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, to a lesser extent, from digital revenues, network compensation, barter and other revenues.

During the nine months ended September 30, 2009, we recorded a net loss of $1.6 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 driven by the ongoing economic recession.

During the three and nine months ended September 30, 2009, we experienced 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 the Amended Credit Agreement. For further information regarding the terms of the Amended Credit Agreement, see Liquidity and Capital Resources.

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 our 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, receivables and investments, 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.

In October 2009, the FASB issued ASU 2009-15 "Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force" ("ASC 470-20"). ASC 470-20 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. ASC 470-20 addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. We plan to adopt ASC 470-20 effective June 30, 2010, and we do not expect it to have a material impact on our financial position or results of operations.

In August 2009, the FASB issued ASU 2009-05 "Measuring Liabilities at Fair Value" ("ASC 820-10"). ASC 820-10 is effective for the first reporting period, including interim periods, beginning after issuance. ASC 820-10 clarifies the application of certain valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available and clarifies that when estimating the fair value of a liability, the fair value is not adjusted to reflect the impact of contractual restrictions that prevent its transfer. ASC 820-10 becomes effective for us on October 1, 2009. We adopted ASC 820-10 effective September 30, 2009, and it did not have a material 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 beginning 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 beginning 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 ASC 855-10 "Subsequent Events" ("ASC 855-10"). ASC 855-10 is effective for interim and annual reporting periods ending after June 15, 2009. ASC 855-10 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 adopted ASC 855-10 effective June 30, 2009 and included the required disclosure in Note
14 - "Subsequent Events". ASC 855-10 did not have a material impact on our financial position or results of operations.

In April 2009, the FASB issued ASC 825-10, "Interim Disclosures about Fair Value of Financial Instruments" ("ASC 825-10"), which requires public entities to disclose in their interim financial statements the fair value of all financial instruments within the scope of FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments", as well as the method(s) and significant assumptions used to estimate the fair value of those financial instruments. We adopted the provisions of ASC 825-10 by including the required additional financial statement disclosures as of June 30, 2009 in Note 6 - Derivative Financial Instruments and Note 7 - Fair Value Measurement. The adoption of ASC 825-10 had no financial impact on our financial position or results of operations.

Additionally, in April 2009 the FASB issued ASC 820-10, "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" ("ASC 820-10"). ASC 820-10 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. ASC 820-10 also requires new disclosures relating to fair value measurement inputs and valuation techniques (including changes in inputs and valuation techniques). We adopted ASC 820-10 during the second quarter of 2009. The adoption of ASC 820-10 had no impact on our financial position or results of operations. See Note 4 (Fair Value) for further detail.

Effective January 1, 2009, the Company adopted ASC 805-10, "Business Combinations" ("ASC 805-10"). ASC 805-10 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 ASC 805-10 did not have a material impact on our financial position or results of operations as of or for the period ended September 30, 2009.

In December 2008, the FASB issued ASC 715-10, "Employers' Disclosures about Postretirement Benefit Plan Assets" ("ASC 715-20"). ASC 715-20 is effective for fiscal years ending after December 15, 2009. ASC 715-20 increases disclosure requirements related to an employer's defined benefit pension or other postretirement plans. We plan to adopt ASC 715-10 effective December 31, 2009, 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 ASC 605-25, "Revenue Arrangements with Multiple Deliverables" ("ASC 605-25"). ASC 605-25 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. ASC 605-25 addresses some aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. We plan to adopt ASC 605-25 effective December 31, 2009, 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 September 30,                             Nine Months Ended September 30,
                                                                 % of Gross                                                   % of Gross
                       2009          2008         % change        revenues         2009           2008         % change        revenues

Local time sales     $  51,462     $  60,629            -15 %             56 %   $ 156,164     $  191,704            -19 %             58 %
National time sales     24,091        29,646            -19 %             26 %      70,463         94,542            -25 %             26 %
Political time sales     3,032        11,357            -73 %              3 %       4,915         22,678            -78 %              2 %
Digital revenues        10,393         8,114             28 %             12 %      29,529         19,737             50 %             11 %
Network compensation       903           913             -1 %              1 %       2,862          2,838              1 %              1 %
Barter revenues          1,172         1,088              8 %              1 %       3,200          3,754            -15 %              1 %
Other revenues           1,166         1,152              1 %              1 %       3,103          2,986              4 %              1 %
Total gross
revenues                92,219       112,899            -18 %            100 %     270,236        338,239            -20 %            100 %
Agency commissions     (10,848 )     (14,095 )          -23 %            -12 %     (31,873 )      (42,668 )          -25 %            -12 %
   Net revenues         81,371        98,804            -18 %             88 %     238,363        295,571            -19 %             88 %

Operating costs and expenses:
Direct operating        25,635        28,977            -12 %                       79,083         88,666            -11 %
Selling, general
and administrative      24,727        28,321            -13 %                       75,089         85,157            -12 %
Amortization of
program rights           6,317         5,856              8 %                       18,221         17,620              3 %
Corporate                4,206         3,683             14 %                       13,193         14,922            -12 %
Depreciation             7,561         7,308              3 %                       23,135         22,125              5 %
Amortization of
intangible assets           24            44            -45 %                           64            228            -72 %
Impairment of goodwill
and intangible assets        -             -              -                         39,894        296,972            -87 %
Restructuring
charge                       -             -              -                            498              -            100 %
(Gain) loss from
asset sales               (886 )          74          -1297 %                       (3,544 )         (296 )         1097 %
Total operating
costs and expenses      67,584        74,263             -9 %                      245,633        525,394            -53 %
Operating income

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 $17.4 million, or 18%, for the three months ended September 30, 2009 compared with the three months ended September 30, 2008. The decrease was primarily due to: (a) a decrease in local advertising sales of $9.2 million; (b) a decrease in national advertising sales of $5.6 million; and (c) a decrease in political advertising sales of $8.3 million. These decreases were partially offset by: (a) an increase in digital revenue of $2.3 million; (b) an increase in barter and other revenues of $0.1 million; and (c) a decrease in agency commissions of $3.3 million.

Net revenues decreased $57.2 million, or 19%, for the nine months ended September 30, 2009 compared with the nine months ended September 30, 2008. The decrease was primarily due to: (a) a decrease in local advertising sales of $35.5 million; (b) a decrease in national advertising sales of $24.1 million;
(c) a decrease in political advertising sales of $17.8 million; and (d) a decrease in network compensation, barter and other revenues of $0.4 million. These decreases were partially offset by: (a) an increase in digital revenue of $9.8 million; and (b) a decrease in agency commissions of $10.8 million.

The decrease in political advertising sales during the three and nine months ended September 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 nine months ended September 30, 2009, compared to the same period last year, is primarily due to 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 websites.

Operating Costs and Expenses

Operating costs and expenses decreased $6.7 million and $279.8 million, or 9% and 53%, for the three and nine months ended September 30, 2009 to $67.6 million and $245.6 million, respectively, compared to the same periods in 2008. The decreases for the three and nine month periods are 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 decreases were due to lower direct operating and selling, general and administrative expenses, compared to the same periods in the prior year, primarily attributable to lower employee costs as a result of headcount reductions completed during the fourth quarter of 2008 and the second quarter of 2009. The decrease in operating expenses recognized in the third quarter of 2009 was partially offset by an increase in corporate expenses due to a deferred compensation benefit that occurred in the third quarter of 2008 that did not reoccur in the third quarter of 2009.

Impairment of broadcast licenses and goodwill

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 two of our television stations. As required by ASC 350-10, "Goodwill and Other Intangible Assets", 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%.

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.

As of September 30, 2009 there were no indicators that our tangible or intangible assets were impaired.

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 $1.1 million during the three months ended September 30, 2009, compared to the same period in the prior year, primarily due to a reduction in interest expense of $2.6 million related to the purchase of a portion of our outstanding 6½% Senior Subordinated Notes and 6½% Senior Subordinated Notes - Class B in 2008 and 2009, offset by other miscellaneous expense items, including a $2.0 million charge for the impairment of a shortfall loan to the NBC joint venture.

Other (income) expense, net increased $61.5 million during the nine months ended September 30, 2009, compared to the same period in the prior year, primarily due to the gain on extinguishment of debt of $50.1 million that we recorded during the nine months ended September 30, 2009, a decrease in interest expense of $2.8 million due to lower average borrowings outstanding as a result of the purchase of our 2.50% Exchangeable Senior Subordinated Debentures in 2008, as well as a reduction in interest expense of $7.0 million, as a result of the purchase of a portion of our outstanding 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 September 30,           Nine Months Ended September 30,
                                                2009                  2008                2009                  2008
Components of interest expense
Credit Facility                            $         2,866       $         2,717     $         6,473       $         8,159
6½% Senior Subordinated Notes                        4,664                 6,337              14,561                19,078
6½% Senior Subordinated Notes -- Class B             2,750                 3,691               8,677                11,110
2.50% Exchangeable Senior Subordinated
Debentures                                               -                     -                   -                 2,803
Other interest costs                                   979                   496               2,603                   404
Total interest expense, net                $        11,259       $        13,241     $        32,314       $        41,554

(Benefit From) Provision for Income Taxes

Provision for (benefit from) income taxes increased $1.4 million and $80.6 million for the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008. The increase was primarily due to the impairment charges to our goodwill and broadcast licenses during 2008. Our effective income tax rate was 215.1% and 2.1% for the three months ended September 30, 2009 and 2008, respectively. Our effective income tax rate was 113.7% and 25.7% for the nine months ended September 30, 2009 and 2008, respectively.

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 quarter ended June 30, 2009. The operating loss for the nine months ended September 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 nine months ended September 30, 2009 reflects our 50% share of net losses of Banks Broadcasting, net of taxes, through the April 23, 2009 disposal date.

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 September 30, 2009, we had unrestricted cash and cash equivalents of $11.8 million, $2.0 million of restricted cash and a $225.0 million revolving credit facility, of which $22.0 million was available for borrowing, subject to certain covenant restrictions.

Our total outstanding debt as of September 30, 2009 was $680.8 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 . . .