<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER:
JUNE 30, 1996 0-25042
YOUNG BROADCASTING INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3339681
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 754-7070
____________________________
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
----- -----
____________________________
Number of shares of Common Stock outstanding as of July 31, 1996: 4,887,264
shares of Class A Common Stock, 2,029,620 shares of Class B Common Stock, and
3,563,473 shares of Class C Common Stock.
================================================================================
<PAGE>
YOUNG BROADCASTING INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I Page
----
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996.............................. 2
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1995 and 1996.... 4
Consolidated Statements of Stockholders' Equity (Deficit) for the Six Months Ended June 30, 1996.. 5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1996.............. 6
Notes to Consolidated Financial Statements......................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 9
Part II
Item 6. Exhibits and Reports on Form 8-K................................................................... 17
Signatures.................................................................................................. 18
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
YOUNG BROADCASTING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, JUNE 30,
1995 1996
-----------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,425,633 $ 7,933,613
Trade accounts receivable, less
allowance for doubtful accounts of
$785,000 in 1995 and $788,000 in 1996 27,431,914 30,613,847
Current portion of loans receivable -
officers 808,783 549,420
Current portion of program license rights 6,426,198 3,774,646
Prepaid expenses 956,052 1,775,130
-----------------------------
Total current assets 39,048,580 44,646,656
-----------------------------
Property and equipment
Land and land improvements 5,165,489 6,062,065
Buildings and building improvements 23,094,346 29,115,605
Broadcast equipment 87,023,341 116,037,180
Office furniture, fixtures and other
equipment 5,306,416 7,304,878
Vehicles 1,385,790 2,496,144
-----------------------------
121,975,382 161,015,872
Less accumulated depreciation and
amortization (62,844,245) (69,853,745)
-----------------------------
Net property and equipment 59,131,137 91,162,127
Program license rights, excluding
current portion 3,180,397 2,351,679
Deposits and other assets 1,545,285 667,829
Loans receivable - officers, excluding
current portion 1,194,175 1,194,175
Broadcasting licenses and other
intangibles, less accumulated
amortization of $63,852,304 in
1995 and $68,636,222 in 1996 180,722,385 246,625,428
Deferred charges less accumulated
amortization of $1,536,057 in 1995 and
$2,725,519 in 1996 11,275,993 13,635,941
-----------------------------
TOTAL ASSETS $296,097,952 $400,283,835
=============================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
YOUNG BROADCASTING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, JUNE 30,
1995 1996
---------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 4,482,852 $ 5,124,461
Accrued expenses:
Interest 6,920,874 12,168,460
Other 3,391,684 4,022,671
---------------------------------
Total accrued expenses 10,312,558 16,191,131
Current installments of program license liability 5,817,936 3,809,437
Current installments of long-term debt 907,834 961,850
Current installments of obligations under capital leases 48,335 40,301
---------------------------------
Total current liabilities 21,569,515 26,127,180
Program license liability, excluding current installments 3,035,951 2,243,526
Long-term debt, excluding current installments 51,949,014 30,714,176
11.75% Senior Subordinated Notes 120,000,000 120,000,000
10.125% Senior Subordinated Notes 125,000,000 125,000,000
9% Senior Subordinated Notes - 125,000,000
Obligations under capital leases, excluding current installments 87,589 70,707
Total liabilities 321,642,069 429,155,589
---------------------------------
Stockholders' deficit:
Class A Common Stock, $.001 par value. Authorized 20,000,000 shares;
issued and outstanding 4,955,088 shares at 1995 and 4,887,264 at 1996 4,955 4,888
Class B Common Stock, $.001 par value. Authorized 20,000,000 shares;
issued and outstanding 2,029,620 shares at 1995 and 1996 2,029 2,029
Class C Common Stock, $.001 par value. Authorized 20,000,000 shares;
issued and outstanding 3,563,473 at 1995 and 1996 3,564 3,564
Additional paid-in capital 128,051,024 126,184,867
Accumulated deficit (153,605,689) (155,067,102)
---------------------------------
Total stockholders' deficit (25,544,117) (28,871,754)
---------------------------------
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 296,097,952 $ 400,283,835
=================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
YOUNG BROADCASTING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
-------------------------------------------------------------
Net operating revenue $32,370,608 $ 36,059,925 $ 59,344,071 $ 63,758,948
-------------------------------------------------------------
Operating expenses 6,973,067 7,741,436 13,790,570 14,543,783
Amortization of program license rights 1,517,166 1,880,296 3,071,767 3,634,712
Selling, general and administrative expenses 5,865,927 6,449,859 11,797,725 12,881,164
Depreciation and amortization 6,258,534 6,909,265 12,450,178 13,073,317
Corporate overhead 814,705 1,086,563 1,566,215 2,171,073
Non-cash compensation - 15,400 437,982 15,400
-------------------------------------------------------------
Operating income 10,941,209 11,977,106 16,229,634 17,439,499
-------------------------------------------------------------
Interest income 124,983 357,158 215,766 1,282,094
Interest expense, net (8,082,045) (10,044,415) (16,069,505) (19,742,254)
Other expense, net (35,225) (412,816) (91,751) (440,752)
-------------------------------------------------------------
(7,992,287) (10,100,073) (15,945,490) (18,900,912)
-------------------------------------------------------------
Income (loss) before extraordinary item 2,948,922 1,877,033 284,144 (1,461,413)
Extraordinary loss on extinguishment of debt (9,125,000) - (9,125,000) -
-------------------------------------------------------------
Net income (loss) $(6,176,078) $ 1,877,033 $ (8,840,856) $ (1,461,413)
=============================================================
Earnings (loss) per common share
Primary
Before extraordinary item $0.27 $0.17 $ 0.03 $ (0.14)
=============================================================
Net income (loss) $(0.57) $0.17 $ (0.82) $ (0.14)
=============================================================
Fully diluted
Before extraordinary item $0.26 $0.17 $ 0.03 $ (0.14)
=============================================================
Net income (loss) $(0.57) $0.17 $ (0.82) $ (0.14)
=============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
CLASS A CLASS B CLASS C CAPITAL DEFICIT EQUITY (DEFICIT)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ $4,955 $2,029 $3,564 $128,051,024 ($153,605,689) ($25,544,117)
Repurchase and retirement of Class A
Common Stock...................... (111) - - (2,923,693) - (2,923,804)
Contribution of shares into Company's
defined contribution plan......... 28 - - 728,641 - 728,669
Exercise of common stock options.... 16 - - 313,495 - 313,511
Issuance of common stock options
below market value............... - - - 15,400 - 15,400
Net loss for June 30, 1996.......... - - - - (1,461,413) (1,461,413)
----------------------------------------------------------------------------
Balance at June 30, 1996................ $4,888 $2,029 $3,564 $126,184,867 ($155,067,102) ($28,871,754)
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
YOUNG BROADCASTING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (8,840,856) $ (1,461,413)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization of 6,911,732 7,099,937
property and equipment
Amortization of program license rights 3,071,767 3,634,712
Amortization of broadcasting
licenses, other intangibles and 5,538,446 5,973,380
deferred charges
Non-cash compensation 437,982 15,400
Non-cash interest expense on 214,739 183,976
outstanding indebtedness
Extraordinary loss on extinguishment 9,125,000 -
of debt
Deferred acquisition and debt (3,437,500) (3,125,000)
refinancing costs incurred
(Increase) decrease in trade accounts (1,159,547) 808,093
receivable
Increase in prepaid expenses (221,077) (729,534)
Decrease in trade accounts payable (786,778) (332,672)
(Decrease) increase in accrued (3,259,328) 6,119,405
expenses and other liabilities
Net cash provided by operating 7,594,580 18,186,284
activities
-------------------------------
INVESTING ACTIVITIES
Purchase of KWQC-TV - (57,173,000)
Purchase of KELO-TV - (51,281,308)
Capital expenditures (2,938,831) (1,634,703)
(Increase) decrease in deposits and (166,555) 877,756
other assets
Decrease in broadcast licenses and 31,347 -
other intangibles
-------------------------------
Net cash used in investing activities (3,074,039) (109,211,255)
-------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of public 125,000,000 125,000,000
subordinated debt
Borrowings from working capital facility 3,500,000 25,400,000
Principal payments on long-term debt (129,846,161) (46,764,798)
Deferred acquisition and debt (2,026,466) (1,743,280)
refinancing costs incurred
Repurchase of Class A Common Stock - (2,923,804)
Proceeds from exercise of Common Stock 50,000 313,511
options
Principal payments under capital lease (201,362) (24,916)
obligations
Payments on programming license (3,221,885) (3,723,762)
liabilities
Net cash (used in) provided by (6,745,874) 95,532,951
financing activities
-------------------------------
NET (DECREASE) INCREASE IN CASH (2,225,333) 4,507,980
Cash and cash equivalents at beginning 6,304,402 3,425,633
of year
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 4,079,069 $ 7,933,613
===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 16,945,932 $ 14,304,146
Income taxes paid $ - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
YOUNG BROADCASTING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Principles of Consolidation
The accompanying consolidated financial statements include those of Young
Broadcasting Inc. and subsidiaries (the "Company"), consisting of eleven network
affiliated (four with CBS, six with ABC and one with NBC) commercial television
broadcasting stations in the states of Michigan, Wisconsin, Louisiana, Illinois,
Tennessee, New York, Virginia, Iowa and South Dakota. Significant intercompany
transactions and accounts have been eliminated. The accompanying condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. The interim
financial statements are unaudited but include all adjustments, which are of a
normal recurring nature, that the Company considers necessary for a fair
presentation of results for such period. Operating results of interim periods
are not necessarily indicative of results for a full year.
2. Acquisitions
On April 15, 1996, the Company acquired from Broad Street Television, L.P.
("Quad Cities") the assets of KWQC-TV, Channel 6, in Davenport, Iowa, for
approximately $55 million plus outstanding receivables of the station. This
acquisition was accounted for as a purchase. A substantial portion of the
purchase price was allocated to intangible assets. Such intangibles will be
amortized over their estimated lives which will not exceed 40 years. The Quad
Cities acquisition was financed with approximately $56.2 million of net proceeds
from the January 1996 $125 million 9% Senior Subordinated Notes Offering (the
"January 1996 Notes Offering") due 2006.
On May 31, 1996, the Company acquired from Midcontinent Television of South
Dakota, a wholly owned subsidiary of Midcontinent Media, Inc. of Minneapolis,
Minnesota, ("Midcontinent") the assets of KELO-TV, Channel 11, in Sioux Falls,
South Dakota and its satellite stations for approximately $50 million plus
outstanding receivables of the stations. This acquisition was accounted for as a
purchase. A substantial portion of the purchase price was allocated to
intangible assets. Such intangibles will be amortized over their estimated lives
which will not exceed 40 years. The Midcontinent acquisition was financed with
approximately $15.7 million of net proceeds from the January 1996 Notes
Offering, $25.4 million under the Senior Credit Facility, a $3 million
promissory note and the remaining balance from cash balances of the Company.
The following pro forma information gives effect to the Acquisitions of KWQC-TV
and KELO-TV (including expense reductions) and the new affiliation agreement as
if they had been effected on January 1, 1995 and 1996. The pro forma
information for the three months and six months ended June 30, 1995 and 1996
does not purport to represent what the Company's results of operations would
have been if such transactions had been effected at such date and do not purport
to project results of operations of the Company in any future period.
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 (1) 1996 (1) 1995 (1) 1996 (1)
---- ---- ---- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Revenues (2)............................................ $38,858 $38,894 $ 71,694 $72,949
Operating Income............................................ 12,663 12,994 19,329 20,415
Income (loss) before extraordinary item .................... 1,941 1,954 (2,179) (1,631)
Net income (loss) applicable to common stockholders......... (7,184) 1,954 (11,304) (1,631)
Net income (loss) per common share:
Primary and Fully Diluted......................... $ (0.66) $ 0.18 $ (1.04) $ (0.16)
</TABLE>
(1) Pro forma adjustments to 1995 net revenues include additional annualized
network compensation under the new WTVO and KELO affiliation agreements and
a programming change at KWQC in the aggregate amount of $200,000 and
$400,000 for the three and six months ended June 30, 1995, respectively. Pro
forma adjustments to 1996 net revenues include additional network
compensation under the new KWQC and KELO affiliation agreements of $72,000
and $182,000 for the three and six months ended June 30,1996.
Pro forma adjustments for 1995 include expense reductions of approximately
$792,000 and $1.6 million and the elimination of the Quad Cities station
management fee for the three and six months ended June 30, 1995,
respectively. Pro forma adjustments for 1996 include expense reductions of
approximately $306,000 and $1.1 million and the elimination of the Quad
Cities station management fee for the three and six months ended June 30,
1996, respectively.
(2) Net revenues are total revenues net of agency and national representation
commissions.
3. Pending Acquisition
On May 10, 1996, the Company entered into an agreement with a subsidiary of The
Walt Disney Company ("Disney") to acquire from Disney the assets of KCAL-TV,
Channel 9, in Los Angeles, California for $368 million plus $17 million for net
working capital. This acquisition will be accounted for as a purchase. It is
anticipated that a substantial portion of the purchase price will be allocated
to intangible assets. Such intangibles will be amortized over their estimated
lives which will not exceed 40 years. The Disney acquisition is subject to,
among other things, FCC approval.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The operating revenues of the Company's stations are derived primarily from
advertising revenues and, to a much lesser extent, from compensation paid by the
networks to the stations for broadcasting network programming. The stations'
primary operating expenses are for employee compensation, news gathering,
production, programming and promotion costs. A high proportion of the operating
expenses of the stations are fixed.
Advertising is sold for placement within and adjoining a station's network and
locally originated programming. Advertising is sold in time increments and is
priced primarily on the basis of a program's popularity among the specific
audience an advertiser desires to reach, as measured principally by periodic
audience surveys. In addition, advertising rates are affected by 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 are highest during the most desirable viewing
hours, with corresponding reductions during other hours. The ratings of a local
station affiliated with a national television network can be affected by ratings
of network programming.
Most advertising contracts are short-term, and generally run only for a few
weeks. The Company estimates that approximately 54% of the annual gross revenue
of the Company's stations is generated from local advertising, which is sold by
a station's sales staff directly to local accounts, and the remainder of the
advertising revenue primarily represents national advertising, which is sold by
a national advertising sales representative. The stations generally pay
commissions to advertising agencies on local, regional and national advertising,
and, on national advertising, the stations also pay commissions to the national
sales representative.
The advertising revenues of the Company's 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. In addition, advertising revenues are generally
higher during even numbered election years due to spending by political
candidates, which spending typically is heaviest during the fourth quarter.
"Broadcast cash flow" is defined as operating income before income taxes and
interest expense, plus depreciation and amortization (including amortization of
program license rights), non-cash compensation and corporate overhead, less
payments for program license liabilities. The Company has included broadcast
cash flow data because such data are commonly used as a measure of performance
for broadcast companies and are also used by investors to measure a company's
ability to service debt. Broadcast cash flow is not, and should not be used as,
an indicator or alternative to operating income, net income or cash flow as
reflected in the Consolidated Financial Statements, is not intended to represent
funds available for debt service, dividends, reinvestment or other discretionary
uses, is not a measure of financial performance under generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
The following table sets forth certain operating data for the three and six
months ended June 30, 1995 and 1996:
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Operating Income............................... $10,941 $11,977 $16,230 $17,439
Add:
Amortization of Program License 1,517 1,880 3,072 3,635
Rights...................................
Depreciation and Amortization............. 6,259 6,909 12,450 13,073
Corporate Overhead........................ 815 1,087 1,566 2,171
Non-cash Compensation..................... 0 15 438 15
Less:
Payments for Program License Liabilities.. (1,423) (1,869) (3,222) (3,724)
------------------- ---------------------
Broadcast Cash Flow............................ $18,109 $19,999 $30,534 $32,609
=================== =====================
</TABLE>
Television Revenues
Set forth below are the principal types of television revenues received by the
Company's stations for the periods indicated and the percentage contribution of
each to the Company's total revenues, as well as agency and national sales
representative commissions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ - ------ -
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Local............. $20,603 54.1 $23,142 54.6 $ 37,373 53.8 $ 40,437 54.2
National.......... 14,372 37.8 14,656 34.6 25,307 36.4 25,523 34.2
Network........... 2,576 6.8 2,928 6.9 5,048 7.3 5,529 7.4
Political......... 139 0.3 1,062 2.5 295 0.4 1,461 2.0
Production/Other.. 370 1.0 574 1.4 1,445 2.1 1,654 2.2
-------------------------------------------------------------------------------------------
Total........... 38,060 100.0 42,362 100.0 69,468 100.0 74,604 100.0
Commissions......... (5,689) (14.9) (6,302) (14.9) (10,124) (14.6) (10,845) (14.5)
-------------------------------------------------------------------------------------------
Net Revenue......... $32,371 85.1 $36,060 85.1 $ 59,344 85.4 $ 63,759 85.5
===========================================================================================
</TABLE>
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Actual
- ------
Net revenue for the three months ended June 30, 1996 was $36.1 million, an
increase of $3.7 million, or 11.4%, compared to $32.4 million for the three
months ended June 30, 1995, with the acquired stations, KWQC-TV (Quad Cities)
and KELO-TV (Sioux Falls, SD) (the "Acquisitions"), accounting for all of this
increase. Gross local revenue was even and national revenue was down 6.0%,
compared to the same period in 1995 for the stations owned prior to the
Acquisitions. Network compensation increased $352,000 for the three months ended
June 30, 1996, or 13.7%, with $228,000 of such increase attributable to the
acquired stations and $108,000 due to the network affiliation switch and a new
network compensation agreement at the Company's Rockford, Illinois station
(WTVO-TV).
10
<PAGE>
Operating expenses, including selling, general and administrative
expenses, for the three months ended June 30, 1996 were $14.2 million, compared
to $12.8 million for the three months ended June 30, 1995, an increase of $1.4
million, or 10.9%, with the acquired stations accounting for all of such
increase.
Amortization of program license rights for the three months ended June
30, 1996 was $1.9 million, compared to $1.5 million for the three months ended
June 30, 1995, an increase of $363,000, or 23.9%. Amortization of program
license rights at the acquired stations was $154,000.
Depreciation of property and equipment and amortization of intangible
assets was $6.9 million for the three months ended June 30, 1996, compared to
$6.3 million for the three months ended June 30, 1995, an increase of $651,000,
or 10.4%. The increase is due principally from depreciation and amortization at
the acquired stations.
The Company made payments for program license liabilities of $1.9
million during the three months ended June 30, 1996, compared to $1.4 million
for the three months ended June 30, 1995, an increase of $446,000, or 31.3%.
Program license payments related to the acquired stations were $216,000.
Corporate overhead for the three months ended June 30, 1996 was $1.1
million, compared to $815,000 for the three months ended June 30, 1995, an
increase of $272,000. This increase was the result of additional personnel costs
in 1996.
Interest income for the three months ended June 30, 1996 was $357,000
compared to $125,000 for the three months ended June 30, 1995, an increase of
$232,000. This increase is primarily attributable to the higher cash levels
resulting from the January 1996 Notes offering. Approximately $71.9 million of
the net proceeds thereof remained after the repayment of approximately $50.0
million under the Senior Credit Facility and was invested in low risk commercial
paper, until it was used to finance the Acquisitions.
Interest expense was $10.0 million for the three months ended June 30,
1996, compared to $8.1 million for the three months ended June 30, 1995, an
increase of $1.9 million. The increase is primarily attributable to the
Company's higher debt level following the January 1996 Notes offering.
The Company had a $25 million interest rate swap agreement which expired
on April 18, 1996 (the "Swap Agreement"). The net interest expense resulting
from the Swap Agreement amounted to $53,000 for the three months ended June 30,
1996 and $228,000 for the three months ended June 30, 1995. At June 30, 1996,
the Company was not holding any derivative instruments. At June 30, 1996, fixed
rate debt comprised $373 million, or 92.9%, of the Company's total debt.
In June 1995, the Company incurred a $9.1 million extraordinary loss on
the extinguishment of debt. This loss was related to the partial repayment and
the amendment of the Senior Credit Facility, as described below under "Liquidity
and Capital Resources."
As a result of the factors discussed above, net income was $1.9 million
for the three months ended June 30, 1996, compared to a net loss of $6.2 million
for the three months ended June 30, 1995. Income before the extraordinary item
discussed above was $1.9 million for the three months ended June 30, 1996,
compared to $2.9 million for the same period in 1995, a decrease of $1.0
million.
11
<PAGE>
Broadcast cash flow was $20.0 million for the three months ended June
30, 1996, compared to $18.1 million for the three months ended June 30, 1995, an
increase of $1.9 million, or 10.5%, primarily attributable to the acquired
stations. Broadcast cash flow margins (broadcast cash flow divided by net
revenues) were 55.5% for the three months ended June 30, 1996, compared to 55.9%
for the three months ended June 30, 1995.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Actual
------
Net revenue for the six months ended June 30, 1996 was $63.8 million, an
increase of $4.5 million, or 7.6%, compared to $59.3 million for the six months
ended June 30, 1995, with the acquired stations accounting for $3.7 million of
this increase. Gross local revenue was up 1.3% and national revenue was down
3.7%, as compared to the same period in 1995 for the stations owned prior to the
Acquisitions. Network compensation increased $481,000 for the six months ended
June 30, 1996, of which $228,000 is attributable to the acquired stations and
$212,000 due to the network affiliation switch and new network compensation
agreement at the Company's Rockford, Illinois station (WTVO-TV).
Operating expenses, including selling and general administrative
expenses were $27.4 million for the six months ended June 30, 1996, compared to
$25.6 million for the six months ended June 30, 1995, an increase of $1.8
million, or 7.0%, with the acquired stations accounting for all of such
increase.
Amortization of program license rights for the six months ended June 30,
1996 was $3.6 million compared to $3.1 million for the six months ended June 30,
1995, an increase of $563,000 or 18.3%. Amortization of program license rights
at the acquired stations was $154,000.
Depreciation of property and equipment and amortization of intangible
assets was $13.1 million for the six months ended June 30, 1996, compared to
$12.4 million for the six months ended June 30, 1995, an increase of $623,000,
or 5.0%. This increase is due principally from the depreciation and amortization
at the acquired stations which amounted to $647,000.
The Company made payments for program license liabilities of $3.7
million during the six months ended June 30, 1996, compared with payments of
$3.2 million during the six months ended June 30, 1995, an increase of $502,000.
Program license payments related to the acquired stations were $216,000.
Corporate overhead was $2.2 million for the six months ended June 30,
1996, compared to $1.6 million for the period ended June 30, 1995, an increase
of $605,000. This increase is due to additional personnel expense.
Interest income for the six months ended June 30, 1996 was $1.3 million
compared to $216,000 for the same period in 1995, an increase of $1.1 million.
This increase is primarily attributable to the higher cash levels resulting from
the January 1996 Notes offering. Approximately $71.9 million of the net proceeds
thereof remained after the repayment of approximately $50.0 million under the
Senior Credit Facility which was invested in low risk commercial paper, until it
was used to finance the Acquisitions.
Interest expense was $19.7 million for the six months ended June 30,
1996, compared with $16.1 million for the prior year period, an increase of $3.6
million, or 22.4%. The increase in interest expense is due to the Company's
higher debt level following the January 1996 Notes Offering.
12
<PAGE>
The net interest expense resulting from the Swap Agreement amounted to
$315,000 for the six months ended June 30, 1996, compared to $459,000 for the
six months ended June 30, 1995. On April 18, 1996 the Company's $25 million Swap
Agreement expired. At June 30, 1996, fixed rate debt and interest rate swap
agreements comprised $373 million, or 92.9%, of the Company's total debt.
In June 1995, the Company incurred a $9.1 million extraordinary loss on
the extinguishment of debt. This loss was related to the partial repayment and
the amendment of the Senior Credit Facility, as described below under "Liquidity
and Capital Resources."
As a result of the factors discussed above, the net loss to the company
was $1.5 million for the six months ended June 30, 1996, compared with a net
loss of $8.8 million for the same period in 1995. Loss before extraordinary item
was $1.5 million for the six months ended June 30, 1996, compared to income of
$284,000 for the same period in 1995.
Broadcast cash flow was $32.6 million for the six months ended June 30,
1996, compared to $30.5 million for the same period in 1995, an increase of $2.1
million, or 6.9%, of which approximately $1.9 million was generated by the newly
acquired stations. Broadcast cash flow margins (broadcast cash flow divided by
net revenues) were 51.1% for the six months ended June 30, 1996, compared to
51.5% for the same period in 1995.
Pro Forma
The following pro forma information gives effect to the Acquisitions of
KWQC-TV and KELO-TV (including expense reductions) and the new affiliation
agreement as if they had been effected on January 1, 1995 and 1996. The pro
forma information for the three months and six months ended June 30, 1995 and
1996 does not purport to represent what the Company's results of operations
would have been if such transactions had been effected at such date and do not
purport to project results of operations of the Company in any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ----------------------
JUNE 30, JUNE 30,
1995(1) 1996(1) 1995(1) 1996(1)
------- ------- ------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Revenues (2)........................ $38,858 $38,894 $71,694 $72,949
Operating Expenses, Including Selling,
General and 15,851 15,340 31,193 31,308
Administrative Expenses..............
Amortization of Program License Rights.. 1,711 1,860 3,598 3,927
Depreciation and Amortization (3)....... 7,818 7,599 15,570 15,113
Corporate Overhead...................... 815 1,086 1,566 2,171
Non-cash Compensation................... - 15 438 15
----------------------- -----------------------
Operating Income........................ $12,663 $12,994 $19,329 $20,415
======================= =======================
Broadcast Cash Flow (4)................. $21,393 $21,670 $36,789 $37,657
Broadcast Cash Flow Margin.............. 55.1% 55.7% 51.3% 51.6%
Operating Cash Flow (5)................. $20,578 $20,584 $35,223 $35,486
Capital Expenditures.................... $ 1,735 $ 972 $ 3,927 $ 1,778
</TABLE>
(1) Pro forma adjustments to 1995 net revenues include additional annualized
network compensation under the new WTVO and KELO affiliation agreements and
a programming change at KWQC in the aggregate amount of $200,000 and
$400,000 for the three and six months ended June 30, 1995, respectively. Pro
forma adjustments to 1996 net revenues
13
<PAGE>
include additional network compensation under the new KWQC and KELO
affiliation agreements of $72,000 and $182,000 for the three and six months
ended June 30,1996.
Pro forma adjustments for 1995 include expense reductions of approximately
$792,000 and $1.6 million and the elimination of the Quad Cities station
management fee for the three and six months ended June 30, 1995,
respectively. Pro forma adjustments for 1996 include expense reductions of
approximately $306,000 and $1.1 million and the elimination of the Quad
Cities station management fee for the three and six months ended June 30,
1996, respectively.
(2) Net revenues are total revenues net of agency and national representation
commissions.
(3) Represents the reversal of annual amortization expense for the repayment of
the Company's old credit facility, the additional amortization resulting
from the Company's new credit facility, and the depreciation of the fixed
assets and amortization of the intangible assets acquired from Quad Cities
and Midcontinent.
(4) "Broadcast cash flow" is defined as operating income before income taxes and
interest expense, plus depreciation and amortization (including amortization
of program license rights), non-cash compensation and corporate overhead,
less payments for program license liabilities. The Company has included
broadcast cash flow data because such data are commonly used as a measure of
performance for broadcast companies and are also used by investors to
measure a company's ability to service debt. Broadcast cash flow is not, and
should not be used as, an indicator or alternative to operating income, net
income or cash flow as reflected in the Consolidated Financial Statements,
is not intended to represent funds available for debt service, dividends,
reinvestments or other discretionary uses, is not a measure of financial
performance under generally accepted accounting principles and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(5) "Operating cash flow" is defined as operating income before income taxes and
interest expense, plus depreciation and amortization (including amortization
of program license rights) and non-cash compensation, less payments for
program license liabilities. The Company has included operating cash flow
data because such data are commonly used by investors to measure a company's
ability to service debt and will be used in calculating the amount of
additional indebtedness that the Company may incur in the future under the
Indentures. Operating cash flow does not purport to represent cash provided
by operating activities as reflected in the Consolidated Financial
Statements, is not a measure of financial performance under generally
accepted accounting principles and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations and
funds available under the Senior Credit Facility.
The Company's senior credit facility (the "Senior Credit Facility")
currently provides for borrowings of up to an aggregate of $80.0 million in the
form of a revolving facility which matures on December 31, 2000. The Company is
permitted to borrow at any time up to $65.0 million of such $80.0 million for
acquisitions meeting certain criteria which are approved by a majority of the
lenders under the Senior Credit Facility. Undrawn amounts under such facility
are available to the Company for working
14
<PAGE>
capital requirements and general corporate purposes. As of June 30, 1996, there
was $25.4 million outstanding under the Senior Credit Facility.
The Company has entered into a commitment letter with certain of its
existing lenders pursuant to which the Senior Credit Facility will be amended
and restated (the "Amendment") to provide the Company with the ability to borrow
up to $500.0 million in the form of (i) a seven year reducing revolving credit
facility in the amount of $200.0 million (the "Revolver Facility") and (ii) a
seven year amortizing term loan facility in the amount of $300.0 million (the
"Term Facility").
The Company has agreed to acquire KCAL-TV, Los Angeles, California from
Disney for a purchase price of approximately $368.0 million, plus an estimated
$17.0 million for working capital. The Company may finance the acquisition with
borrowings under its amended Senior Credit Facility. The Company currently has
on file with the Securities and Exchange Commission a Registration Statement on
Form S-3 relating to a proposed public offering of the Company's Class A Common
Stock by the Company and certain stockholders of the Company, which contemplates
raising net proceeds to the Company of approximately $150.0 million. On July 25,
1996, the Company announced the postponement of the offering due to market
conditions. If the offering is completed, which management is unable to predict,
the Company would apply such net proceeds to finance a portion KCAL-TV
acquisition, and until applied as such, the Company would use such proceeds to
repay in full the outstanding principal indebtedness and accrued interest under
the Senior Credit Facility and place the remaining proceeds in an interest-
bearing bank account or invested in United States government securities or other
interest-bearing investment grade securities.
The Revolver Facility will have a $185.0 million sublimit (the
"Sublimit") for borrowings in connection with the acquisition of additional
television stations (and businesses, if any, incidental thereto) pursuant to
transactions which meet the following criteria: (i) each of the acquired
stations will become a wholly-owned subsidiary of the Company and will become a
part of the lenders' security package under the Senior Credit Facility, and (ii)
the Company can demonstrate that after giving pro forma effect to each such
acquisition (based upon assumptions, including identified cost savings, that the
agents for the lenders find reasonable), the Company will be in compliance with
all of the terms and conditions of the Senior Credit Facility and have a total
debt/operating cash flow ratio of less than 6.0x.
Pursuant to the Amendment, the Company will be prohibited from making
investments or advances to third parties exceeding $7.5 million in the aggregate
unless the third party becomes a guarantor of the Company's obligations.
However, the Company may utilize up to $20.0 million of its borrowing
availability under the Sublimit for the purpose of repurchasing shares of Common
Stock and for paying dividends, subject to the limitations set forth in the
indentures relating to the Company's outstanding Senior Subordinated Notes (the
"Indentures"), provided that the total debt/operating cash flow ratio is less
than 5.5x. In addition, the Company may utilize the undrawn amounts under the
Sublimit to retire or prepay subordinated debt, subject to the limitations set
forth in the Indentures, provided that the total debt/operating cash flow ratio
is less than 5.0x, or 4.5x after June 30, 2000; if the ratio exceeds such
amounts, the Company will be permitted to utilize only up to $20.0 million of
availability under the Sublimit. Undrawn amounts under the Revolver Facility are
available to the Company for working capital requirements and general corporate
purposes.
Pursuant to the Amendment, interest under the Senior Credit Facility
will be payable at the LIBOR rate, "CD Rate" or "Base Rate." In addition to the
index rates, the Company will pay a floating percentage tied to the Company's
ratio of total debt to operating cash flow; ranging, in the case of LIBOR rate
loans, from 1.25% based upon a ratio under 4:1 to 2.625% based upon a 6:5 or
greater ratio.
15
<PAGE>
Each of the Company's subsidiaries has guaranteed the Company's
obligations under the Senior Credit Facility. The Senior Credit Facility is
secured by the pledge of all the stock of such subsidiaries and a first priority
lien on all of the assets of the Company and its subsidiaries.
The Senior Credit Facility imposes restrictions on the Company's ability
to incur additional indebtedness. Pursuant to the Amendment, the Company will be
permitted to incur, subject to the terms of the Indentures and satisfaction of
the financial covenants of the Senior Credit Facility, unsecured subordinated
debt, provided that the subordination and mandatory redemption provisions and
the maturity of such indebtedness are comparable to the notes and that the
proceeds are used to repay the outstanding balance of the Term Facility until
the Company's debt to operating cash flow ratio is less than 4.5x. The Company
is also restricted as to the amount of its capital lease obligations and
guarantees. The Senior Credit Facility also restricts the ability of the Company
to amend material terms of the Indentures. The Senior Credit Facility also
requires the Company to maintain certain financial ratios.
The Company from time to time investigates alternatives for replacing or
refinancing its existing Senior Credit Facility. Any such replacement or
refinancing may or may not have terms and conditions, including restrictive
covenants and maintenance tests, similar to those in the Senior Credit Facility.
The Indentures impose certain limitations on the ability of the Company
and certain of its subsidiaries to, among other things, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur indebtedness that is subordinate in
right of payment to any senior debt and senior in right of payment to such
notes, incur liens, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the Company.
The Company regularly enters into program contracts for the right to
broadcast television programs produced by others and program commitments for the
right to broadcast programs in the future. Such programming commitments are
generally made to replace expiring or canceled program rights. Payments under
such contracts are made in cash or the concession of advertising spots to the
program provider to resell, or a combination of both.
The Company anticipates that its operating cash flow, together with the
amounts available under the Senior Credit Facility, will be sufficient to
finance the operating requirements of its stations, debt service requirements
and anticipated capital expenditures.
The Company is regularly presented with opportunities to acquire
television stations which it evaluates on the basis of its acquisition strategy.
Other than the KCAL acquisition, the Company does not presently have any
agreements to acquire any television stations. The KCAL acquisition will be
accounted for as a purchase. It is anticipated that a substantial portion of the
purchase price will be allocated to intangible assets. Such intangible assets
will be amortized over their estimated lives which will not exceed 40 years.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return and such state or local tax returns as are required. The Company
anticipates making use of its net operating loss carry forward to the maximum
extent possible to reduce its future tax liabilities. Future utilization of a
significant portion of the Company's net operating losses for federal income tax
purposes will be subject to an annual limitation.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Exhibit Description
- ------ -------------------
II Statement Re Computation of Per Share Earnings.
(b) Reports on Form 8-K. The Company filed the following reports on Form 8-K
during the first six months of the year ending December 31, 1996:
1. Current Report on Form 8-K dated January 16, 1996 reporting the
Midcontinent acquisition.
2. Current Report on Form 8-K dated February 13, 1996 reporting the release
of the Company's financial results as of and for the year ended December
31, 1995.
3. Current Report on Form 8-K dated May 15, 1996 reporting the acquisition
of KCAL-TV from a subsidiary of the Walt Disney Company.
27 Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YOUNG BROADCASTING INC.
Date: August 6, 1996 By: /s/ Vincent J. Young
----------------------
Vincent J. Young
Chairman
Date: August 6, 1996 By: /s/ James A. Morgan
--------------------
James A. Morgan
Executive Vice President and
Chief Financial Officer
(principal financial officer)
18
<PAGE>
EXHIBIT 11
EXHIBIT II
YOUNG BROADCASTING INC. AND SUBSIDIARIES
RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996
--------------------------- -------------------------
<S> <C> <C> <C> <C>
SHARES OF COMMON STOCK OUTSTANDING
FOR THE ENTIRE PERIOD...................... 10,819,049 10,548,181 10,840,745 10,464,483
ISSUANCE OF 21,696 SHARES OF COMMON STOCK TO THE
COMPANY'S DEFINED CONTRIBUTION PLAN IN 1995..... 12,946 - - -
ISSUANCE OF 27,685 SHARES OF COMMON STOCK TO THE
COMPANY'S DEFINED CONTRIBUTION PLAN IN 1996..... - 27,073 - -
ISSUANCE OF 19,312 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS IN 1995................ 2,774 - 5,518 -
REPURCHASE OF 111,383 SHARES OF COMMON STOCK
FROM J.P. MORGAN CAPITAL CORPORATION IN 1996.... - (110,152) - -
ISSUANCE OF 5,937 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS IN 1996................ - 2,690 - 5,350
ISSUANCE OF 9,937 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS IN 1996................ - 2,141 - 4,259
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING............................... 10,834,769 10,469,933 10,846,263 10,474,092
PRIMARY DILUTIVE EFFECT OF 688,937 OPTIONS AND
750,000 WARRANTS IN 1995 AND 658,551 OPTIONS AND
750,000 WARRANTS IN 1996 EXPECTED TO BE
EXERCISED UNDER THE TREASURY STOCK METHOD
USING THE WEIGHTED AVERAGE MARKET PRICE OF
THE COMPANY'S SHARES OF COMMON STOCK............ 64,486 - 103,971 504,609
----------- ----------- ----------- -----------
TOTAL PRIMARY WEIGHTED AVERAGE SHARES OF
COMMON STOCK FOR THE PERIOD..................... 10,899,255 - 10,950,234 10,978,701
----------- ----------- ----------- -----------
FULLY DILUTIVE EFFECT OF 688,937 OPTIONS AND
750,000 WARRANTS IN 1995 AND 658,551 OPTIONS AND
750,000 WARRANTS IN 1996 EXPECTED TO BE
EXERCISED UNDER TREASURY STOCK METHOD USING
THE PERIOD-END MARKET PRICE OF THE COMPANY'S
SHARES OF COMMON STOCK.......................... 298,220 - 339,199 623,351
----------- ----------- ----------- -----------
TOTAL FULLY DILUTED WEIGHTED AVERAGE SHARES
OF COMMON STOCK FOR THE PERIOD.................. 11,132,989 - 11,185,462 11,097,443
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............ $ 284,144 $(1,461,413) $ 2,948,922 $ 1,877,033
=========== ============ =========== ===========
NET INCOME (LOSS).................................. $(8,840,856) $(1,461,413) $(6,176,078) $ 1,877,033
============ ============ ============ ===========
NET INCOME (LOSS) PER COMMON SHARE
PRIMARY
BEFORE EXTRAORDINARY ITEM....................... $ 0.03 $ (0.14) $ 0.27 $ 0.17
============ ============ ============ ===========
NET INCOME (LOSS)............................... $ (0.82) $ (0.14) $ (0.57) $ 0.17
============ ============ ============ ===========
FULLY DILUTED
BEFORE EXTRAORDINARY ITEM....................... $ 0.03 $ (0.14) $ 0.26 $ 0.17
============ ============ ============ ===========
NET INCOME (LOSS)............................... $ (0.82) $ (0.14) $ (0.57) $ 0.17
============ ============ ============ ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7934
<SECURITIES> 0
<RECEIVABLES> 30614
<ALLOWANCES> 788
<INVENTORY> 0
<CURRENT-ASSETS> 44647
<PP&E> 161016
<DEPRECIATION> 69854
<TOTAL-ASSETS> 400284
<CURRENT-LIABILITIES> 26127
<BONDS> 370000
<COMMON> 10
0
0
<OTHER-SE> (28882)
<TOTAL-LIABILITY-AND-EQUITY> 400284
<SALES> 0
<TOTAL-REVENUES> 63759
<CGS> 0
<TOTAL-COSTS> 46320
<OTHER-EXPENSES> 441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18460
<INCOME-PRETAX> (1461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1461)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
