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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2009

OR

For the transition period from                to                  .

COMMISSION FILE NUMBER: 000-26076

SINCLAIR BROADCAST GROUP, INC.

(Exact name of Registrant as specified in its charter)

10706 Beaver Dam Road

Hunt Valley, Maryland 21030

(Address of principal executive offices, zip code)

(410) 568-1500

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such file). Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

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SINCLAIR BROADCAST GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2009

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data) (Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data) (Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(In thousands) (Unaudited)

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and variable interest entities for which we are the primary beneficiary.  Noncontrolling interest represents a minority owner’s proportionate share of the equity in certain of our consolidated entities.  All significant intercompany transactions and account balances have been eliminated in consolidation.

Interim Financial Statements

The consolidated financial statements for the three and six months ended June 30, 2009 and 2008 are unaudited.  In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below.  We have evaluated subsequent events for recognition or disclosure through August 7, 2009, which was the date we filed this Form 10-Q with the Securities and Exchange Commission (SEC).

As permitted under the applicable rules and regulations of the SEC, the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC.  The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

Debt

As of June 30, 2009, we had $13.1 million in cash and cash equivalent balances and negative working capital of approximately $342.1 million.  Cash generated by our operations and availability under our Revolving Credit Facility are used as our primary source of liquidity.  We anticipate that cash flow from our operations and borrowing capacity under the Revolving Credit Facility will be sufficient to satisfy our debt service obligations with the exception of the potential puts related to our 3.0% Convertible Senior Notes, due 2027 (the 3.0% Notes) and 4.875% Convertible Senior Notes, due 2018 (the 4.875% Notes) discussed below, capital expenditure requirements, certain committed strategic investments and working capital needs.  As of June 30, 2009, we had drawn $104.5 million on our Revolving Credit Facility and $64.1 million of current borrowing capacity was available.

We filed a $500.0 million universal shelf registration statement with the SEC which became effective April 22, 2009.  We may use the universal shelf registration statement to issue common and preferred equity, debt securities and securities convertible into equity, however, our ability to issue securities pursuant to this registration may be hindered due to negative capital markets.

Currently, we are exploring alternative solutions relative to the potential put to us by the holders of our 3.0% Notes and 4.875% Notes in May 2010 and January 2011, respectively.  We have initiated discussions regarding possible alternatives with holders of these notes.  However, there is no assurance that such discussions will produce any alternative solutions and we may not be able to refinance or extinguish these notes by the respective put dates.  Any inability to refinance or retire such notes on their respective put dates could have a significant negative impact on our operating results, the value of our securities and our financial condition, and could cause us to consider other restructuring and deleveraging alternatives including a voluntary bankruptcy filing under Chapter 11 of the U.S. Bankruptcy Code.  As of June 30, 2009, the face values of our 3.0% Notes and 4.875% Notes were $294.3 million and $143.5 million, respectively.

Cunningham Broadcasting Corporation (Cunningham), one of our consolidated VIEs, holds a $33.5 million term loan facility originally entered into on March 20, 2002, with an unrelated third party.  Interest is paid quarterly at a rate of LIBOR plus 1.5%.  Primarily all of Cunningham’s assets are collateral for its term loan facility, which is non-recourse to us.   Cunningham’s term loan facility was declared in default as of June 5, 2009 for failure to timely deliver certain annual financial statements. Effective as of June 5, 2009, a default interest rate of LIBOR plus 3.5% has been instituted on all outstanding borrowings under the facility.  On June 30, 2009, the default was waived and the termination date of the Cunningham term loan facility was extended from June 30, 2009 to July 31, 2009, subject to certain conditions, including maintaining the default interest rate.  On July 31, 2009, the Cunningham term

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loan facility was extended to October 30, 2009. The extension requires that Cunningham make $0.2 million principal payments on its term loan facility as of the first day of each of August, September and October with the balance due on October 30, 2009.  Our Bank Credit Agreement contains certain cross-default provisions with respect to Cunningham as a “Material Third Party Licensee,” as defined in the Bank Credit Agreement, pursuant to which a default would be caused by the institution of insolvency or similar proceedings, either voluntary or involuntary, with respect to Cunningham, resulting in potential acceleration under our Bank Credit Agreement.  To delay or avoid any potential bankruptcy of Cunningham, during the extension, Cunningham and its lenders are working toward a resolution.

As of the filing date, our credit ratings, as assigned by Moody’s Investor Services (Moody’s) and Standard & Poor’s Ratings Services (S&P) were:

On June 16, 2009 and June 19, 2009, Moody’s and S&P, respectively, reduced the rating of the 4.875% Notes, due 2018 two notches.  As a result, any holder of the 4.875% Notes may surrender all or any portion of their notes for a conversion into our Class A common stock at any time at the then-applicable conversion rate.  As of June 30, 2009, holders of the 4.875% Notes have the option to convert each $1,000 of principal amount of the 4.875% Notes held into 44.7015 shares of common stock at a conversion price of approximately $22.37 per share.

As of June 30, 2009 our debt totaled $1,317.8 million, of which $430.3 million relates to our 3.0% Notes, and 4.875% Notes, face value $294.3 million and $143.5 million, respectively, and $406.3 million related to our Bank Credit Agreement, which includes $104.5 million drawn on the revolving credit facility of our Bank Credit Agreement as of the same date.  Our total debt includes notes payable, capital leases and commercial bank financing, including current and long-term portions.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (FAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (FAS 160).  This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity.  The amount of net income attributable to the noncontrolling interest is included in consolidated net income on the face of the statement of operations.  Changes in a parent’s ownership interest that result in deconsolidation of a subsidiary will result in the recognition of a gain or loss in net income when the subsidiary is deconsolidated.  FAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.  This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  We applied the requirements of FAS 160 to our consolidated financial statements resulting in a change to the presentation of loss attributable to noncontrolling interest and net income (loss) attributable to Sinclair Broadcast Group on the face of the income statement for the three months and six months ended June 30, 2008 and 2009.  We also reclassified minority interest in consolidated entities at December 31, 2008 and June 30, 2009 to the equity (deficit) section of the balance sheet and renamed it noncontrolling interest.

In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement).  This FSP requires issuers of convertible debt instruments that may be settled in cash upon conversion to account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.  Issuers were required to determine the carrying value of just the liability portion of the debt by measuring the fair value of a similar liability (including any embedded features other than the conversion option) that does not have an associated equity component.  The excess of the initial proceeds received from the debt issuance and the fair value of the liability component are recorded as a debt discount with the offset recorded to equity.  The discount is amortized to interest expense using the interest method over the life of a similar liability that does not have an associated equity component.  Transaction costs incurred with third parties shall be allocated between the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively, with the debt issuance costs amortized to interest expense.  This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  In 2009, we recorded the impact of this statement retrospectively by recording additional interest expense on our 3.0% Notes related to the amortization of the debt discount and deferred financing costs of approximately $2.5 million for the three months ended June 30, 2008 and approximately $5.0 million for the six months ended June 30, 2008.  As of December 31, 2008 accumulated deficit increased, net of taxes, $8.8 million and additional paid in capital increased $17.5 million as a result of the retrospective impact of this statement.  In addition, the adjusted net income attributable to Sinclair Broadcast Group for the three months and six months ended June 30, 2008 decreased $1.5 million and $2.9 million, respectively, with a resulting decrease to earnings per share of $0.02 and $0.03, respectively.  For the three

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months and six months ended June 30, 2009, this FSP increased our net loss attributable to Sinclair Broadcast Group approximately $1.2 million and $3.2 million, respectively, and resulted in an approximate increase to loss per share of $0.01 and $0.04, respectively.

As of June 30, 2009 and December 31, 2008, the carrying amount of the equity component of the 3.0% Notes was $30.4 million.  As of June 30, 2009 the net carrying amount of the liability component was $286.8 million which is comprised of the principal amount of $294.3 million and the unamortized discount of $7.5 million.  As of December 31, 2008 the net carrying amount of the liability component was $331.2 million which is comprised of the principal amount of $345.0 million and the unamortized discount of $13.8 million.  The unamortized discount of $7.5 million as of June 30, 2009 will be amortized through May 15, 2010 which is the first date at which the holders of the 3.0% Notes have the right to require us to repurchase the notes for cash.  The 3.0% Notes have call and put options features, therefore at the 3.0% Notes issuance date it was probable that they would be extinguished or refinanced by May 2010.  During the six months ended June 30, 2009, we repurchased, in the open market, $50.7 million face value of the 3.0% Notes for $30.0 million.  For the six months ended June 30, 2009 we recognized a gain on these extinguishments of $18.5 million.

As of June 30, 2009, the conversion price of the 3.0% Notes was $19.65 per share and the number of shares of Class A Common Stock that would be delivered upon conversion was 14,975,929.

The effective interest rate on the 3.0% Notes at June 30, 2009 and 2008 was 6.35%.  For the three months ended June 30, 2009 and 2008, we recorded interest expense related to the contractual coupon on the debt of $2.2 million and $2.6 million, respectively and interest expense related to the amortization of the discount of $2.1 million and $2.5 million, respectively.  For the six months ended June 30, 2009 and 2008, we recorded interest expense related to the contractual coupon on the debt of $4.6 million and $5.2 million, respectively and interest expense related to the amortization of the discount of $4.5 million and $5.0 million, respectively.

In March 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies.  This FSP requires that an asset or liability arising from a contingency in a business combination be recognized at fair value if fair value can be reasonably determined.  If the fair value cannot be reasonably determined, the asset or liability should be accounted for in accordance with FASB Statement No. 5, Accounting for Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss.  This FSP requires that assets and liabilities arising from contingencies be subsequently measured and accounted for using a systematic and rational basis depending on their nature.  This FSP is effective for acquisitions that occur on January 1, 2009 or later.  We did not make any acquisitions during 2009.  This FSP could have a material effect on our consolidated financial statements if we make future acquisitions.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of an Intangible Asset. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, Goodwill and Other Intangible Assets (FAS 142).  This guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. Historical experience renewing or extending similar arrangements or in the absence of such experience, assumptions that market participants would use about renewal or extension adjusted for entity specific factors mentioned in FAS 142 should be considered.   This FSP includes expanded disclosure requirements that enable users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement.  This FSP is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.  The guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date.  The disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.  This FSP could have a material effect on our consolidated financial statements if we make future acquisitions.

In April 2009, the FASB issued FSP 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.  This FSP identifies the factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability when compared with normal market activity for the asset or liability and factors to consider related to whether a transaction is orderly. When there has been a significant decrease in the volume of activity or the transaction is not orderly, a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with FASB Statement No. 157, Fair Value Measurements.  This FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for the quarter ended after March 15, 2009.  This FSP does not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.  This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Reporting, to require fair value disclosures of financial instruments in interim and annual financial statements.  This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  In periods after the initial adoption, this FSP requires comparative disclosures only for periods ending subsequent to the initial adoption.  We have added the required disclosures to our consolidated financial statements beginning with the quarter ended June 30, 2009.

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In May 2009, the FASB issued FAS No. 165, Subsequent Events.   This standard establishes general standards of accounting for and disclosure of events that occur subsequent to the balance sheet date but before financial statements are issued or are available to be issued.  This statement does not result in significant changes in the subsequent events that an entity reports in its financial statements.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date financial statements were issued or were available to be issued.  This disclosure would alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented.  The standard is effective for periods ending after June 15, 2009.  We have added this disclosure to our consolidated financial statements beginning with the quarter ended June 30, 2009.

In June 2009, the FASB issued FAS No. 167, Consolidation of Variable Interest Entities.  This statement amends certain requirements of FASB Interpretations No. 46(R), Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51, to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  The new standard will require a number of new disclosures and companies are required to perform ongoing reassessments of whether they are the primary beneficiary of a variable interest entity.  This statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  We have not determined the impact that this statement will have on our consolidated financial statements.

In June 2009, the Emerging Issues Task Force issued a consensus for exposure on Issue No. 08-1, Revenue Arrangements with Multiple Deliverables.  This Issue amends Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, and allows the use of an estimated selling price for the undelivered units of accounting in transactions in which vendor-specific objective evidence (VSOE) or third-party evidence (TPE) does not exist.  Issue 08-1 requires the use of the residual method when allocating arrangement consideration between the delivered and undelivered units of accounting if VSOE and TPE of selling price does not exist for all units of accounting.  This Issue also requires additional disclosures including the amount of revenue recognized each reporting period and the amount of deferred revenue as of the end of each reporting period under Issue 00-21 and Issue 08-1.  This Issue is effective for annual reporting periods beginning December 15, 2009 and should be applied prospectively to revenue arrangements entered into or materially modified after the effective date.  We have not determined the impact that this Issue will have on our consolidated financial statements.

In June 2009, the FASB issued FAS No. 168, FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162, which makes the FASB Accounting Standards Codification (the Codification) as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (U.S. GAAP).  The Codification significantly changes the way that accounting literature is organized but does not change U.S. GAAP.  The Codification completely replaces the existing accounting standards and therefore it will affect the way U.S. GAAP is referenced by companies in their existing financial statements and accounting policies.  The Codification is effective for interim and annual reporting periods ending after September 15, 2009.  We do not believe that this FSP will have a material impact on our consolidated financial statements.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities.  Actual results could differ from those estimates.

Other Operating Divisions Segment Acquisitions

For the six months ended June 30, 2009, we purchased an additional interest in Bay Creek South, LLC for $5.0 million of which $3.0 million has been paid to date.  The remaining $2.0 million due will be paid throughout the remaining part of 2009.

Investments

During the six months ended June 30, 2009, we made add-on cash investments of $5.0 million in our real estate ventures and $1.1 million in private investment funds.  As of the filing date, in third quarter 2009, we made add-on cash investments of $0.5 million in our real estate ventures.

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three and six months ended June 30, 2009, respectively, is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interest.

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Our effective income tax rate for the three months ended June 30, 2009 was greater than the statutory rate primarily due to a valuation allowance provided for a portion of our deferred tax asset related to our federal net operating loss forecasted for 2009.

Our effective income tax rate for the six months ended June 30, 2009 is lower than the statutory rate primarily due to impairments of certain indefinite-lived intangible assets recorded in the first quarter of 2009 that are not deductible for income tax purposes. We recorded $130.1 million in impairment charges related to our goodwill, broadcast licenses and other assets. Impairment of $51.6 million is permanently not deductible for income tax purposes and was treated as a discrete item thereby reducing our effective tax rate. The abovementioned increase to valuation allowance also contributed to a reduction in our income tax benefit and our effective tax rate for the six months ended June 30, 2009.

Reclassifications

Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current year’s presentation.

2.              COMMITMENTS AND CONTINGENCIES:

Litigation

We are a party to lawsuits and claims from time to time in the ordinary course of business.  Actions currently pending are in various preliminary stages and no judgments or decisions have been rendered by hearing boards or courts in connection with such actions.  After reviewing developments to date with legal counsel, our management is of the opinion that the outcome of our pending and threatened matters will not have a material adverse effect on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.

FCC License Renewals

In April 2009, the FCC granted the license renewal applications of WICD-TV in Springfield, Illinois; WPMY-TV in Pittsburgh, Pennsylvania and WUHF-TV in Rochester, New York.

The FCC has found that some network programming broadcast contains indecent material, including partial nudity or unacceptable language.  We believe the FCC standards relating to indecency have been inconsistently applied.  The FCC is currently withholding action on a number of station renewal applications due to indecency complaints, and in other cases has taken action only after licensees, including us, have entered into agreements tolling the statute of limitations on such matters.  A number of appeals of the FCC’s indecency rulings are currently being contested.   On April 28, 2009 the Supreme Court overturned a decision of the U.S. Court of Appeals for the Second Circuit and held that the FCC’s indecency policy regarding “fleeting expletives” was not arbitrary and capricious.  However, the Supreme Court did not rule on whether or not the FCC’s “fleeting expletives” policy violated the First Amendment, and remanded the case to the Second Circuit to rule on the constitutional issue.  At this time, the matter remains pending.  This decision and the FCC’s unclear policy make it difficult for us to determine what may be indecent programming, and makes it difficult to air “live” programming.

Network Affiliation Agreements

As of June 30, 2009, we had 20 MyNetworkTV affiliates, including three affiliates operating on a digital sub-channel only.  On February 9, 2009, MyNetworkTV announced that it was moving to a new program services model pursuant to which it would obtain for its affiliates popular programming that has previously aired on other networks, rather than continuing to provide first-run programming as is generally the case in a typical network model.  MyNetworkTV advised us that in connection with this change to what it refers to as a “hybrid” model it believes it had the right to terminate all of its existing affiliate agreements and negotiate new agreements for this programming service with the television stations that have been MyNetworkTV affiliates.  On March 3, 2009, we received notice from MyNetworkTV claiming that they will cease to exist as a network and therefore, are terminating each of our affiliation agreements effective September 26, 2009.  On March 25, 2009, we entered into a one year agreement with a party related to MyNetworkTV to provide our MyNetworkTV stations with programming during the following year for the time periods previously programmed by MyNetworkTV, excluding programming for Saturday night.  We continue to brand our stations as MyNetworkTV.

3.              GOODWILL, BROADCAST LICENSES AND OTHER INTANGIBLE ASSETS:

Goodwill and broadcast licenses are required to be tested for impairment at least annually.  We test our broadcast licenses and goodwill annually during the fourth quarter each year and between annual evaluations if events occur or circumstances change that indicate that the fair value of our reporting units or licenses may be below their carrying amount.  Due to the severity of the

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economic downturn and the decrease in our market capitalization in the first quarter of 2009, we tested our goodwill and broadcast licenses for impairment in the first quarter of 2009 similar to the testing performed in the fourth quarter of 2008.

When evaluating whether goodwill is impaired, we aggregate our stations by market for purposes of our goodwill impairment testing.  We believe that our markets are most representative of our broadcast reporting units because we view, manage and evaluate our stations on a market basis.  Furthermore, in our markets operated as duopolies, certain costs of operating the stations are shared including the use of buildings and equipment, the sales force and administrative personnel.  We then compare the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. We estimate the fair market value of our reporting units using a combination of quoted market prices, observed earnings/cash flow multiples paid for comparable television stations, and discounted cash flow models.  Our discounted cash flow model is based on our judgment of future market conditions within each designated market area, as well as discount rates that would be used by market participants in an arms-length transaction.  If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value.

When evaluating our broadcast licenses for impairment, the testing is done at the unit of accounting level using the income approach method. The income approach method involves an eight-year model that incorporates several variables, including, but not limited to, discounted cash flows of a typical market participant, market revenue and long term growth projections, estimated market share for the typical participant and estimated profit margins based on market size and station type. The model also assumes outlays for capital expenditures, future terminal values, an effective tax rate assumption and a discount rate based on the weighted-average cost of capital of the television broadcast industry.

The impairment charge taken in the first quarter of 2009 was primarily due to the severe economic downturn and continued decrease in our market capitalization and, as a result, we made further revisions to our forecasted cash flows, cash flow multiples and discount rates.  Broadcast licenses were impaired in 28 of 35 markets.  The fair value of the broadcast licenses was $85.3 million.  We recorded goodwill impairment in three markets including Cedar Rapids, Iowa; Charleston, West Virginia; and Madison, Wisconsin.  The implied fair value of the goodwill assigned to these three markets for which we were required to calculate this amount was $10.8 million.  The fair value measurements for both our implied goodwill and broadcast licenses use significant unobservable Level 3 inputs which reflect our own assumptions about the assumptions that market participants would use in measuring fair value including assumptions about risk.  The key assumptions used to determine the fair value of our reporting units to test our goodwill for impairment and to determine the fair value of our broadcast licenses in the first quarter of 2009 were as follows:

There was no impairment related to broadcast assets recorded for the quarter ended June 30, 2009.  During the three months ended June 30, 2008, certain events led us to test our goodwill associated with an other operating division company, Acrodyne Communications, Inc. As a result of this testing, we recorded a $1.6 million impairment charge in our consolidated statements of operations.

As of June 30, 2009, the carrying amount of our broadcast licenses related to continuing operations was as follows (in thousands):

(a)          An impairment of $4.4 million was recorded against purchase option assets included in other assets in the consolidated balance sheet.  These purchase options give us the right to purchase the license assets of certain stations.

(b)         Approximately $6.0 million of broadcast licenses relate to consolidated variable interest entities as of June 30, 2009.

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The change in the carrying amount of goodwill related to continuing operations was as follows (in thousands):

Definite-lived intangible assets and other assets subject to amortization are being amortized on a straight-line basis over periods of 5 to 25 years.  These amounts result from the acquisition of certain television station non-license assets.  We analyze specific definite-lived intangibles for impairment when events occur that may impact their carrying values.

4. DERIVATIVE INSTRUMENTS:

We enter into derivative instruments primarily to reduce the impact of changing interest rates on our floating rate debt and to reduce the impact of changing fair market values on our fixed rate debt.

In February 2008, the counterparty to two of our then existing interest rate swap agreements, elected to change the termination dates of the $180.0 million and $120.0 million swaps to March 25, 2008 and March 26, 2008, respectively.  We received a termination fee of $3.2 million from the counterparty for the early termination of the $120.0 million swap.  After the removal of the related $2.4 million derivative asset from our consolidated balance sheet, the resulting $0.8 million, along with $0.2 million of interest was recorded in gain from derivative instruments in the consolidated statements of operations.  We received a termination fee of $4.8 million from the counterparty for the early termination of the $180.0 million swap.  The carrying value of the underlying debt was adjusted to reflect the $4.8 million termination fee and that amount is treated as a premium on the underlying debt that was being hedged and is amortized over its remaining life as a reduction to interest expense.  The total termination fees received of $8.0 million are included in the cash flows from financing activities section of the consolidated statement of cash flows for the six months ended June 30, 2008.

In March 2009, a company in our other operating divisions segment was required to enter into an interest rate swap agreement pursuant to its underlying credit agreement.  The swap fixes the interest rate on its variable rate debt which is non-recourse to us.  The notional amount of the swap is $10.0 million and the expiration date is February 28, 2011.  The interest we pay on the swap is fixed at 1.59% and we receive interest based on three-month LIBOR.  The swap is accounted for as a derivative and changes in the fair market value are reflected as an adjustment to income.  For each of the three and six months ending June 30, 2009, we recorded $0.1 million as loss on derivative instrument related to this swap agreement.

5.              EARNINGS (LOSS)  PER SHARE:

The following table reconciles income (loss) (numerator) and shares (denominator) used in our computations of earnings (loss) per share for the three and six months ended June 30, 2009 and 2008 (in thousands):

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We applied the treasury stock method to measure the dilutive effect of our outstanding stock options awards and include the respective common share equivalents in the denominator of the diluted EPS computation. For the three and six months ended June 30, 2009 and 2008, our outstanding stock options, our 4.875% Notes, our 6.0% Convertible Debentures, due 2012 (the 6.0% Debentures), our 3.0% Notes and our outstanding SARs were excluded from our diluted EPS computation.

6.              RELATED PERSON TRANSACTIONS:

David, Frederick, Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of the Class B Common Stock.  During each of the periods presented in the accompanying consolidated financial statements, we engaged in transactions with them, their immediate family members and/or entities in which they have substantial interests (collectively, affiliates).

Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications, Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by some or all of the controlling shareholders).  Lease payments made to these entities were $1.1 million and $1.2 million for the three months ended June 30, 2009 and 2008, respectively.  Lease payments made to these entities were $2.3 million and $2.4 million for the six months ended June 30, 2009 and 2008, respectively.

In January 1999, we entered into a local marketing agreement (LMA) with Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in Tampa, Florida.  Our controlling shareholders own a controlling interest in Bay TV.  Lease payments made to Bay TV were $0.4 million for each of the three months ended June 30, 2009 and 2008 and $0.9 million for each of the six months ended June 30, 2009 and 2008.  Additional payments were made of $1.3 million and $1.5 million for the six months ended June 30, 2009 and 2008 related to the excess adjusted broadcast cash flow for the years ended December 31, 2008 and 2007, respectively.  We received $0.1 million for each of the three months ended June 30, 2009 and 2008 and $0.3 million for each of the six months ended June 30, 2009 and 2008 from Bay TV for certain equipment leases.

We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company which owns automobile dealerships and an automobile leasing company.  David D. Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive.  Our stations in Baltimore, Maryland and Norfolk, Virginia received payments for advertising time totaling less than $0.1 million and $0.2 million for the three months ended June 30, 2009 and 2008.  For the six months ended June 30, 2009 and 2008, we received payments for advertising time totaling $0.2 million and $0.4 million, respectively.  We paid less than $0.1 million and $0.2 million for vehicles and related vehicle services from Atlantic Automotive during the three months ended June 30, 2009 and 2008, respectively.  For the six months ended June 30, 2009 and 2008, we paid $0.2 million and $0.5 million, respectively, for vehicles and related vehicle services.

Basil A. Thomas, a member of our Board of Directors, is the father of Steven A. Thomas, a partner and founder of Thomas & Libowitz, P.A., a law firm providing legal services to us on an ongoing basis.  We paid fees of $0.4 million and $0.2 million to Thomas & Libowitz during the three months ended June 30, 2009 and 2008, respectively.  For the six months ended June 30, 2009 and 2008, we paid fees of $0.6 million and $0.5 million to Thomas & Libowitz, respectively.

We have LMAs with Cunningham Broadcasting Corporation (Cunningham), which is owned by trusts established by a parent of our controlling shareholders, for the benefit of her and her grandchildren, and subject to our rights, limited by applicable FCC rules and regulations, to acquire it, pursuant to which we operate WTAT-TV in Charleston, South Carolina, WVAH-TV in Charleston, West Virginia, WRGT-TV in Dayton, Ohio WMYA-TV in Anderson, South Carolina, WNUV-TV in Baltimore, Maryland and WTTE-TV in Columbus, Ohio.  We made payments to Cunningham under LMA agreements of $1.5 million and $2.6 million for the three months ended June 30, 2009 and 2008, respectively.  For the six months ended June 30, 2009 and 2008, we made payments to Cunningham of $3.1 million and $3.8 million, respectively, relating to LMA agreements.  A portion of the monthly payment is allocated as a reduction to the Cunningham option exercise price.  See Note 1. Summary of Significant Accounting Policies for more information related to Cunningham.

7.              SEGMENT DATA:

During 2008, we determined we have two reportable operating segments, “broadcast” and “other operating divisions” that are disclosed separately from our corporate activities.  We have restated prior period information to reflect our new segments.  We measure segment performance based on operating income (loss).  Our broadcast segment includes stations in 35 markets located predominately in the eastern, mid-western and southern United States.  Currently, our other operating divisions segment primarily earns revenues from information technology staffing, consulting and software development; transmitter manufacturing; sign design and fabrication; regional security alarm operating and bulk acquisitions; and real estate ventures.  All of our other operating divisions are located within the United States.  Corporate costs primarily include our costs to operate as a public company and to operate our corporate headquarters location.  Corporate is not a reportable segment. We had $130.1 million and $106.2 million of

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intercompany loans between the broadcast segment, operating divisions segment and corporate as of June 30, 2009 and 2008, respectively.  We had $3.1 million and $2.3 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions segment and corporate for the three months ended June 30, 2009 and 2008, respectively.  For the six months ended June 30, 2009 and 2008, we had $6.2 million and $3.8 million in intercompany interest expense.  All other intercompany transactions are immaterial.

Financial information for our operating segments are included in the following tables for the three and six months ended June 30, 2009 and 2008 (in thousands):