Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Our consolidated financial statements reflect the operations, assets and liabilities of Banks Broadcasting as discontinued for all periods presented.

Special Note about Forward-Looking Statements

This report contains certain forward-looking statements with respect to our financial condition, results of operations and business, including statements under this caption "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations". All of these forward-looking statements are based on estimates and assumptions made by our management, which, although we believe them to be reasonable, are inherently uncertain. Therefore, you should not place undue reliance upon such estimates and statements. We cannot assure you that any of such estimates or statements will be realized and actual results may differ materially from those contemplated by such forward-looking statements. Factors that may cause such differences include those discussed under the caption "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2008.

Many of these factors are beyond our control. Forward-looking statements contained herein speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Executive Summary

Our Company owns and operates and/or programs 27 television stations in 17 mid-sized markets in the United States. Our operating revenues are derived primarily from the sale of advertising time to local and national advertisers and, presently, to a lesser extent, from digital revenues, network compensation, barter and other revenues.

During the three months ended March 31, 2009, we experienced continued declines in revenues compared to same period in 2008. These declines in revenues were in excess of our original 2009 plan and we anticipate continued weakness in revenues during the second quarter of this year. As a result, we believe it is increasingly likely that we will need to enact a series of further cost reduction actions and other measures in order to sustain compliance with the financial covenants in our credit agreement over the next 12 months and/or we may choose to seek an amendment to our credit agreement.

Further, if actual advertising revenues are significantly less than currently anticipated for the second quarter of this year and for the remainder of this year and we are unable to effect cost reduction initiatives or other actions in addition to those outlined below to offset such shortfalls, and/or we are unable to generate sufficient revenues from other sources to offset the decline in advertising revenues, we may not be able to generate sufficient cash from operations to fund our cash requirements over the next 12 months, including scheduled interest and required principal payments on our outstanding indebtedness and ongoing capital expenditures and projected working capital needs. These developments may also require us to seek an amendment to the financial covenants in our credit agreement.

During the three months ended March 31, 2009, we purchased a notional amount of $79.7 million and $42.0 million of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B, respectively, resulting in a gain on extinguishment of debt of $50.1 million, after the write-off of deferred financing fees and discount related to the Notes of $1.3 million and $1.9 million, respectively. Additionally, we repaid a total of $4.0 million of principal on the term loan under our credit facility during the three months ended March 31, 2009. Our total debt outstanding at March 31, 2009 was $686.1 million.

Critical Accounting Policies and Estimates and Recently Issued Accounting Pronouncements

Certain of our accounting policies, as well as estimates that we make, are critical to the presentation of our financial condition and results of operations since they are particularly sensitive to our judgment. Some of these policies and estimates relate to matters that are inherently uncertain. The estimates and judgments we make affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. On an on-going basis, we evaluate our estimates, including those related to intangible assets and goodwill, bad debts, program rights, income taxes, stock-based compensation, employee medical insurance claims, pensions, useful lives of property and equipment, contingencies, barter transactions, acquired asset valuations and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and it is possible that such differences could have a material impact on our consolidated financial statements. For a more detailed explanation of the judgments made in these areas and a discussion of our accounting policies, refer to "Critical Accounting Policies, Estimates and Recently Issued Accounting Pronouncements" included in Item 7, and Note 1 - "Summary of Significant Accounting Policies" included in Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting Pronouncements

In January 2009, the FASB issued EITF 99-20-1 "Amendments to the Impairment Guidance of EITF Issue No. 99-20". EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008. EITF 99-20-1 amends the guidance in EITF Issue No. 99-20 "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets," to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary assessment and the related disclosure requirements in FASB No. 115 "Accounting for Certain Investments in Debt and Equity Securities" and other related guidance. We have adopted EITF 99-20-1 effective January 1, 2009. EITF 99-20-1 did not have a material impact on our consolidated financial statements.

In December 2008, the FASB issued FSP FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" ("FSP FAS 132(R)-1"). FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. FSP FAS 132(R)-1 increases disclosure requirements related to an employer's defined benefit pension or other postretirement plans. We plan to adopt FSP FAS 132(R)-1 effective January 1, 2010, and we do not expect it to have a material impact on our consolidated financial statements.

In November 2008, the FASB issued EITF 08-1, "Revenue Arrangements with Multiple Deliverables" ("EITF 08-1"). EITF 08-1 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after December 31, 2009 and shall be applied on a prospective basis. Earlier application is permitted as of the beginning of a fiscal year. EITF 08-1 addresses some aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. We plan to adopt EITF 08-1 on January 1, 2010, and we do not expect it to have a material impact on our consolidated financial statements.

In November 2008, the FASB issued EITF 08-6, "Equity Method Investment Accounting Considerations" ("EITF 08-6"). EITF 08-6 is effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. EITF 08-6 shall be applied prospectively. EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. We adopted EITF 08-6 effective January 1, 2009. EITF 08-6 did not have a material impact on our consolidated financial statements.

In November 2008, the FASB issued EITF 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. EITF 08-7 will be applied prospectively and earlier application is not permitted. EITF 08-7 clarifies how to account for defensive intangible assets subsequent to initial measurement. We adopted EITF 08-7 effective January 1, 2009. EITF 08-7 did not have a material impact on our consolidated financial statements.

In June 2008, the FASB issued FSP FAS 142-3 "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3"), which is effective for financial statements issued for fiscal years beginning after December 31, 2008, and interim periods within those fiscal years. Early adoption is prohibited. FSP FAS 142-3 provides guidance for determining the useful life of a recognized intangible asset and will be applied prospectively to intangible assets acquired after the effective date. We adopted FSP FAS 142-3 effective January 1, 2009. FSP FAS 142-3 did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued FAS 161 "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("FAS 161"), which is effective for fiscal years and interim periods beginning after November 15, 2008, with earlier adoption encouraged. This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity's derivative instruments and hedging activities and their effects on the entity's financial position, financial performance, and cash flows. FAS 161 applies to all derivative instruments within the scope of FAS 133, as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. FAS 161 impacts only our disclosure requirements and therefore will not have an impact on our financial position, financial performance or cash flows. We adopted FAS 161 effective January 1, 2009 and included the additional required disclosures.

In December 2007, the FASB issued FAS 141R "Business Combinations" ("FAS 141R"), which is effective prospectively for all business combinations with acquisition dates on or after the beginning of the first fiscal year beginning after December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141R replaces FAS 141 "Business Combinations" ("FAS 141"), but it retains the underlying concepts of FAS 141 in that all business combinations are required to be accounted for at fair value under the acquisition method of accounting. However, FAS 141R changed the method of applying the acquisition method in a number of significant ways. Acquisition costs will generally be expensed as incurred; non-controlling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value at the acquisition date as an indefinite-lived intangible asset; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. We adopted FAS 141R effective January 1, 2009. The effect of FAS 141R on future periods will depend on the nature and significance of any acquisitions subject to FAS 141R.

In December 2007, the FASB issued FAS 160 "Non-controlling Interests in Consolidated Financial Statements" ("FAS 160"), which amends ARB 51, "Consolidated Financial Statements" ("ARB 51"). FAS 160 is effective for quarterly and annual reporting periods that begin after December 15, 2008. FAS 160 establishes accounting and reporting standards with respect to non-controlling interests (also called minority interests) in an effort to improve the relevance, comparability and transparency of financial information that a company provides with respect to its non-controlling interests. The significant requirements under FAS 160 are the reporting of the non-controlling interests separately in the equity section of the balance sheet and the reporting of the net income or loss of the controlling and non-controlling interests separately on the face of the statement of operations. We have adopted FAS 160 effective January 1, 2009, and as a result, reclassified the preferred stock of Banks Broadcasting, representing our non-controlling interest, to the equity section of our balance sheet.

Results of Operations

Our consolidated financial statements reflect the operations, assets and
liabilities of Banks Broadcasting as discontinued for all periods presented. Set
forth below are key components that contributed to our operating results (in
thousands):


                                              Three Months Ended March 31,
                                                                                                   % of Net
                                                2009                 2008           % change       revenues

Local time sales                           $       50,402               64,244        (22)%             68%
National time sales                                21,945               31,331        (30)%             29%
Political time sales                                  519                3,200        (84)%             1%
Digital revenues                                    8,935                4,904         82%              12%
Network compensation                                  923                  904          2%              1%
Barter revenues                                       884                1,308        (32)%             1%
Other revenues                                        991                  749         32%              1%
Agency commissions                                (10,124 )            (13,576 )      (25)%            (13)%
   Net revenues                                    74,475               93,064        (20)%            100%

Operating costs and expenses:
Direct operating                                   26,915               30,066        (10)%
Selling, general and administrative                25,616               28,575        (10)%
Amortization of program rights                      6,332                6,176          3%
Corporate                                           4,418                5,030        (12)%
Depreciation                                        8,126                7,449          9%
Amortization of intangible assets                      20                   93        (78)%
 Loss (gain) from asset sales                      (1,709 )                101       (1,792)%
Operating (loss) income                    $        4,757       $       15,574        (69)%

Period Comparison

Revenues

Net revenues consist primarily of national, local and political advertising revenues, net of sales adjustments and agency commissions. Additional but less significant amounts are generated from Internet revenues, retransmission consent fees, barter revenues, network compensation, production revenues, tower rental income and station copyright royalties.

Net revenues decreased $18.6 million, or 20%, for the three months ended March 31, 2009 compared with the three months ended March 31, 2008. The decrease was primarily due to: (a) a decrease in local advertising sales of $13.8 million;
(b) a decrease in national advertising revenues of $9.4 million; (c) a decrease in political revenue of $2.7 million; and (d) a decrease in barter revenue of $0.4 million. These decreases were partially offset by: (a) an increase in digital revenue of $4.0 million; (b) an increase in network compensation and other revenues of $0.3 million; and (c) a decrease in agency commissions of $3.5 million.

The decrease in local and national advertising revenues is primarily due to the economic downturn that has broadly impacted demand for advertising. The decrease in political revenues during the three months ended March 31, 2009, compared to the same period last year, is a result of the Presidential, Congressional, state and local elections in 2008 that did not recur in 2009.

The increase in digital revenues for the three months ended March 31, 2009, compared to the same period last year, is primarily due to several new retransmission consent agreements reached with cable operators during 2008, and an increase in Internet revenues.

Operating Costs and Expenses

Operating costs and expenses decreased $7.8 million, or 10%, primarily due to lower direct operating, selling, general and administrative and corporate expenses, compared to the same period in the prior year. This was the result of the Company's significant cost reduction efforts, driving lower employee costs as a result of the headcount reduction completed during the fourth quarter of 2008. Additionally, (gain) loss from asset sales increased $1.8 million compared to the same period last year, as a result of a gain of $1.7 million recorded during the three months ended March 31, 2009 from the Federal Communications Commission ("FCC") mandated spectrum exchange with Sprint Nextel. These decreases were partially offset by an increase in depreciation of $0.7 million, or 9%, for the three months ended March 31, 2009, compared to the same period last year, primarily due to increased capital expenditures in 2008 related to the conversion from analog to digital transmission.

Other (Income) Expense

Other (income) expense, net increased $52.9 million primarily due to the gain on extinguishment of debt of $50.1 million that we recorded as a result of the purchase of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes
- Class B. Additionally, interest expense, net, decreased $3.5 million, or 24%, for the three months ended March 31, 2009, compared to the same period last year due to lower average borrowings outstanding as a result of the purchase of our 2.50% Exchangeable Senior Subordinated Debentures, 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B. The following summarizes the components of our interest expense, net (in thousands):

                                                                  Three Months Ended March 31,
                                                                    2009                 2008
Components of interest expense
Credit Facility                                                $        1,811       $        2,870
6½% Senior Subordinated Notes                                           5,184                6,337
6½% Senior Subordinated Notes -- Class B                                3,152                3,689
2.50% Exchangeable Senior Subordinated Debentures                           -                1,880
Other interest costs and (interest income)                                775                 (385 )
Total interest expense, net                                    $       10,922       $       14,391

Provision for Income Taxes

Provision for income taxes increased $17.9 million to $18.5 million for the quarter ended March 31, 2009. The increase was primarily a result of the gain on extinguishment of debt that may be deferred and recognized for tax purposes over a five year period commencing in 2014 from the enactment of the American Recovery and Reinvestment Act of 2009. Our annual effective income tax rate was 42.5% and 40.1% for the three months ended March 31, 2009 and 2008, respectively.

Results of Discontinued Operations

Our consolidated financial statements reflect the operations of Banks Broadcasting as discontinued for all periods presented. (Loss) income from discontinued operations was $(0.3) million and $0.6 million for the three months ended March 31, 2009, and 2008, respectively. Included in the loss for the three months ended March 31 2009, is an impairment charge to the broadcast license associated with KNIN of $0.6 million, net of non-controlling interest and taxes, as a result of the change in purchase price as discussed in Note 12 - "Subsequent Events".

Liquidity and Capital Resources

Our principal sources of funds for working capital have historically been cash from operations and borrowings under our credit facility. At March 31, 2009, we had cash of $15.4 million and a $225.0 million revolving credit facility, of which $24 million was available, subject to certain covenant restrictions.

Our total outstanding debt as of March 31, 2009 was $686.1 million. This excludes the contingent obligation associated with our guarantee of an $815.5 million promissory note associated with our joint venture with NBC Universal (see Note 11 "Commitments and Contingencies" for further details). The outstanding debt under our credit facility is due November 14, 2011 and both of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B are due May 15, 2013.

Our operating plan for the remainder of 2009 requires that we generate cash from operations and, if necessary, utilize borrowings under our revolving credit facility. Our ability to borrow under our revolving credit facility is contingent on our compliance with certain financial covenants, which are measured, in part, by the level of cash we generate from our operations. As of March 31, 2009, we were in compliance with all financial and non-financial covenants in our credit agreement.

Our future ability to generate cash from operations and from borrowings under our credit facility could be adversely effected by a number of risks, which are discussed in the Liquidity and Capital Resources section within the Management Discussion and Analysis, and in the Risk Factors section, in our Annual Report on Form 10-K for the year ended December 31, 2008.

During the three months ended March 31, 2009, we experienced a decline in revenues compared to the same period in 2008. This decline in revenues was in excess of our original 2009 plan and we anticipate continued weakness in revenues during the second quarter of this year. As a result, we believe it is increasingly likely that we will need to enact a series of further cost reduction actions and other measures in order to sustain compliance with the financial covenants in our credit agreement over the next 12 months and/or we may choose to seek an amendment to our credit agreement. Our further cost reduction actions may include, among other things, decreases in headcount, salaries and related benefits, reductions of business travel and advertising expenditures, and the sale of certain non strategic assets, to the extent permitted by our credit facility. While we believe that sustained compliance with our financial covenants over the next 12 months is achievable given our current plans and these additional measures, we believe that there is now a greater likelihood that we will need to seek an amendment to the financial covenants in our credit agreement.

Further, if actual advertising revenues are significantly less than currently anticipated for the second quarter of this year and for the remainder of this year and we are unable to effect cost reduction initiatives or other actions in addition to those described above to offset such shortfalls, and/or we are unable to generate sufficient revenues from other sources to offset the decline in advertising revenues, we may not be able to generate sufficient cash from operations to fund our cash requirements over the next 12 months, including scheduled interest and required principal payments on our outstanding indebtedness and ongoing capital expenditures and projected working capital needs. These developments may also require us to seek an amendment to the financial covenants in our credit agreement. If we are unable to secure such an amendment we may not be in compliance with these financial covenants, and our lenders and the holders of our 6½% Senior Subordinated Notes and our 6½% Senior Subordinated Notes - Class B could demand immediate repayment of all of our outstanding debt. Under these circumstances, the acceleration of our debt could have a material adverse effect on the Company.

Our joint venture with NBC Universal has also been adversely impacted by the current economic downturn. Cash flow shortfalls at the joint venture caused by a decline in advertising revenues could require us to make cash payments to the joint venture to cover interest obligations under the General Electric Capital Corporation ("GECC") Note. The joint venture is not planning to distribute any cash to either NBC Universal or us in 2009; and will use its existing debt service reserve cash balances ($15.1 million as of March 31, 2009) to fund interest payments. For 2009, we estimate that the cash available to the joint venture will be in the range of $5 million to $10 million less than the amount needed to pay interest on the GECC Note during the fourth quarter of 2009, however the actual cash shortfall could be greater than our current estimate. NBC Universal and we have agreed that if the joint venture does not have sufficient cash to cover 2009 interest payments on the GECC Note, we and NBC Universal will provide the joint venture with a shortfall loan on the basis of our percentage of economic interest in the joint venture. If we are required to fund a portion of a shortfall loan, we plan to use our available cash balances or available borrowings under our credit facility. In addition, if the joint venture experiences further cash shortfalls beyond 2009, we may decide to fund such cash shortfalls, or to cover such shortfalls through further loans or equity contributions to the joint venture.

On April 30, 2009, Chrysler LLC ("Chrysler") filed for Chapter 11 bankruptcy protection. We currently have a concentration of credit risk wtihin our accounts receivable due from Chrysler. We have reviewed our reserves related to receivables from Chrysler and auto dealers whose advertising campaigns are subsidized by Chrysler. As of March 31, 2009, we have determined that we are adequately reserved for all receivables due from Chrysler and its affiliates.

Repurchase of Senior Subordinated Notes

During 2008, we commenced a plan under Rule 10b5-1 of the Securities Exchange Act of 1934 to purchase a portion of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B at market prices using available balances under our revolving credit facility and available cash balances. During the three months ended March 31, 2009, we purchased a total notional amount of $79.7 . . .