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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2002

or

For the transition period from:    Not Applicable        

Commission file number 1-14776

Hearst-Argyle Television, Inc.

(Exact Name of Registrant as Specified in Its Charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act  Rule 12-b2). Yes x No ¨

The aggregate market value of the registrant’s voting common stock held by non-affiliates on March 18, 2003, based on the closing price for the registrant’s Series A Common Stock on such date as reported on the New York Stock Exchange (the “NYSE”), was approximately $611,094,241.36.

Shares of the registrant’s Common Stock outstanding as of March 18, 2003: 92,510,756 shares (consisting of 51,212,108 shares of Series A Common Stock and 41,298,648 shares of Series B Common Stock).

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement relating to the 2003 Annual Meeting of Stockholders are incorporated by reference into Part III (Items 10, 11, 12 and 13).

FORWARD-LOOKING STATEMENTS

THIS REPORT INCLUDES OR INCORPORATES FORWARD-LOOKING STATEMENTS. THE COMPANY HAS BASED THESE FORWARD-LOOKING STATEMENTS ON THE COMPANY’S CURRENT EXPECTATIONS AND PROJECTIONS ABOUT FUTURE EVENTS. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT, CONCERNING, AMONG OTHER THINGS, TRENDS INVOLVING NET REVENUES, CASH FLOW AND OPERATING EXPENSES, INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS, INCLUDING THE IMPACT OF CHANGES IN NATIONAL AND REGIONAL ECONOMIES, THE COMPANY’S ABILITY TO SERVICE AND REFINANCE ITS OUTSTANDING DEBT, SUCCESSFUL INTEGRATION OF ACQUIRED TELEVISION STATIONS (INCLUDING ACHIEVEMENT OF SYNERGIES AND COST REDUCTIONS), PRICING FLUCTUATIONS IN LOCAL AND NATIONAL ADVERTISING, FUTURE REGULATORY ACTIONS AND CONDITIONS IN THE TELEVISION STATIONS’ OPERATING AREAS, COMPETITION FROM OTHERS IN THE BROADCAST TELEVISION MARKETS SERVED BY THE COMPANY, VOLATILITY IN PROGRAMMING COSTS, THE EFFECTS OF GOVERNMENTAL REGULATION OF BROADCASTING, INDUSTRY CONSOLIDATION, TECHNOLOGICAL DEVELOPMENTS, AND MAJOR WORLD NEWS EVENTS. OTHER MATTERS SET FORTH IN THIS REPORT, OR IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE MAY ALSO CAUSE ACTUAL RESULTS IN THE FUTURE TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. IN LIGHT OF THESE RISKS, UNCERTAINTIES AND ASSUMPTIONS, THE FORWARD-LOOKING EVENTS DISCUSSED IN THIS REPORT MIGHT NOT OCCUR.

PART I

ITEM 1.    BUSINESS

General

Hearst-Argyle Television, Inc. (the “Company”) owns or manages 27 television stations that reach approximately 17.7% of U.S. television households, as well as two radio stations. The Company is one of the country’s largest independent, or non-network-owned, television station groups. The Company’s 12 ABC affiliated television stations cover 8.1% of U.S. television households and comprise the largest ABC affiliate group. The Company’s 10 NBC affiliated television stations cover 7.1% of U.S. television households and comprise the second largest NBC affiliate group. The Company also owns two CBS affiliated television stations and one WB station, and manages one UPN station and one independent station. The Company’s network relationships have expanded over the years to include several strategic joint ventures in the areas of programming, production, syndication, cable retransmission and the Internet, among others.

The Company provides, through its local television stations, free over-the-air programming to television viewing audiences in the communities it serves. The Company’s programming includes network produced programs, locally produced news and entertainment and acquired syndication programs. The Company’s television stations serve the public interest of the local communities in which they operate. Public service announcements, community service projects and political coverage are among the many activities in which the Company is actively engaged.

The Company’s primary source of revenue is the sale of commercial air time to its advertising customers. The Company’s objective is to meet the needs of its advertising customers by delivering mass audiences in key demographics, primarily in the top 100 U.S. markets. The Company’s strategy is to achieve this objective through leadership in local news programming and by providing compelling network and syndicated programs to its viewing audience. Our leadership in local news is driven by the journalistic excellence our stations have demonstrated in the areas of national and local event programming, breaking news, major weather stories and political coverage of issues, candidates, debates, and elections. The leadership of the Company’s television stations is measured by share of demographic audience. The Company typically ranks either first or second in local evening news in 18 of the 23 markets where the Company produces news.

In addition to offering advertising customers over-the-air commercial time, the Company offers customers a variety of marketing programs, including events, sponsorships, fairs, and Internet advertising. Each of the Company’s stations operate a local, Internet-accessed website which provides viewing audiences with additional programming content and advertising customers with an additional distribution channel to reach customers.

For the period ending December 31, 2002, the Company had revenues of $721.3 million, employed 3,179 employees and operated in 24 U.S. markets. The Company is organized under the laws of the State of Delaware and its principal executive offices are located at 888 Seventh Avenue, New York, New York 10106, and its telephone number is (212) 887-6800. The Company’s Series A Common Stock is listed on the New York Stock Exchange under the symbol “HTV”.

Company Background

On August 29, 1997, the Company consummated a merger transaction (the “Hearst Transaction”) whereby The Hearst Corporation (“Hearst”) contributed its television broadcast group and related broadcast operations (the “Hearst Broadcast Group”) to the Company and the Company merged with a wholly-owned subsidiary of Hearst. The Company, which was formed in 1994 as a Delaware corporation under the name Argyle Television, Inc. (“Argyle”), was the surviving corporation of the merger and was renamed “Hearst-Argyle Television, Inc.” The Company began its business operations in January 1995 with the acquisition of three television stations.

Hearst entered the broadcasting business in 1928 with its acquisition of radio station WSOE in Milwaukee, Wisconsin. In the 1930s, Hearst acquired radio station WTAE in Pittsburgh, Pennsylvania, and radio station WBAL in Baltimore, Maryland. In 1948, Hearst launched its first television station, WBAL-TV, in Baltimore, Maryland, which was the nation’s 19^th television station. That same year, WLWT-TV, in Cincinnati, Ohio, later to become an Argyle station, was launched as the nation’s 20^th television station. WDSU-TV, New Orleans, Louisiana, later to become a Company station, was also launched in 1948. In the 1950s, television licenses were granted to Hearst for WTAE-TV, Pittsburgh, Pennsylvania and WISN-TV, Milwaukee, Wisconsin. In the 1980s, Hearst acquired WDTN-TV, in Dayton, Ohio, KMBC-TV, in Kansas City, Missouri, and WCVB-TV, in Boston, Massachusetts. (WDTN-TV was exchanged for another television station in 1998 to comply with Federal Communications Commission (“FCC”) ownership rules then in effect. See “Federal Regulation of Television Broadcasting”). In the 1990s, Hearst acquired WTMV-TV (now WMOR-TV), in Tampa, Florida, and WPBF-TV, in West Palm Beach, Florida, and launched KCWB-TV (now KCWE-TV), in Kansas City, Missouri through a local marketing agreement.

Since the Hearst Transaction, the Company has acquired additional television stations through certain asset purchase, asset exchange or merger transactions, including merger transactions in 1999 with Pulitzer Publishing Company (“Pulitzer”), whereby the Company acquired Pulitzer’s nine television stations and five radio stations, and with Kelly Broadcasting Company applicable to the Company’s television stations in Sacramento, California, and an asset acquisition in 2001 of WMUR-TV, Manchester, New Hampshire (an Imes Communications television station), from WMUR-TV, Inc.

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The Company also holds certain equity investments in Internet Broadcasting Systems, Inc. (“IBS”), ProAct Technologies Corp. (“ProAct”) (formerly Consumer Financial Network, Inc.) and NBC/Hearst-Argyle Syndication, LLC. The Company and IBS have formed a series of local partnerships for the development and management of local news/information/entertainment websites. ProAct provides on-line human resources support to corporations. NBC/Hearst-Argyle Syndication, LLC is a limited liability company formed by NBC Enterprises and the Company as a joint venture to produce and syndicate first-run broadcast and original-for-cable programming. In addition, the Company acquired a minor interest in the Arizona Diamondbacks major league baseball team in connection with the merger transaction with Pulitzer.

As of March 18, 2003, Hearst owned, through its wholly-owned subsidiaries, Hearst Holdings, Inc., a Delaware corporation (“Hearst Holdings”), and Hearst Broadcasting, Inc., a Delaware corporation (“Hearst Broadcasting”), 100% of the issued and outstanding shares of Series B Common Stock, par value $.01 per share, of the Company (the “Series B Common Stock,” and together with the Series A Common Stock, par value $.01 per share, of the Company, the “Series A Common Stock,” the “Common Stock”) and approximately 37.72% of the issued and outstanding shares of the Series A Common Stock, representing in the aggregate approximately 65.52% of the outstanding voting power of the Common Stock. On March 18, 2003, Hearst Broadcasting also owned 300,000 Series A Redeemable Convertible Preferred Securities due 2016 and 500,000 Series B Redeemable Convertible Preferred Securities due 2021 that were issued by Hearst-Argyle Capital Trust, a wholly-owned subsidiary trust of the Company. Hearst Broadcasting may convert the Series A Redeemable Convertible Preferred Securities and Series B Redeemable Convertible Preferred Securities for securities of the Company that are convertible into 1,587,670 shares of the Company’s Series A Common Stock, representing in the aggregate approximately 1.69% of the outstanding voting power of the Common Stock as of March 18, 2003.

Through its ownership of the Series B Common Stock, Hearst Broadcasting is entitled to elect as a class all but two members of the Board of Directors of the Company (the “Board”). Holders of the Series A Common Stock, together with the Company’s Series A Preferred Stock, par value $.01 per share, and Series B Preferred Stock, par value $.01 per share, are entitled to elect the remaining two members of the Board. In connection with Hearst’s contribution of its broadcast group to Argyle on August 29, 1997, Hearst agreed that, for as long as it held any shares of Series B Common Stock and to the extent that Hearst during such time also held any shares of Series A Common Stock, it would vote its shares of Series A Common Stock with respect to the election of directors only in the same proportion as the shares of Series A Common Stock not held by Hearst are so voted.

The Stations

Of the 27 television stations the Company owns or manages, 20 are in the top 50 of the 210 generally recognized geographic designated market areas (“DMAs”) according to Nielsen Media Research (“Nielsen”) estimates for the 2002-2003 television broadcasting season. The Company owns 24 television stations. In addition, the Company manages three television stations (WMOR-TV in the Tampa, Florida market, WPBF-TV in the West Palm Beach, Florida market and KCWE-TV in the Kansas City, Missouri market) and two radio stations (WBAL (AM) and WIYY (FM) in Baltimore, Maryland), all of which, except KCWE-TV, are owned by Hearst. The Company’s management of KCWE-TV allows Hearst to fulfill its obligations under a Program Service and Time Brokerage Agreement between Hearst and the licensee of KCWE-TV (the “Missouri LMA”).

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The following table sets forth certain information for each of the Company’s owned and managed television stations:

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The following table sets forth certain information for each of the Company’s managed radio stations:

The Company has an option to acquire WMOR-TV and Hearst’s interests and option with respect to KCWE-TV (together with WMOR-TV, the “Option Properties”), as well as a right of first refusal with respect to WPBF-TV (if such station is proposed by Hearst to be sold to a third party). The right of first refusal and the option period for each Option Property terminate in August 2003. The purchase price for the Option Properties is the fair market value of the station as determined by the parties, or an independent third-party appraisal, subject to certain specified parameters. If Hearst elects to sell an Option Property prior to the commencement of, or during, the option period, the Company will have a right of first refusal to acquire such Option Property. The exercise of the option and the right of first refusal will be by action of the independent directors of the Company, and any option exercise may be withdrawn by the Company after receipt of the third-party appraisal.

Network Affiliations

General.    Each of the Company’s owned or managed television stations (collectively, the “Stations”) is affiliated with one of the following networks pursuant to a network affiliation agreement: ABC, NBC, CBS, UPN and WB (each, a “Network”), except WMOR-TV in Tampa, Florida, which was for two years a WB affiliate and is currently operating as an independent station. Each affiliation agreement provides the affiliated Station with the right to rebroadcast all programs transmitted by the Network with which the Station is affiliated. In return, the Network has the right to sell a substantial majority of the advertising time during such broadcasts. The long established networks have traditionally paid compensation to an affiliate in exchange for the broadcasting of network programming. In recent years, network compensation has been sharply reduced and in the future it may be eliminated. The Company’s affiliation agreements with NBC referred to below provide for compensation that is weighted toward the first part of the term and declines to zero by the end of the term. The more recently established networks (FOX, UPN, WB and PAX) generally pay little or no cash compensation for the clearance of network programming. The Company seeks to maintain business relationships with the Networks which are broader than the matters covered by the terms of the affiliation agreements. The affiliation agreements focus on specific operational matters that include provisions for renewal, term, program time periods and network compensation, among other provisions. Affiliate agreements have been modified over time to reflect the adaptation and evolution of the relationship to ensure competitiveness and viability in a very dynamic industry. With a few exceptions, the Company’s network affiliation relationships span many decades. These relationships have evolved to include new strategic partnerships and ventures, providing ongoing and mutual benefits to both the Company and its Network partners.

Twelve of the Stations have network affiliation agreements with ABC, 10 of the Stations have agreements with NBC, two of the Stations have agreements with CBS, one of the Stations has an agreement with WB and one of the Stations has an agreement with UPN. In addition, the Company’s two radio stations have an affiliation agreement with a network that provides certain content (i.e., news, sports, etc.) for the stations. The Company’s radio stations are less dependent on their affiliation agreement for programming. As noted below, the affiliation relationships for the majority of the Stations exceed 40 years duration and, for certain Stations, have continued for more than 50 years. Although the Company does not expect that its network affiliation agreements will be terminated and expects to continue to be able to renew its network affiliation agreements, no assurance can be given that such agreements will not be terminated or that renewals will be obtained on as favorable terms or at all.

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ABC.    The period of affiliation, as of December 2002, for the Company’s ABC-TV Network affiliated stations is as follows: KMBC-47 years; WISN-25 years; WCVB-30 years; WTAE-44 years; KETV-45 years; KOAT-49 years; WAPT-32 years; KITV-43 years; WPBF-13 years; WMUR-48 years; KHBS/KHOG-24 years and KOCO-48 years.

The term of the affiliation agreements for the Company’s ABC-TV Network affiliated stations expire as follows: KMBC, WISN, WCVB, and WTAE-August 28, 2004; KETV and KOAT-November 1, 2004; WAPT-March 6, 2005; KITV-January 2, 2005; WPBF-August 31, 2003; WMUR-August 7, 2005; KHBS/KHOG-August 29, 2004 and KOCO-December 31, 2004. The agreements were amended in October 2002 to provide, among other things, certain modifications in the compensation package with ABC for the broadcast rights to Monday Night Football and the programming exclusivity and for KETV, KOAT, WAPT, KITV, WPBF, WMUR, KHBS/KHOG and KOCO the assignability provisions of the agreements. The Company and ABC have commenced discussions for the renewal of the affiliation agreements.

NBC.    The period of affiliation, as of December 2002, for the Company’s NBC-affiliated stations is as follows: WBAL-7 years; WLWT-54 years; WYFF-49 years; WGAL-53 years; WXII-49 years; WPTZ/WNNE-48 years; KSBW-49 years; KCRA-47 years; WESH-45 years and WDSU-54 years.

The term of each affiliation agreement with NBC for its current roster of NBC-affiliated stations—WBAL, WLWT, WYFF, WGAL, WXII, WPTZ/WNNE, KSBW, KCRA, WESH and WDSU—is for a period of nine years, six months, terminating December 31, 2009. In December 2000, the Company entered into a program development and distribution arrangement with the NBC Owned and Operated Stations and Gannett Broadcasting. That arrangement is in addition to the NBC/Hearst-Argyle Syndication, LLC formed by NBC and the Company in 2001. In addition, Internet Broadcasting Systems (IBS) provides website development and operating services to the NBC Television Stations Division (as noted above, the Company has an equity investment in IBS and IBS also provides similar services to the Company). In June 2001, the Company entered into Joint Sales Agreements with affiliates or subsidiaries of Paxson Communications Corporation (“Paxson”), pursuant to which Company stations serving Sacramento, California (KCRA-TV), Orlando, Florida (WESH-TV), New Orleans, Louisiana (WDSU-TV) and Greensboro, North Carolina (WXII-TV) provide local advertising sales and related services to the respective Paxson stations in those markets in return for compensation from Paxson. Paxson entered into separate arrangements with NBC.

CBS.    The period of affiliation, as of December 2002, for the Company’s CBS-affiliated stations is as follows: KCCI-47 years and WLKY-12 years. The term of the CBS affiliation agreements with KCCI and WLKY are for an initial term of 10 years (through June 30, 2005) and are subject to successive five year renewals unless either party gives notice of intent not to renew at least six months prior to the end of the initial or any successive term.

UPN and WB.    The period of affiliation, as of December 2002, for KCWE, the Company’s UPN affiliate, is four years and the period of affiliation for KQCA, the Company’s WB affiliate, is four years. The UPN affiliation agreement with KCWE is for an initial 10-year term (through August 31, 2008). The WB affiliation agreement with KQCA is for a term of five years (through September 30, 2003). Unlike affiliates of ABC or NBC, WB affiliates may be required to pay the network compensation based upon ratings generated by the station in return for the broadcast rights to the network’s programming. Both UPN and WB have the right to terminate their affiliation agreements in the event of a material breach of such agreement by a station and in certain other circumstances.

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The Commercial Television Broadcasting Industry

General.    Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently, a limited number of channels are available for broadcasting in any one geographic area, and a license to operate a television station must be granted by the FCC. Television stations that broadcast over the VHF band (channels 2-13) of the spectrum generally have some competitive advantage over television stations that broadcast over the UHF band (channels above 13) of the spectrum because the former usually have better signal coverage and operate at a lower transmission cost. The improvement of UHF transmitters and receivers, the complete elimination from the marketplace of VHF-only receivers and the expansion of cable television and satellite delivery systems, however, have reduced to some extent the VHF signal advantage. The FCC reports that as of December 31, 2002, there were 1,338 commercial television stations on the air in the United States, of which 755 were UHF and 583 were VHF.

All television stations in the country are grouped by Nielsen, a national audience measuring service, into 210 generally recognized television markets that are ranked in size according to various formulae based upon actual or potential audience. Each market is designated as an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. These specific geographic markets are referred to by Nielsen as Designated Market Areas (“DMAs”). Nielsen periodically publishes data on estimated audiences for the television stations in the various markets throughout the country.

Historically, three broadcast networks—ABC, NBC and CBS—dominated broadcast television. Fox effectively has evolved into the fourth network, even though it produces less prime time programming than the other major networks. In addition, UPN, WB and, more recently, PAX have launched television networks. Stations that operate without network affiliations are referred to as “independent” stations. All of the Stations are affiliated with networks, except WMOR-TV, which is an independent station.

The affiliation by a station with a network has an impact on the composition of the station’s programming, revenues, expenses and operations, with the significance of the impact determined by the network, the station and its market. A typical affiliate of a major network receives significant programming, including prime time programming, from the network. This programming, along with network compensation, if paid, is provided to the affiliate by the network in exchange for a substantial majority of the advertising time sold during the airing of network programs. The network then sells this advertising time for its own account. Non-network programming typically consists of syndicated programs, original locally produced programs, and often most significantly, local news. The affiliate retains the revenues from time sold during breaks in and between network programs and during programs produced by the affiliate or purchased from non-network sources. In addition, a television station may acquire programming though barter arrangements. Under barter arrangements, a national program distributor may receive advertising time in exchange for the programming it supplies, with the station paying either a reduced fee or no fee for such programming.

An independent station, unlike a network-affiliated station, purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs. The independent station, however, may retain its entire inventory of advertising time and all of the revenues obtained from the sale of such inventory (subject to barter arrangements).

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Television station revenues are derived primarily from local, regional and national advertising (significantly, from local news advertising) and, to a much lesser extent, from network compensation and other sources. Advertising rates are set based upon a variety of factors, including a program’s popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Rates also are determined by a station’s overall ratings and share in its market, as well as the station’s ratings and share among particular demographic groups that an advertiser may be targeting. Because television stations rely on advertising revenues, they are sensitive to cyclical changes in the economy. The size of advertisers’ budgets, which are affected by broad economic trends, affect the broadcast industry in general and the revenues of individual broadcast television stations. The advertising revenues of the stations are generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. Additionally, advertising revenues in even -numbered years benefit from advertising placed by candidates for political offices, and demand for advertising time in Olympic broadcasts.

Cable-originated programming is a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels equivalent to any of the major broadcast networks and, collectively, the broadcast-originated signals still constitute the majority of viewing in most cable homes. The advertising share of cable networks has increased during the 1980s and 1990s as a result of the growth in cable penetration (the percentage of television households that are connected to a cable system), increases in made-for-cable programming and increases in cable channels or networks. Notwithstanding such increases in cable viewership and advertising, over-the-air broadcasting remains the major distribution system locally and nationally for mass market television advertising.

Competition

General.    The television broadcast industry is highly competitive. Some of the stations that compete with the Stations are owned and operated by large national or regional companies that may have greater resources, including financial resources, than the Company. Competition in the television industry takes place on three primary levels:

Additional factors material to a television station’s competitive position include signal strength and coverage within a geographic area and assigned frequency or channel position.

Audience.    The Stations compete for audience on the basis of program popularity, which has a direct effect on advertising rates. A significant portion of the daily programming on the Stations is supplied by the network with which each such Station is affiliated. In time periods in which the network provides programming, the Stations are primarily dependent upon the performance of the network programs in attracting viewers. Each Station competes in non-network time periods based on the performance of its programming during such time periods, using a combination of locally-produced news, public affairs and other entertainment programming, including news and syndicated programs, that such Station believes will be attractive to viewers.

Advances in technology may increase competition for household audiences and advertisers. Video compression techniques, now in use with direct broadcast satellites and, potentially soon, in development for cable and wireless cable, are expected to permit greater numbers of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all video delivery systems, including over-the-air broadcasting, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences is expected to alter the competitive dynamics for advertising expenditures. The Company is unable to predict the effect that technological changes will have on the broadcast television industry or the future results of the Stations.

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Other sources of competition for the Stations include home entertainment systems (including video cassette recorder and playback systems, DVDs, personal video recorders and television game devices), the Internet, multipoint distribution systems, multichannel multipoint distribution systems or “wireless cable” satellite master antenna television systems and other sources of home entertainment. The Stations also face competition from direct broadcast satellite services, such as EchoStar (DISH Network) and DIRECTV, which transmit programming directly to homes equipped with special receiving antennas. The Stations compete with these services both on the basis of service and product performance (quality of reception and number of channels that may be offered) and price (the relative cost to utilize these systems compared to broadcast television viewing).

Programming.    Competition for non-network programming involves negotiating with national program distributors or syndicators that sell first-run and off-network packages of programming. The Stations compete against in-market broadcast stations for exclusive access to off-network reruns (such as Seinfeld) and first-run product (such as the Oprah Winfrey Show). Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that otherwise would have been offered to local television stations.

Advertising.    Broadcast television stations compete for advertising revenues with other broadcast television stations and with the print media, radio stations, Internet websites and cable system operators serving the same market. Additional competitors for advertising revenues include a variety of other media, including direct marketing. Since greater amounts of advertising time are available for sale by independent stations, independent stations typically achieve a greater proportion of television market advertising revenues relative to their share of the market’s audience. Public broadcasting outlets in most communities compete with commercial broadcasters for viewers but not generally for significant advertising dollars.

Federal Regulation of Television Broadcasting

General.    Broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act of 1934”), most recently amended further by the Telecommunications Act of 1996. The Communications Act of 1934 requires the FCC to regulate broadcasting so as to serve “the public interest, convenience and necessity.” The Communications Act of 1934 prohibits the operation of television broadcasting stations except pursuant to licenses issued by the FCC and empowers the FCC, among other things, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations’ frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act of 1934; impose penalties for violation of such regulations; and, impose fees for processing applications and other administrative functions. The Communications Act of 1934 prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. Under the Communications Act of 1934, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations.

License Renewals.    The process for renewal of broadcast station licenses as set forth under the Communications Act of 1934 has undergone significant change as a result of the Telecommunications Act of 1996. Prior to the passage of the Telecommunications Act of 1996, television broadcasting licenses generally were granted or renewed for a period of five years upon a finding by the FCC that the “public interest, convenience and necessity” would be served thereby. Under the Telecommunications Act of 1996, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of eight years. The Telecommunications Act of 1996 requires renewal of a broadcast license if the FCC finds that (i) the station has served the public interest, convenience and necessity; (ii) there have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee; and (iii) there have been no other serious violations that taken together constitute a pattern of abuse. In making its determination, the FCC may consider petitions to deny but cannot consider whether the public interest would be better served by issuing the license to a person other than the renewal applicant. Under the Telecommunications Act of 1996, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent’s application for renewal of license.

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The following table provides the expiration dates for the full power station licenses of the Company’s owned and managed television stations:

Ownership Regulation.    The Communications Act of 1934 and FCC rules and regulations also regulate ownership of broadcast stations. The FCC has promulgated rules that, among other things, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an “attributable” interest) in broadcast stations as well as other specified media of mass communication. As detailed below, in recent years, the FCC substantially revised its multiple ownership and attribution rules. In addition, congressional actions and court decisions have compelled the FCC to further reconsider virtually all of its ownership rules. The FCC is presently conducting an omnibus ownership rulemaking proceeding, mandated by Congress and the courts, in which the local radio ownership rule, national television ownership rule, national cable ownership rule, broadcast/newspaper cross-ownership rule and dual network rule are being reviewed and may be eliminated or modified. The FCC Chairman has publicly announced his intention to act on this proceeding in the late spring of 2003. The Company cannot predict what actions the FCC will take or how any changes in the rules will impact the Company’s business. The FCC’s current broadcast ownership rules are summarized below:

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Local Radio Ownership.    With respect to radio licenses, the maximum allowable number of stations that can be commonly owned in a market varies depending on the number of radio stations within that market, as determined using a contour-overlap method. In markets with more than 45 stations, one company may own, operate or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets of 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. The FCC is currently considering, in the omnibus ownership proceeding, whether to further refine its approach to defining local radio markets by relying on Arbitron’s definitions rather than the contour-overlap method.

Local Market Television Ownership.    The local TV ownership rules permit parties to own two television stations without regard to signal contour overlap provided they are located in separate Nielsen DMAs. In addition, the rules permit parties in larger markets to own up to two TV stations in the same DMA so long as at least eight independently owned and operating full-power commercial and non-commercial television stations remain in the market at the time of acquisition and at least one of the two stations is not among the top four-ranked stations in the market based on audience share. In addition, without regard to numbers of remaining or independently owned television stations, the FCC will permit television duopolies within the same DMA so long as certain signal contours of the stations involved do not overlap. “Satellite stations” that simply rebroadcast the programming of a “parent” station will continue to be exempt from the rule if located in the same DMA as the “parent” station. The local ownership rule also applies to same-market local marketing agreements (“LMAs”) involving more than 15% of the brokered station’s program time, although current LMAs entered into prior to November 5, 1996 are exempt from the local television ownership rule for a limited period of time (either two or five years) depending on the LMA’s date of adoption. Further, the FCC may grant a waiver of the local television ownership rule if one of the two television stations is a “failed” or “failing” station, or the proposed transaction would result in the construction of a new television station. The Court of Appeals for the District of Columbia ruled, in April 2002, that the FCC’s adoption of the eight voice test was arbitrary and capricious and remanded the rule for further consideration by the FCC. The FCC is presently reconsidering the local television ownership rule in its omnibus ownership rulemaking proceeding. The Company is currently in full compliance with the local television ownership rule and the Missouri LMA, pursuant to which programming is provided to KCWE in Kansas City, Missouri, has been grandfathered until the conclusion of the FCC’s biennial review of its broadcast ownership rules in 2004.

National Television Ownership Cap.    On the national level, the Communications Act imposes a 35% national audience reach cap. Under the rule, no entity may have an attributable interest in television stations whose audience reach, in the aggregate, exceeds 35% of all U.S. television households. The FCC discounts the audience reach of a UHF station by 50%. For entities that have attributable interests in two stations in the same market, the FCC counts the audience reach of the station in that market only once for national cap purposes. The national cap has been challenged in the Court of Appeals for the District of Columbia. On February 19, 2002 the court ruled that the FCC had acted arbitrarily in its decision to retain the 35% national television ownership cap by failing to demonstrate adequately the continued necessity of the rule to serve the public interest. The court remanded the case to the FCC for further proceedings. The FCC is presently reconsidering the national television ownership cap in its omnibus ownership rulemaking proceeding.

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Radio-Television Cross Ownership.    The so-called “one-to-a-market” rule has until recently prohibited common ownership or control of a radio station, whether AM, FM or both, and a television station in the same market, subject to waivers in some circumstances (the common ownership of Baltimore television and radio properties was grandfathered at the inception of the rule). The FCC’s new radio-television cross-ownership rule embodies a graduated test based on the number of independently owned media voices in the local market. In large markets, i.e., markets with at least 20 independently owned media voices, a single entity can own up to one television station and seven radio stations (if 8 full-power television stations would remain in the market post transaction) or, if permissible under the new local television ownership rule, two television stations and six radio stations. Waiver of the radio-television cross-ownership rule will be granted only under the failed station test. Unlike under the local television ownership rule, the FCC will not waive the radio-television cross-ownership rule in situations of failing or unbuilt stations. The FCC is presently reconsidering the radio-television cross-ownership rule in its omnibus ownership rulemaking proceeding.

Newspaper-Broadcast Cross-Ownership.    The FCC’s rules prohibit the licensee of an AM, FM, or TV station from directly or indirectly owning, operating, or controlling a daily newspaper if the station’s specified service contour encompasses the entire community where the newspaper is published. A waiver of the newspaper cross-ownership restriction may be obtained where application of the rule would be “unduly harsh.” On September 13, 2001, the FCC issued a Notice of Proposed Rulemaking seeking comment on modification of its newspaper/broadcast crossownership rule and waiver policies. The purpose was to collect information to serve as a basis for the FCC to decide whether the 25-year-old rule should be kept, eliminated or modified to achieve its objectives of promoting media competition and diversity. The FCC has consolidated this proceeding into its current omnibus ownership rulemaking proceeding.

Dual Network Rule.    The FCC’s rule which prohibits common ownership of more than one of four major broadcast television networks (ABC, CBS, FOX and NBC) is also under review in the FCC’s omnibus ownership rulemaking proceeding.

Cable-Television Cross-Ownership.    The FCC’s rules prohibited common control of a television station and a cable television system that serves a community encompassed in whole or in part by the television station’s predicted Grade B signal contour. On February 19, 2002, the Court of Appeals for the District of Columbia vacated the FCC’s rule prohibiting the ownership of a television station and a cable system in a local market. The court held that the FCC had failed to demonstrate that the rule was necessary to serve the public interest. The FCC has indicated that it will not seek to reinstate the rule. The elimination of the rule could permit the acquisition of a network or group broadcaster by a cable MSO.

Attribution of Ownership.    Under the FCC’s attribution rules, the following relationships and interests generally are attributable for purposes of the agency’s broadcast ownership restrictions:

Importantly, all non-conforming interests acquired before November 7, 1996 are permanently grandfathered and thus do not constitute attributable ownership interests. It should also be noted that the single majority shareholder exemption remains in effect, having been reinstated after a successful court appeal.

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Alien Ownership.    The Communications Act of 1934 restricts the ability of foreign entities or individuals to own or hold interests in broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to 20% of the capital stock of a corporate licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such affirmative finding only in limited circumstances.

Local Marketing Agreements.    Under LMAs (sometimes also referred to as Time Brokerage Agreements or TBAs) the licensee of one station provides the programming for another licensee’s station. Under the FCC’s rules, an entity that owns a television station and programs more than 15% of the broadcast time on another television station in the same market is now required to count the LMA station toward its television ownership limits even though it does not own the station. Thus, with respect to markets in which the Company owns television stations, the Company cannot enter into an LMA with another television station in the same market if it cannot acquire that station under the local television ownership rule.

In adopting these rules concerning television LMAs, however, the FCC provided “grandfathering” relief for LMAs that were in effect at the time of the rule change. Television LMAs that were in place before November 5, 1996, were allowed to continue at least through 2004, when the FCC is again scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. The Missouri LMA, pursuant to which programming is provided to KCWE in Kansas City, Missouri, has been grandfathered until the conclusion of the FCC’s biennial review of its broadcast ownership rules in 2004.

Other Regulations, Legislation and Recent Developments Affecting Broadcast Stations

General.    The Communications Act of 1934 requires broadcasters to serve the “public interest.” The FCC has reduced significantly its regulation of the programming and other operations of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning the amounts of certain types of programming and commercial matter that may be broadcast. There are, however, rules and policies of the FCC and other federal agencies that regulate matters such as network-affiliate relations, cable systems’ carriage of syndicated and network programming on distant stations, political advertising practices, obscene and indecent programming, application procedures and other areas affecting the business or operations of broadcast stations.

The 1992 Cable Act.    The FCC has adopted various regulations to implement provisions of the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Cable Act”) which, among other matters, includes provisions respecting the carriage of television stations’ signals by cable systems. The “must carry” provisions of the 1992 Cable Act generally require cable operators to devote up to one-third of their activated channel capacity to the carriage of local commercial television stations. The 1992 Cable Act also included a retransmission consent provision that prohibits cable operators and other multi-channel video programming distributors from carrying broadcast signals without obtaining the station’s consent. The “must carry” and retransmission consent provisions are related in that a local television broadcaster, on a cable system-by-cable system basis, must make a choice once every three years whether to proceed under the “must carry” rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station’s signal, in most cases in exchange for some form of consideration from the cable operator. The Company has entered into an agreement with Lifetime, an entity owned 50% by an affiliate of Hearst and 50% by ABC, whereby Lifetime has the right to negotiate the grant of retransmission consent rights on behalf of the Company’s owned and managed television stations in return for compensation to be paid to the Company by Lifetime.

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Digital Television Service.    The FCC has taken a number of steps to implement digital television broadcasting service in the United States. The FCC has adopted a digital television table of allotments that provides all authorized television stations with a second channel on which to broadcast a digital television signal. The FCC has attempted to provide digital television coverage areas that are comparable to stations’ existing service areas. The FCC has ruled that television broadcast licensees may use their digital channels for a wide variety of services such as high-definition television, multiple channels of standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard.

Digital television channels will generally be located in the range of channels from channel 2 through channel 51. The FCC required affiliates of ABC, CBS, NBC and Fox in the top 30 markets to begin digital broadcasting by November 1, 1999, and all other commercial television broadcasters were required to follow suit by May 1, 2002 or secure an extension of time to begin digital broadcasting.

At present all of the Company’s DTV stations are broadcasting digitally, except WPTZ/WNNE and two of the Company’s other satellite stations. Additional construction will be required at 18 (including satellite stations) of these stations to bring them up to full maximum authorized power in addition to the main station and satellite stations for which initial construction has not been completed. From 1997 through December 31, 2002, the Company invested approximately $54.8 million in capital expenditures related to the digital conversion of its stations. The Company anticipates that it will make additional investments of approximately $15.0 million to $18.0 million by December 31, 2004 in order to complete digital conversions for all of its stations, including satellite stations. At the present time, the FCC has not set the deadline by which DTV stations must be operating at maximum authorized power. The FCC is presently considering proposed maximization deadlines in a pending rule making proceeding.

The FCC’s plan calls for the digital television transition period to end in the year 2006, at which time the FCC expects that television broadcasters will cease non-digital broadcasting and return one of their two channels to the government, allowing that spectrum to be recovered for other uses. Under the Balanced Budget Act of 1997, however, the FCC is authorized to extend the December 31, 2006 deadline for reclamation of a television station’s non-digital channel if, in any given market: (i) one or more television stations affiliated with ABC, CBS, NBC or Fox is not broadcasting digitally, and the FCC determines that such stations have “exercised due diligence” in attempting to convert to digital broadcasting; (ii) digital-to-analog converter technology is not available in such market; or (iii) 15% or more of the television households in the market do not subscribe to a multichannel video service that carries at least one digital channel from each of the local stations in that market, and 15% or more of the television households in the market cannot receive digital signals off the air using either a set-top converter box for an analog television set or a new digital television set. On November 8, 2001, the FCC made certain “mid–course corrections” to DTV transition deadlines and policies. The FCC adopted an order reconsidering its DTV conversion rules for television stations in several significant ways intended to get more DTV stations on the air and encourage consumer purchase of DTV receivers.

In January 2003, the FCC began a further review of the transition to digital television. The FCC is considering, among other things, the following: (i) setting July 1, 2005 (for top-four network affiliates in markets 1 through 100) and July 1, 2006 (for all other commercial and noncommercial DTV stations) as the deadlines by which stations with construction permits for maximized digital facilities must either provide service to the maximized coverage areas or lose DTV protection to the uncovered portions of those areas, and (ii) how to interpret various provisions of Balanced Budget Act of 1997 which authorizes the FCC to extend the December 31, 2006 deadline for reclamation of a television station’s non-digital channel under various circumstances. In addition, the FCC has requested further comments on issues earlier raised in a December 1999 proceeding concerning the public interest obligations of television broadcast licensees. Comments in this latest DTV proceeding are due to be filed with the FCC by April 14, 2003. Reply comments are due May 14, 2003.

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The implementation of digital television has and will impose substantial additional costs on television stations because of the need to replace equipment and because some stations will need to operate at higher utility cost. There can be no assurance that the Company’s television stations will be able to increase revenue to offset such costs. In addition, the Telecommunications Act of 1996 allows the FCC to charge a spectrum fee to broadcasters who use the digital spectrum for purposes other than broadcasting. The FCC has adopted rules that require broadcasters to pay a fee of 5% of gross revenues received from ancillary or supplementary uses of the digital spectrum for which they charge subscription fees, excluding revenues from the sale of commercial time. The Company cannot predict what future actions the FCC might take with respect to digital television, nor can the Company predict the effect of the FCC’s present digital television implementation plan or such future actions on the Company’s business. The Company has incurred considerable expense in the conversion of digital television and is unable to predict the extent or timing of consumer demand for any such digital television services.

Direct Broadcast Satellite Systems.    There are currently in operation several direct broadcast satellite systems that serve the United States. Direct broadcast satellite systems provide programming on a subscription basis to those who have purchased and installed a satellite signal receiving dish and associated decoder equipment. The Company cannot predict the impact of direct broadcast satellite systems on the Company’s business.

In November 1999, Congress enacted the Satellite Home Viewer Improvement Act of 1999 (“SHVIA”), which established a copyright licensing system for limited distribution of television network programming to 16 DBS viewers and directed the FCC to initiate rulemaking proceedings to implement the new system. Under SHVIA, satellite carriers are permitted to retransmit local signals of television broadcasters for a period of six months from the November 29, 1999 enactment of SHVIA, without receiving retransmission consent. Satellite carriers are now required to enter into retransmission consent agreements to allow for satellite carriage of local television stations. The agreement between the Company and Lifetime also applies to the grant of DBS retransmission consent rights, for which Lifetime will also compensate the Company. SHVIA also contemplates a market-specific requirement for mandatory carriage of local television stations, similar to that applicable to cable systems, for those markets in which a satellite carrier chooses to provide any local signal, beginning January 1, 2002. In addition, SHVIA extended the compulsory license allowing the satellite distribution of distant network signals to unserved households (i.e., those that do not receive a Grade B signal from a local network affiliate). Certain of the Company’s stations are currently distributed by satellite.

*    *    *    *    *

The foregoing information does not purport to be a complete summary of all the provisions of the Communications Act of 1934 or the regulations and policies of the FCC thereunder or competitive media or technologies. Proposals for additional or revised regulations and requirements are pending before and are considered by Congress and federal regulatory agencies from time to time. The Company cannot predict the effect of existing and proposed federal legislation, regulations and policies on its broadcast business. Also, certain of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business.

Employees

As of December 31, 2002, the Company had approximately 2,807 full-time employees and 372 part-time employees. A total of approximately 878 of the Company’s employees are represented by five unions (the American Federation of Television and Radio Artists, the International Brotherhood of Electrical Workers, the International Alliance of Theatrical Stage Employees, the Directors Guild of America, and the National Association of Broadcast Electrical Technicians). The Company has not experienced any significant labor problems, and it believes that its relations with its employees are satisfactory.

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Available Information

The Company maintains an Internet website at www.hearstargyle.com.

The Company makes available, free of charge, on its Internet website, the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such materials with, or furnishes it to, the SEC.

ITEM 2.     PROPERTIES

The Company’s principal executive offices are located at 888 Seventh Avenue, New York, New York 10106. The real property of each Station generally includes owned or leased offices, studios, transmitters and tower sites. Typically, offices and main studios are located together, while transmitters and tower sites are in a separate location that is more suitable for optimizing signal strength and coverage. Set forth below are the Stations’ principal facilities as of December 31, 2002. In addition to the property listed below, the Company and the Stations also lease other property primarily for communications equipment.

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ITEM 3.    LEGAL PROCEEDINGS

From time to time, the Company becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of the Company, there are no legal proceedings pending against the Company or any of its subsidiaries that are likely to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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PART II

The Company’s Series A Common Stock is listed on the NYSE under the symbol “HTV.” All of the outstanding shares of the Company’s Series B Common Stock are currently held by Hearst Broadcasting, a wholly-owned subsidiary of Hearst Holdings, which is in turn a wholly-owned subsidiary of Hearst. The Series B Common Stock is not publicly traded. The table below sets forth, for the calendar quarters indicated, the reported high and low sales prices of the Series A Common Stock on the NYSE.

On March 18, 2003, the closing price for the Series A Common Stock on the NYSE was $21.59, and the approximate number of shareholders of record of the Series A Common Stock at the close of business on such date was 721.

The Company has not paid any dividends on the Series A Common Stock or the Series B Common Stock since inception and does not currently expect to pay any dividends on either class in the immediate future. The Company’s credit facility (the “Credit Facility”) with a consortium of banks (led by JP Morgan Chase Bank, Bank of New York, Toronto Dominion and Bank of Montreal) limits the ability of the Company to pay dividends under certain conditions.

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ITEM 6.    SELECTED FINANCIAL DATA

The selected financial data should be read in conjunction with the historical financial statements and notes thereto included elsewhere herein and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As discussed herein and in the notes to the accompanying consolidated financial statements, on August 29, 1997 (effective September 1, 1997 for accounting purposes), The Hearst Corporation (“Hearst”) contributed its television broadcast group and related broadcast operations, Hearst Broadcast Group, to Argyle Television, Inc. (“Argyle”) and merged the wholly-owned subsidiary of Hearst with and into Argyle, with Argyle as the surviving corporation (renamed Hearst-Argyle Television, Inc., “Hearst-Argyle” or the “Company”) (the “Hearst Transaction”). The merger was accounted for as a purchase of Argyle by Hearst in a reverse acquisition. Effective June 1, 1998, the Company exchanged its WDTN and WNAC/WPRI stations with STC Broadcasting, Inc. and certain related entities (collectively “STC”) for KSBW, the NBC affiliate serving the Monterey—Salinas, California, television market, and WPTZ/WNNE, the NBC affiliates serving the Plattsburgh, New York—Burlington, Vermont, television market (the “STC Swap”). On January 5, 1999 (effective January 1, 1999 for accounting purposes) the Company acquired, through a merger transaction, all of the partnership interests in Kelly Broadcasting Co., which includes KCRA, the Sacramento station, and the related Time Brokerage Agreement (“TBA”) for another station, KQCA, (the “Kelly Broadcasting Business”), and Kelleproductions, Inc. (the “Kelly Transaction”). In connection with the Kelly Transaction, the Company issued $450 million in senior notes to institutional investors, of which $340 million was issued in December 1998 and $110 million was issued in January 1999. See Note 6 to the consolidated financial statements. On March 18, 1999, the Company acquired the nine television and five radio stations (“Pulitzer Broadcasting Business”) of Pulitzer Publishing Company (“Pulitzer”) in a merger transaction (the “Pulitzer Merger”). In connection with the Pulitzer Merger, the Company issued approximately 37.1 million shares of the Company’s Series A Common Stock to the Pulitzer shareholders (the “Pulitzer Issuance”). Additionally, in connection with the Kelly Transaction and the Pulitzer Merger, the Company drew down $725 million from its revolving credit facility (the “Financing”). On June 30, 1999 the Company issued approximately 3.7 million shares of the Company’s Series A Common Stock to Hearst for $100 million (the “Hearst Issuance”). On January 31, 2000, the Company exercised its fixed-price option to acquire the outstanding stock of Channel 58, Inc. (the licensee for KQCA-TV which the Company previously operated under a TBA as discussed above). On August 1, 2000, Emmis Communications Corp. (“Emmis”) began managing the Company’s radio stations in Phoenix, Arizona (KTAR-AM, KMVP-AM and KKLT-FM) (the “Phoenix Transaction”) under a TBA for a period of up to three years. On August 8, 2000, the Company sold two of its radio stations, WXII-AM (Greensboro, North Carolina) and WLKY-AM (Louisville, Kentucky), to Truth Broadcasting Corporation. On March 28, 2001, the Company exchanged its radio stations in Phoenix, Arizona (KTAR-AM, KMVP-AM and KKLT-FM) (the “Phoenix Stations”) for WMUR-TV, the ABC affiliate serving Manchester, New Hampshire, which is part of the Boston, Massachusetts television market, in a three party swap (the “Phoenix/WMUR Swap”). See Note 3 to the consolidated financial statements. On April 30, 2001, pursuant to an Asset Purchase Agreement entered into with WBOY-TV, Inc., the Company acquired WBOY-TV, the NBC affiliate serving the Clarksburg-Weston, West Virginia television market. On August 7, 2001 (August 1, 2001 for accounting purposes), the Company contributed its production and distribution unit to NBC/Hearst-Argyle Syndication, LLC in exchange for a 20% equity interest in this entity. See Note 3 of the consolidated financial statements. On December 13, 2001, the Company sold WBOY-TV. See Note 3 of the consolidated financial statements. On December 20, 2001, the Company completed a private placement with institutional investors of $200 million principal amount of redeemable convertible preferred securities (the “Redeemable Convertible Preferred Securities”) through a subsidiary trust. See Note 9 of the consolidated financial statements.

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Hearst-Argyle Television, Inc.

(In thousands, except per share data)

See accompanying notes on the following pages.

20

Notes to Selected Financial Data

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Introduction

Hearst-Argyle Television, Inc. and subsidiaries (the “Company”) owns and operates 24 network-affiliated television stations. Additionally, the Company provides management services to two network-affiliated and one independent television stations and two radio stations (the “Managed Stations”) in exchange for a management fee. See Note 14 to the consolidated financial statements.

Critical Accounting Policies and Estimates

The Company’s management’s discussion and analysis of financial condition and results of operations is based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to allowances for doubtful accounts, program rights, barter and trade transactions, useful lives of property, plant and equipment, intangible assets, carrying value of investments, accrued liabilities, contingent liabilities, income taxes, pension benefits, and fair value of financial instruments and stock options. Management bases its estimates on historical experience and on various other assumptions, which management believes to be reasonable under the circumstances. Had management used different assumptions in determining its estimates, the Company’s results may have varied. The different types of estimates that are required to be made by management in the preparation of the Company’s consolidated financial statements vary significantly in the level of subjectivity involved in their determination. Management has identified the estimates below as those which contain a relatively higher level of subjectivity in their determination and therefore could have a more material effect upon the Company’s reported results had management used different assumptions.

Impairment Testing of Intangible Assets—In performing its annual impairment testing of goodwill and FCC licenses, which are both considered to be intangible assets with indefinite useful lives, management must make a significant number of assumptions and estimates in applying a fair value based test. To assist in this process, the Company utilizes the services of an independent valuation consulting firm. See Note 4 of the consolidated financial statements. The assumptions and estimates required under the impairment testing of goodwill and FCC licenses included future market revenue growth, operating profit margins, cash flow multiples, market revenue share, and the Company’s weighted-average cost of capital, among others. Furthermore, the impairment testing for FCC licenses required management to identify and value a number of previously unrecognized intangible assets in an allocation of fair values consistent with the purchase price allocation method prescribed by SFAS 142 and relevant pronouncements of the Emerging Issues Task Force. Upon adoption of SFAS 142 on January 1, 2002, the Company completed its impairment review and found no impairment to the carrying value of goodwill or FCC licenses. For the year ended December 31, 2002, the Company completed its impairment review during the fourth quarter of 2002 and found no impairment to the carrying value of goodwill or FCC licenses. Had management utilized either a different valuation technique or different assumptions or estimates, the carrying values of the Company’s goodwill and FCC licenses as of January 1, 2002 and December 31, 2002 may have been different. Management considers the assumptions used in its impairment testing of intangible assets to be reasonable.

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Investment Carrying Values—The Company has investments in nonconsolidated affiliates, which are accounted for under the equity method if the Company’s equity interest is from 20% to 50%, and under the cost method if the Company’s equity interest is less than 20% and the Company does not exercise significant influence over operating and financial policies. Management reviews the carrying value of investments on an ongoing basis and adjusts them to reflect net realizable value, where necessary. See Note 3 of the consolidated financial statements. As part of its analysis and determination of the net realizable value of investments, management must make assumptions and estimates regarding expected future cash flows, which involves assessing the financial results, forecasts, and strategic direction of the investee companies. In addition, management must make assumptions regarding discount rates, market growth rates, revenue multiples, comparable company valuations and other factors. Had management utilized different assumptions and estimates in its assessment of the net realizable value of investments, the carrying values of the Company’s investments as of December 31, 2002 may have been different. Management considers the assumptions used in its determination of investment carrying values to be reasonable.

Pension Assumptions—In computing projected benefit obligations and pension expense, management is required to make a number of assumptions. To assist in this process, the Company uses the services of an independent consulting firm. See Note 16 of the consolidated financial statements. To compute the Company’s projected benefit obligations as of December 31, 2002, the Company used a discount rate of 6.88%, an expected long-term rate of return on plan assets of 9.0%, and a rate of compensation increase of 4.0%. In determining the discount rate assumption of 6.88%, the Company used a measurement date of September 30, 2002 and constructed a portfolio of bonds to match the benefit payment stream that is projected to be paid from the Hearst-Argyle pension plans. The benefit payment stream is assumed to be funded from bond coupons and maturities as well as interest on the excess cash flows from the bond portfolio. To compute the Company’s pension expense in the year ended December 31, 2002, the Company used a discount rate of 7.5%, an expected long-term rate of return on plan assets of 9.0%, and a rate of compensation increase of 5.5%. To determine the discount rate assumption of 7.5%, the Company used a rate approximating the Moody’s Aa rate as of a measurement date of September 30, 2001. The expected long-term rate of return on plan assets assumption of 9.0% is based on the weighted average expected long-term returns for the funds invested as of a measurement date of September 30, 2001. Management considers the assumptions used in its determination of projected benefit obligations and pension expense to be reasonable. In calculating the Company’s pension expense for the year ending December 31, 2003, management anticipates using an assumed expected long-term rate of return of 8.0%. Management considers the assumptions used in its determination of projected benefit obligations and net pension cost to be reasonable.

Pension Assumptions Sensitivity Analysis

The weighted-average assumptions used in computing the Company’s net pension cost and projected benefit obligation have a significant effect on the amounts reported. A one-percentage point change in each of the assumptions below would have the following effects upon net pension cost and projected benefit obligation, respectively, in the year ended and as of December 31, 2002:

Management has identified the accounting policies below as critical to the Company’s business operations and the understanding of its results of operations. See Note 2 to the consolidated financial statements.

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Revenue Recognition—The Company’s primary source of revenue is television advertising. Other sources include network compensation and other revenues. Advertising revenues and network compensation together represented approximately 97% of the Company’s total revenues in each of the years ended December 2002, 2001 and 2000.

Accounts Receivable—The Company monitors advertisers’ credit worthiness and adjusts credit limits as deemed appropriate. The Company monitors collections and maintains an allowance for estimated losses based upon the aging of such receivables and specific collection issues that may be identified. Concentration of credit risk with respect to accounts receivable is generally limited due to the large number of geographically diverse customers, individually small balances, and short payment terms.

Program Rights—Program rights represent the right to air various forms of existing programming. Program rights and the corresponding contractual obligations are recorded when the license period begins and the programs are available for use. Program rights are carried at the lower of unamortized cost or estimated net realizable value. Costs of off-network syndicated products, first run programming, feature films, and cartoons are amortized on the future number of showings on an accelerated basis, contemplating the estimated revenue to be earned per showing, but generally not exceeding five years.

Barter and Trade Transactions—Barter transactions represent the exchange of commercial air time for programming. Trade transactions represent the exchange of commercial air time for merchandise or services. Barter transactions are generally recorded at the fair market value of the commercial airtime relinquished. Trade transactions are generally recorded at the fair market value of the merchandise or services received. Barter program rights and payables are recorded for barter transactions based upon the availability of the broadcast property. Revenue is recognized on barter and trade transactions when the commercials are broadcast; expenses are recorded when the merchandise or service received is utilized.

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Intangible Assets—Intangible assets are recorded at cost and include FCC licenses, network affiliations, goodwill, and other intangible assets such as favorable leases. On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). As a result, the Company no longer amortizes goodwill and intangible assets with indefinite useful lives (FCC licenses), but instead it performs a review for impairment annually, or earlier if indicators of potential impairment exist. In connection with the adoption of SFAS 142, the Company’s amortization expense related to goodwill and indefinite-lived intangibles decreased by approximately $86.2 million annually. See Note 4 of the consolidated financial statements. For the year ended December 31, 2002, the Company completed its annual impairment review of goodwill and indefinite-lived intangible assets during the fourth quarter of 2002. The Company used a fair value approach in accordance with SFAS 142 and found no impairment to goodwill or indefinite-lived intangible assets. Had management used different assumptions in developing its estimates, the Company’s results may have varied. Management considers the assumptions used in its estimates to be reasonable. The Company amortizes intangible assets with determinable useful lives over their respective estimated useful lives to their estimated residual values. Upon adoption of SFAS 142 on January 1, 2002, the Company determined the remaining useful life of its network affiliation intangible assets to be approximately 28.5 years. The Company amortizes favorable lease intangible assets over the respective terms of each lease. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, the Company evaluates the remaining useful life of its intangible assets with determinable lives each reporting period to determine whether events or circumstances warrant a revision to the remaining period of amortization.

Prior to the adoption of SFAS 142 on January 1, 2002, the Company amortized goodwill and intangible assets over periods ranging from three to 40 years. The recoverability of the carrying values of goodwill and intangible assets was evaluated quarterly to determine if an impairment in value had occurred. Pursuant to SFAS No. 121, Accounting for the Impairment of Long-lived Assets, an impairment in value was considered to have occurred when it has been determined that the undiscounted future operating cash flows generated by the acquired business were not sufficient to recover the carrying value of an intangible asset. If it had been determined that an impairment in value had occurred, goodwill and intangible assets would have been written down to an amount equivalent to the present value of the estimated undiscounted future operating cash flows to be generated by the acquired business. At December 31, 2001, it was determined that there had been no impairment of intangible assets.

Income Taxes—Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Income tax expense was approximately $66.2 million or 38.0% of pre-tax income in the Company’s consolidated statement of income for the year ended December 31, 2002. Deferred tax assets were approximately $2.9 million and deferred tax liabilities were approximately $844.8 million as of December 31, 2002 (see Note 8 of the consolidated financial statements). The Company’s estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are set forth in Note 8 of the consolidated financial statements. These estimates reflect the Company’s assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability. Actual income taxes could vary from such estimates as a result of future changes in income tax law or reviews by the Internal Revenue Service or other tax authorities.

Related Party Transactions—The Company has Management and Services Agreements as well as a series of other related agreements with Hearst. Revenues and expenses recorded by the Company in connection with such agreements amounted to less than 1% of the Company’s total revenues and less than 1% of the Company’s operating expenses in each of the years ended December 2002, 2001 and 2000. See Note 14 to the consolidated financial statements for more information on these and other related party transactions.

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Purchase Accounting—The Company’s policy for allocating the purchase price in a purchase transaction is to identify and determine the fair value of all acquired assets (tangible and intangible) and assumed liabilities, in accordance with Accounting Principles Board (“APB”) No. 16, Business Combinations, and SFAS No. 141, Business Combinations. The Company utilizes the services of an independent valuation consulting firm for the purpose of establishing the fair values. The specialized tangible assets in use at a broadcasting business are typically valued on the basis of the replacement cost of a new asset less observed depreciation. The appraisal of other fixed assets, such as furnishings, vehicles, and office machines, is based upon a comparable sales approach. Identified intangible assets are valued at estimated fair value. The cash flow assumptions and discount rates utilized to determine fair values vary according to a variety of factors, such as a specific station’s geographical location, demographics of markets served, existing market conditions, growth potential, network affiliation, whether a station is VHF or UHF, existing program assets, and the Company’s current cost of capital.

Off-Balance Sheet Financings and Liabilities—Other than contractual commitments and other legal contingencies incurred in the normal course of business, agreements for future barter and program rights not yet available for broadcast at December 31, 2002, and employment contracts for key employees, all of which are disclosed in Note 15 to the consolidated financial statements, the Company does not have any off-balance sheet financings or liabilities. The Company does not have any majority-owned subsidiaries that are not included in the consolidated financial statements, nor does the Company have any interests in or relationships with any special-purpose entities that are not reflected in the consolidated financial statements.

Significant Business Transactions

During the three-year period ended December 31, 2002, the Company was involved in the following significant transactions:

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