,282**     | ** ** |
| **Total  liabilities**                                                                                                                                     |       | 946,891,616           | ** **  | **940,072,946**   | ** ** |
| Stockholders’ deficit:                                                                                                                                |       |                  | ** **  | ** **        | ** ** |
| Class A Common  Stock, $.001 par value. Authorized 40,000,000 shares; issued and outstanding  20,027,108 shares at 2006 and 20,641,942 shares at 2007 |       | 20,027                | ** **  | **20,642**        | ** ** |
| Class B Common  Stock, $.001 par value. Authorized 20,000,000 shares; issued and outstanding  1,941,414 shares at 2006 and 2007                       |       | 1,941                 | ** **  | **1,941**         | ** ** |
| Additional paid-in  capital                                                                                                                                |       | 389,092,306           | ** **  | **391,758,108**   | ** ** |
| Accumulated other  comprehensive loss                                                                                                                      |       | (1,629,947            | )           | **(1,811,906**    | **)**      |
| Accumulated deficit                                                                                                                                        |       | (539,674,232          | )           | **(583,277,040**  | **)**      |
| Total  stockholders’ deficit                                                                                                                          |       | (152,189,905          | )           | **(193,308,255**  | **)**      |
| **Total  liabilities and stockholders’ deficit**                                                                                                      |       | $                     | 794,701,711 | ** **        | **$**      | **746,764,691** | ** ** |

 

See accompanying notes to consolidated financial statements

2

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**Young Broadcasting Inc. and SubsidiariesConsolidated Statements of Operations(Unaudited)**

| ** **                                                                    | ** ** | **Three Months Ended June 30,** | ** **  | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2006**                                            | ** **  | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** |
| Net operating  revenue                                                        |       | $                                                   | 56,754,820  | ** **                                        | **$**      | **51,953,226** |   | $ | 105,141,289 | ** ** | **$** | **98,800,808** | ** ** |
| Operating expenses, excluding depreciation expense                            |       | 16,943,726                                          | ** **  | **16,126,685**                                    |       | 34,014,405 | ** ** | **32,031,669** | ** ** |
| Amortization of  program license rights                                       |       | 7,016,794                                           | ** **  | **6,567,279**                                     |       | 13,872,611 | ** ** | **12,637,746** | ** ** |
| Selling, general  and administrative expenses, excluding depreciation expense |       | 16,985,214                                          | ** **  | **17,878,372**                                    |       | 33,833,489 | ** ** | **35,661,459** | ** ** |
| Depreciation and  amortization                                                |       | 4,727,690                                           | ** **  | **4,213,618**                                     |       | 9,520,508 | ** ** | **8,510,807** | ** ** |
| Corporate  overhead, excluding depreciation expense                           |       | 3,417,579                                           | ** **  | **3,097,403**                                     |       | 7,043,630 | ** ** | **6,770,116** | ** ** |
| Operating income                                                              |       | 7,663,817                                           | ** **  | **4,069,869**                                     |       | 6,856,646 | ** ** | **3,189,011** | ** ** |
| Interest expense, net                                                         |       | (16,480,261                                         | )           | **(17,250,699**                                   | **)**      | (32,339,507 | ) | **(34,291,013** | **)** |
| Other income  (expense), net                                                  |       | (15,552                                             | )           | **(150,815**                                      | **)**      | (1,069,190 | ) | **154,567** | ** ** |
|                                                                          |       | (16,495,813                                         | )           | **(17,401,514**                                   | **)**      | (33,408,697 | ) | **(34,136,446** | **)** |
| Loss from operations before income   taxes                                    |       | (8,831,996                                          | )           | **(13,331,645**                                   | **)**      | (26,552,051 | ) | **(30,947,435** | **)** |
| Income tax  expense                                                           |       | (2,156,314                                          | )           | **(4,853,002**                                    | **)**      | (15,071,587 | ) | **(12,609,162** | **)** |
| Net loss                                                                      |       | $                                                   | (10,988,310 | )                                                 | **$**      | **(18,184,647** | **)** | $ | (41,623,638 | ) | **$** | **(43,556,597** | **)** |
| Net loss per common share                                                     |       | $                                                   | (0.52       | )                                                 | **$**      | **(0.89** | **)** | $ | (1.98 | ) | **$** | **(2.15** | **)** |
| Weighted average  shares—Basic and dilutive                              |       | 21,223,347                                          |        | **20,359,243**                                    | ** ** | 21,071,672 |   | **20,234,468** | ** ** |

 

See accompanying notes to consolidated financial statements.

3

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**Young Broadcasting Inc. and SubsidiariesConsolidated Statements of Stockholders’ Deficit(Unaudited)**

| ** **                                                                 | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Accumulated** | ** ** | **Accumulated  Comprehensive** | ** ** | **Total  Comprehensive** | ** **  | **Total  Stockholders’** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|--------------------------------|------------|--------------------------|-------------|-------------------------------|------------|
| ** **                                                                 | ** ** | **Class A**      | ** ** | **Class B**        | ** ** | **Capital**     | ** ** | **Deficit**                    | ** ** | **Loss**                 | ** **  | **Loss**                      | ** ** | **Deficit** | ** ** |
| Balance at  December 31, 2006                                         |       | $                     | 20,027     |                    |       | $               | 1,941      |                           |       | $                        | 389,092,306 |                          | $          | (539,674,232 | ) |   | $ | (1,629,947 | ) |   |   |   |   |   | $ | (152,189,905 | ) |
| Contribution of  shares into Company’s defined contribution plan |       | 283                   |       |                    |       |            |       | 961,307                        |       |                     |        |                          |       |   |   |   |   |   |   | 961,590 |   |
| Grants under  restricted stock plan                                        |       | 495                   |       |                    |       |            |       |                           |       |                     |        |                          |       |   |   |   |   |   |   | 495 |   |
| Cancellations  under restricted stock plan                            |       | (163                  | )          |                    |       |            |       | (529,600                       | )          |                     |        |                          |       |   |   |   |   |   |   | (529,763 | ) |
| Restricted stock  plan compensation                                        |       |                  |       |                    |       |            |       | 2,234,095                      |       |                     |        |                          |       |   |   |   |   |   |   | 2,234,095 |   |
| FIN 48 Adoption                                                            |       |                  |       |                    |       |            |       |                           |       | (46,211                  | )           |                          |       |   |   |   |   |   |   | (46,211 | ) |
| Net loss for the  six months ended June 30, 2007                      |       |                  |       |                    |       |            |       |                           |       | (43,556,597              | )           |                          |       |   |   |   | (43,556,597 | ) |   | (43,556,597 | ) |
| Unrealized loss on  derivative instrument                                  |       |                  |       |                    |       |            |       |                           |       |                     |        |                          | (181,959   | ) |   |   | (181,959 | ) |   | (181,959 | ) |
|                                                                       |       |                  |       |                    |       |            |       |                           |       |                     |        |                          |       |   |   |   | (43,738,556 | ) |   |   |   |
| Balance at  June 30, 2007                                             |       | $                     | 20,642     |                    |       | $               | 1,941      |                           |       | $                        | 391,758,108 |                          | $          | (583,277,040 | ) |   | $ | (1,811,906 | ) |   |   |   |   |   | $ | (193,308,255 | ) |

 

See accompanying notes to consolidated financial statements

4

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**Young Broadcasting Inc. and SubsidiariesConsolidated Statements of Cash Flows(Unaudited)**

| ** **                                                                   | ** ** | **Six Months Ended June 30,** | ** **  |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|-------------|
| ** **                                                                   | ** ** | **2006**                                          | ** **  | **2007** | ** ** |
| **Operating activities**                                                     |       |                                              | ** **  | ** ** | ** ** |
| Net loss                                                                     |       | $                                                 | (41,623,638 | ) | **$** | **(43,556,597** | **)** |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                                              | ** **  | ** ** | ** ** |
| Depreciation and amortization of property and  equipment                     |       | 6,625,959                                         | ** **  | **5,559,791** | ** ** |
| Provision for uncollectible accounts                                         |       | 37,213                                            | ** **  | **45,427** | ** ** |
| Amortization of program license rights                                       |       | 13,872,611                                        | ** **  | **12,637,746** | ** ** |
| Amortization of intangibles and deferred charges                             |       | 2,894,549                                         | ** **  | **2,951,016** | ** ** |
| Non-cash compensation                                                        |       | 2,282,759                                         | ** **  | **3,195,402** | ** ** |
| Loss (income) on unconsolidated subsidiaries, net of  dividend               |       | 1,236,375                                         | ** **  | **(9,201** | **)** |
| Provision for income taxes                                                   |       | 15,071,587                                        | ** **  | **12,609,162** | ** ** |
| Loss on sale of fixed assets                                                 |       | 44,150                                            | ** **  | **89,283** | ** ** |
| Unrealized appreciation on investments                                       |       | —                                            | ** **  | **(617,650** | **)** |
| Payments on programming license liabilities                                  |       | (13,239,389                                       | )           | **(13,689,593** | **)** |
| Decrease in trade accounts receivable                                        |       | 411,250                                           | ** **  | **1,420,088** | ** ** |
| Decrease in prepaid expenses                                                 |       | 1,001,858                                         | ** **  | **785,908** | ** ** |
| Decrease in trade accounts payable                                           |       | (1,646,338                                        | )           | **(1,702,465** | **)** |
| Decrease in accrued expenses and other liabilities                           |       | (2,320,607                                        | )           | **(1,834,598** | **)** |
| Increase in other assets                                                     |       | (46,583                                           | )           | **(26,292** | **)** |
| Net cash used in  operating activities                                       |       | $                                                 | (15,398,244 | ) | **$** | **(22,142,573** | **)** |
| **Investing  activities**                                                    |       |                                              | ** **  | ** ** | ** ** |
| Capital  expenditures                                                        |       | $                                                 | (2,433,179  | ) | **$** | **(2,610,092** | **)** |
| Purchase of  short-term investments                                          |       | —                                            | ** **  | **(36,768,694** | **)** |
| Maturities of  short-term investments                                        |       | —                                            | ** **  | **40,000,000** | ** ** |
| Realized  appreciation of investments                                        |       | (30,272                                           | )           | **(274,258** | **)** |
| Proceeds from the  disposal of fixed assets                                  |       | 614,048                                           | ** **  | **37,502** | ** ** |
| Net cash (used  in) provided by investing activities                         |       | $                                                 | (1,849,403  | ) | **$** | **384,458** | ** ** |
| **Financing activities**                                                     |       |                                              | ** **  | ** ** | ** ** |
| Principal  borrowings on long-term debt                                      |       | $                                                 | 50,000,000  | ** ** | **—** | ** ** |
| Deferred debt  financing costs incurred                                      |       | (1,290,225                                        | )           | **(4,208** | **)** |
| Principal  payments under capital lease obligations                          |       | (25,899                                           | )           | **(15,409** | **)** |
| Principal  payments on Credit Facility                                       |       | (1,625,000                                        | )           | **(1,750,000** | **)** |
| Net cash provided  by (used in) financing activities                         |       | 47,058,876                                        | ** **  | **(1,769,617** | **)** |
| **Net increase (decrease) in cash**                                          |       | 29,811,229                                        | ** **  | **(23,527,732** | **)** |
| Cash and cash  equivalents at beginning of year                              |       | 78,099,123                                        | ** **  | **66,545,612** | ** ** |
| **Cash  and cash equivalents at June 30**                               |       | $                                                 | 107,910,352 | ** ** | **$** | **43,017,880** | ** ** |
| **Supplemental disclosure of cash flow information**                         |       |                                              | ** **  | ** ** | ** ** |
| Interest paid                                                                |       | $                                                 | 34,109,578  | ** ** | **$** | **36,727,111** | ** ** |

 

See accompanying notes to consolidated financial statements.

5

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**Notes ToConsolidated Financial Statements**

**1.**                 Basisof Presentation

The business operations of Young Broadcasting Inc. andsubsidiaries (the “Company”) consist of ten network affiliated stations (fivewith ABC, three with CBS, one with NBC and one with MyNetworkTV). KRON-TV hadbeen independent until March 16, 2006, when it entered into an affiliationagreement with MyNetworkTV. On March 28, 2006, KELO-TV, KDLO-TV andKPLO-TV, our digital stations, also entered into an affiliation agreement withMyNetwork TV. The MyNetwork TV affiliation agreements are for a term of fiveyears commencing with the 2006-2007 broadcast season. MyNetworkTV startedoperations on September 5, 2006. The markets served by our stations arelocated in Lansing, Michigan, Green Bay, Wisconsin, Lafayette, Louisiana,Nashville and Knoxville, Tennessee, Albany, New York, Richmond, Virginia,Davenport, Iowa, Sioux Falls, South Dakota and San Francisco, California. Inaddition, the accompanying condensed consolidated financial statements includethe Company’s wholly owned national television sales representation firm.Significant intercompany transactions and accounts have been eliminated.

The accompanying condensed consolidated financialstatements have been prepared in accordance with U.S. generally acceptedaccounting principles for interim financial statements and with theinstructions to Form 10-Q and Article 10 of Regulation S-X. Theinterim financial statements are unaudited but include all adjustments, whichare of a normal recurring nature, that the Company considers necessary for afair presentation of the consolidated financial position and the consolidatedresults of operations and cash flows for such period.

For equity investments in which the Company ownsbetween 20% and 50% of voting shares and has significant influence overoperating and financial policies, the equity method of accounting is used. Fourof the Company’s stations have equity-method investments in third parties thatoperate transmitting towers used by the Company. Accordingly, the Company’sshare in earnings and losses of these unconsolidated subsidiaries are includedin other income (expense), net in the accompanying Consolidated Statements ofOperations of the Company. The Company recorded its share of losses of approximately$1.1 million and its share or earnings of approximately $101,000 for the sixmonths ended June 30, 2006 and 2007, respectively, and its share ofearnings of approximately $47,000 and $54,000 for the three months ended June 30,2006 and 2007, respectively.

Certain prior year balances have been reclassified toconform to the presentation adopted in the current fiscal year. Previously,certain state taxes were reflected in other income (expense), net in the incomestatement. Effective for the first quarter of 2007, the Company began recordingthese taxes as part of the income tax expense in the income statement, leadingto a reclassification from other income (expense), net to income tax expense ofapproximately $489,000 for the six months ended June 30, 2006.

Operating results of interim periods are notnecessarily indicative of results for a full year. For further information,refer to consolidated financial statements and footnotes thereto included inthe Company’s annual report on Form 10-K for the year ended December 31,2006.

In February 2007, the Financial AccountingStandards Board (FASB) issued FASB Statement No. 159, *The FairValue Option for Financial Assets and Financial Liabilities* (SFAS159). SFAS 159 is effective for fiscal years beginning after November 15,2007.

The new Statement allowsentities to choose, at specified election dates, to measure eligible financialassets and liabilities at fair value that are not otherwise required to bemeasured at fair value. If a company elects the fair value option for aneligible item, changes in that item’s fair value in subsequent reportingperiods must be recognized in current earnings. SFAS 159 also establishespresentation and disclosure 

6

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requirementsdesigned to draw comparison between entities that elect different measurementattributes for similar assets and liabilities. The Company is currentlyevaluating the provisions of SFAS 159 to determine the potential impact, ifany, the adoption will have on the Company’s financial statements.

**2.**                 Stock-BasedCompensation

On May 4, 2004, the shareholders of the Companyapproved the 2004 Equity Incentive Plan (“2004 Plan”). The 2004 Plan is acontinuation of the 1995 Stock Option Plan and supplants the 1995 Stock OptionPlan, under which no further awards will be granted. The 2004 Plan has the samenumber of shares that were authorized under the 1995 Stock Option Plan, whichis 4,550,000. The Plan is administered by the Compensation Committee of theBoard of Directors.

In June 2007, June 2006 and June 2005,the Company awarded 602,968, 636,700 and 438,500 deferred stock units,respectively, to executive officers of the Company under the 2004 Plan, withaggregate market values at the date of grant of approximately $2.3 million,$2.3 million and $2.0 million, respectively. Deferred stock awards representthe right to receive shares of Class B common stock at the end ofspecified deferral periods. The deferred stock awards vest ratably in threeequal annual installments beginning one year from the date of the grant and, asthey vest, are charged to the income statement as non cash compensation expenseincluded in the selling, general and administrative expenses. Upon vesting therecipients will be credited with units equivalent to shares. During thedeferral period, the participants have no voting or other rights associatedwith stock ownership unless and until the shares are actually delivered at theend of the deferral period. The end of the deferral period for the deferredstock awards will occur after the termination of employment. Additionally,granted but unvested deferred stock units are forfeited upon termination ofemployment, unless for reasons of death or disability.

On November 29, 2005, the Company entered into anexchange agreement with each of its executive officers (collectively, the “ExchangeAgreements”). Pursuant to the Exchange Agreements, options to purchase anaggregate of 2,198,375 shares of common stock of the Company, representing allof the outstanding and unexercised stock options held by such executiveofficers, were cancelled and, in exchange for such cancelled options (which hada fair market value of approximately $182,000), the executive officers wereawarded an aggregate of 318,791 deferred stock units (which had an aggregatevalue of approximately $602,000) under the 2004 Plan. The compensation expenseassociated with the fair market value of the deferred stock units ($602,000) isbeing recognized ratably over the three year vesting period.

In June 2007, June 2006 and June 2005,the Company awarded 495,500, 590,450 and 432,600 shares, respectively, ofrestricted stock to certain officers and other eligible key employees under the2004 Plan, with market values at the date of grant of approximately $1.9million, $2.1 million and $2.0 million, respectively. The restricted sharesvest ratably in three equal annual installments beginning one year from thedate of the grant and, as they vest, are charged to the income statement as noncash compensation expense included in the selling, general and administrativeexpenses. During the vesting period, the participants have voting rights andthe right to receive all dividends paid with respect to such shares. Uponvesting, the restricted stock recipients will receive shares of unrestricted Class ACommon Stock. Additionally, granted but unvested shares are forfeited upontermination of employment, unless for reasons of death or disability.

On November 30, 2005,the Company commenced an offer to all eligible employees to exchange all oftheir outstanding stock options. Under the terms of this offer, participatingemployees had the ability to exchange their outstanding options with anexercise price of less than $30.44 per share for new restricted shares thatvest over a period of three years. The number of restricted shares to bereceived was based upon certain exchange ratios. In order to participate inthis offer, employees were required to tender all of their options, regardlessof when granted or the exercise price. Pursuant to the terms of the offer,tendered options with exercise prices of $30.44 or above were to be cancelledupon expiration of the offer, without 

7

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thepayment of any consideration. Options to purchase an aggregate of 949,776shares of common stock were eligible for participation in the offer. The offerexpired on December 30, 2005, at which time the Company accepted forexchange and cancelled options to purchase a total of 945,776 shares of CommonStock with a fair market value of approximately $181,000, and issued anaggregate of 158,992 restricted shares of Class A common stock, under the2004 Plan, for an aggregate value of approximately $401,000. The compensationexpense associated with the fair market value of the restricted stock issued($401,000) is being recognized ratably over the three year vesting period.

*Stock Options*

Subsequent to theabove-discussed Exchange Agreements and exchange offer, the Company had anaggregate of 900 outstanding stock options that were unvested which were fullyexpensed during the first half of 2006, in the amount of approximately $5,000. TheCompany has 535,417 stock options outstanding at December 31, 2006 and June 30,2007.

*Restricted Sharesand Deferred Stock Units*

The fair value of nonvested restricted shares anddeferred stock units is determined based on the closing trading price of theCompany’s Class A common stock on the grant date. The Company recordednon-cash compensation expense in connection with the issuance of the restrictedshares and deferred stock units of approximately $544,000 and $1.2 million,respectively, for the three months ended June 30, 2006 and 2007, and $1.4million and $2.2 million, respectively, for the six months ended June 30,2006 and 2007.

There were 2,176,679 and 2,457,117 shares of unvestedrestricted and deferred stock units with a weighted average share price of$4.13 and $3.70 as of December 31, 2006 and June 30, 2007,respectively.

The Company estimates recording additionalcompensation expense relating to previously issued restricted shares anddeferred stock units of approximately $2.2 million for the remainder of 2007and approximately $3.8 million, $2.0 million and $586,000 during 2008, 2009,and 2010, respectively.

During the first quarter of 2006, the Company adoptedFASB Statement No. 123 (R), *Share-Based Payment*(“SFAS 123R”), which requires companies to measure and recognizecompensation expense for all stock-based payments at fair value. The Companyadopted SFAS 123R using the modified prospective method, and consequently hasnot retroactively adjusted results from prior periods.

The Company does not currently recognize tax benefitsresulting from tax deductions in excess of the compensation costs recognizedbecause of the federal and state net operating loss carryforwards available tooffset future federal and state taxable income. Accordingly, the adoption ofSFAS 123R did not have any impact on the Company’s consolidated statements ofcash flows.

Prior to January 1,2006, the Company had accounted for its share-based payments to employees underFASB Statement No. 123, *Accounting for Stock BasedCompensation* (SFAS “123”) which allowed companies to either expensethe estimated fair value of stock options or to follow the intrinsic valuemethod set forth in Account Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB 25”), butdisclose the pro forma net income (loss) had the fair value of the options beenexpensed.

**3.**                 IntangibleAssets

Intangible assets, which include broadcastinglicenses, network affiliation agreements, and other intangibles, are carried onthe basis of cost, less accumulated amortization. Cost is based upon appraisalsperformed at the time of acquisition. Broadcast licenses are considered to havean indefinite life. Network affiliation agreements are amortized over 25 years,and other definite lived intangible assets are amortized over 10 to 15 years.

8

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Thefollowing table sets forth the summarized disclosures related to intangibleassets:

| ** **                           | ** ** | **As of December 31, 2006** | ** ** | **As of June 30, 2007** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **Gross  Carrying**                             | ** ** | **Accumulated**                             | ** ** | **Net  Carrying** | ** ** | **Gross  Carrying** | ** ** | **Accumulated** | ** ** | **Net  Carrying** | ** ** |
| ** **                           | ** ** | **Amount**                                      | ** ** | **Amortization**                            | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| ** **                           | ** ** | **(dollars in thousands)**            | ** ** |
| Indefinite-lived  intangible assets: |       |                                            |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Broadcast  licenses                  |       | $                                               | 475,929    |                                        |       | — |   |   | $ | 475,929 |   | $ | 475,929 |   |   | — |   |   | $ | 475,929 |   |
| Definite-lived  intangible assets:   |       |                                            |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network  Affiliations                |       | $                                               | 91,164     |                                        |       | $ | (33,783 | ) |   | $ | 57,381 |   | $ | 91,164 |   |   | $ | (35,218 | ) |   | $ | 55,946 |   |
| Other intangible  assets             |       | 13,401                                          |       |                                        | (9,532     | ) |   | 3,869 |   | $ | 13,401 |   |   | $ | (10,181 | ) |   | $ | 3,220 |   |
|                                 |       | $                                               | 104,565    |                                        |       | $ | (43,315 | ) |   | $ | 61,250 |   | $ | 104,565 |   |   | $ | (45,399 | ) |   | $ | 59,166 |   |

 

Aggregate amortization expense for the six monthsended June 30, 2006 and 2007 was $2.1 million. Aggregate amortizationexpense for the three months ended June 30, 2006 and 2007 was $1.1 millionand $1.0 million, respectively.

It is the Company’s policy to account for NetworkAffiliations and other definite-lived intangible assets at the lower ofamortized cost or estimated fair value. As part of an ongoing review of thevaluation and amortization of other intangible assets of the Company and itssubsidiaries, management assesses the carrying value of Network Affiliationsand other definite-lived intangible assets if facts and circumstances suggestthat there may be impairment. If this review indicates that NetworkAffiliations and other definite-lived intangible assets will not be recoverableas determined by a non-discounted cash flow analysis of the operating assetsover the remaining amortization period, the carrying value of other intangibleassets would be reduced to estimated fair value.

In June 2001, the FASB issued Statement ofFinancial Accounting Standards No. 142, *Goodwilland Other Intangible Assets*(“SFAS 142”). FCC licenses are valuedusing a “Greenfield” income approach. Under this approach, the FCC license isvalued by analyzing the estimated after-tax discounted future cash flows of thestation. The assumptions used in the discounted cash flow models reflecthistorical station performance, industry standards and trends in the respectivemarkets. An analysis of the financial multiples for publicly-tradedbroadcasting companies, as well as a comparable sales analysis of televisionstation sales, was also utilized to confirm the results of the income approach.The Company adopted this methodology to value broadcast licenses as the Companybelieves this methodology has, in recent years, become the methodologygenerally used within the broadcast industry to value FCC licenses.

If these estimates orrelated assumptions materially change in the future, the Company may berequired to record impairment charges not previously recorded for these assets.

**4.**                 Long—TermDebt

On May 3, 2005, the Company (i) entered intoan amended and restated senior credit facility and (ii) accepted forpayment and paid for, in connection with a cash tender offer and consentsolicitation commenced on April 11, 2005, all of its $246.9 millionoutstanding principal amount of 81⁄2% Senior Notes Due 2008. The amended creditfacility provides for a $300 million term loan and a $20 million revolvingcredit facility. The credit facility bears a floating interest rate, based uponLIBOR, which was 7.88% at June 30, 2007. On May 3, 2005, the fullamount of the term loan was borrowed. The term loan will mature in 2012 and therevolving facility will mature in 2010. The Company capitalized approximately $6.0 million of fees associatedwith the new term loan and revolving credit facility.

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On May 30, 2006, the Company entered into (i) theFirst Amendment (the “First Amendment”) to the Senior Credit Facility and (ii) theIncrease Joinder (the “Increase Joinder”) to the Senior Credit Facility. TheFirst Amendment effected certain amendments to the Senior Credit Facilityincluding, without limitation, (i) the reduction of the minimum amount ofcash the Company must maintain from $35.0 million to $10.0 million and (ii) anincrease of 0.25% to each of the Base Rate Margin and the Eurodollar Margin(used in the calculation of interest rates payable by the Company under theSenior Credit Facility). As a result of the margin increases, the Base Rate andthe Eurodollar Rate margins are now equal to 1.50% and 2.50%, respectively. TheIncrease Joinder provided for a $50.0 million incremental term loan under the SeniorCredit Facility. The full $50.0 million of the incremental term loan wasborrowed by the Company on May 30, 2006. The Company capitalizedapproximately $1.4 million of fees associated with the incremental term loanand First Amendment.

The incremental term loan has the same terms andconditions as the term loans outstanding under the Senior Credit Facility (asamended by the First Amendment) immediately prior to the incremental term loanborrowing. As of June 30, 2007, approximately $343.4 million wasoutstanding under the term loan portion of the Senior Credit Facility.

On May 3, 2005, the Company entered into aninterest rate swap agreement for a notional amount of $71.0 million with acommercial bank who is also a lender under the senior credit facility. The swapexpires on May 8, 2008. Upon effectiveness, the Company began to pay afixed interest of 4.3425% and the Company receives interest from the commercialbank, based upon a three month LIBOR rate. It is the Company’s intention toensure the interest rate reset dates of the swap and the term loan will matchover the term of the swap, and therefore the changes in the fair value of theinterest-rate swap are expected to significantly offset changes in the cashflows of the floating rate debt. The Company accounts for this agreement as acash flow hedge under FASB Statement No. 133, *Accountingfor Derivative Instruments and Hedging Activities,* and as such, thechange in the fair value of the interest rate swap is reported as a componentof other comprehensive income (loss). For the three and six months ended June 30,2007 a gain of approximately $6,000 and a loss of approximately $182,000,respectively, was recorded in other comprehensive income (loss).

Long-termdebt at December 31, 2006 and June 30, 2007 consisted of thefollowing:

| ** **                                                  | ** ** | **12/31/06**            | ** ** | **6/30/07** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|
| ** **                                                  | ** ** | **(in thousands)** | ** ** |
| Senior Credit  Facility                                     |       | $                       | 345,125    |        | $          | 343,375 |   |
| 83¤4%  Senior Subordinated Notes due 2014              |       | 140,000                 |       | 140,000     |       |
| 10% Senior  Subordinated Notes due 2011                     |       | 346,713                 | (1)        | 346,423     | (1)        |
| Total Long Term  Debt                                       |       | $                       | 831,838    |        | $          | 829,798 |   |
| Less:                                                       |       |                    |       |        |       |
| Scheduled current maturities                                |       | (3,500                  | )          | (3,500      | )          |
| Long term debt excluding  all current installments(2)  |       | $                       | 828,338    |        | $          | 826,298 |   |

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(1)          Includes unamortizedpremium balances of $2.4 million and $2.1 million as of  December 31, 2006 and June 30, 2007.

(2)          Excludes capital leases.

The Company’s SeniorSubordinated Notes are general unsecured obligations of the Company andsubordinated in right of payment to all senior debt, including all indebtednessof the Company under the Senior Credit Facility. The Senior Subordinated Notesare guaranteed, fully and unconditionally, and are guaranteed jointly andseverally, on a senior subordinated unsecured basis by all of the Company’swholly owned subsidiaries. The Company has no independent assets or operations,other than the equity in its subsidiaries.

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**5.**                 Income Taxes

The Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes—an interpretation of FASB Statement No. 109” (FIN 48), on January 1,2007. FIN 48 clarifies the accounting and reporting for uncertainties in incometax law.

As a result of theimplementation of FIN 48, the Company recognized a $46,211 increase in itsliability for income taxes, which was accounted for as a reduction to the January 1,2007 balance of retained earnings. As of the date of adoption and afterrecognizing the increase in liability noted above, the Company’s unrecognizedtax benefits totaled $3.1 million, all of which, if recognized, would affectthe effective tax rate in future periods.

Interest and penaltiesrelated to income tax liabilities are included in income tax expense. TheCompany had approximately $139,000 for the payment of interest and penaltiesaccrued at January 1, 2007 included in the unrecognized tax benefit of$3.1 million as discussed above.

While the Company does notanticipate any significant changes to the amount of liabilities forunrecognized tax benefits within the next twelve months, there can be noassurance that the outcomes from any tax examinations will not have asignificant impact on the operating results or financial position of  the Company.

With limited exceptions,the Company is no longer subject to U.S. federal and state and local income taxaudits by taxing authorities for years through December 31, 2002.

At December 31, 2006,the Company had net operating loss (“NOL”) carryforwards for tax purposes ofapproximately $427.7 million expiring at various dates through 2026, for whicha full valuation allowance has been provided.

With the adoption of theFASB issued Statement No.142 , Goodwill and Other Intangible Assets (SFAS 142)the Company no longer amortizes the book basis in the indefinite-livedintangibles, but continues to amortize these intangibles for tax purposes.Beginning with the first quarter of 2005, the Company started recording adeferred tax provision for the excess of book basis over tax basis ofintangible assets, not expected to reverse during the net operating loss carryforwardperiod. Income tax expense for the six months ended June 30, 2006 and 2007primarily consists of deferred income taxes of $14.2 million and $12.6 million,respectively, related to the increase in the Company’s deferred tax liabilityfor the tax effect of the difference between the book and tax basis of theintangible assets not expected to reverse during the net operating losscarryforward period.

The Company will havedeferred tax liabilities that will arise each quarter because the taxabletemporary differences related to the amortization of these assets will notreverse prior to the expiration period of the Company’s deductible temporarydifferences unless the related assets are sold or an impairment of the assetsis recorded. The Company expects that it will record a total of approximately$7.7 million to increase deferred tax liabilities during the remaining sixmonths of 2007.

**6.**                 EmployeeBenefit Plans

The Company’s definedbenefit pension plan covers the IBEW Local 45 of KRON-TV employees.

The Company expects tocontribute approximately $906,000 to the benefit plan in 2007**.**To date approximately $571,000 has been contributed.

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Componentsof the net periodic benefit (cost) were as follows:

| ** **                                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                        | ** ** | **2007**                                      | ** ** | **2006** | ** ** | **2007** | ** ** |
| Service cost                                                          |       | $                                               | 10,550     |                                          | $          | 10,500 |   | $ | 21,100 |   | $ | 21,000 |   |
| Interest cost                                                         |       | 149,591                                         |       | 153,000                                       |       | 299,181 |   | 306,000 |   |
| Expected return of plan  assets                                       |       | (168,759                                        | )          | (177,250                                      | )          | (337,517 | ) | (354,500 | ) |
| Amortization of the  unrecognized obligation or transition asset |       | (3,459                                          | )          | —                                        |       | (6,918 | ) | — |   |
| Recognized loss                                                       |       | 34,638                                          |       | 34,500                                        |       | 69,276 |   | 69,000 |   |
| Net periodic cost                                                     |       | $                                               | 22,561     |                                          | $          | 20,750 |   | $ | 45,122 |   | $ | 41,500 |   |

 

**7.**                 Commitments andContingencies

*Network Affiliation Agreements*

Eachof the Company’s stations is affiliated with its network pursuant to anaffiliation agreement. The following chart provides details concerning theaffiliation of our stations and the dates of expiration of the respectiveaffiliation agreements

| **Station**              | ** ** | ** ** | ** **                     | **Network Affiliation** | ** ** | **Expiration Date** | ** ** |
|--------------------------|------------|------------|--------------------------------|------------------------------|------------|--------------------------|------------|
| WKRN-TV  (Nashville, TN) |       |       | ABC                            |                         |       | December 31, 2009   |       |
| WTEN-TV (Albany, NY)     |       |       | ABC                            |                         |       | December 31, 2009   |       |
| WRIC-TV (Richmond, VA)   |       |       | ABC                            |                         |       | December 31, 2009   |       |
| WATE-TV (Knoxville, TN)  |       |       | ABC                            |                         |       | December 31, 2009   |       |
| WBAY-TV (Green Bay, WI)  |       |       | ABC                            |                         |       | December 31, 2009   |       |
| KWQC (Quad Cities        |       |       | NBC                            |                         |       | January 1, 2015     |       |
| WLNS (Lansing, MI)       |       |       | CBS                            |                         |       | September 15, 2012  |       |
| KELO (Sioux Falls, SD)   |       |       | CBS(1)     |                         |       | April 2, 2015       |       |
| KLFY (Lafayette, LA)     |       |       | CBS                            |                         |       | September 30, 2012  |       |
| KRON (San Francisco, CA) |       |       | MyNetworkTV                    |                         |       | September 5, 2011   |       |

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(1)          TheCompany also operates a separate MyNetworkTV network station using its digitalbroadcast in Sioux Falls, South Dakota, under an affiliation agreement expiringSeptember 5, 2011

The Company recentlyrenewed the ABC, CBS and NBC affiliations. Under the renewed agreements, theCompany will be receiving significantly less network compensation than itreceived from ABC, CBS and NBC under the expired agreements.

**8.**                 Earnings PerShare

The weighted averagenumber of shares outstanding during the period has been used to calculateearnings per share.  The outstandingstock options and deferred stock units have not been included in thecomputation of earnings per share because they would be anti-dilutive.

For the three and six months ended June 30, 2007,common stock equivalents, consisting of 830,982 and 721,110 shares of commonstock underlying outstanding deferred stock units, have been excluded from thecomputation as they are anti-dilutive on the loss per share. For the three andsix months ended June 30, 2006, common stock equivalents, consisting of161,291 and 156,246 shares of common stock underlying outstanding deferredstock units, have been excluded in the computation as they are anti-dilutiveon the loss per share.  For all periods,all shares underlying outstanding stock options are excluded for thecomputation of diluted earnings per share, since the exercise price of allpreviously granted stock options that remain outstanding was greater than theaverage market price of the common shares.

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**Item 2.**                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*.

**FORWARD-LOOKINGSTATEMENTS**

**FORWARD LOOKING STATEMENTS ARE ALL STATEMENTS, OTHERTHAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN THIS REPORT. THE FORWARDLOOKING STATEMENTS CONTAINED IN THIS REPORT CONCERN, AMONG OTHER THINGS,CERTAIN STATEMENTS UNDER “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.” FORWARD LOOKING STATEMENTS INVOLVE RISKSAND UNCERTAINTIES, AND ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANTFACTORS, INCLUDING THE IMPACT OF CHANGES IN NATIONAL AND REGIONAL ECONOMIES,PRICING FLUCTUATIONS IN LOCAL AND NATIONAL ADVERTISING, VOLATILITY INPROGRAMMING COSTS AND GEOPOLITICAL FACTORS.**

**Introduction**

Management’s discussion and analysis of financialcondition and results of operation (“MD&A”) is provided as a supplement tothe accompanying consolidated financial statements and footnotes to helpprovide an understanding of the Company’s financial condition, changes infinancial condition and results of operations. MD&A is organized asfollows:

***Overview of ourBusiness******—******This*********section provides a general description of the Company’sbusiness, as well as recent developments that have occurred during 2007 thatthe Company believes are important in understanding its results of operationsand financial condition or to anticipate future trends.

***Results ofOperations******—******This*********section provides an analysis of the Company’s results ofoperations for the three and six months ended June 30, 2007 and 2006. Thisanalysis is presented on a consolidated basis. In addition, this sectionprovides a brief description of significant transactions and events that impactthe comparability of the results being analyzed.

***Liquidity and Capital Resources******—******This*********section provides an analysis of the Company’s cash flowsfor the six months ended June 30, 2007 and 2006. Included in thediscussion of outstanding debt is a discussion of the amount of financialcapacity available to fund the Company’s future commitments and obligations, aswell as a discussion of other financing arrangements.

**Overview of ourBusiness**

The operating revenue of the Company’s stations isderived primarily from advertising revenue and, to a much lesser extent, fromretransmission revenues from cable and satellite operators and compensationpaid by the networks to its affiliated stations for broadcasting networkprogramming.

Advertising is sold for placement within and adjoininga station’s network and locally originated programming. Advertising is sold intime increments and is priced primarily on the basis of a program’s popularityamong the specific audience an advertiser desires to reach, as measuredprincipally by periodic audience surveys. In addition, advertising rates areaffected by the number of advertisers competing for the available time, thesize and demographic makeup of the market served by the station and theavailability of alternative advertising media in the market area. Rates arehighest during the most desirable viewing hours, with corresponding reductionsduring other hours. The ratings of a local station affiliated with a nationaltelevision network can be affected by ratings of network programming.

Most advertising contracts are short-term, andgenerally run only for a few weeks. Approximately 60.1% of the gross revenue ofthe Company’s stations during the quarter ended June 30, 2007 wasgenerated from local advertising, which is sold by a station’s sales staffdirectly to local accounts. The remainder of the gross revenue is primarilycomprised of revenues from national advertising, which is sold by the Company’swholly owned subsidiary, Adam Young Inc. (“AYI”), a national advertising sales 

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representative. Thestations generally pay commissions to advertising agencies on local, regionaland national advertising.

Expenditures by advertisers tend to be cyclical,reflecting overall economic conditions, as well as budgeting and buyingpatterns. A decline in the economic prospects of advertisers or the economy ingeneral could alter current or prospective advertisers’ spending priorities. Thiscould cause our revenues or operating results to decline significantly in anygiven period.

The advertising revenue of the Company’s 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. In addition,advertising revenue is generally higher during even numbered election years dueto spending by political candidates, which spending typically is heaviestduring the fourth quarter.

The stations’ primaryoperating expenses are for employee compensation, news-gathering, production,programming and promotion costs. A high proportion of the operating expenses ofthe stations are fixed.

**Television Revenues**

Setforth below are the principal types of television revenues received by theCompany’s stations for the periods indicated and the percentage contribution ofeach to the Company’s total revenue, as well as agency and national salesrepresentative commissions:

| ** **       | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **       | ** ** | **2006**                                            | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **       | ** ** | **Amount**                                          | ** ** | **%**                                             | ** ** | **Amount** | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **       | ** ** | **(dollars in thousands)**                | ** ** |
| Revenues         |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Local            |       | $                                                   | 36,540     |                                              | 55.5       |   | $ | 36,000 |   | 60.1 |   | $ | 69,131 |   | 56.7 |   | $ | 68,474 |   | 60.0 |   |
| National         |       | 20,564                                              |       | 31.3                                              |       | 18,950 |   | 31.7 |   | 38,080 |   | 31.2 |   | 36,131 |   | 31.6 |   |
| Network          |       | 663                                                 |       | 1.0                                               |       | 684 |   | 1.1 |   | 1,246 |   | 1.0 |   | 1,267 |   | 1.1 |   |
| Political        |       | 4,826                                               |       | 7.3                                               |       | 1,034 |   | 1.7 |   | 6,068 |   | 5.0 |   | 1,552 |   | 1.3 |   |
| Barter           |       | 1,517                                               |       | 2.3                                               |       | 1,096 |   | 1.8 |   | 3,263 |   | 2.7 |   | 2,117 |   | 1.8 |   |
| Production/Other |       | 1,728                                               |       | 2.6                                               |       | 2,137 |   | 3.6 |   | 4,241 |   | 3.4 |   | 4,823 |   | 4.2 |   |
| Total            |       | $                                                   | 65,838     |                                              | 100.0      |   | $ | 59,901 |   | 100.0 |   | $ | 122,029 |   | 100.0 |   | 114,364 |   | 100.0 |   |
| Commissions      |       | (9,083                                              | )          | (13.8                                             | )          | (7,948 | ) | (13.3 | ) | (16,887 | ) | (13.8 | ) | (15,563 | ) | (13.6 | ) |
| Net Revenue      |       | $                                                   | 56,755     |                                              | 86.2       | % | $ | 51,953 |   | 86.7 | % | $ | 105,142 |   | 86.2 | % | $ | 98,801 |   | 86.4 | % |

 

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**Results ofOperations**

***Three Months Ended June 30, 2007 Compared toThree Months Ended June 30, 2006***

Thefollowing table sets forth the Company’s operating results for the three monthsended June 30, 2007 as compared to the three months ended June 30,2006.

| ** **                                           | ** ** | **For the three months ended June 30,**                            | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **2006**                                                           | ** ** | **2007**   | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **                                           | ** ** | **(in thousands, except per share data)** | ** ** | ** ** | ** ** |
| Net revenue                                          |       | $                                                                  | 56,755     |       | $          | 51,953 |   | $ | (4,802 | ) |   | (8.5 | ) |   |
| Operating expenses, including SG&A               |       | 33,929                                                             |       | 34,005     |       | 76 |   |   | 0.2 |   |   |
| Amortization of  program license rights              |       | 7,017                                                              |       | 6,567      |       | (450 | ) |   | (6.4 | ) |   |
| Depreciation and  amortization                       |       | 4,728                                                              |       | 4,214      |       | (514 | ) |   | (10.9 | ) |   |
| Corporate  overhead, excluding depreciation expense  |       | 3,417                                                              |       | 3,097      |       | (320 | ) |   | (9.4 | ) |   |
| Operating income                                     |       | 7,664                                                              |       | 4,070      |       | (3,594 | ) |   | (46.9 | ) |   |
| Interest expense, net                                |       | (16,480                                                            | )          | (17,251    | )          | (771 | ) |   | (4.7 | ) |   |
| Other expense                                        |       | (16                                                                | )          | (151       | )          | (135 | ) |   | (843.8 | ) |   |
|                                                 |       | (16,496                                                            | )          | (17,402    | )          | (906 | ) |   | (5.5 | ) |   |
| Loss from operations before income taxes             |       | (8,832                                                             | )          | (13,332    | )          | (4,500 | ) |   | (51.0 | ) |   |
| Income tax expense                                   |       | (2,156                                                             | )          | (4,853     | )          | (2,697 | ) |   | (125.1 | ) |   |
| Net loss                                             |       | $                                                                  | (10,988    | )          | $          | (18,185 | ) | $ | (7,197 | ) |   | (65.5 | )% |   |
| Basic net loss per common share                      |       | $                                                                  | (0.52      | )          | $          | (0.89 | ) |   |   |   |   |   |   |
| Basic shares used in  earnings per share calculation |       | 21,223,347                                                         |       | 20,359,243 |       |   |   |   |   |   |   |

 

Net Revenueincludes: (i) cash and barter advertising revenues, net of agencycommissions; (ii) network compensation; and (iii) other revenueswhich represent approximately 3.6% of total net revenue. Net revenue for thethree months ended June 30, 2007 was $52.0 million, as compared to $56.8million for the three months ended June 30, 2006, a decrease of $4.8million or 8.5%. The major components of, and changes to, net revenue were asfollows:

·       Grosspolitical revenue for the three months ended June 30, 2007 was $1.0million, as compared to $4.8 million for the three months ended June 30,2006, a decrease of $3.8 million, or 79.2%. There were various local midtermelections in 2006 at seven geographic locations in which we own stations, withno such elections during the three months ended June 30, 2007.

·       TheCompany’s gross local revenues for the three months ended June 30, 2007decreased by 1% compared to the three months ended June 30, 2006, andgross national revenues for the three months ended June 30, 2007 were down8% compared to the prior year. While gross local revenue was down slightly yearover year, local revenues were up at three of the ten stations for the threemonths ended June 30, 2007. Gross national revenues were down year overyear, due to decreased spending in several markets served by our stations byvarious national accounts.

·       Barterrevenue decreased approximately $421,000 for the three months ended June 30,2007. This decrease was due mainly to a significant elimination of barterprogramming at one of the Company’s stations.

·       Otherrevenue increased approximately $409,000 for the three months ended June 30,2007. Approximately $281,000 of the increase relates to a 2002 cable copyrightroyalty distribution which was finalized and paid in the second quarter.Additionally, included in other revenue is retransmission consent revenue whichincreased approximately $183,000 for the three months 

15

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ended June 30, 2007. Thisrevenue represents consideration received from some satellite and cableproviders in return for consent to retransmission of the signals of the Company’stelevision stations. In some cases, the consideration is based on the number ofsubscribers receiving the signals.

Operating expenses,including selling, general and administrative expenses, for the three monthsended June 30, 2007 were $34.0 million as compared to $33.9 million forthe three months ended June 30, 2006, an increase of $76,000, or 0.2%. Themajor causes of the increases in operating expenses were as follows:

·       Personnelcosts, including severance costs, increased approximately $235,000 for thethree months ended June 30, 2007. Severance costs increased approximately$679,000 for the quarter, resulting from further cost cutting initiativesoccurring during the second quarter of 2007. This increase was offset bydecreases in other personnel costs of approximately $444,000 relating to thecontinued cost cutting initiatives and headcount reductions that have beeninstituted by the Company.

·       Includedin the selling, general and administrative expenses is non-cash compensationexpense of approximately $1.6 million for the three months ended June 30,2007, of which approximately $1.2 million relates to restricted anddeferred stock awards. The remaining $452,000 of non-cash compensation relatesto the Company’s matching contributions to eligible employees under its definedcontribution plan. This compares to non-cash compensation of $1.3 million forthe three months ended June 30, 2006. This increase is due primarily tothe increased non-cash compensation expense associated with restricted sharesand deferred stock units awarded in 2006 and 2007.

The following itemsacted to offset these changes:

·       Localsales commissions paid to employees were down approximately $173,000 due to thedecrease in local revenues, as noted above.

·       Expensesassociated with the Company’s local sales initiatives were down approximately$163,000.

Amortization of program license rights for the threemonths ended June 30, 2007 was $6.6 million, compared to $7.0 million forthe three months ended June 30, 2006, a decrease of $450,000, or 6.4%. Thedecrease was due to a programming write-down recorded at one of the Company’sstations which was taken during the third quarter of 2006, which reduced thefuture amortization expense associated with that programming. Offsetting thisdecrease was a programming write-down approximating $510,000 at two of theCompany’s stations taken during the three months ended June 30, 2007.

Depreciation of property and equipment andamortization of intangible assets was $4.2 million for the three months ended June 30,2007 as compared to $4.7 million for the three months ended June 30, 2006,a decrease of approximately $514,000 or 10.9%. Depreciation of property andequipment decreased due to various furniture, fixtures and computers becomingfully depreciated during the second quarter of 2006.

Corporate Overheadfor the three months ended June 30, 2007 was $3.1 million, compared to$3.4 million for the three months ended June 30, 2006, a decrease of$320,000, or 9.4%. The decrease is due to the following:

·       Personnelcosts were down approximately $158,000 due mainly to a decrease in bonusexpense resulting from the above-discussed reduced operating results.

·       Insuranceexpenses were down approximately $193,000 during the three months ended June 30,2007 due in part to a decrease in health insurance of approximately $84,000resulting primarily from a health insurance premium refund of approximately$109,000, offset by minor increases in the monthly health insurance premiums. Furthermore,key employee insurance was down approximately $108,000 due to the change incash surrender value of the policy year over year.

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Interest expense for the three months ended June 30,2007 was $17.3 million, compared to $16.5 million for the same period in2006, an increase of $771,000, or 4.7%. The Company received a payment on itsinterest rate swaps of approximately $179,000 for the three months ended June 30,2007, which was recorded as a reduction of interest expense. In May 2006,the Company requested an incremental term loan of $50.0 million under the SeniorCredit Facility through an Increase Joinder. Furthermore, the Senior CreditFacility and incremental term loan bears various floating interest rates, basedupon LIBOR, of 7.88% at June 30, 2007, as compared to rates ranging from7.69% to 7.88% at June 30, 2006, thus increasing interest expense for thethe three months ended June 30, 2007.

The Company recorded an income tax provision of $4.9million and $2.2 million for the three months ended June 30, 2007 and2006, respectively. This provision includes a deferred tax liability of $4.8million and $1.7 million for the taxable temporary difference related to theamortization of the Company’s indefinite-lived intangible assets for 2007 and2006, respectively, which continues to be amortized for tax purposes.

As a result of theabove-discussed factors, the net loss for the Company was $18.2 million for thethree months ended June 30, 2007, compared to a net loss of $11.0 millionfor the three months ended June 30, 2006, a change of $7.2 million, or65.5%.

***SixMonths Ended June 30, 2007 Compared to Six Months Ended June 30, 2006***

Thefollowing table sets forth the Company’s operating results for the six monthsended June 30, 2007 as compared to the six months ended June 30,2006. 

| ** **                                           | ** ** | **For the six months ended June 30,** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **2006**                                                            | ** ** | **2007**   | ** ** | **Change** | ** ** | **% Change** | ** ** |
| ** **                                           | ** ** | **(in thousands, except per share data)**  | ** ** | ** ** | ** ** |
| Net revenue                                          |       | $                                                                   | 105,141    |       | $          | 98,801 |   | $ | (6,340 | ) |   | (6.0 | ) |   |
| Operating expenses, including SG&A               |       | 67,848                                                              |       | 67,693     |       | (155 | ) |   | (0.2 | ) |   |
| Amortization of  program license rights              |       | 13,872                                                              |       | 12,638     |       | (1,234 | ) |   | (8.9 | ) |   |
| Depreciation and  amortization                       |       | 9,520                                                               |       | 8,511      |       | (1,009 | ) |   | (10.6 | ) |   |
| Corporate  overhead, excluding depreciation expense  |       | 7,044                                                               |       | 6,770      |       | (274 | ) |   | (3.9 | ) |   |
| Operating income  (loss)                             |       | 6,857                                                               |       | 3,189      |       | (3,668 | ) |   | (53.5 | ) |   |
| Interest expense, net                                |       | (32,340                                                             | )          | (34,291    | )          | (1,951 | ) |   | (6.0 | ) |   |
| Other income/  (expense)                             |       | (1,069                                                              | )          | 155        |       | 1,224 |   |   | 114.5 |   |   |
|                                                 |       | (33,409                                                             | )          | (34,136    | )          | (727 | ) |   | (2.2 | ) |   |
| Loss from operations before income taxes             |       | (26,552                                                             | )          | (30,947    | )          | (4,395 | ) |   | (16.6 | ) |   |
| Income tax expense                                   |       | (15,072                                                             | )          | (12,609    | )          | 2,463 |   |   | 16.3 |   |   |
| Net loss                                             |       | $                                                                   | (41,624    | )          | $          | (43,556 | ) | $ | (1,932 | ) |   | 4.6 | % |   |
| Basic net loss  per common share                     |       | $                                                                   | (1.98      | )          | $          | (2.15 | ) |   |   |   |   |   |   |
| Basic shares used in  earnings per share calculation |       | 21,071,672                                                          |       | 20,234,468 |       |   |   |   |   |   |   |

 

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Net revenue for thesix months ended June 30, 2007 was $98.8 million, as compared to $105.1million for the six months ended June 30, 2006, a decrease of $6.3 millionor 6.0%. The major components of, and changes to, net revenue were as follows:

·       Grosspolitical revenue for the six months ended June 30, 2007 was $1.6 million,as compared to $6.1 million for the six months ended June 30, 2006, adecrease of approximately $4.5 million, or 74.4%. This decrease is due tovarious local midterm elections in 2006 at eight geographic locations in whichwe own stations, with no such elections during the six months ended June 30,2007.

·       TheCompany’s gross local revenues for the six months ended June 30, 2007decreased by less than 1% compared to the six months ended June 30, 2006,and gross national revenues for the six months ended June 30, 2007 weredown 5.1% compared to the prior year. While gross local revenue was downslightly year over year, local revenues were up at five of the ten stations forthe six months ended June 30, 2007. The three CBS affiliated stationsbenefited from Superbowl revenue, which increased their local revenues yearover year. Gross national revenues were down year over year, due to decreasedspending in several markets served by our stations by various nationalaccounts.

·       Barterrevenue decreased approximately $1.1 million for the six months ended June 30,2007. This decrease was due mainly to a significant elimination of barterprogramming at one of the Company’s stations.

·       Otherrevenue increased approximately $582,000 for the six months ended June 30,2007. Approximately $281,000 relates to a 2002 cable copyright royaltydistribution which was finalized and paid in the first half of 2007. Additionally,included in other revenue is retransmission consent revenue which increasedapproximately $310,000 for the six months ended June 30, 2007. Thisrevenue represents consideration received from some satellite and cableproviders in return for consent to retransmission of the signals of the Company’stelevision stations. In some cases, the consideration is based on the number ofsubscribers receiving the signals.

Operating expenses,including selling, general and administrative expenses, for the six monthsended June 30, 2007 were $67.7 million as compared to $67.8 million forthe six months ended June 30, 2006, a decrease of $155,000 or 0.2%. Themajor components and changes in operating expenses were as follows:

·       Personnelcosts decreased approximately $341,000 due to the continued cost cuttinginitiatives and headcount reductions that have been instituted by the Company.

·       Professionalfees decreased approximately $225,000. Our three CBS affiliated stations wererequired to pay an FCC fine during the first half of 2006, with no such fine in2007. The remaining decrease relates to ongoing litigation at one of ourstations, which was settled at the end of 2006.

·       Approximately$124,000 of the decrease is attributable to the decrease in local salescommissions paid to employees due to the decrease in local revenues, as notedabove.

·       Expensesassociated with the Company’s local sales initiatives were down approximately$110,000.

The following itemsacted to offset these changes:

·       Includedin selling, general and administrative expenses is non-cash compensationexpense of approximately $3.2 million for the six months ended June, 2007, ofwhich approximately $2.2 million relates to restricted shares and deferredstock awards. The remaining $1.0 million of non-cash compensation relates tothe Company’s matching contributions to eligible employees under its definedcontribution plan. This compares to non-cash compensation of $2.3 million forthe six months ended June 30, 2006, an increase of approximately $913,000.This increase is due primarily to the increased non-cash compensation expenseassociated with restricted shares and deferred stock units awarded in June 2006and 2007.

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Amortization of program license rights for the sixmonths ended June 30, 2007 was $12.6 million, compared to $13.9 millionfor the six months ended June 30, 2006, a decrease of $1.2 million, or8.9%. The decrease was due to a programming write-down recorded at one of theCompany’s stations which was taken during the third quarter of 2006, whichreduced the future amortization expense associated with that programming. Offsettingthis decrease was a programming write-down approximating $510,000 at two of theCompany’s stations taken during the six months ended June 30, 2007.

Depreciation of property and equipment andamortization of intangible assets was $8.5 million for the six months ended June 30,2007 as compared to $9.5 million for the six months ended June 30, 2006, adecrease of $1.0 million or 10.6%. Depreciation of property and equipmentdecreased due to various furniture, fixtures and computers becoming fullydepreciated during the six months ended June 30, 2006.

Corporate Overheadwas $6.8 million for the six months ended June 30, 2007 compared to $7.0million for the six months ended June 30, 2006, a decrease ofapproximately $274,000 or 3.9%. The major components of corporate expenses wereas follows:

·       Travelexpenses were down approximately $128,000, due primarily to expenses associatedwith a sales meeting that occurred during the first half of 2006, with no suchmeeting or expenses occurring during the first half of 2007.

·       Insuranceexpenses were down approximately $217,000 during the first half of 2007 due inpart to a health insurance premium refund of approximately $109,000 received in2007, with no such refund in 2006. Furthermore, key employee insurance was downapproximately $103,000 due to the change in cash surrender value of the policyyear over year.

The following actedto offset the decrease:

·       Personnelcosts were up approximately $102,000, due mainly to a loss on mark to market ofthe assets held in the executive deferred compensation plan of approximately$171,000 for the six months ended June 30, 2007, as compared to a loss onthe mark to market of the deferred compensation plan of approximately $65,000for the six months ended June 30, 2006.

Interest expense for the six months ended June 30,2007 was $34.3 million, compared to $32.3 million for the same period in 2006,an increase of $2.0 million, or 6.0%. The Company received a payment on itsinterest rate swaps of approximately $366,000 for the six months ended June 30,2007, which was recorded as a reduction of interest expense. In May 2006,the Company requested an incremental term loan of $50.0 million under theSenior Credit Facility through an Increase Joinder. Furthermore, the SeniorCredit Facility and incremental term loan bears various floating interestrates, based upon LIBOR, of 7.88% at June 30, 2007, as compared to ratesranging from 7.69% to 7.88%, at June 30, 2006, thus increasing interestexpense for the first half of 2007.

The Company recorded an income tax provision of $12.6million and $15.1 million for the six months ended June 30, 2007 and 2006,respectively. This provision includes a deferred tax liability of $12.6 millionand $14.2 million for the taxable temporary difference related to theamortization of the Company’s indefinite-lived intangible assets for June 30,2007 and 2006, which continues to be amortized for tax purposes.

As a result of theabove-discussed factors, the net loss for the Company was $43.6 million for thesix months ended June 30, 2007 compared to a net loss of $41.6 million forthe six months ended June 30, 2006, a change of $1.9 million, or 4.6%.

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**Liquidity and CapitalResources**

***Current Financial Condition***

Thefollowing tables present certain data that the Company believes is helpful inevaluating the Company’s liquidity and capital resources (dollars inthousands).

| ** **                                            | ** ** | **Six Months Ended June 30,**                                | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **      2006      ** | ** ** | **      2007      ** | ** ** |
| Net cash (used in)  provided by:                      |       |                                                                             |       |   |   |   |   |   |   |
| Operating activities                                  |       |                                                                             | $          | (15,398 | ) |   |   | $ | (22,143 | ) |   |
| Investing activities                                  |       |                                                                             | (1,849     | ) |   |   | 384 |   |   |
| Financing activities                                  |       |                                                                             | 47,058     |   |   |   | (1,769 | ) |   |
| Net increase (decrease)  in cash and cash equivalents |       |                                                                             | $          | 29,811 |   |   |   | $ | (23,528 | ) |   |

 

| ** **                                 | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                 | ** ** | **2006**              | ** ** | **2007**          | ** ** |
| Cash and cash  equivalents                 |       |                  | $          | 66,546            |       |   | $ | 43,018 |   |
| Short-term investments                     |       |                  | $          | 40,794            |       |   | $ | 38,454 |   |
| Long-term debt,  including current portion |       |                  | $          | 831,859           |       |   | $ | 829,804 |   |
| Available under senior  credit agreement   |       |                  | $          | 20,000            |       |   | $ | 20,000 |   |

 

The Company’s cash flow is highly dependent upon thestate of the advertising market and public acceptance of television programming.Any significant decline in the advertising market or performance of televisionprogramming could adversely impact the Company’s cash flow from operations.

The performance of KRON-TV has a large impact on theCompany’s operating results. Consequently, the Company is particularlysusceptible to economic conditions in the San Francisco advertising market. TheCompany’s operating results have been adversely affected by a slower thanexpected recovery in the San Francisco market.

The Company has renewed its affiliations with ABC withrespect to WKRN-TV, WTEN-TV, WRIC-TV, WATE-TV and WBAY-TV, with CBS withrespect to WLNS-TV, KLFY-TV and KELO-TV and its satellite stations (KCLO-TV,KDLO-TV and KPLO-TV) and with NBC with respect to KWQC-TV. The renewed ABCaffiliations expire on December 31, 2009, the renewed CBS affiliations forWLNS-TV and KLFY-TV expire on September 12, 2012, the renewed CBSaffiliation for KELO-TV and its satellite stations expire on April 2, 2015and the renewed NBC affiliation expires on January 1, 2015. Under therenewed ABC, CBS and NBC affiliations, the Company will be receivingsignificantly less network compensation than it received from ABC, CBS and NBCunder the prior agreements.

The principal uses of cashthat affect the Company’s liquidity position include the following: the acquisitionof and payments under programming rights for entertainment and sporting events,capital and operational expenditures and interest payments on the Company’sdebt. The Company is required to make scheduled principal payments under theterm loan portion of the senior credit agreement, on a quarterly basis, equalto 0.25% of the initialaggregate amount of the term loan.

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***Sources and Uses of Cash***

*OperatingActivities*

Net cash used inoperating activities for the six months ended June 30, 2007 and 2006 was $22.1 millionand $15.4 million, respectively. The reduction of cash from operatingactivities for the six months ended June 30, 2007 was due primarilyto the following items:

·       TheCompany made approximately $13.7 million of payments on its programming liabilitiesfor the six months ended June 30, 2007, compared to payments on itsprogram liabilities of approximately $13.2 million from the six months ended June 30,2006.

·       Accruedexpenses and other liabilities decreased approximately $1.8 million for the sixmonths ended June 30, 2007. Approximately $1.6 million of this decreaserelates to a decrease in the 2006 bonus accrual, which was accrued for at December 31,2006 and paid out during the first half of 2007.

·       Tradeaccounts payable decreased approximately $1.7 million, due primarily to timingof payments. Of this amount approximately $540,000 relates to payments for atrade program made during the first half of 2007 at one of the Company’sstations which was accrued for at the end of 2006.

The following itemsacted to offset these changes:

·       Prepaid expenses decreased by approximately $786,000 for thesix months ended June 30, 2007. Prepaid insurance decreased approximately$1.3 million, representing net prepaid insurance premiums which were expensedduring the first half of 2007. Offsetting this decrease was an increase inprepaid pension of approximately $530,000, due to pension contributions madeduring the first half of 2007. This compares to a decrease in prepaid expensesof approximately $1.0 million for the six months ended June 30, 2006. Thisdecrease was mainly due to a decrease in prepaid insurance of approximately$1.2 million, representing net prepaid insurance premiums which were expensedduring the first half of 2006.

·       The Company recorded itsshare of the earnings on Investments in Unconsolidated subsidiaries, net ofdividends, of approximately $9,000 for the six months ended June 30, 2007as compared to recording its share of losses of approximately $1.2 million forthe six months ended June 30, 2006.

*InvestingActivities*

Cash provided byinvesting activities for the six months ended June 30, 2007 was $384,000,compared to cash used in investing activities for the six months ended June 30,2006 of $1.8 million. The increase of cash from investing activities for thesix months ended June 30, 2007 was due primarily to the following:

·       Capitalexpenditures for the six months ended June 30, 2007 of $2.6 million washigher than capital expenditures of $2.4 million for the six months ended June 30,2006.

·       Purchasesof short term investments was $36.8 million for the six months ended June 30,2007, while maturities of short term investments was $40.0 million for the sixmonths ended June 30, 2007. There were no funds invested in short term investmentsfor the six months ended June 30, 2006.

·       Proceeds from the disposalof fixed assets for the six months ended June 30, 2007 was $38,000 ascompared to $614,000 for the six months ended June 30, 2006.

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*Financing Activities*

Cash used in financingactivities for the six months ended June 30, 2007 was $1.8 millioncompared to cash provided by financing activities of $47.1 million for the sixmonths ended June 30, 2006. The reduction of cash from financing activitiesfor the six months ended June 30, 2007 was due primarily to the followingitems:

·       OnMay 30, 2006, the Company entered into the First Amendment to the SeniorCredit Facility and the Increase Joinder, which provided for a $50.0 millionincremental term loan under the Senior Credit Facility. On May 30, 2006,the full $50.0 million incremental term loan was borrowed by the Company. Therewere no such borrowings made during the six months ended June 30, 2007.

·       TheCompany made payments under capital lease obligations of approximately $15,000and $26,000 for the six months ended June 30, 2007 and 2006, respectively.

·       Additionally, the Companymade principal repayments of $1.8 million on its Senior Credit Facility duringthe six months ended June 30, 2007, as compared to $1.6 million for thesix months ended June 30, 2006.

***Debt Instruments,Guarantees and Related Covenants***

On May 3, 2005, theCompany amended and restated its senior credit facility (as amended, the “SeniorCredit Facility”). The Senior Credit Facility consists of (i) a term loanin the amount of $300.0 million that matures in 2012 and (ii) arevolving credit facility in the amount of $20.0 million that matures in 2010.On May 3, 2005, the full $300.0 million of the term loan was borrowed. Approximately$278.0 million of the proceeds of the term loan borrowing were used to financethe purchase by the Company of all of its $246.9 million outstanding principalamount of 81⁄2% Senior Notes due 2008 pursuant to the cash tender offer andconsent solicitation commenced on April 11, 2005. The balance of the termloan borrowing will be used for working capital. The Company pays an annualcommitment fee at the rate of 0.5% per annum of the unused available borrowingsunder the revolving credit portion of the Senior Credit Facility. The Companycapitalized approximately $6.0 million of fees associated with the new termloan and revolving credit facility.

On May 3, 2005, theCompany entered into an interest rate swap agreement for a notional amount of$71.0 million with a financial institution who is also a lender under theSenior Credit Facility. The swap expires on May 8, 2008. The Company beganto pay a fixed interest of 4.3425% and the Company receives interest from thefinancial institution, based upon a three month LIBOR rate. It is the Company’sintention to ensure the interest rate reset dates of the swap and the term loanunder the Senior Credit Facility will match over the term of the swap, andtherefore the changes in the fair value of the interest-rate swap areexpected to significantly offset changes in the cash flows of the floating ratedebt. The Company accounts for this agreement as a cash flow hedge under FASBStatement No. 133, Accounting for Derivative Instruments and hedgingactivities and as such, the change in the fair value of the interest rate swapis reported as a component of other comprehensive loss. For the quarter ended June 30,2007, a gain of approximately $6,000 was recorded in other comprehensive income(loss).

On May 30, 2006, theCompany entered into (i) the First Amendment (the “First Amendment”) tothe Senior Credit Facility and (ii) the Increase Joinder (the “IncreaseJoinder”) to the Senior Credit Facility. The First Amendment effected certainamendments to the Senior Credit Facility including, without limitation, (i) thereduction of the minimum amount of cash the Company must maintain from $35.0million to $10.0 million and (ii) an increase of 0.25% to each of the BaseRate Margin and the Eurodollar Margin (used in the calculation of interestrates payable by the Company under the Senior Credit Facility). As a result ofthe margin increases, the Base Rate and the Eurodollar Rate margins are nowequal to 1.50% and 2.50%, respectively. The Increase Joinder provided for a$50.0 million incremental term loan under the Senior Credit Facility. The full$50.0 million of the incremental term loan 

22

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wasborrowed by the Company on May 30, 2006. The proceeds of the incrementalterm loan borrowing will be used for working capital and to pay fees andexpenses related to the incremental term loan and the First Amendment. TheCompany capitalized approximately $1.4 million of fees associated with theincremental term loan and First Amendment.

At June 30, 2007,approximately $343.4 million was outstanding under the term loan and the full$20.0 million was available under the revolving facility. The SeniorCredit Facility provides, at the option of the Company, that borrowed fundsbear interest based upon the London Interbank Offered Rate (“LIBOR”)” or “BaseRate.” In addition to the index rate, the Company pays a fixed incrementalpercentage at 1.50% with the Base Rate and 2.50% with LIBOR. At June 30,2007, the Company was paying interest based on LIBOR, and the overall rate wasapproximately 7.88%. Each of the Company’s subsidiaries has guaranteed theCompany’s obligations under the Senior Credit Facility. The Senior CreditFacility is secured by the pledge of all the capital stock of the Company’ssubsidiaries and a first priority lien on all of the assets of the Company andits subsidiaries. The Senior Credit Facility requires the Company to maintain acash and short-term investment balance of at least $10.0 million. The othercovenants contained in the Senior Credit Facility are substantially similar tothe covenants contained in the indentures governing the Company’s seniorsubordinated notes. At June 30, 2007, the Company was in compliance withall covenants contained under the credit facility.

Thefollowing is a summary of our outstanding indebtedness (in thousands) andrelated annualized interest payments that is recorded during the period. Debtamounts outstanding at December 31, 2006 and June 30, 2007 were asfollows:

| ** **                                   | ** ** | ** **   | ** ** | ** **  | ** ** | **Annualized**            | ** ** |
|----------------------------------------------|------------|--------------|------------|-------------|------------|---------------------------|------------|
| ** **                                   | ** ** | **12/31/06** | ** ** | **6/30/07** | ** ** | **Interest  Payments(1)** | ** ** |
| Senior Credit Facility                       |       | $            | 345,125    |        | $          | 343,375                   |       |   | $ | 27,041 |   |   |
| 83⁄4% Senior Subordinated  Notes due 2014 |       | 140,000      |       | 140,000     |       |                      | 12,250     |   |   |
| 10% Senior Subordinated  Notes due 2011      |       | 346,713      | (2)        | 346,423     | (2)        |                      | 34,429     |   |   |
| Total Debt (excluding capital leases)        |       | $            | 831,838    |        | $          | 829,798                   |       |   | $ | 73,720 |   |   |

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(1)          Theannualized interest payments are calculated based on the outstanding principal amountsat June 30, 2007, multiplied by the interest rates of the related notes. Theannualized interest payments on the Senior Credit Facility takes into accountthe quarterly principal payments of $875,000.

(2)          Includesan unamortized premium balance of $2.4 million and $2.1 million as of December 31,2006 and June 30, 2007, respectively.

The Company’s total debtat June 30, 2007 was approximately $829.8 million, consisting of $343.4 millionunder the term loan portion of the Senior Credit Facility, $484.3 million ofSenior Subordinated Notes, $2.1 million of bond premiums and $6,000 of capitalleases. In addition, at June 30, 2007, the Company had an additional $20.0million of unused available borrowings under the Senior Credit Facility.

It is anticipated that theCompany will be able to meet the working capital needs of its stations,scheduled principal and interest payments under the Company’s Senior CreditFacility and Senior Subordinated Notes, corporate overhead costs and capitalexpenditures, from cash on hand ($43.0 million at June 30, 2007), fundsinvested in short-term investments (approximately $38.5 million at June 30,2007), cash flows from operations and funds available under the Senior CreditFacility ($20.0 million at June 30, 2007).

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**Income Taxes**

The Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes—an interpretation of FASB Statement No. 109” (FIN 48), on January 1,2007. FIN 48 clarifies the accounting and reporting for uncertainties in incometax law.

As a result of theimplementation of FIN 48, the Company recognized a $46,211 increase in itsliability for income taxes, which was accounted for as a reduction to the January 1,2007 balance of retained earnings. As of the date of adoption and afterrecognizing the increase in liability noted above, the Company’s unrecognizedtax benefits totaled $3.1 million, all of which, if recognized, would affectthe effective tax rate in future periods.

Interest and penaltiesrelated to income tax liabilities are included in income tax expense. TheCompany had approximately $139,000 for the payment of interest and penaltiesaccrued at January 1, 2007 included in the unrecognized tax benefit of$3.1 million as discussed above.

While the Company does notanticipate any significant changes to the amount of liabilities forunrecognized tax benefits within the next twelve months, there can be noassurance that the outcomes from any tax examinations will not have asignificant impact on the operating results or financial position of theCompany.

With limited exceptions, theCompany is no longer subject to U.S. federal and state and local income taxaudits by taxing authorities for years through December 31, 2002.

At December 31, 2006,the Company had net operating loss (“NOL”) carryforwards for tax purposes ofapproximately $427.7 million expiring at various dates through 2026, for whicha full valuation allowance has been provided.

With the adoption of theFASB issued Statement No.142, Goodwill and Other Intangible Assets (SFAS 142)the Company no longer amortizes the book basis in the indefinite-livedintangibles, but continues to amortize these intangibles for tax purposes.Beginning with the first quarter of 2005, the Company started recording adeferred tax provision for the excess of book basis over tax basis of intangibleassets, not expected to reverse during the net operating loss carryforwardperiod. Income tax expense for the six months ended June 30, 2007 and 2006primarily consists of deferred income taxes of $12.6 million and $14.2 million,respectively, related to the increase in the Company’s deferred tax liabilityfor the tax effect of the difference between the book and tax basis of theintangible assets not expected to reverse during the net operating losscarryforward period.

The Company will havedeferred tax liabilities that will arise each quarter because the taxabletemporary differences related to the amortization of these assets will notreverse prior to the expiration period of the Company’s deductible temporarydifferences unless the related assets are sold or an impairment of the assetsis recorded. The Company expects that it will record a total of approximately$7.7 million to increase deferred tax liabilities during the remaining sixmonths of 2007.

**Contractual Obligations and Commercial Commitments**

As of June 30, 2007,there were no significant changes to our outstanding contractual obligationsand commercial commitments as disclosed in our Annual Report on Form 10-Kfor the year ended December 31, 2006.

One of the Company’sstations has four future program contracts for *Dr. Phil*as of June 30, 2007, for a total cost of approximately $36.6 million. Eachof these four contracts is for a consecutive one-year term commencing in September 2007and running through September 2011. Each of these future program contractsare anticipated to generate a loss, requiring a write-down of the programmingasset at the time that each asset is recorded on the Company’s balance sheet(generally in the third quarter). For the 2007-2008 season, commencing inSeptember 2007, the Company expects a programming impairment 

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write-downof approximately $3.9 million which will be recorded during the third quarterof 2007. Additionally, the Company anticipates programming impairmentwrite-downs for each of the three remaining one-year contracts (for the 2008-2009,2009-2010 and 2010-2011 seasons) of similar amounts, whichwrite-downs will be recorded in September 2008, 2009 and 2010.

**Impact of Recently Issued Accounting Standards**

In February 2007, theFinancial Accounting Standards Board (FASB) issued FASB Statement No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities* (SFAS 159). SFAS 159 is effective for fiscalyears beginning after November 15, 2007.

The new Statement allowsentities to choose, at specified election dates, to measure eligible financialassets and liabilities at fair value that are not otherwise required to bemeasured at fair value. If a company elects the fair value option for aneligible item, changes in that item’s fair value in subsequent reportingperiods must be recognized in current earnings. SFAS 159 also establishespresentation and disclosure requirements designed to draw comparison betweenentities that elect different measurement attributes for similar assets andliabilities. The Company is currently evaluating the provisions of SFAS 159 todetermine the potential impact, if any, the adoption will have on the Company’sfinancial statements.

**Item3.**                        *Quantitative and Qualitative Disclosure About Market Risk.*

The Company’s SeniorCredit Facility, with $343.4 million outstanding as of June 30, 2007,bears interest at floating rates. Accordingly, to the extent there are amountsoutstanding under the Senior Credit Facility, we are exposed to potentiallosses related to changes in interest rates.

The Company’s SeniorSubordinated Notes of approximately $484.3 million outstanding principal amountas of June 30, 2007 are general unsecured obligations of the Company andare subordinated in right of payment to all senior debt, including allindebtedness of the Company under the Senior Credit Facility. The 83⁄4% SeniorSubordinated Notes, $140.0 million of which is outstanding, mature in 2014. The10% Senior Subordinated Notes, $344.3 million of which is outstanding, maturein 2011. The annualized interest expense on the outstanding Senior SubordinatedNotes is approximately $46.7 million.

The Company does not enterinto derivatives or other financial instruments for trading or speculativepurposes; however, in order to manage its exposure to interest rate risk, theCompany enters into derivative financial instruments. On May 3, 2005 theCompany entered into an interest rate swap agreement for a notional amount of$71.0 million. The swap expires on May 8, 2008. The Company accounts forthis agreement using hedge accounting under FAS 133, and as such the change inthe fair value of the interest rate swap is reported as a component of othercomprehensive income (loss).

**Item4.**                        *Controls and Procedures*

Under the supervision andwith participation of our management, including our Chief Executive Officer andChief Financial Officer, we conducted an evaluation of our disclosure controlsand procedures (as defined in Rule 13a-15(e) promulgated underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theend of the period covered by this quarterly report. Based on this evaluationour Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of June 30, 2007.

During the quarter endedJune 30, 2007, the Company began the implementation of a new sales andtraffic billing system as well as a new payroll system. While we expect thatthe implementation of these new systems will enhance our existing controls overfinancial reporting, we do not believe the new systems will materially affect,or be reasonably likely to materially affect, our controls over financialreporting.

There has not been anychange in our internal control over financial reporting (as defined inRule 13(a)-15(f) under the Exchange Act) during the quarterended June 30, 2007 that has materially affected, or is reasonably likelyto materially affect, our controls over financial reporting.

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**PART II.   OTHERINFORMATION**

**Item 1.**                        *Legal Proceedings.*

The Company is involved inlegal proceedings and litigation arising in the ordinary course of business. Inthe Company’s opinion, the outcome of such proceedings and litigation currentlypending will not materially affect the Company’s financial condition or resultsof operations.

**Item 1A.**                *Risk Factors.*

There have been nomaterial changes in the Company’s risk factors from those disclosed in theCompany’s annual report on Form 10-K for the year ended December 31,2006.

**Item 4.**                        *Submission of Matters to a Vote of Security Holders.*

This item isanswered in respect of the Annual Meeting of Stockholders held on May 1,2007 (the “Annual Meeting”). At the Annual Meeting, the following number ofvotes were cast with respect to each matter voted upon:

1.     Proposal to approve management’s nomineesfor director:

| ** **                  | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-----------------------------|------------|--------------------|------------|-------------------------|------------|
| Alfred J.  Hickey, Jr. |       | 33,433,316         |       |                    | 1,960,327  |   |   |
| David C. Lee                |       | 33,435,723         |       |                    | 1,957,920  |   |   |
| Leif Lomo                   |       | 34,907,357         |       |                    | 486,286    |   |   |
| Richard Lowe                |       | 31,512,240         |       |                    | 3,881,403  |   |   |
| Alexander T.  Mason         |       | 34,913,047         |       |                    | 480,596    |   |   |
| Deborah A.  McDermott       |       | 33,954,064         |       |                    | 1,439,579  |   |   |
| James A. Morgan             |       | 32,738,467         |       |                    | 2,655,176  |   |   |
| Reid Murray                 |       | 33,436,123         |       |                    | 1,957,520  |   |   |
| Vincent J. Young            |       | 32,757,077         |       |                    | 2,636,566  |   |   |

 

Such individualswere elected to serve as directors until the next annual meeting. Other thanAlexander T. Mason, such individuals constituted the entire Board of Directorsand served as directors of the Company immediately preceding the meeting.

2.     Proposal to approve an amendment to theYoung Broadcasting Inc. 2003 Non-Employee Directors’ Deferred Stock Unit Planto increase the total number of shares with respect to which deferred stockunits may be granted thereunder from 100,000 to 250,000:

| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker  Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|-----------------------|------------|
| 26,748,420 |       | 3,707,623   |       | 55,471      |       | 4,882,129             |       |

 

3.     Proposal to ratify the appointment of Ernst &Young LLP as the Company’s independent registered public accounting firm forthe fiscal year ending December 31, 2007:

| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 35,306,108 |       | 42,546      |       | 44,989      |       |

 

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**Item6.**                        *Exhibits*
| Exhibit  Number | ** ** | ** **                                        | ** ** | **Exhibit Description** |
|-----------------|------------|---------------------------------------------------|------------|------------------------------|
| 11              |       | Statement Re Computation  of Per Share Earnings   |
| 31              |       | Rule 13a-14(a)/15d-14(a) Certifications |
| 32              |       | Section 1350 Certifications                  |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                            | YOUNG BROADCASTING INC. |
|----------------------------|-------------------------|
| Date: August 9,  2007 | By:                     | /s/ VINCENT J. YOUNG |
|                       |                    | Vincent J. Young |
|                       |                    | *Chairman and Chief Executive Officer* |
| Date: August 9,  2007 | By:                     | /s/ JAMES A. MORGAN |
|                       |                    | James A. Morgan |
|                       |                    | *Executive Vice President and  Chief Financial Officer**(principal financial officer)* |

 

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