**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,  D.C.  20549**

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**FORM 10-Q**

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

| **For the quarterly period ended** |   | **Commission  file number:** |
|------------------------------------|--------|------------------------------|
| **March  31, 2007**                |   | **0-25042**                  |

 

**YOUNGBROADCASTING INC.**

(Exact name of registrant as specified in its charter)

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

 

**599Lexington Avenue**

**NewYork,  New York 10022**

(Address of principal executive offices)

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

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes xNo o

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

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

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No x

Number of shares ofCommon Stock outstanding as of April 23, 2007: 20,274,883 shares of Class ACommon Stock, and 1,941,414 shares of Class B Common Stock.

 

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**YOUNG BROADCASTING INC.**

**FORM 10-Q**

**Table of Contents**
|            |                                                                 |                                                                                            |
|------------|----------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
| Part I     | Financial Information                                                |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item 1.                                                              | Financial Statements  (unaudited)                                                               |   |
|       |                                                                 |                                                                                            |   |
|       |                                                                 | Consolidated Balance  Sheets as of December 31, 2006 and March 31, 2007                         |   |
|       |                                                                 |                                                                                            |
|       |                                                                 | Consolidated  Statements of Operations for the Three Months Ended March 31, 2006 and 2007       |   |
|       |                                                                 |                                                                                            |
|       |                                                                 | Consolidated  Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2007 |   |
|       |                                                                 |                                                                                            |
|       |                                                                 | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2007       |   |
|       |                                                                 |                                                                                            |
|       |                                                                 | Notes to Consolidated  Financial Statements                                                     |   |
|       |                                                                 |                                                                                            |
|       | Item 2.                                                              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations     |   |
|       |                                                                 |                                                                                            |
|       | Item 3.                                                              | Quantitative  and Qualitative Disclosures About Market Risk                                     |   |
|       |                                                                 |                                                                                            |   |
|       | Item 4.                                                              | Controls and  Procedures                                                                        |   |
|       |                                                                 |                                                                                            |   |
| Part II    | Other Information                                                    |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item 1. Legal  Proceedings                                           |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item  1A. Risk Factors                                               |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds |                                                                                            |
| .          |                                                                 |                                                                                            |
|       | Item 3.  Defaults Upon Senior Securities                             |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item 4.  Submission of Matters to a Vote of Security Holders         |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item 5. Other  Information                                           |                                                                                            |
|       |                                                                 |                                                                                            |
|       | Item  6. Exhibits                                                    |                                                                                            |
|       |                                                                 |                                                                                            |
| Signatures |                                                                 |                                                                                            |

 

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**Part I Financial Information**

**Item 1. *FinancialStatements***

Young Broadcasting Inc.and Subsidiaries

Consolidated Balance Sheets
| ** **                                                                                                                                            | ** ** | **December 31,** | ** **  | **March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|--------------------|------------|
| ** **                                                                                                                                            | ** ** | **2006**              | ** **  | **2007**           | ** ** |
| ** **                                                                                                                                            | ** ** | ** **            | ** **  | **(Unaudited)**    | ** ** |
| **Assets**                                                                                                                                            |       |                  | ** **  | ** **         | ** ** |
| Current assets:                                                                                                                                       |       |                  | ** **  | ** **         | ** ** |
| Cash and cash  equivalents                                                                                                                            |       | $                     | 66,545,612  | ** **         | **$**      | **49,360,686** | ** ** |
| Short-term commercial  paper                                                                                                                          |       | 39,789,866            | ** **  | **30,387,381**     | ** ** |
| Trade accounts  receivable, less allowance for doubtful accounts of $1,206,000 in 2006 and  $1,232,000 in 2007                                        |       | 39,660,950            | ** **  | **34,053,275**     | ** ** |
| Current portion of  program license rights                                                                                                            |       | 19,688,256            | ** **  | **13,487,325**     | ** ** |
| Prepaid expenses                                                                                                                                      |       | 2,888,298             | ** **  | **2,705,891**      | ** ** |
| Other current assets                                                                                                                                  |       | 1,003,762             | ** **  | **1,022,600**      | ** ** |
| Total current assets                                                                                                                                  |       | 169,576,744           | ** **  | **131,017,158**    | ** ** |
|                                                                                                                                                  |       |                  | ** **  | ** **         | ** ** |
| Property and equipment,  less accumulated depreciation and amortization of $191,516,000 in 2006 and  $194,169,000 in 2007                             |       | 67,591,170            | ** **  | **66,610,259**     | ** ** |
| Program license rights,  excluding current portion                                                                                                    |       | 2,781,183             | ** **  | **2,194,875**      | ** ** |
| Deposits and other  assets                                                                                                                            |       | 4,106,555             | ** **  | **4,242,148**      | ** ** |
| Investments in  unconsolidated subsidiaries                                                                                                           |       | 3,369,077             | ** **  | **3,421,143**      | ** ** |
| Indefinite lived  intangible assets                                                                                                                   |       | 475,928,822           | ** **  | **475,928,822**    | ** ** |
| Definite lived  intangible assets                                                                                                                     |       | 61,250,371            | ** **  | **60,201,364**     | ** ** |
| Deferred charges, less  accumulated amortization of $4,945,000 in 2006 and $5,381,000 in 2007                                                         |       | 10,097,789            | ** **  | **9,663,032**      | ** ** |
| **Total Assets**                                                                                                                                      |       | $                     | 794,701,711 | ** **         | **$**      | **753,278,801** | ** ** |
| ** **                                                                                                                                            |       |                  | ** **  | ** **         | ** ** |
| **Liabilities and stockholders’  deficit**                                                                                                       |       |                  | ** **  | ** **         | ** ** |
| Current liabilities:                                                                                                                                  |       |                  | ** **  | ** **         | ** ** |
| Trade accounts  payable                                                                                                                               |       | $                     | 8,639,954   | ** **         | **$**      | **6,077,529** | ** ** |
| Accrued interest                                                                                                                                      |       | 21,066,771            | ** **  | **9,225,449**      | ** ** |
| Accrued salaries  and wages                                                                                                                           |       | 5,898,097             | ** **  | **2,894,743**      | ** ** |
| Accrued expenses                                                                                                                                      |       | 7,707,896             | ** **  | **7,691,468**      | ** ** |
| Current  installments of program license liability                                                                                                    |       | 19,290,164            | ** **  | **13,262,538**     | ** ** |
| Current  installments of long term debt                                                                                                               |       | 3,500,000             | ** **  | **3,500,000**      | ** ** |
| Current  installments of obligations under capital leases                                                                                             |       | 21,830                | ** **  | **14,125**         | ** ** |
| Total current liabilities                                                                                                                             |       | 66,124,712            | ** **  | **42,665,852**     | ** ** |
|                                                                                                                                                  |       |                  | ** **  | ** **         | ** ** |
| Program license  liability, excluding current installments                                                                                            |       | 6,032,066             | ** **  | **5,142,019**      | ** ** |
| Long-term debt,  excluding current installments                                                                                                       |       | 828,337,529           | ** **  | **827,317,716**    | ** ** |
| Deferred tax liability  and other long-term tax liabilities                                                                                           |       | 38,311,413            | ** **  | **46,104,738**     | ** ** |
| Other liabilities                                                                                                                                     |       | 8,085,896             | ** **  | **8,433,727**      | ** ** |
| **Total liabilities**                                                                                                                                 |       | 946,891,616           | ** **  | **929,664,052**    | ** ** |
| ** **                                                                                                                                            |       |                  | ** **  | ** **         | ** ** |
| Stockholders’ deficit:                                                                                                                           |       |                  | ** **  | ** **         | ** ** |
| Class A Common  Stock, $.001 par value. Authorized 40,000,000 shares; issued and outstanding  20,027,108 shares at 2006 and 20,138,095 shares at 2007 |       | 20,027                | ** **  | **20,138**         | ** ** |
| 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           | ** **  | **390,502,966**    | ** ** |
| Accumulated  other comprehensive loss                                                                                                                 |       | (1,629,947            | )           | **(1,817,902**     | **)**      |
| Accumulated  deficit                                                                                                                                  |       | (539,674,232          | )           | **(565,092,394**   | **)**      |
| Total stockholders’  deficit                                                                                                                     |       | (152,189,905          | )           | **(176,385,251**   | **)**      |
| **Total liabilities and stockholders’  deficit**                                                                                                 |       | $                     | 794,701,711 | ** **         | **$**      | **753,278,801** | ** ** |

 

*See accompanying notes to consolidated financial statements*

 

2

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**Young Broadcasting Inc. andSubsidiaries**

**Consolidated Statements ofOperations**

(Unaudited)
| ** **                                                                    | ** ** | **Three Months Ended March 31,** | ** **  |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                                                                    | ** ** | **2006**                                             | ** **  | **2007** | ** ** |
| Net operating revenue                                                         |       | $                                                    | 48,386,469  | ** ** | **$** | **46,847,582** | ** ** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
| Operating expenses,  excluding depreciation expense                           |       | 17,070,679                                           | ** **  | **15,904,984** | ** ** |
| Amortization of program  license rights                                       |       | 6,855,817                                            | ** **  | **6,070,467** | ** ** |
| Selling, general and  administrative expenses, excluding depreciation expense |       | 16,848,275                                           | ** **  | **17,783,086** | ** ** |
| Depreciation and  amortization                                                |       | 4,792,818                                            | ** **  | **4,297,190** | ** ** |
| Corporate overhead,  excluding depreciation expense                           |       | 3,626,051                                            | ** **  | **3,672,713** | ** ** |
| Operating loss                                                                |       | (807,171                                             | )           | **(880,858** | **)** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
| Interest expense, net                                                         |       | (15,859,246                                          | )           | **(17,040,314** | **)** |
| Other expense, net                                                            |       | (1,053,637                                           | )           | **305,381** | ** ** |
|                                                                          |       | (16,912,883                                          | )           | **(16,734,933** | **)** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
| Loss before expense for  income taxes                                         |       | (12,915,274                                          | )           | **(17,615,791** | **)** |
| Income tax expense                                                            |       | (12,917,029                                          | )           | **(7,756,160** | **)** |
| Net loss                                                                      |       | $                                                    | (30,635,328 | ) | **$** | **(25,371,951** | **)** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
| Basic and diluted net  loss per common share:                                 |       |                                                 | ** **  | ** ** | ** ** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
| Net loss per  common share                                                    |       | ($1.46                                               | )           | **($1.15** | **)** |
|                                                                          |       |                                                 | ** **  | ** ** | ** ** |
| Weighted average shares — Basic and dilutive                             |       | 20,937,995                                           | ** **  | **22,046,603** | ** ** |

*See accompanying notes to consolidated financialstatements.*

3

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Young Broadcasting Inc.and Subsidiaries

 

Consolidated Statements of Stockholders’ Deficit(Unaudited)
| ** **                                           | ** ** | ** **            | ** ** | ** **       | ** ** | **Additional**  | ** ** | ** **        | ** **  | **Accumulated**   | ** **    | **Total**              | ** **  | **Total**   | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|------------------|------------|-----------------|------------|-------------------|-------------|-------------------|---------------|------------------------|-------------|-------------|------------|
| ** **                                           | ** ** | **Common Stock** | ** ** | **Paid-In**      | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** **  | **Comprehensive** | ** **    | **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                           |       | 146                   |       |             |       | 411,556         |       |              |        |              |          |                   |        | 411,702     |       |
|                                                 |       |                  |       |             |       |            |       |              |        |              |          |                   |        |        |       |
| Cancellations under  restricted stock plan           |       | (35                   | )          |             |       | (51,420         | )          |              |        |              |          |                   |        | (51,455     | )          |
|                                                 |       |                  |       |             |       |            |       |              |        |              |          |                   |        |        |       |
| Restricted stock plan  compensation                  |       |                  |       |             |       | 1,050,524       |       |              |        |              |          |                   |        | 1,050,524   |       |
|                                                 |       |                  |       |             |       |            |       |              |        |              |          |                   |        |        |       |
| FIN 48 Adoption.                                     |       |                  |       |             |       |            |       | (46,211           | )           |              |          | (46,211                | )           | (46,211     | )          |
|                                                 |       |                  |       |             |       |            |       |              |        |              |          |                   |        |        |       |
| Net loss for the three  months ended March 31, 2007. |       |                  |       |             |       |            |       | (25,371,951       | )           |              |          | (25,371,951            | )           | (25,371,951 | )          |
|                                                 |       |                  |       |             |       |            |       |              |        |              |          |                   |        |        |       |
| Unrealized gain on  derivative instrument            |       |                  |       |             |       |            |       |              |        | (187,955          | )             | (187,955               | )           | (187,955    | )          |
| Total comprehensive loss                             |       |                  |       |             |       |            |       |              |        |              |          | (25,544,750            | )           |        |       |
|                                                 |       |                  |       |             |       |            |       |              |        |              |          |                   |        |        |       |
| Balance at March 31, 2007.                           |       | $                     | 20,138     |             | $          | 1,941           |       | $                 | 390,502,966 |              | ($565,092,394 | )                      | ($1,817,902 | )           |       |   | ($176,385,251 | ) |
|                                                      |            |                       |            |                  |            |                 |            |                   |             |                   |               |                        |             |             |            |  |  |  |  |  |  |

 

*Seeaccompanying notes to consolidated financial statements*

4

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**Young Broadcasting Inc. and Subsidiaries**

**Consolidated Statements of Cash Flows(Unaudited)**
| ** **                                                                   | ** ** | **Three Months Ended March 31,** | ** **  |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                                                                   | ** ** | **2006**                                             | ** **  | **2007** | ** ** |
| **Operating activities**                                                     | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| Net loss                                                                     |       | $                                                    | (30,635,328 | ) | (25,371,951 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                                                 |        |   |   |
| Depreciation and  amortization of property and equipment                     |       | 3,358,523                                            |        | 2,812,243 |   |
| Provision for  uncollectible accounts                                        |       | 147,440                                              |        | 130,990 |   |
| Amortization of  program license rights                                      |       | 6,855,817                                            |        | 6,070,467 |   |
| Amortization of  intangibles and deferred charges                            |       | 1,434,295                                            |        | 1,484,947 |   |
| Non-cash  compensation                                                       |       | 1,016,467                                            |        | 1,565,002 |   |
| Loss (income) on  unconsolidated subsidiaries, net of dividend               |       | 1,186,498                                            |        | (52,066 | ) |
| Provision for  income taxes                                                  |       | 12,917,029                                           |        | 7,756,160 |   |
| Loss (gain) on  sale of fixed assets                                         |       | 1,135                                                |        | (9,980 | ) |
| Unrealized  appreciation on investments                                      |       | —                                               |        | (252,987 | ) |
| Payments on  programming license liabilities                                 |       | (6,699,300                                           | )           | (6,846,521 | ) |
| Decrease in  trade accounts receivable                                       |       | 5,794,529                                            |        | 5,476,685 |   |
| Decrease in prepaid  expenses                                                |       | 25,793                                               |        | 182,407 |   |
| Decrease in  trade accounts payable                                          |       | (1,604,850                                           | )           | (1,916,806 | ) |
| Decrease in  accrued expenses and other liabilities                          |       | (14,292,637                                          | )           | (15,420,186 | ) |
| (Increase)  decrease in other assets                                         |       | (54,668                                              | )           | 275,277 |   |
| Net cash used in operating  activities                                       |       | (20,549,257                                          | )           | (24,116,319 | ) |
| ** **                                                                   | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| **Investing activities**                                                     | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| ** **                                                                   | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| Capital expenditures                                                         |       | (938,345                                             | )           | (1,837,607 | ) |
| Purchase of short-term  commercial paper                                     |       | —                                               |        | (30,134,394 | ) |
| Maturities of  short-term commercial paper                                   |       | —                                               |        | 40,000,000 |   |
| Realized appreciation  of short-term commercial paper                        |       | —                                               |        | (210,134 | ) |
| Increase in cash  invested over three months                                 |       | (1,250                                               | )           | (18,838 | ) |
| Proceeds from disposal  of fixed assets                                      |       | 555                                                  |        | 16,255 |   |
| Net cash (used in)  provided by investing activities                         |       | (939,040                                             | )           | 7,815,282 |   |
| ** **                                                                   | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| **Financing activities**                                                     |       |                                                 |        |   |   |
| Principal payments  under capital lease obligations                          |       | (16,836                                              | )           | (7,705 | ) |
| Principal payments on  Credit Facility                                       |       | (750,000                                             | )           | (875,000 | ) |
| Deferred Financing  Costs incurred                                           |       | —                                               |        | (1,184 | ) |
| Net cash used in  financing activities                                       |       | (766,836                                             | )           | (883,889 | ) |
|                                                                         |       |                                                 |        |   |   |
| **Net decrease in cash**                                                     |       | (22,255,133                                          | )           | (17,184,926 | ) |
| Cash and cash  equivalents at beginning of year                              |       | 78,099,123                                           |        | 66,545,612 |   |
| **Cash and cash equivalents at  March 31**                                   |       | 55,843,990                                           |        | 49,360,686 |   |
| ** **                                                                   | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| **Supplemental disclosure of cash  flow information**                        | ** ** | ** **                                           | ** **  | ** ** | ** ** |
| Interest paid                                                                |       | $                                                    | 28,436,462  |   | $ | 30,177,932 |   |
|                                                                              |            |                                                      |             |  |  |  |  |

 

*See accompanying notes toconsolidated financial statements.*

5

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**1. Basisof Presentation**

The businessoperations of Young Broadcasting Inc. and subsidiaries (the “Company”) consistof ten network affiliated stations (five with ABC, three with CBS, one with NBCand 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 and KPLO-TV, our digital stations, also entered into anaffiliation agreement with MyNetwork TV. The MyNetwork TV affiliation agreements are for a term of five yearscommencing with the 2006-2007 broadcast season. MyNetworkTV started operations on September 5, 2006.  The markets served by our stations are locatedin Lansing, Michigan, Green Bay, Wisconsin, Lafayette, Louisiana, Nashville andKnoxville, Tennessee, Albany, New York, Richmond, Virginia, Davenport, Iowa,Sioux Falls, South Dakota and San Francisco, California. In addition, theaccompanying condensed consolidated financial statements include the Company’swholly owned national television sales representation firm. Significantintercompany transactions and accounts have been eliminated.

The accompanyingcondensed consolidated financial statements have been prepared in accordancewith U.S. generally accepted accounting principles for interim financialstatements and with the instructions to Form 10-Q and Article 10 of RegulationS-X. The interim financial statements are unaudited but include alladjustments, which are of a normal recurring nature, that the Company considersnecessary for a fair presentation of the consolidated financial position andthe consolidated results of operations and cash flows for such period.

For equityinvestments in which the Company owns between 20% and 50% of voting shares andhas significant influence over operating and financial policies, the equitymethod of accounting is used.  Four ofthe Company’s stations have equity-method investments in third parties thatoperate transmitting towers used by the Company.  Accordingly, the Company’s share in earningsand losses of these unconsolidated subsidiaries are included in other income(expense), net in the accompanying Consolidated Statements of Operations of theCompany.  The Company recorded its shareof losses of approximately $1.2 million and its share of earnings ofapproximately $47,000 for the three months ended March 31, 2006 and 2007,respectively.

Certain prior yearbalances have been reclassified to conform to the presentation adopted in thecurrent fiscal year.  Previously, certainincome taxes were reflected in other expense, net in the income statement.  Effective for the first quarter of 2007, theCompany began recording these income taxes as part of the income tax expense inthe income statement, leading to a reclassification from other expense, net toincome tax expense of approximately $176,000.

Operating resultsof interim periods are not necessarily indicative of results for a fullyear.  For further information, refer toconsolidated financial statements and footnotes thereto included in the Company’sannual report on Form 10-K for the year ended December 31, 2006.

InFebruary 2007, the Financial Accounting Standards Board (FASB) issued FASBStatement No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (SFAS 159). SFAS 159 iseffective for fiscal years beginning after November 15, 2007.

The new Statement allows entities to choose, at specified election dates,to measure eligible financial assets and liabilities at fair value that are nototherwise required to be measured at fair value. If a company elects the fairvalue option for an eligible item, changes in that item’s fair value insubsequent reporting periods must be recognized in current earnings. SFAS 159also establishes presentation and disclosure requirements designed to drawcomparison between entities that elect different measurement attributes forsimilar assets and liabilities. The Company is currently evaluating theprovisions of SFAS 159 to determine the potential impact, if any, the adoptionwill have on the Company’s financial statements.

**2.   Stock-Based Compensation**

On May 4, 2004,the shareholders of the Company approved the 2004 Equity Incentive Plan (“2004Plan”).  The 2004 Plan is a continuationof the 1995 Stock Option Plan and supplants the 1995 Stock Option Plan, underwhich no further awards will be granted. The 2004 Plan is administered by the Compensation Committee of the Boardof Directors.

In June 2006, June2005 and May 2004, the Company awarded 636,700, 438,500 and 109,100 deferredstock units, respectively, to executive officers of the Company under the 2004Plan, with aggregate market values at the date of grant of approximately $2.3million, $2.0 million and $1.8 million, respectively.  Deferred stock awards represent the right toreceive shares of Class B common stock at the end of specified deferralperiods. The deferred stock awards vest ratably in three equal annualinstallments beginning one year from the date of the grant and, as they vest,are charged to the income statement as non-cash compensation expense includedin selling, general and administrative expenses.  Upon vesting the recipients will be creditedwith units equivalent to shares.  Duringthe deferral period,

6

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the participantshave no voting or other rights associated with stock ownership unless and untilthe shares are actually delivered at the end of the deferral period. The end ofthe deferral period for the deferred stock awards will occur after the terminationof employment.  Additionally, granted butunvested deferred stock units are forfeited upon termination of employment,unless for reasons of death or disability.

On November 29,2005, the Company entered into an exchange agreement with each of its executiveofficers (collectively, the “Exchange Agreements”). Pursuant to the ExchangeAgreements, options to purchase an aggregate of 2,198,375 shares of commonstock of the Company, representing all of the outstanding and unexercised stockoptions held by such executive officers, were cancelled and, in exchange forsuch cancelled options (which had a fair market value of approximately$182,000), the executive officers were awarded an aggregate of 318,791 deferredstock units (which had an aggregate value of approximately $602,000) under the2004 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 2006, June2005 and May 2004, the Company awarded 590,450, 432,600 and 102,954 shares,respectively, of restricted stock to certain officers and other eligible keyemployees under the 2004 Equity Incentive Plan, with market values at the dateof grant of approximately $2.1 million, $2.0 million and $1.7 million,respectively.  The restricted shares vestratably in three equal annual installments beginning one year from the date ofthe grant and, as they vest, are charged to the income statement as non cashcompensation expense included in the selling, general and administrativeexpenses.  During the vesting period, theparticipants have voting rights and the right to receive all dividends paidwith respect to such shares.  Uponvesting, the restricted stock recipients will receive shares of unrestrictedClass A Common Stock.  Additionally,granted but unvested shares are forfeited upon termination of employment,unless for reasons of death or disability.

On November 30,2005, the Company commenced an offer to all eligible employees to exchange allof their outstanding stock options. Under the terms of this offer,participating employees had the ability to exchange their outstanding optionswith an exercise price of less than $30.44 per share for new restricted sharesthat vest 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 the payment of any consideration. Options to purchase an aggregate of 949,776 shares of common stock were eligiblefor participation in the offer. The offer expired on December 30, 2005, atwhich time the Company accepted for exchange and cancelled options to purchasea total of 945,776 shares of Common Stock with a fair market value ofapproximately $181,000, and issued an aggregate of 158,992 restricted shares ofClass A common stock, under the 2004 Plan, for an aggregate value ofapproximately $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*

As a result of theabove-discussed Exchange Agreements and exchange offer, the Company had anaggregate of 900 outstanding stock options that were unvested which were fullyexpensed during the three months ended March 31, 2006, in the amount ofapproximately $5,000.  The Company had535,417 stock options outstanding at December 31, 2006 and March 31, 2007.

*RestrictedShares and Deferred Stock Units*

The fair value ofnonvested restricted shares and deferred stock units is determined based on theclosing trading price of the Company’s Class A common stock on the grant date.The Company recorded non-cash compensation expense in connection with theissuance of the restricted shares and deferred stock units of approximately$582,000 and $999,000, respectively, for the three months ended March 31, 2006and 2007.

There were2,176,679 and 2,141,672 unvested restricted shares and deferred stock units asof December 31, 2006 and March 31, 2007, respectively, with a weighted averageshare price of $4.13 at both dates.

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The Companyestimates it will record additional compensation expense relating to previouslyissued restricted shares and deferred stock units of approximately $2.4 millionfor the remainder of 2007 and approximately $2.4 million and $727,000 during2008 and 2009, respectively.

During the firstquarter of 2006, the Company adopted FASB Statement No. 123 (R), Share-BasedPayment (“SFAS 123R”), which requires companies to measure and recognizecompensation expense for all stock-based payments at fair value.  The Company adopted SFAS 123R using themodified prospective method, and consequently has not retroactively adjustedresults from prior periods.

The Company doesnot currently recognize tax benefits resulting from tax deductions in excess ofthe compensation costs recognized because of the federal and state netoperating loss carryforwards available to offset future federal and statetaxable income.  Accordingly, theadoption of SFAS 123R did not have any impact on the Company’s consolidatedstatements of cash flows.

Prior to January1, 2006, the Company had accounted for its share-based payments to employeesunder FASB Statement No. 123, Accounting for Stock Based Compensation (SFAS “123”)which allowed companies to either expense the estimated fair value of stockoptions or to follow the intrinsic value method set forth in Account PrinciplesBoard 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.  Intangible Assets**

Intangible assets,which include broadcasting licenses, network affiliation agreements, and otherintangibles, are carried on the basis of cost, less accumulated amortization.Cost is based upon appraisals performed at the time of acquisition. Broadcastlicenses are considered to have an indefinite life. Network affiliationagreements are amortized over 25 years, and other definite lived intangibleassets are amortized over 10 to 15 years.

The followingtable sets forth the summarized disclosures related to intangible assets:
| ** **                           | ** ** | **As of December 31, 2006** | ** ** | **As of March 31, 2007** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                           | ** ** | **(dollars in thousands)**            | ** ** |
| ** **                           | ** ** | **Gross**                                       | ** ** | ** **                                   | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                           | ** ** | **Carrying**                                    | ** ** | **Accumulated**                              | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                           | ** ** | **Amount**                                      | ** ** | **Amortization**                             | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| 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 |   | $ | (34,500 | ) | $ | 56,664 |   |
| Other intangible  assets             |       | 13,401                                          |       | (9,532                                       | )          | 3,869 |   | $ | 13,401 |   | $ | (9,864 | ) | $ | 3,537 |   |
|                                 |       | $                                               | 104,565    |                                         | $          | (43,315 | ) | $ | 61,250 |   | $ | 104,565 |   | $ | (44,364 | ) | $ | 60,201 |   |

Aggregate amortization expense for the three monthsended March 31, 2006 and 2007 was $1.1 million and $1.0 million, respectively.

It is the Company’spolicy to account for Network Affiliations and other definite-lived intangibleassets at the lower of amortized cost or estimated fair value. As part of anongoing review of the valuation and amortization of other intangible assets ofthe Company and its subsidiaries, management assesses the carrying value ofNetwork Affiliations and other definite-lived intangible assets if facts andcircumstances suggest that there may be impairment. If this review indicatesthat Network Affiliations and other definite-lived intangible assets will notbe recoverable as determined by a non-discounted cash flow analysis of the operatingassets over the remaining amortization period, the carrying value of otherintangible assets would be reduced to estimated fair value.

In June 2001, the FASB issued Statement of FinancialAccounting Standards No. 142, *Goodwill andOther Intangible Assets*(“SFAS 142”).  To assist the Company in evaluating itsintangible assets, the 

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Company utilized the service of an independentvaluation consulting firm.  FCC licensesare valued using 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 thediscounted cash flow models reflect historical station performance, industrystandards and trends in the respective markets. An analysis of the financial multiples for publicly-traded broadcastingcompanies, as well as a comparable sales analysis of television station sales,was also utilized to confirm the results of the income approach.  The Company adopted this methodology to valuebroadcast licenses as the Company believes this methodology has, in recentyears, become the methodology generally used within the broadcast industry tovalue FCC licenses.

If these estimates or related assumptions materiallychange in the future, the Company may be required to record impairment chargesnot previously recorded for these assets.

**4. Long —TermDebt**

On May 3, 2005,the Company (i) entered into an amended and restated senior credit facility and(ii) accepted for payment and paid for, in connection with a cash tender offerand consent solicitation commenced on April 11, 2005, all of its $246.9 millionoutstanding principal amount of 81⁄2% Senior Notes Due 2008.  The amended credit facility provides for a $300million term loan and a $20 million revolving credit facility.  The credit facility bears a floating interestrate, based upon LIBOR, which was 7.88% at March 31, 2007.  On May 3, 2005, the full amount of the term loanwas borrowed.  Approximately $278.0million of the proceeds of such term loan borrowing was used to pay fees andexpenses related to the amended credit facility and to finance the purchase ofthe Senior Notes in the tender offer, including the payment of relatedpremiums, accrued interest, fees and expenses. The balance of the term loan borrowing was used for workingcapital.  The term loan will mature in2012 and the revolving facility will mature in 2010.  TheCompany capitalized approximately $6.0 million of fees associated with the newterm loan and revolving credit facility.

On May 30, 2006,the Company entered into (i) the First Amendment (the “First Amendment”) to theSenior Credit Facility and (ii) the Increase Joinder (the “Increase Joinder”)to the Senior Credit Facility. The First Amendment effected certain amendments tothe Senior Credit Facility including, without limitation, (i) the reduction ofthe minimum amount of cash the Company must maintain from $35.0 million to$10.0 million and (ii) an increase of 0.25% to each of the Base Rate Margin andthe Eurodollar Margin (used in the calculation of interest rates payable by theCompany under the Senior Credit Facility). As a result of the margin increases, the Base Rate and the EurodollarRate margins are now equal to 1.50% and 2.50%, respectively.  The IncreaseJoinder 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 proceeds of the incremental termloan borrowing was used for working capital and to pay fees and expensesrelated to the incremental term loan and the First Amendment. The Companycapitalized approximately $1.4 million of fees associated with the incrementalterm loan and First Amendment.

The incrementalterm loan has the same terms and conditions as the term loans outstanding underthe Senior Credit Facility (as amended by the First Amendment) immediatelyprior to the incremental term loan borrowing.  Asof March 31, 2007, approximately $344.3 million was outstanding under the termloan portion of the Senior Credit Facility.

On May 3, 2005,the Company entered into an interest rate swap agreement for a notional amountof $71.0 million with a commercial bank who is also a lender under the seniorcredit facility.  The swap  expires on May 8, 2008.  Upon effectiveness, the Company began to paya fixed interest of 4.3425% and the Company receives interest from thecommercial bank, based upon a three month LIBOR rate.  It is the Company’s intention to ensure theinterest rate reset dates of the swap and the term loan will match over theterm 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.  TheCompany accounts for this agreement as a cash flow hedge under FASB StatementNo. 133, *Accounting for Derivative Instruments*

9

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*andHedging Activities,* and as such, the change in the fair valueof the interest rate swap is reported as a component of other comprehensiveincome (loss).  For the three monthsended March 31, 2007 a loss of approximately $188,000, was recorded in othercomprehensive income (loss).

Long-term debt atDecember 31, 2006 and March 31, 2007 consisted of the following:
| ** **                                            | ** ** | **12/31/06**            | ** ** | **3/31/07** | ** **            |
|-------------------------------------------------------|------------|-------------------------|------------|-------------|-----------------------|
| ** **                                            | ** ** | **(in thousands)** | ** ** |
| Senior Credit  Facility                               |       | $                       | 345,125    |        | $                     | 344,250 |   |
| 8 3⁄4% Senior  Subordinated Notes due 2014         |       | 140,000                 |       | 140,000     |                  |
| 10% Senior  Subordinated Notes due 2011               |       | 346,713                 | (1)        | 346,568     | (1)                   |
| Total Long Term  Debt                                 |       | $                       | 831,838    |        |    $830,818 |   |
| Less:                                                 |       |                    |       |        |                  |
| Scheduled  current maturities                         |       | (3,500                  | )          | (3,500      | )                     |
| Long term debt  excluding all current installments(2) |       | $                       | 828,338    |        | $                     | 827,318 |   |

----

(1)             Includes unamortizedpremium balances of $2.4 million and $2.3 million as of December 31, 2006 andMarch 31, 2007.

(2)             Excludescapital leases.

The Company’s Senior Subordinated Notes are general unsecured obligationsof the Company and subordinated in right of payment to all senior debt,including all indebtedness of the Company under the Senior Credit Facility. TheSenior Subordinated Notes are guaranteed, fully and unconditionally, and areguaranteed jointly and severally, on a senior subordinated unsecured basis byall of the Company’s wholly owned subsidiaries. The Company has no independent assets or operations, other than theequity in its subsidiaries.

**5. IncomeTaxes**

TheCompany adopted the provisions of FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN48), on January 1, 2007. FIN 48 clarifies the accounting and reporting foruncertainties in income tax law.

Asa result of the implementation of FIN 48, the Company recognized a $46,211 increasein its liability for income taxes, which was accounted for as a reduction tothe January 1, 2007 balance of retained earnings. As of the date of adoptionand after recognizing the increase in liability noted above, the Company’sunrecognized tax benefits totaled $3.1 million, all of which, if recognized,would affect the effective tax rate in future periods.

Interestand penalties related to income tax liabilities are included in income taxexpense. The Company had approximately $139,000 for the payment of interest andpenalties accrued at January 1, 2007 included in the unrecognized tax benefitof $2.1 million as discussed above.

Duringthe three months ended March 31, 2007, the Company recognized a benefit ofapproximately $96,000, primarily related to an increase in a refund from thesettlement of an income tax audit.

Whilethe Company does not anticipate any significant changes to the total amount ofincome tax liabilities within the next twelve months, there can be no assurancethat the outcomes from examinations will not have a significant impact onindividual tax positions of the Company.

With limited exceptions, the Company is no longer subject to U.S. federaland state and local income tax audits by taxing authorities for years throughDecember 31, 2002.

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At December 31, 2006, the Company had net operating loss (“NOL”)carryforwards for tax purposes of approximately $427.7 million expiring atvarious dates through 2026, for which a full valuation allowance has beenprovided.

With the adoption of the FASB issuedStatement No.142 , Goodwill and Other Intangible Assets (SFAS 142) the Companyno longer amortizes the book basis in the indefinite-lived intangibles, butcontinues to amortize these intangibles for tax purposes. Beginning with thefirst quarter of 2005, the Company started recording a deferred tax provisionfor the excess of book basis over tax basis of intangible assets, not expectedto reverse during the net operating loss carryforward period.  Income tax expense for the three months endedMarch 31, 2006 and 2007 primarily consists of deferred income taxes of $12.6million and $7.8 million, respectively, related to the increase in the Company’sdeferred tax liability for the tax effect of the difference between the bookand tax basis of the intangible assets not expected to reverse during the netoperating loss carryforward period.

The Company will have deferred taxliabilities that will arise each quarter because the taxable temporarydifferences related to the amortization of these assets will not reverse priorto the expiration period of the Company’s deductible temporary differencesunless the related assets are sold or an impairment of the assets is recorded.The Company expects that it will record a total of approximately $12.4 millionto increase deferred tax liabilities during the remaining nine months of 2007.

**6.Employee Benefit Plans**

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

The Company expects to contribute approximately$906,000 to the benefit plan in 2007.** **For the three months ended March 31, 2007 approximately $254,000 has beencontributed.

Components of the net periodic benefit plan wereas follows:
| ** **                                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                             | ** ** | **2007** | ** ** |
| Service cost                                                     |       | $                                                    | 10,550     |   | $ | 10,500 |   |
| Interest cost                                                    |       | 149,591                                              |       | 153,000 |   |
| Expected return of plan  assets                                  |       | (168,759                                             | )          | (177,250 | ) |
| Amortization  of the unrecognized obligation or transition asset |       | (3,459                                               | )          | — |   |
| Recognized  losses                                               |       | 34,638                                               |       | 34,500 |   |
| Net periodic cost                                                |       | $                                                    | 22,561     |   | $ | 20,750 |   |

**7. Commitments and Contingencies**

*NetworkAffiliation Agreements*

InSeptember 2005, the Company renewed its affiliations with ABC with respect toWKRN-TV, WTEN-TV, WRIC-TV, WATE-TV and WBAY-TV. The renewed ABC affiliations expire on December 31, 2009.   In September 2004, the Company renewed itsaffiliations with CBS with respect to WLNS-TV and KLFY-TV.  In March 2005 the Company renewed itsaffiliation with NBC with respect to KWQC-TV. The renewed CBS affiliations expire on September 30, 2012 and therenewed NBC affiliation expires on January 1, 2015.  In November 2006, the Company renewed itsaffiliation with CBS with respect to KELO-TV andits satellite stations (KCLO-TV, KDLO-TV and KPLO-TV) that expire on April 2,2015. Under the renewed ABC, CBS and NBC affiliations, the Company willbe receiving significantly less network compensation than it received from ABC,CBS and NBC under the expired agreements.

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On March 16, 2006, KRON-TV, which was previously anindependent station, entered into an affiliation agreement with MyNetworkTV.The MyNetworkTV affiliation agreement is for a term of five years commencingwith the 2006/2007 broadcast season. MyNetworkTV launched on September 5, 2006.

**8.Earnings Per Share**

Theweighted average number of shares outstanding during the period has been usedto calculate earnings per share.   Theoutstanding stock options and deferred stock units have not been included inthe computation of earnings per share because they would be anti-dilutive.

For thethree months ended March 31, 2007, common stock equivalents, consisting of608,575 shares of common stock underlying outstanding deferred stock units,have been excluded from the computation as they are anti-dilutive on the lossper share. For the three months ended March 31, 2006, common stock equivalents,consisting of 151,309 shares of common stock underlying outstanding deferredstock units, have been excluded in the computation as they are anti-dilutive onthe loss per share.   For the threemonths ended March 31, 2007 and 2006, there are no shares underlyingoutstanding stock options, since the exercise price of all previously grantedstock options was greater than the average market price of the common shares.

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

**FORWARD-LOOKING STATEMENTS**

**FORWARDLOOKING STATEMENTS ARE ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICALFACTS, INCLUDED IN THIS REPORT. THE FORWARD LOOKING STATEMENTS CONTAINED INTHIS REPORT CONCERN, AMONG OTHER THINGS, CERTAIN STATEMENTS UNDER “MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TOCHANGE BASED ON VARIOUS IMPORTANT FACTORS, INCLUDING THE IMPACT OF CHANGES INNATIONAL AND REGIONAL ECONOMIES, PRICING FLUCTUATIONS IN LOCAL AND NATIONALADVERTISING, VOLATILITY IN PROGRAMMING COSTS AND THE OTHER RISKS ANDUNCERTAINTIES DISCUSSED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDEDDECEMBER 31, 2006.**

**Introduction**

Management’sdiscussion and analysis of financial condition and results of operations (“MD&A”)is provided as a supplement to the accompanying consolidated financialstatements and footnotes to help provide an understanding of the Company’sfinancial condition, changes in financial condition and results ofoperations.  MD&A is organized asfollows:

***Overviewof our Business****—*This sectionprovides a general description of the Company’s business, as well as recentdevelopments that have occurred since December 31, 2006 that the Companybelieves are important in understanding the results of operations and financialcondition or to anticipate future trends.

***Resultsof Operations***— This section provides an analysis of theCompany’s results of operations for the three months ended March 31, 2007 and2006.  This analysis is presented on aconsolidated basis.  In addition, itprovides a brief description of significant transactions and events that impactthe comparability of the results being analyzed.

***Liquidityand Capital Resources***—******Thissection provides an analysis of the Company’s cash flows for the three monthsended March 31, 2007 and 2006.  Includedin the discussion of outstanding debt is a discussion of the amount offinancial capacity available to fund the Company’s future commitments, as wellas a discussion of other financing arrangements.

**Overviewof our Business**

The operatingrevenue of the Company’s stations is derived primarily from advertising revenueand, to a much lesser extent, from retransmission revenues from cable andsatellite operators and compensation paid by the networks to its affiliatedstations for broadcasting network programming.

Advertising issold for placement within and adjoining a station’s network and locallyoriginated programming.  Advertising issold in time increments and is priced primarily on the basis of a program’spopularity among the specific audience an advertiser desires to reach, asmeasured principally by periodic audience surveys.  In addition, advertising rates are affectedby the number of advertisers competing for the available time, the size anddemographic makeup of the market served by the station and the availability ofalternative advertising media in the market area. Rates are highest during themost desirable viewing hours, with corresponding reductions during otherhours.  The ratings of a local stationaffiliated with a national television network can be affected by ratings ofnetwork programming.

Most advertisingcontracts are short-term, and generally run only for a few weeks.Approximately 60% of the gross revenue of the Company’s stations for the threemonths ended March 31, 2007 was generated from local advertising, which is soldby a station’s sales staff directly to local accounts. The remainder of 

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the advertisingrevenue primarily represents national advertising, which is sold by the Company’swholly owned subsidiary, Adam Young Inc. (“AYI”), a national advertising salesrepresentative. The stations generally pay commissions to advertising agencies onlocal, regional and national advertising.

Expenditures byadvertisers tend to be cyclical, reflecting overall economic conditions, aswell as budgeting and buying patterns.  Adecline in the economic prospects of advertisers or the economy in general couldalter current or prospective advertisers’ spending priorities.  This could cause our revenues or operatingresults to decline significantly in any given period.

The advertisingrevenue of the Company’s stations are generally highest in the second and fourthquarters of each year, due in part to increases in consumer advertising in thespring and retail advertising in the period leading up to, and including, theholiday season. In addition, advertising revenue is generally higher duringeven numbered election years due to spending by political candidates, whichspending typically is heaviest during the fourth quarter.

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

**TelevisionRevenues**

Set forth beloware the principal types of television revenue received by the Company’sstations for the periods indicated and the percentage contribution of each tothe Company’s total revenue, as well as agency and national salesrepresentative commissions.
| ** **       | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2006**                                             | ** ** | ** ** | ** ** | **2007** | ** ** | ** ** | ** ** |
| ** **       | ** ** | **Amount**                                           | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **       | ** ** | **(dollars in thousands)**                 | ** ** |
| Revenues         |       |                                                 |       |   |   |   |   |   |   |
| Local            |       | $                                                    | 32,591     |   | 58.0 | % | $ | 32,474 |   | 59.6 | % |
| National         |       | 17,515                                               |       | 31.2 |   | 17,181 |   | 31.5 |   |
| Network          |       | 583                                                  |       | 1.0 |   | 582 |   | 1.1 |   |
| Political        |       | 1,242                                                |       | 2.2 |   | 518 |   | 1.0 |   |
| Barter           |       | 1,746                                                |       | 3.1 |   | 1,021 |   | 1.9 |   |
| Production/Other |       | 2,513                                                |       | 4.5 |   | 2,686 |   | 4.9 |   |
| Total            |       | 56,190                                               |       | 100.0 |   | 54,462 |   | 100.0 |   |
|             |       |                                                 |       |   |   |   |   |   |   |
| Commissions      |       | (7,804                                               | )          | (13.9 | ) | (7,615 | ) | 14.0 |   |
|             |       |                                                 |       |   |   |   |   |   |   |
| Net Revenue.     |       | $                                                    | 48,386     |   | 86.1 | % | $ | 46,847 |   | 86.0 | % |

 

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**Resultsof Operations**

***Three Months Ended March 31, 2007 Compared to Three Months Ended March31, 2006***

The following table sets forth the Company’s operating results for thethree months ended March 31, 2007 as compared to the three months ended March31, 2006.
| ** **                                           | ** ** | **For the three months ended March 31,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | **(in thousands)**                                                | ** ** |
| ** **                                           | ** ** | **2006**                                                               | ** ** | **2007** | ** ** | **Change** | ** ** | **%** | ** ** |
| ** **                                           | ** ** | ** **                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | **Change** | ** ** |
| Net revenue                                          |       | $                                                                      | 48,386     |   | $ | 46,847 |   | ($1,539 | ) | (3.2 | %) |
|                                                 |       |                                                                   |       |   |   |   |   |   |   |
| Operating  expenses, including SG&A              |       | 33,919                                                                 |       | 33,688 |   | (231 | ) | 0.7 |   |
| Amortization of  program license rights              |       | 6,855                                                                  |       | 6,070 |   | (785 | ) | 11.5 |   |
| Depreciation and  amortization                       |       | 4,793                                                                  |       | 4,297 |   | (496 | ) | 10.3 |   |
| Corporate  overhead, excluding depreciation expense  |       | 3,626                                                                  |       | 3,673 |   | 47 |   | 1.3 |   |
| Operating loss                                       |       | (807                                                                   | )          | (881 | ) | (74 | ) | 9.2 |   |
|                                                 |       |                                                                   |       |   |   |   |   |   |   |
| Interest  expense, net                               |       | (15,859                                                                | )          | (17,040 | ) | (1,181 | ) | (7.4 | ) |
| Other (expense)  income                              |       | (1,052                                                                 | )          | 305 |   | 1,357 |   | 129.0 |   |
|                                                 |       | (16,911                                                                | )          | (16,735 | ) | 176 |   | 1.0 |   |
|                                                 |       |                                                                   |       |   |   |   |   |   |   |
| Loss from  continuing operations before income taxes |       | (17,718                                                                | )          | (17,616 | ) | 102 |   | 1.0 |   |
|                                                 |       |                                                                   |       |   |   |   |   |   |   |
| Income tax  expense                                  |       | (12,917                                                                | )          | (7,756 | ) | 5,161 |   | 40.0 |   |
|                                                 |       |                                                                   |       |   |   |   |   |   |   |
| Net loss                                             |       | $                                                                      | (30,635    | ) | $ | (25,372 | ) | ($5,263 | ) | 17.2 | % |
|                                                 |       |                                                                   |       |   |   |   |   |   |   |
| Basic net loss  per common share                     |       | $                                                                      | (1.46      | ) | ($1.15 | ) |   |   |   |   |
| Basic shares used in  earnings per share calculation |       | 20,937,995                                                             |       | 22,046,603 |   |   |   |   |   |

 

Net Revenue includes: (i) cash and barter advertising revenues, net ofagency commissions; (ii) network compensation; and (iii) other revenues whichrepresent less than 5% of total revenues. Net revenue for the three months ended March 31, 2007 was $46.8 million,as compared to $48.4 million for the three months ended March 31, 2006, adecrease of $1.5 million or 3.2%.  Themajor components of, and changes to, net revenue were as follows:

·                  The Company’sgross local revenues for three months ended March 31, 2007 decreased by lessthan 1.0% compared to the three months ended March 31, 2006, and gross nationalrevenues for the three months ended March 31, 2007 were down 2.0% compared tothe prior year.  While gross localrevenues were down slightly year over year, local revenues were up at five ofthe ten stations.  While gross localrevenue was down slightly year over year, local revenues were up at five of theten stations for the three months ended March 31, 2007.  The three CBS affiliated stations benefitedfrom Superbowl revenue, which increased their local revenues year overyear.   Gross national revenues were downyear over year, due to decreased spending in several markets served by ourstations by various national accounts.

·                  Gross politicalrevenue for the three months ended March 31, 2007 was $518,000, as compared to$1.2 million for the three months ended March 31, 2006, a decrease ofapproximately $724,000.  During 2006,there were various local races at six of the ten stations, the most significantof 

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which were noted inMichigan, Iowa, South Dakota and San Francisco, with no such races occurringduring 2007.

·                  Barter revenuedecreased approximately $725,000 for the three months ended March 31,2007.  This decrease was due mainly to asignificant elimination of barter programming at one of the Company’s stations.

·                  Other revenueincreased approximately $173,000, due primarily to an increase in retransmissionconsent revenue of approximately $128,000 for the three months ended March 31,2007, which 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, theconsideration is based on the number of subscribers receiving the signals.

Operatingexpenses, including selling, general and administrative expenses, for the threemonths ended March 31, 2007 were $33.7 million as compared to $33.9 million forthe three months ended March 31, 2006, a decrease of $231,000, or 0.7%.  The major components and changes in operatingexpenses were as follows:

·                  Personnel costsdecreased approximately $576,000 year over year.  In conjunction with the Company’s costcutting initiatives which commenced in 2005, one of the Company’s stationsrecorded severance expense of approximately $322,000 during the first quarterof 2006, with no such expense recorded in the first quarter of 2007.  The remaining decrease is the result of thecontinued cost cutting initiatives and headcount reductions that have takenplace by the Company.

The following items acted to offset these changes;

·                  Included inselling, general and administrative expenses is non-cash compensation expenseof approximately $1.6 million for the three months ended March 31, 2007, ofwhich approximately $999,000 relates to restricted and deferred stockawards.  The remaining $566,000 ofnon-cash compensation relates to the Company’s matching contributions toeligible employees under its defined contribution plan.  This compares to non-cash compensation of approximately$1.0 million for the three months ended March 31, 2006, an increase ofapproximately $600,000.  This increase isdue primarily to the increased non-cash compensation expense associated withrestricted and deferred stock units awarded in June 2006.

Amortization of program license rights for the three months ended March31, 2007 was $6.1 million, compared to $6.9 million for the three months endedMarch 31, 2006, a decrease of $785,000, or 11.5%.  The decrease for the three months ended March31, 2007 was due to a programming write-down recorded at one of the Company’sstations which was taken during the third quarter in 2006, which reduced theprograms future amortization expense.

Depreciation of property and equipment and amortization of intangibleassets was $4.3 million for the three months ended March 31, 2007 as comparedto $4.8 million for the three months ended March 31, 2006, a decrease of$496,000 or 10.3%.  The decrease is dueprimarily to various furniture, fixtures and computers at two of the Company’sstations becoming fully depreciated during the second quarter of 2006.

Corporate Overhead for the three months ended March 31, 2007 was $3.7million as compared to $3.6 million for the three months ended March 31, 2006,an increase of 47,000, or 1.3%.  Themajor components and changes in corporate expenses were as follows:

·                  Personnel costswere up approximately $260,000, due in part to the mark to market of the assetsheld in the executive deferred compensation plan of approximately $251,000 forthe three months ended March 31, 2007 as compared to the mark to market of thedeferred compensation plan of approximately $98,000 for the three months endedMarch 31, 2006.  The remaining increaseis due to standard inflationary and contractual salary increases.

Thefollowing acted to offset the increase:

·                  Travel expenseswere down approximately $71,000, due primarily to expenses associated with asales meeting that occurred during the first quarter of 2006, with no suchmeeting or expenses occurring during the first quarter of 2007.

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·                  Professionalfees were down approximately $114,000 during the first quarter of 2007 due toan overall reduction in expenses relating to the Company’s continued review andcompliance with corporate governance legislation.

Interestexpense for the three months ended March 31, 2007 was $17.0 million, comparedto $15.9 million for the same period in 2006, an increase of $1.2 million, or7.4%.   The Company received a payment onits interest rate swaps of approximately $187,398 for the three months endedMarch 31, 2007, respectively, which was recorded as a reduction of interestexpense.  In May 2006, the Company requestedan incremental term loan of $50.0 million under the Senior Credit Facilitythrough an Increase Joinder. Furthermore, the Senior Credit Facility and incremental term loan bearsvarious floating interest rates, based upon LIBOR, of 7.88% at March 31, 2007,as compared to rates ranging from 7.0% to 7.25% at March 31, 2006, thusincreasing interest expense for the first quarter of 2007.

Other expense decreased approximately $1.4 million.  During the first quarter of 2006, the Companyrecorded its share of losses of approximately $1.2 million on its equityinvestments in third parties for tower agreements.  This compares to earnings of approximately$47,000 recorded by the Company on its equity investments for the first quarterof 2007.  The remaining decrease relatesprimarily to the gain recorded by the Company of approximately $251,000 duringthe first quarter of 2007 for the mark to market of the executive deferredcompensation plan, as compared to the mark to market of the deferredcompensation plan of approximately $98,000 for the three months ended March 31,2006.

TheCompany recorded an income tax provision of $7.8 million and $12.9 million forthe three months ended March 31, 2007 and 2006, respectively.  This provision includes a deferred tax liabilityof $7.8 million and $12.6 million for the taxable temporary difference relatedto the amortization of the Company’s indefinite-lived intangible assets for2007 and 2006, respectively, which continues to be amortized for tax purposes.

As a result of the above-discussed factors, the net loss for theCompany was $25.4 million for the three months ended March 31, 2007, comparedto a net loss of $30.6 million for the three months ended March 31, 2006, achange of $5.3 million, or 17.2%.

**Liquidity and Capital Resources**

CurrentFinancial Condition

Thefollowing tables present certain data that the Company believes is helpful inevaluating the Company’s liquidity and capital resources (in thousands).
| ** **                                 | ** ** | **Three Months Ended 31,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                  | ** ** | **2007** | ** ** |
| Net cash provided  by (used in):           |       |                                      |       |   |   |
| Operating  activities                      |       | $                                         | (20,549    | ) | $ | (24,116 | ) |
| Investing  activities                      |       | (939                                      | )          | 7,815 |   |
| Financing  activities                      |       | (767                                      | )          | (884 | ) |
| Net decrease in cash  and cash equivalents |       | $                                         | (22,255    | ) | $ | (17,185 | ) |

 
| ** **                                 | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                 | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| Cash and cash  equivalents                 |       | $                     | 66,546     |               | $          | 49,361 |   |
| Short-term  commercial paper               |       | $                     | 39,790     |               | $          | 30,387 |   |
| Long-term debt,  including current portion |       | $                     | 831,859    |               | $          | 830,832 |   |
| Available under senior  credit agreement   |       | $                     | 20,000     |               | $          | 20,000 |   |

 

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TheCompany’s cash flow is highly dependent upon the state of the advertisingmarket and public acceptance of television programming.  Any significant decline in the advertisingmarket or performance of the television programming could adversely impact theCompany’s cash flow from operations.

Theperformance of KRON-TV has a large impact on the Company’s operatingresults.  Consequently, the Company isparticularly susceptible to economic conditions in the San Franciscoadvertising market.  The Company’s operatingresults have been adversely affected by a slower than expected recovery in theSan Francisco market.

TheCompany has renewed its affiliations with ABC with respect to WKRN-TV, WTEN-TV,WRIC-TV, WATE-TV and WBAY-TV, with CBS with respect to WLNS-TV, KLFY-TV andKELO-TV and its satellite stations (KCLO-TV, KDLO-TV and KPLO-TV) and with NBCwith 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 CBS affiliationfor KELO-TV and its satellite stations expire on April 2, 2015 and the renewedNBC affiliation expires on January 1, 2015. Under the renewed ABC, CBS and NBC affiliations, the Company will bereceiving significantly less network compensation than it received from ABC,CBS and NBC under the prior agreements.

Theprincipal uses of cash that affect the Company’s liquidity position include thefollowing: the acquisition of and payments under programming rights forentertainment and sporting events, capital and operational expenditures andinterest payments on the Company’s debt. 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.

**Sourcesand Uses of Cash**

*OperatingActivities*

Netcash used in operating activities for the three months ended March 31, 2007 and2006 was $24.1 million and $20.5 million, respectively.  The reduction of cash from operatingactivities for the three months ended March 31, 2007 was due primarily to thefollowing factors:

·                  Accruedexpenses and other liabilities decreased approximately $15.4 million fromDecember 31, 2006.  Approximately $11.8million of the decrease relates to interest payments on the Company’s 8.75% and10% Senior Subordinated Notes as well as the Company’s Senior Credit Facility,offset slightly by interest accruals made during the first quarter of 2007.Furthermore, approximately $3.0 million relates to a decrease in the accruedsalaries and wages, including bonuses, which were paid out during the firstquarter of 2007, which was accrued for at December 31, 2006.

·                  TheCompany made approximately $6.8 million of payments on its programmingliabilities for the three months ended March 31, 2007, compared to payments onits program liabilities of approximately $6.7 million from the three monthsended March 31, 2006.

Thefollowing item partially offset the above reductions:

·                  Accountsreceivable decreased by approximately $5.5 million and $5.8 million for thethree months ended March 31, 2007 and 2006, respectively.  Historically, revenues are lower in the firstquarter of the year for television broadcasters compared to the fourth quarter,due in part to increases in retail advertising in the fourth quarter leading upto and including the holiday season and a subsequent decrease in accountsreceivable balances in the first quarter of the succeeding year.

*Investing Activities*

Cash provided byinvesting activities for the three months ended March 31, 2007 wasapproximately $7.8 million, compared to cash used in investing activities forthe three months ended March 31, 2006 of $939,000. The following changes ininvesting activities were noted:

·                  Capitalexpenditures for the three months ended March 31, 2007 of approximately $1.8million was higher than capital expenditures of $938,000 for the three monthsended March 31, 2006.

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·                  Purchasesof short-term commercial paper was $30.1 million for the three months endedMarch 31, 2007, while maturities of short-term commercial paper was $40.0million for the three months ended March 31, 2007.  There were no funds invested in short termcommercial paper for the three months ended March 31, 2006.

*Financing Activities*

Cash used infinancing activities for the three months ended March 31, 2007 and 2006 was$884,000 and $767,000, respectively. The following changes in financingactivities were noted:

·                  TheCompany made payments under capital lease obligations of approximately $7,705and $16,836 for the three months ended March 31, 2007 and 2006, respectively.

·                  Additionally,the Company made a principal repayment of $875,000 and $750,000 on its SeniorCredit Facility during the three months ended March 31, 2007 and 2006,respectively.

**DebtInstruments, Guarantees and Related Covenants**

OnMay 3, 2005, the Company amended and restated its senior credit facility (asamended, the “Senior Credit Facility”). The Senior Credit Facility consists of(i) a term loan in 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 million of the term loan was borrowed.  Approximately $278.0 million of the proceedsof the term loan borrowing were used to finance the purchase by the Company ofall of its $246.9 million outstanding principal amount of 81⁄2% Senior Notes due2008 pursuant to the cash tender offer and consent solicitation commenced onApril 11, 2005.  The balance of the termloan borrowing will be used for working capital.  The Company pays an annual commitment fee atthe rate of 0.5% per annum of the unused available borrowings under therevolving credit portion of the Senior Credit Facility.  The Company capitalized approximately $6.0million of fees associated with the new term loan and revolving credit facility.

On May 3, 2005,the Company entered into an interest rate swap agreement for a notional amountof $71.0 million with a financial institution who is also a lender under theSenior Credit Facility.  The swap expireson May 8, 2008.  The Company began to paya fixed interest of 4.3425% and the Company receives interest from the financial institution, based upon a threemonth LIBOR rate.  It is the Company’sintention to ensure the interest rate reset dates of the swap and the termloan  under the Senior Credit Facilitywill match over the term of the swap, and therefore the changes in the fairvalue of the interest-rate swap are expected to significantly offset changes inthe cash flows of the floating rate debt. The Company accounts for this agreement as a cash flow hedge under FASBStatement No. 133, Accounting for Derivative Instruments and hedging activitiesand as such, the change in the fair value of the interest rate swap is reportedas a component of other comprehensive loss. For the quarter ended March 31, 2007, a loss of approximately $188,000was recorded in other comprehensive income (loss).

On May 30, 2006, the Company entered into (i) theFirst Amendment (the “First Amendment”) to the Senior Credit Facility and (ii)the Increase Joinder (the “Increase Joinder”) to the Senior Credit Facility.The First Amendment effected certain amendments to the Senior Credit Facilityincluding, without limitation, (i) the reduction of the minimum amount of cashthe 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 ofthe margin increases, the Base Rate and the Eurodollar Rate margins are nowequal to 1.50% and 2.50%, respectively.   The Increase Joinderprovided for a $50.0 million incremental term loan under the Senior CreditFacility.  The full  $50.0 million of the incremental term loanwas borrowed 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.

AtMarch 31, 2007, approximately $344.3 million was outstanding under the termloan and the full $20.0 million was available under the revolvingfacility.  The Senior Credit Facilityprovides, at the option of 

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theCompany, that borrowed funds bear interest based upon the London InterbankOffered Rate (“LIBOR”)” or “Base Rate.” In addition to the index rate, the Company pays a fixed incrementalpercentage at 1.25% with the Base Rate and 2.25% with LIBOR.  At March 31, 2007, the Company was payinginterest based on LIBOR, and the overall rate was approximately 7.88%.  Each of the Company’s subsidiaries hasguaranteed the Company’s obligations under the Senior Credit Facility. TheSenior Credit Facility is secured by the pledge of all the capital stock of theCompany’s subsidiaries and a first priority lien on all of the assets of theCompany and its subsidiaries. The Senior Credit Facility requires the Companyto maintain a cash and short-term investment balance of at least $10.0 million.The other covenants contained in the Senior Credit Facility are substantiallysimilar to the covenants contained in the indentures governing the Company’ssenior subordinated notes. At March 31, 2007, the Company was in compliancewith all covenants contained under the credit facility.

The following is a summary of our outstanding indebtedness (in thousands)and related annualized interest payments that is recorded during theperiod.  Debt amounts outstanding atDecember 31, 2006 and March 31, 2007 were as follows:

|                                               | ** ** | ** **   | ** ** | ** **  | ** ** | **Annualized**                 | ** ** |
|-----------------------------------------------|------------|--------------|------------|-------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **12/31/06** | ** ** | **3/31/07** | ** ** | **Interest Payments**((1) | ** ** |
| Senior Credit  Facility                       |       | $            | 345,125    |        | $          | 344,250                        |       | $ | 27,110 |   |
| 8 3⁄4% Senior  Subordinated Notes due 2014 |       | 140,000      |       | 140,000     |       | 12,250                         |       |
| 10% Senior  Subordinated Notes due 2011       |       | 346,713      | (2)        | 346,568     | (2)        | 34,429                         |       |
|  Total Debt (excluding capital leases)   |       | $            | 831,838    |        | $          | 830,818                        |       | $ | 73,789 |   |

 

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(1)The annualized interest payments are calculatedbased on the outstanding principalamounts at March 31, 2007, multiplied by theinterest rates of the related notes.  Theannualized interest payments on the Senior Credit Facility takes into accountthe quarterly principal payments of $875,000.

(2) Includes an unamortized premium balance of $2.4million and $2.3 million as of December 31, 2006 and March 31, 2007,respectively.

The Company’stotal debt at March 31, 2007 was approximately $830.8 million, consisting of$344.3 million under the term loan portion of the Senior Credit Facility,$484.3 million of Senior Subordinated Notes, $2.3 million of bond premiums and$14,000 of capital leases. In addition, at March 31, 2007, the Company had anadditional $20.0 million of unused available borrowings under the Senior CreditFacility.

It is anticipatedthat the Company will be able to meet the working capital needs of itsstations, scheduled principal and interest payments under the Company’s SeniorCredit Facility and Senior Subordinated Notes, corporate overhead costs andcapital expenditures, from cash on hand ($49.4 million at March 31, 2007),funds invested in short-term commercial paper, cash flows from operations andfunds available under the Senior Credit Facility ($20.0 million at March 31,2007).

**Income Taxes**

TheCompany adopted the provisions of FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN48), on January 1, 2007. FIN 48 clarifies the accounting and reporting foruncertainties in income tax law.

Asa result of the implementation of FIN 48, the Company recognized a $46,211increase in its liability for income taxes, which was accounted for as areduction to the January 1, 2007 balance of retained earnings. As of the dateof adoption and after recognizing the increase in liability noted above, theCompany’s unrecognized tax benefits totaled $3.1 million, all of which, ifrecognized, would affect the effective tax rate in future periods.

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Interestand penalties related to income tax liabilities are included in income taxexpense. The Company had approximately $139,000 for the payment of interest andpenalties accrued at January 1, 2007 included in the unrecognized tax benefitof $2.1 million as discussed above.

Duringthe three months ended March 31, 2007, the Company recognized a benefit of approximately$96,000, primarily related to an increase in a refund from the settlement of anincome tax audit.

Whilethe Company does not anticipate any significant changes to the total amount ofincome tax liabilities within the next twelve months, there can be no assurancethat the outcomes from examinations will not have a significant impact onindividual tax positions of the Company.

Withlimited exceptions, the Company is no longer subject to U.S. federal and stateand local income tax audits by taxing authorities for years through December31, 2002.

At December 31, 2006, the Company had netoperating loss (“NOL”) carryforwards for tax purposes of approximately $427.7million expiring at various dates through 2026, for which a full valuationallowance has been provided.

With the adoption of the FASB issued StatementNo.142 , *Goodwill and Other Intangible Assets*(SFAS 142) the Company no longer amortizes the book basis in theindefinite-lived intangibles, but continues to amortize these intangibles fortax purposes. Beginning with the first quarter of 2005, the Company startedrecording a deferred tax provision for the excess of book basis over tax basisof intangible assets, not expected to reverse during the net operating losscarryforward period.  Income tax expensefor the three months ended March 31, 2007 primarily consists of deferred income taxes of $7.8million related to the increase in the Company’s deferred tax liability for thetax effect of the difference between the book and tax basis of the intangibleassets not expected to reverse during the net operating loss carryforwardperiod.

The Company will have deferred tax liabilities that will arise each quarterbecause the taxable temporary differences related to the amortization of theseassets will not reverse prior to the expiration period of the Company sdeductible temporary differences unless the related assets are sold or animpairment of the assets is recorded. The Company expects that it will record atotal of approximately $12.4 million to increase deferred tax liabilitiesduring the remaining nine months of 2007.

**Impact of Recently Issued Accounting Standards**

InFebruary 2007, the Financial Accounting Standards Board (FASB) issued FASBStatement No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (SFAS 159). SFAS 159 iseffective for fiscal years beginning after November 15, 2007.

Thenew Statement allows entities to choose, at specified election dates, tomeasure eligible financial assets and liabilities at fair value that are nototherwise required to be measured at fair value. If a company elects the fairvalue option for an eligible item, changes in that item’s fair value insubsequent reporting periods must be recognized in current earnings. SFAS 159also establishes presentation and disclosure requirements designed to drawcomparison between entities that elect different measurement attributes forsimilar assets and liabilities. The Company is currently evaluating theprovisions of SFAS 159 to determine the potential impact, if any, the adoptionwill have on the Company’s financial statements.

**Item 3**. ***Quantitativeand Qualitative Disclosure About Market Risk.***

TheCompany’s Senior Credit Facility, with $344.3 million outstanding as of March31, 2007, bears interest at floating rates. Accordingly, to the extent thereare amounts outstanding under the Senior Credit Facility, we are exposed topotential losses related to changes in interest rates.

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TheCompany’s Senior Subordinated Notes of approximately $484.3 million outstandingprincipal amount as of March 31, 2007 are general unsecured obligations of theCompany and are subordinated in right of payment to all senior debt, includingall indebtedness of the Company under the Senior Credit Facility. The 83⁄4%Senior Subordinated Notes, $140.0 million of which is outstanding, mature in2014.  The 10% Senior Subordinated Notes,$344.3 million of which is outstanding, mature in 2011. The annualized interestexpense on the outstanding Senior Subordinated Notes is approximately $46.7 million.

The Company doesnot enter into derivatives or other financial instruments for trading orspeculative purposes; however, in order to manage its exposure to interest raterisk, the Company enters into derivative financial instruments.   On May 3, 2005 the Company entered into aninterest rate swap agreement for a notional amount of $71.0 million.  The swap expires on May 8, 2008.  The Company accounts for this agreement usinghedge accounting under FAS 133, and as such the change in the fair value of theinterest rate swap is reported as a component of other comprehensive income(loss).

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**Item 4. *Controls and Procedures***

Underthe supervision and with participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we conducted an evaluation ofour disclosure controls and procedures (as defined in Rule 13a-15(e)promulgated under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of the end of the period covered by this quarterly report.  Based on this evaluation our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of March 31, 2007. There has not been any change in our internal control over FinancialReporting (as defined in Rule 13(a)-15(f) under the Exchange Act) during thequarter ended March 31, 2007 that has materially affected, or is reasonablylikely to materially affect our controls over financial reporting.

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**PARTII.  OTHER INFORMATION**

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

The Company isinvolved in legal proceedings and litigation arising in the ordinary course ofbusiness. In the Company’s opinion, the outcome of such proceedings andlitigation currently pending will not materially affect the Company’s financialcondition or results of operations.

**Item1A.  *RiskFactors***

Therehave been no material changes in the Company’s risk factors from thosedisclosed in the Company’s annual report on Form 10-K for the year endedDecember 31, 2006.
| ***Item 2.  Unregistered Sales of Equity  Securities and Use of Proceeds*** |
|---------------------------------------------------------------------------------------|
| *** ***                                                                          |
| None.                                                                                 |
|                                                                                  |
| ***Item  3.  Defaults Upon Senior Securities***                             |
| *** ***                                                                          |
| None.                                                                                 |
|                                                                                  |
| ***Item  4.  Submission of Matters to a Vote of Security Holders***         |
| *** ***                                                                          |
| None.                                                                                 |
|                                                                                  |
| ***Item  5.  Other Information***                                           |
| *** ***                                                                          |
| Not Applicable.                                                                       |
|                                                                                  |
| ***Item  6.  Exhibits***                                                    |
| *** ***                                                                          |
| *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**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                              |   |   | YOUNG BROADCASTING INC. |                          |   |
|------------------------------|--------|--------|-------------------------|-------------------------------|--------|
| Date:  May 8, 2007 |   |   |                    |                          |   |   |
|                         |   |   |                    |                          |   |   |
|                         |   |   | By:                     |  /s/ Vincent J. Young    |
|                         |   |   |                    | Vincent J. Young              |   |   |
|                         |   |   |                    | Chairman                      |   |   |
|                         |   |   |                    |                          |   |   |
|                         |   |   |                    |                          |   |   |
| Date:  May 8, 2007 |   |   | By:                     |  /s/ James A. Morgan     |
|                         |   |   |                    | James A. Morgan               |   |   |
|                         |   |   |                    | Executive Vice President and  |   |   |
|                         |   |   |                    | Chief Financial Officer       |   |   |
|                         |   |   |                    | (principal financial officer) |   |   |

 

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