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 six months ended June 30, 2009, we recorded a net loss of $0.8 million, which included an impairment charge of $39.9 million related to our broadcast licenses and goodwill. The impairment charge is a result of the continued decline in advertising revenues at certain of our stations as a result of the ongoing economic decline.

During the three and six months ended June 30, 2009, we experienced continued declines in revenues compared to the same periods in 2008. These declines in revenues were in excess of our original 2009 plan and we anticipate continued weakness in revenues during the remainder of this year. As a result, and to ensure continued compliance with the financial covenants in our credit agreement, on July 31, 2009 we entered into an Amended and Restated Credit Agreement (the "Amended Credit Agreement") with JPMorgan Chase Bank, N.A., as Administrative Agent, and banks and financial institutions party thereto. For further information regarding the terms of the Amended Credit Agreement see Liquidity and Capital Resources.

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 June 2009, the FASB issued FAS 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162" ("FAS 168"). FAS 168 establishes the FASB Accounting Standards Codification as the sole source of authoritative GAAP. Pursuant to the provisions of FAS 168, we will update our references to GAAP in our consolidated financial statements issued for the period ended September 30, 2009 and thereafter. The adoption of FAS 168 will have no impact on our financial position or results of operations.

In June 2009, the FASB issued FAS 167, "Amendments to FASB Interpretation No.
46(R)" ("FAS 167"). FAS 167 is effective for interim and annual reporting periods ending after November 15, 2009. FAS 167 amends certain guidance in FIN 46(R) to eliminate the exemption for special purpose entities, require a new qualitative approach for determining who should consolidate a variable interest entity and change the requirement for when to reassess who should consolidate a variable interest entity. We plan to adopt FAS 167 effective January 1, 2010, and we do not expect it to have a material impact on our financial position or results of operations.

In June 2009, the FASB issued FAS 166 "Accounting for Transfers of Financial Assets - an amendment of FAS Statement No. 140" ("FAS 166"). FAS 166 is effective for interim and annual reporting periods ending after November 15, 2009 and must be applied to transfers occurring on or after the effective date. FAS 166 clarifies that the objective of paragraph 9 of Statement 140 is to determine whether a transferor and all of the entities included in the transferor's financial statements being presented have surrendered control over transferred financial assets. We plan to adopt FAS 166 effective January 1, 2010, and we do not expect it to have a material impact on our financial position or results of operations.

In May 2009, the FASB issued FAS 165 "Subsequent Events" ("FAS 165"). FAS 165 is effective for interim and annual reporting periods ending after June 15, 2009. FAS 165 introduces the concept of financial statements being available to be issued and requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. We have adopted FAS 165 effective June 30, 2009 and included the required disclosure in Note 14 - "Subsequent Events". FAS 165 did not have a material impact on our financial position or results of operations.

Also in April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" ("FSP FAS 115-2 and FAS 124-2"), to change the method for determining whether an other-than-temporary impairment exists for debt securities and the amount of an impairment charge to be recorded in earnings. FSP FAS 115-2 and FAS 124-2 also requires enhanced disclosures, including the Company's methodology and key inputs used for determining the amount of credit losses recorded in earnings. We adopted FSP FAS 115-2 and FAS 124-2 during the second quarter of 2009 and the adoption had no impact on our financial position or results of operations.

Additionally, the FASB issued FSP No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4"), during April 2009. FSP FAS 157-4 provides additional guidance to highlight and expand on the factors that should be considered in estimating fair value when there has been a significant decrease in market activity for a financial asset.
FSP FAS 157-4 also requires new disclosures relating to fair value measurement inputs and valuation techniques (including changes in inputs and valuation techniques). We adopted FSP FAS 157-4 during the second quarter of 2009. The adoption of FSP FAS 157-4 had no financial impact on our financial position or results of operations. See Note 4 (Fair Value) for further detail.

Effective January 1, 2009, the Company adopted SFAS No. 141(R), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; how the acquirer recognizes and measures the goodwill acquired in a business combination; and how the acquirer determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The adoption of FAS 141(R) did not have a material impact on our financial position or results of operations as of, or for, the three and six months ended June 30, 2009.

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 financial position or results of operations.

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 financial position or results of operations.

Results of Operations

Our condensed 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 June 30,                                              Six Months Ended June 30,
                                                                                                    % of Gross                                                              % of Gross
                                                  2009            2008           % change            revenues             2009            2008           % change            revenues

Local time sales                               $    54,300     $    66,832              (19 )%                 58 %    $   104,702     $   131,076              (20 )%                 59 %
National time sales                                 24,427          33,565              (27 )%                 26 %         46,372          64,896              (29 )%                 26 %
Political time sales                                 1,364           8,121              (83 )%                  1 %          1,883          11,321              (83 )%                  1 %
Digital revenues                                    10,201           6,718               52 %                  11 %         19,136          11,622               65 %                  11 %
Network compensation                                 1,036           1,021                1 %                   1 %          1,959           1,925                2 %                   1 %
Barter revenues                                      1,143           1,358              (16 )%                  1 %          2,027           2,666              (24 )%                  1 %
Other revenues                                         946           1,084              (13 )%                  1 %          1,937           1,833                6 %                   1 %
Total gross revenues                                93,417         118,699              (21 )%                100 %        178,016         225,339              (21 )%                100 %
Agency commissions                                 (10,900 )       (14,996 )            (27 )%                (12 )%       (21,024 )       (28,572 )            (26 )%                (12 )%
   Net revenues                                     82,517         103,703              (20 )%                 88 %        156,992         196,767              (20 )%                 88 %

Operating costs and expenses:
Direct operating                                    26,533          29,623              (10 )%                              53,448          59,689              (10 )%
Selling, general and adminstrative                  24,746          28,261              (12 )%                              50,362          56,836              (11 )%
Amortization of program rights                       5,572           5,588                0 %                               11,904          11,764                1 %
Corporate                                            4,569           6,209              (26 )%                               8,987          11,239              (20 )%
Depreciation                                         7,448           7,368                1 %                               15,574          14,817                5 %
Amortization of intangible assets                       20              91              (78 )%                                  40             184              (78 )%
Impairment of goodwill and intangible assets        39,894         296,972              (87 )%                              39,894         296,972              (87 )%
Restructuring charge                                   498               -              100 %                                  498               -              100 %
Gain from asset sales                                 (949 )          (471 )            101 %                               (2,658 )          (370 )            618 %
Total operating costs and expenses                 108,331         373,641              (71 )%                             178,049         451,131              (61 )%
Operating income (loss)                        $   (25,814 )   $  (269,938 )             90 %                          $   (21,057 )   $  (254,364 )             92 %

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 $21.2 million, or 20%, for the three months ended June 30, 2009 compared with the three months ended June 30, 2008. The decrease was primarily due to: (a) a decrease in local advertising sales of $12.5 million;
(b) a decrease in national advertising revenues of $9.1 million; (c) a decrease in political revenue of $6.8 million; and (d) a decrease in barter and other revenues of $0.4 million. These decreases were partially offset by: (a) an increase in digital revenue of $3.5 million; and (b) a decrease in agency commissions of $4.1 million.

Net revenues decreased $39.8 million, or 20%, for the six months ended June 30, 2009 compared with the six months ended June 30, 2008. The decrease was primarily due to: (a) a decrease in local advertising sales of $26.4 million;
(b) a decrease in national advertising revenues of $18.5 million; (c) a decrease in political revenue of $9.4 million; and (d) a decrease in barter revenue of $0.6 million. These decreases were partially offset by: (a) an increase in digital revenue of $7.5 million; (b) an increase in network compensation and other revenues of $0.1 million; and (c) a decrease in agency commissions of $7.5 million.

The decrease in local and national advertising revenues in both periods is primarily due to the economic downturn that has broadly impacted demand for advertising. Automotive advertising declined 44% and 45% for the three and six months ended June 30, 2009, respectively, compared to the same period in the prior year.

The decrease in political revenues during the three and six months ended June 30, 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 and six months ended June 30, 2009, compared to the same period last year, is primarily due to several new retransmission consent agreements reached with cable operators during the second half of 2008, and an increase in Internet revenues. The increase in Internet revenues is a result of new sales initiatives and increased traffic to our internet websites.

Operating Costs and Expenses

Operating costs and expenses decreased $265.3 million and $273.1 million, or 71% and 61%, for the three and six months ended June 30, 2009 to $108.3 million and $178.0 million, respectively, compared to the same periods in 2008. The decreases for both periods is primarily due to an impairment charge of $297.0 million recorded during the three months ended June 30, 2008 compared to an impairment charge of $39.9 million recorded during the same period of 2009 related to our broadcast licenses and goodwill. Additionally, the decrease was due to lower direct operating, selling, general and administrative and corporate expenses, compared to the same periods in the prior year, primarily attributable to lower employee costs as a result of the headcount reduction completed during the fourth quarter of 2008.

We recorded an impairment charge of $39.9 million during the second quarter of 2009 that included an impairment to the carrying values of our broadcast licenses of $37.2 million, relating to 26 of our television stations; and an impairment to the carrying values of our goodwill of $2.7 million, relating to 2 of our television stations. As required by SFAS 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), we tested for impairment of our indefinite lived intangible assets at June 30, 2009, between the required annual tests, because we believed events had occurred and circumstances changed that would more likely than not reduce the fair value of our broadcast licenses and goodwill below their carrying amounts. The need for an impairment analysis at June 30, 2009 was triggered by the continued decline in advertising revenue at certain of our stations, due to the ongoing effects of economic decline, that resulted in downward adjustments to their respective forecasts.

We used the income approach to test our broadcast licenses for impairments as of June 30, 2009 and we used the same assumptions as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, except for the following adjustments: a) the discount rate was adjusted from 11.0% to 12.0%; b) average market growth rate was adjusted from 1.0% to 0.2%; and c) average operating profit margins were adjusted from 26.6% to 30.5%

We used the income approach to test goodwill for impairments as of June 30, 2009 and we used the same assumptions as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, except for the following adjustments: a) the discount rate was adjusted from 14.5% to 15.0%; b) average market growth rate was adjusted from 1.0% to 0.5%; and c) average operating profit margins were adjusted from 34.0% to 36.4%.

These assumptions are based on the actual historical performance of our stations and management's estimates of future performance of our stations. The increase in the discount rate used for our broadcast licenses and goodwill reflects an increase in the average beta for the public equity of companies in the television and media sector since December 31, 2008. The changes in the market growth rates and operating profit margins for both our broadcast licenses and goodwill reflect changes in the outlook for advertising revenues in certain markets where our stations operate.
Determining the fair value of our television stations requires our management to make a number of judgments about assumptions and estimates that are highly subjective and that are based on unobservable inputs or assumptions. The actual results may differ from these assumptions and estimates; and it is possible that such differences could have a material impact on our financial statements.

For further discussion on our accounting policy related to impairments refer to Critical Accounting Policies, Estimates and Recently Issued Accounting Pronouncements within Item 7. Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2008.

Other Expense (Income)

Other expense (income), net decreased $7.6 million during the three months ended June 30, 2009, compared to the same period in the prior year, primarily due to a $3.6 million write-off of deferred financing fees related to the purchase of $125.0 million of our 2.50% Exchangeable Senior Subordinated Debentures during the three months ended June 30, 2008, as well a decrease in interest expense of $3.8 million due to lower average borrowings outstanding as a result of the purchase of our 2.50% Exchangeable Senior Subordinated Debentures in 2008, and 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B in 2009.

The following summarizes the components of our interest expense, net (in thousands):

                                               Three Months Ended June 30,             Six Months Ended June 30,
                                                2009                 2008              2009                2008
Components of interest expense
Credit Facility                            $        1,796       $        2,572     $       3,607       $       5,442
6½% Senior Subordinated Notes                       4,714                6,404             9,898              12,741
6½% Senior Subordinated Notes -- Class B            2,775                3,731             5,927               7,420
2.50% Exchangeable Senior Subordinated
Debentures                                              -                  925                 -               2,805
Other interest costs and (interest
income)                                               848                  290             1,623                 (95 )
Total interest expense, net                $       10,133       $       13,922     $      21,055       $      28,313

(Benefit From) Provision for Income Taxes

(Benefit from) provision for income taxes decreased $61.3 million and $79.2 million for the three and six months ended June 30, 2009, respectively, as compared to the same periods in 2008. The decrease was primarily due to the impairment charge to our goodwill and broadcast licenses during 2008. Our effective income tax rate was 104.1% and 25.0% for the six months ended June 30, 2009 and 2008, respectively.

The increase in the effective tax rate is due primarily to the impact of the impairment charges on the Company's pretax income. The impact of these items on the effective tax rate was unusually large in proportion to pretax income as compared to the prior year.

Results of Discontinued Operations

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

On April 23, 2009, Banks Broadcasting completed the sale of KNIN-TV, a CW affiliate in Boise, for $6.6 million to Journal Broadcast Corporation. As a result of the sale we received a distribution of $2.6 million during the second quarter ended June 30, 2009. The operating loss for the six months ended June 30, 2009 includes an impairment charge of $1.9 million to reduce the carrying value of broadcast licenses to fair value based on the final sale price of KNIN-TV of $6.6 million. Net loss included within discontinued operations for the six months ended June 30, 2009 reflects our 50% share of net losses of Banks Broadcasting, net of taxes, through the April 23, 2009 disposal date.

Our principal sources of funds for working capital have historically been cash from operations and borrowings under our credit facility. At June 30, 2009, we had cash of $19.1 million and a $225.0 million revolving credit facility, of which $9 million was available, subject to certain covenant restrictions.

Our total outstanding debt as of June 30, 2009 was $691.4 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
13 "Commitments and Contingencies" for further details). The outstanding debt under our credit facility is due November 4, 2011 and both of our 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B are due May 15, 2013.

. . .