Organization of Information

Management's Discussion and Analysis provides a narrative on our financial performance and condition that should be read in conjunction with the accompanying condensed consolidated financial statements. It includes the following sections:

†          Forward-Looking Statements

†          Executive Summary

†          Results of Operations

†          Liquidity and Capital Resources

Forward-Looking Statements

This report includes or incorporates forward-looking statements. We base these forward-looking statements on our current expectations and projections about future events. These forward-looking statements generally can be identified by the use of statements that include words and/or phrases such as "anticipate", "will", "may", "likely", "plan", "believe", "expect", "intend", "project", "forecast" or other such similar words and/or phrases. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this report, concerning, among other things, trends and projections involving revenue, income, earnings, cash flow, liquidity, operating expenses, assets, liabilities, capital expenditures, dividends and capital structure, involve risks and uncertainties, and are subject to change based on various important factors. Those factors include the impact on our operations from

†          Changes in national and regional economies;

†          Changes in advertising trends and our advertisers' financial
condition;

†          Our ability to service and refinance our outstanding debt and meet

† Ability of Hearst to commence and complete the Offer, the terms and conditions on which the proposed Offer is made and developments regarding the proposed Offer;

† Impact of the announcement of the proposed Offer on our business generally, including relationships with customers, suppliers and employees;

† Competition for audience, programming and advertisers in the broadcast television markets we serve;

†          Pricing fluctuations in local and national advertising;

†          Changes in Federal regulations that affect us, including changes in
Federal communications laws or regulations;

†          Local regulatory actions and conditions in the areas in which our
stations operate;

†          Our ability to obtain quality programming for our television
stations;

†          Successful integration of television stations we acquire;

†          Volatility in programming costs, industry consolidation,

† Potential adverse effects if we are required to recognize impairment charges or other accounting-related developments.

For a discussion of additional risk factors that are particular to our business, please refer to the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the "2008 10-K"), as well as the risk factors included in Part II, Item 1A. of this report. These and other matters we discuss in this report, or in the documents we incorporate by reference into this report, may cause actual results to differ from those we describe. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

Hearst-Argyle Television, Inc. and its subsidiaries (hereafter "we" or the "Company") own and operate 26 network-affiliated television stations. Additionally, we provide management services to two network-affiliated stations, one independent television station and two radio stations owned by The Hearst Corporation ("Hearst") in exchange for management fees. We seek to attract our television audience by providing compelling content on multiple media

platforms. We provide leading local news programming and popular network and syndicated programs at each of our television stations, 20 of which are in the top 50 U.S. television markets. We also own 39 websites and currently multicast digital channels in addition to their main digital channel at 24 of our stations, which feature 24-hour weather and entertainment programming. We stream a portion of our television programming, including our news and weather forecasts, and we publish community information, user-generated content and entertainment content on our stations' websites. We also have a companion mobile ("WAP") site for 25 of our markets. We believe that aligning our content offerings with audience media consumption patterns in this manner ultimately benefits our advertisers. Our advertisers benefit from a variety of marketing opportunities, including traditional spot campaigns, community events and sponsorships at our television stations, as well as on our stations' Internet and/or mobile websites, enabling them to reach our audience in multiple ways.

Events and Other Factors Occurring During the Quarter

† The United States and global economies are currently in a recession and undergoing a period of economic uncertainty, and the related capital markets are experiencing significant disruption. In certain of the local markets in which our stations operate there has been a weakening in the economic climate due to the housing market slump, subprime mortgage issues and tightening of credit markets resulting in pressure on employment, retail sales and consumer confidence. The resulting economic recession has impacted the automotive industry, which historically has been our largest advertising category, particularly hard. In addition to the weakness in automotive, financial, retail, furniture, movies, health services and consumer packaged goods advertising categories were also impacted in the first quarter of 2009. We have responded to this weakness in advertising with cost cutting efforts throughout the Company.

† On March 25, 2009, Hearst Broadcasting, Inc. ("Broadcasting"), an indirect wholly-owned subsidiary of The Hearst Corporation ("Hearst"), announced its intentions to launch a tender offer to acquire the outstanding shares of the Company's Series A Common Stock that it did not already own for $4.00 per share (the "Offer"). On March 26, 2009, our Board of Directors appointed a special committee of directors unaffiliated with Hearst (the "Special Committee") to consider the Offer and make a recommendation to the Company's shareholders, other than Hearst. The Special Committee has engaged outside legal counsel and an independent financial advisor to advise it with respect to the Offer. On April 27, Hearst announced that it intended to increase the tender offer price to $4.50 per share. The Company recognized nominal expenses related to the Offer for the three months ended March 31, 2009. Total payments to outside advisors related to the offer could be approximately $4.0 million. In connection with the announcement, several lawsuits have been filed. See further detail in the Legal Proceeding Section in Part II. Item 1 of this report.

† During the first quarter of 2008, we reached a final settlement with our insurance carriers related to lost property, increased expenses and interrupted business at WDSU-TV in New Orleans, Louisiana, resulting from Hurricane Katrina in 2005. We received $11.5 million in the first quarter of 2008 bringing total recoveries to $16.5 million, net of deductibles, given the receipt of an advance payment of $5.0 million in the fourth quarter of 2006. The $11.5 million received in the first quarter of 2008 was recorded as an offset to Station Operating Expenses. The after-tax first quarter 2008 effect of the insurance settlement was a $9.3 million increase in net income.

Economic and Industry Trends

† The duration of the economic recession is unknown at this time, as is the ongoing effect on certain local market economies. Our operating results may continue to be negatively impacted throughout the duration of the recession. Were our results to continue to be negatively impacted there is no assurance that we would be able to maintain technical covenant compliance over the next 12 months without further corrective action by the Company or by amendment or replacement of certain existing agreements.

† Pursuant to the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") and the FCC's "must carry" regulations, cable operators are generally required to devote up to one-third of their activated channel capacity to the carriage of the analog signal of local commercial television stations. On a cable system-by-cable system basis, a local television broadcast station must choose once every three years whether to waive the right to mandatory, but uncompensated, carriage and, instead, to negotiate a grant of retransmission consent. For the period from January 1, 2009 to December 31, 2011, we have opted to

negotiate retransmission consent with most of the cable systems that carry our stations. During 2008, we concluded retransmission consent agreements with a majority of our cable systems as measured by subscriber base. Executed agreements have led to an increase in retransmission revenues in 2009.

† The Satellite Home Viewer Improvement Act of 1999 ("SHVIA") established a compulsory copyright licensing system for the distribution of local television station signals by direct broadcast satellite systems to viewers in each DMA. Under SHVIA's "carry-one, carry-all" provision, a direct broadcast satellite system generally is required to retransmit the analog signal of all local television stations in a DMA if the system chooses to retransmit the analog signal of any local television station in that DMA. Television stations located in markets in which satellite carriage of local stations is offered may elect mandatory carriage or retransmission consent once every three years. We have opted to negotiate retransmission consent for all of the satellite systems that carry our stations for the period from January 1, 2009 to December 31, 2011, and we already have existing agreements in place with the satellite systems.

† In 2006 Sprint Nextel Corporation ("Nextel") was granted the right from the FCC to claim from broadcasters in each market across the country the
1.9 GHz spectrum to use for an emergency communications system. In order to reclaim this signal, Nextel must replace all analog equipment currently using this spectrum with digital equipment. All broadcasters have agreed to use the digital substitute that Nextel will provide. The transition will be completed on a market-by-market basis. During the three months ended March 31, 2009, we recorded $1.3 million of gains which primarily represents the difference between the fair market value of the equipment we received and the book value of the analog equipment we exchanged in two of our markets. The gain is reflected as an offset to Salaries, benefits and other operating costs. As the equipment is exchanged in our remaining markets, we expect to record additional gains.

† The Federal Communications Commission ("FCC") has permitted broadcast television station licensees to use their digital spectrum for a wide variety of services such as high-definition television programming, audio, data and other types of communication, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current analog channel. We currently have multicast channels broadcasting weather programs, an additional network affiliation and movie channels. Numerous other multicast opportunities are being reviewed. We have also affiliated with the Open Mobile Video Coalition, which contemplates launching a mobile video service using a portion of available digital spectrum. We continue to explore alternative uses of our digital spectrum.

† Legislation that guides the transition from analog to digital television broadcasting included a deadline of February 17, 2009 for completion of the transition to digital broadcasting and the return of the analog spectrum to the government. As a result, we accelerated the depreciation of certain equipment that may have a shorter useful life as a result of the digital conversion. The DTV deadline has been delayed to June 12, 2009.

† Compensation from networks to their affiliates in exchange for broadcasting of network programming has been sharply reduced in recent years and is expected to be eliminated in the future. Our affiliation agreements with ABC and NBC expire on December 31, 2009. We will be negotiating renewal agreements during 2009, and renewal terms are not presently known.

Results of Operations

Results of operations for the three months ended March 31, 2009 and 2008 include the results of our 26 television stations, which were owned for the entire period presented, and the management fees derived by the three television and two radio stations managed by us for the entire period presented.

Three Months Ended March 31, 2009

Compared to Three Months Ended March 31, 2008



                                       For the three months ended March 31,
                                           2009                    2008             $ Change     % Change
                                                  (In thousands)
Total revenue                       $           133,841     $           165,053    $  (31,212 )      -18.9 %
Station operating expenses:
Salaries, benefits and other
operating costs                                  94,137                 104,128    $   (9,991 )       -9.6 %
Amortization of program rights                   18,622                  18,712    $      (90 )       -0.5 %
Depreciation and amortization                    13,810                  14,052    $     (242 )       -1.7 %
Insurance settlement                                  -                 (11,549 )  $   11,549       -100.0 %
Corporate, general and
administrative expenses                           8,879                   8,716    $      163          1.9 %
Operating income                                 (1,607 )                30,994    $  (32,601 )     -105.2 %

Interest expense                                  9,805                  12,883    $   (3,078 )      -23.9 %
Interest income                                       -                     (19 )  $       19       -100.0 %
Interest expense, net - Capital
Trust                                                 -                   2,438    $   (2,438 )     -100.0 %
Income before income taxes and
equity earnings                                 (11,412 )                15,692    $  (27,104 )     -172.7 %

Income tax expense                               (2,782 )                 4,290    $   (7,072 )     -164.8 %
Equity in loss (income) of
affiliates, net of tax                              685                   1,362    $     (677 )      -49.7 %
Net income                          $            (9,315 )   $            10,040    $  (19,355 )     -192.8 %

Total revenue. Total revenue includes:
(i) cash advertising revenue, net of agency and national representatives' commissions;
(ii) retransmission consent revenue;
(iii) net digital media revenue, which includes primarily Internet advertising revenue and, to a lesser extent, revenue from advertising on multicast channels;
(iv) network compensation; and
(v) other revenue, primarily barter and trade revenue and management fees earned from Hearst.

                                       For the three months ended March 31,
                                           2009                    2008             $ Change     % Change
                                                  (In thousands)
Net local and national ad
revenue (excluding political)       $           106,755     $           132,877    $  (26,122 )      -19.7 %
Net political revenue                               756                   9,602        (8,846 )      -92.1 %
Retransmission consent revenue                   12,416                   6,276         6,140         97.8 %
Barter and trade revenue                          5,566                   6,247          (681 )      -10.9 %
Net digital media revenue                         4,036                   4,892          (856 )      -17.5 %
Network compensation                              1,525                   2,176          (651 )      -29.9 %
Other revenue                                     2,787                   2,983          (196 )       -6.6 %
Total revenue                       $           133,841     $           165,053    $  (31,212 )      -18.9 %

Total revenue in the three months ended March 31, 2009 was $133.8 million as compared to $165.1 million in the three months ended March 31, 2008, a decrease of $31.2 million or 18.9%. This decrease was primarily attributable to the following factors:

(i) a $26.1 million decrease in net non-political local and national advertising due to the economic downturn impacting our largest markets, which resulted in declines in the automotive, financial, retail, furniture, movies, health services and consumer packaged goods categories;
(ii) an $8.8 million decrease in net political revenues;
(iii) an $0.9 million decrease in net digital media revenues; partially offset by
(iv) a $6.1 million increase in retransmission consent revenue related to the renegotiated retransmission agreements.

Salaries, benefits and other operating costs. During the three months ended March 31, 2009, salaries, benefits and other operating costs ("SB&O") were $94.1 million, as compared to $104.1 million in the three months ended March 31, 2008, a decrease of $9.9 million or 9.6%. This decrease was primarily due to:

(i) a decrease of $3.0 million in payroll expenses, primarily related to a decrease in news personnel in a non- election year and cost cutting efforts;
(ii) $1.3 million in gains recognized as a result of the Nextel equipment exchange;
(iii) a decrease of $1.1 million in news expense related to reduced demands in an off-election and non-Olympic year; and
(iv) general cost cutting efforts.

Amortization of program rights. Amortization of program rights was relatively flat at $18.6 million in the three months ended March 31, 2009, as compared to $18.7 million in the three months ended March 31, 2008.

Depreciation and amortization. Depreciation and amortization expense was $13.8 million in the three months ended March 31, 2009, as compared to $14.1 million in the three months ended March 31, 2008, a decrease of $0.2 million or 1.7%. Depreciation expense was $12.3 million in the three months ended March 31, 2009, as compared to $12.6 million in the three months ended March 31, 2007, a decrease of 2.4%.

Insurance settlement. As described above, in the three months ended March 31, 2008, the Company recognized an $11.5 million insurance settlement resulting from Hurricane Katrina as an offset to Station operating expenses.

Corporate, general and administrative expenses. Corporate, general and administrative expenses were $8.9 million in the three months ended March 31, 2009, as compared to $8.7 million in the three months ended March 31, 2008, an increase of $0.2 million or 1.9%. This increase was primarily due to increased professional expenses.

Interest expense. Interest expense was $9.8 million in the three months ended March 31, 2009, as compared to $12.9 million in the three months ended March 31, 2008, a decrease of $3.1 million or 23.9%, due to lower interest rates.

Income tax expense. We recorded income tax benefit of $2.8 million in the three months ended March 31, 2009, as compared to an expense of $4.3 million in the three months ended March 31, 2008, a decrease of $7.1 million. This decrease was primarily due to a decrease in income before income taxes from $15.7 million in the three months ended March 31, 2008 to a loss of $11.4 million in the three months ended March 31, 2009 offset in part by the impact of certain state tax laws enacted during the first quarter of 2009.

The effective tax rate for the three months ended March 31, 2009 was 24.4% as compared to 27.3% for the three months ended March 31, 2008. For the three months ended March 31, 2009, the effective tax rate was primarily affected by certain changes in state tax laws that required the re-measurement of our deferred tax liabilities.

Equity in loss of affiliates, net of tax. Equity in loss of affiliates, net of tax, was a loss of $0.7 million for the three months ended March 31, 2009, as compared to a loss of $1.4 million for the three months ended March 31, 2008.

Net income. Net loss was $9.3 million in the three months ended March 31, 2009, as compared to an income of $10.0 million in the three months ended March 31, 2008, a decrease of $19.4 million. This decrease was primarily due to the items described above.

Liquidity and Capital Resources

As of March 31, 2009, the Company's cash and cash equivalents balance was $8.3 million, as compared to $7.0 million as of December 31, 2008. The net increase in cash and cash equivalents of $1.3 million during the three months ended March 31, 2009 was due to the factors described below under Operating Activities, Investing Activities, and Financing Activities.

                                       Three months ended March 31,
                                         2009               2008           $ Change     % Change
                                              (In thousands)
Net cash (used in) provided by
operating activities                $       (1,864 )  $         44,007    $  (45,871 )     -104.2 %
Net cash used in investing
activities                          $       (3,694 )  $         (4,300 )  $      606         14.1 %
Net cash provided by (used in)
financing activities                $        6,863    $        (32,937 )  $   39,800        120.8 %

Cash paid for:
Interest                            $        6,932    $          8,731    $   (1,799 )      -20.6 %
Interest on Note payable to
Capital Trust                       $            -    $          2,438    $   (2,438 )     -100.0 %
Taxes, net of refunds               $          661    $          5,501    $   (4,840 )      -88.0 %
Purchase of property, plant and
equipment, net                      $        3,694    $          7,190    $   (3,496 )      -48.6 %
Dividends paid on common stock      $        6,585    $          6,569    $       16          0.2 %
Series A Common Stock
repurchases                         $            -    $          1,091    $   (1,091 )     -100.0 %

Operating Activities

Net cash used in operating activities was $1.9 million in the three months ended March 31, 2009, as compared to net cash provided by operating activities of $44.0 million in the three months ended March 31, 2008, a decrease of $45.9 million. This decrease was primarily due to:

(i) a $19.4 million decrease in net income;
(ii) the receipt of $8.7 million of insurance proceeds for business interruption and to recover the incremental expenses incurred due to Hurricane Katrina in 2008; and
(iii) lower levels of cash generated by accounts receivable in 2009 attributable to lower revenues and a higher portion of fourth quarter 2008 revenues derived from political advertising, which is typically paid in cash in advance.

Investing Activities

Net cash used in investing activities was $3.7 million in the three months ended March 31, 2009, as compared to $4.3 million in the three months ended March 31, 2008. This change was primarily due to:

(i) a decrease in capital expenditures to $3.7 million in the first three months of 2009 from $7.2 million in the three months ended March 31, 2008; and
(ii) the receipt of $2.9 million of insurance proceeds on property losses resulting from Hurricane Katrina in the first quarter of 2008.

Financing Activities

Net cash provided by financing activities was $6.9 million in the three months ended March 31, 2009, as compared to net cash used in financing activities of $32.9 million in the three months ended March 31, 2008. This change was primarily due to:

(i) repayment of $27.0 million on our credit facility in the first quarter of 2008; and

(ii) borrowings of $13.0 million on our credit facility in the first quarter of 2009.

Credit Facility and Other Long Term Debt

As of March 31, 2009, our total long-term debt obligations including the credit facility were $804.1 million. Our current debt maturities totaled $90.0 million of that amount.

                             March 31, 2009     December 31, 2008
                              (Unaudited)
Revolving credit facility   $        342,000   $           329,000
Senior notes                         282,110               282,110
Private placement debt               180,000               180,000
Total debt                           804,110               791,110
Less: Current maturities             (90,000 )             (90,000 )

Total long-term debt        $        714,110   $           701,110

The Company has a $500 million five-year unsecured revolving credit facility, which matures on April 15, 2010. The credit facility can be used for general corporate purposes including working capital, investments, acquisitions, debt repayment and dividend payments. Outstanding principal balances under the credit facility bear interest at our option at LIBOR or the alternate base rate ("ABR"), plus the applicable margin. The applicable margin for ABR loans is zero. The applicable margin for LIBOR loans varies between 0.50% and 1.00% depending on the ratio of our total debt to earnings before interest, taxes, depreciation and amortization as defined by the credit agreement (the "Leverage Ratio"). The ABR is the greater of (i) the prime rate or (ii) the Federal Funds Effective Rate in effect plus 0.5%. We are required to pay a commitment fee based on the unused portion of the credit facility. The commitment fee ranges from 0.15% to 0.25% depending on our Leverage Ratio. The credit facility is a general unsecured obligation of the Company. We have borrowed $342.0 million under the credit facility as of March 31, 2009.

The Senior Notes, which are unsecured obligations, consist of $166.0 million principal amount of 7.0% senior notes due 2018 and $116.1 million principal amount of 7.5% senior notes due 2027. The Senior Notes were initially issued in . . .