<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, 1999 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 30, 1999:
11,107,842 shares of Class A Common Stock, and 2,378,751 shares of Class B
Common Stock.
================================================================================
<PAGE>
YOUNG BROADCASTING INC.
FORM 10-Q
Table of Contents
<TABLE>
<CAPTION>
Part I. Page
----
<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999.......................................2
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1998 and 1999......................................................................................3
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 1999...............................................................................................4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1999......................................................................................5
Notes to Consolidated Financial Statements..................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................................................7
Item 3. Quantitative and Qualitative Disclosure About Market Risk..................................................14
Part II.
Item 4. Submission of Matters to a Vote of Security Holders ........................................................15
Item 6. Exhibits and Reports on Form 8-K........................................................................... 16
Signatures...................................................................................................................17
</TABLE>
<PAGE>
Item 1. Financial Statements.
Young Broadcasting Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
---------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 663,298 $ 1,689,685
Trade accounts receivable, less allowance for doubtful accounts of
$2,012,000 in 1998 and $1,764,000 in 1999 53,835,994 62,236,638
Current portion of program license rights 15,250,015 7,687,111
Prepaid expenses 11,375,957 10,701,874
---------------------------------------
Total current assets 81,125,264 82,315,308
---------------------------------------
Property and equipment, less accumulated depreciation and amortization of
$122,757,235 in 1998 and $134,338,499 in 1999 96,736,970 91,813,461
Program license rights, excluding current portion 1,987,123 1,589,441
Deposits and other assets 28,213,931 28,468,113
Broadcasting licenses and other intangibles, less accumulated amortization of
$118,831,102 in 1998 and $129,123,282 in 1999 604,576,679 594,292,484
Deferred charges less accumulated amortization of $10,508,840 in 1998 and
$12,145,731 in 1999 13,027,559 11,390,668
---------------------------------------
Total Assets $825,667,526 $809,869,475
=======================================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $14,571,552 $19,682,755
Accrued expenses 19,948,169 19,410,025
Current installments of program license liability 12,412,040 6,815,964
Current installments of long-term debt 914,171 967,715
Current installments of obligations under capital leases 491,666 532,313
---------------------------------------
Total current liabilities 48,337,598 47,408,772
Program license liability, excluding current installments 2,196,256 1,743,263
Long-term debt, excluding current installments 655,000,000 656,182,000
Deferred taxes and other liabilities 73,268,546 73,715,883
---------------------------------------
Total liabilities 778,802,400 779,049,918
---------------------------------------
Stockholders' equity:
Class A Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and
outstanding 11,401,823 shares at 1998 and 11,159,729 at 1999 11,402 11,160
Class B Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and
outstanding 2,408,447 shares at 1998 and 2,378,751 at 1999 2,408 2,378
Additional paid-in capital 205,523,080 194,614,996
Accumulated deficit (158,671,764) (163,808,977)
---------------------------------------
Total stockholders' equity 46,865,126 30,819,557
---------------------------------------
Total liabilities and stockholders' equity $ 825,667,526 $809,869,475
=======================================
</TABLE>
*Derived from the audited financial statements for the year ended December 31,
1998
See accompanying notes to consolidated financial statements.
2
<PAGE>
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1999 1998 1999
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------
Net operating revenue $77,245,728 $73,704,460 $141,827,149 $136,951,191
-------------------------------------------------------------------------
Operating expenses 16,614,510 15,916,703 33,109,067 31,858,722
Amortization of program license rights 9,993,819 12,107,405 20,358,286 24,304,323
Selling, general and administrative expenses 12,765,578 12,784,802 25,538,159 25,452,156
Depreciation and amortization 12,409,782 11,977,475 24,959,442 23,852,156
Corporate overhead 2,048,295 2,158,818 4,092,901 4,221,525
Non-cash compensation 299,991 247,053 595,749 557,870
Merger-related costs - - 1,444,588 -
-------------------------------------------------------------------------
Operating income 23,113,753 18,512,204 31,728,957 26,704,439
-------------------------------------------------------------------------
Interest income 61,672 5,713 112,344 32,551
Interest expense (15,181,818) (15,655,963) (30,931,403) (31,329,559)
Other expense, net (185,799) (256,271) (436,766) (544,644)
-------------------------------------------------------------------------
(15,305,945) (15,906,521) (31,255,825) (31,841,652)
-------------------------------------------------------------------------
Net income (loss) $ 7,807,808 $ 2,605,683 $ 473,132 $ (5,137,213)
=========================================================================
Income (loss) per common share
Basic $0.54 $0.19 $0.03 $(0.38)
=========================================================================
Diluted $0.52 $0.18 $0.03 $(0.38)
=========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------ Paid-In Accumulated Stockholders'
Class A Class B Capital Deficit Equity
------------ --------- ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998................... $11,402 $2,408 $205,523,080 $(158,671,764) $46,865,126
Contribution of shares into Company's
Defined contribution plan................... 11 - 579,117 - 579,128
Conversion of Class B Common Stock
to Class A Common Stock..................... 30 (30) - - -
Exercise of stock options.................... 8 - 171,179 - 171,187
Repurchase and retirement of Class A Common
Stock....................................... (291) - (11,658,380) - (11,658,671)
Net loss for the six months ended June 30,
1999........................................ - - - (5,137,213) (5,137,213)
------------ --------- ------------ ----------------- --------------
Balance at June 30, 1999....................... $11,160 $2,378 $194,614,996 $(163,808,977) $30,819,557
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1999
-------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 473,132 $(5,137,213)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 12,128,290 11,923,085
Amortization of program license rights 20,358,286 24,304,323
Amortization of broadcasting licenses, other intangibles and deferred charges
12,831,152 11,929,071
Non-cash compensation 595,749 557,870
Non-cash interest expense on outstanding indebtedness 101,024 53,544
(Gain) loss on sale of fixed assets (65,962) 33,523
Payments on programming license liabilities (20,671,002) (24,166,389)
Decrease (increase) in trade accounts receivable 960,062 (7,869,752)
Increase in prepaid expenses (3,376,346) (1,293,090)
Increase in trade accounts payable 389,124 6,810,353
Decrease in accrued expenses and other liabilities (1,786,624) (516,886)
-------------------------------------
Net cash provided by operating activities 21,936,885 16,628,439
-------------------------------------
Investing activities
Capital expenditures (1,452,311) (4,800,135)
Decrease (increase) in deposits and other assets 84,273 (254,182)
Increase in broadcast licenses and other intangibles (267,877) (7,290)
-------------------------------------
Net cash used in investing activities (1,635,915) (5,061,607)
-------------------------------------
Financing activities
Principal payments on long-term debt (20,260,000) (5,145,000)
Borrowings from working capital facility - 6,327,000
Deferred acquisition and debt refinancing costs incurred (61,076) -
Repurchase of Class A Common Stock - (11,658,671)
Proceeds from exercise of Common Stock options 120,125 171,187
Principal payments under capital lease obligations (332,741) (234,961)
-------------------------------------
Net cash used in financing activities (20,533,692) (10,540,445)
-------------------------------------
Net (decrease) increase in cash (232,722) 1,026,387
Cash and cash equivalents at beginning of year 1,652,428 663,298
-------------------------------------
Cash and cash equivalents at June 30 $1,419,706 $ 1,689,685
=====================================
Supplemental disclosure of cash flow information
Interest paid $31,343,114 $ 31,391,710
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<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) and one independent
commercial television broadcasting stations in the states of Michigan,
Wisconsin, Louisiana, Illinois, Tennessee, New York, Virginia, Iowa, South
Dakota and California, and a national television sales representation firm.
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 the consolidated financial position and the consolidated
results of operations and cash flows for such period. Operating results of
interim periods are not necessarily indicative of results for a full year.
2. Pending Sale of WKBT-TV
On June 30, 1999, the Company announced that it had signed a letter of intent
with Television Wisconsin, Inc. of Madison, Wisconsin to sell WKBT-TV in
LaCrosse/EauClaire, Wisconsin to Television Wisconsin for 14 times trailing
broadcast cash flow.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD-LOOKING STATEMENTS
FORWARD LOOKING STATEMENTS ARE ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS, INCLUDED IN THIS DOCUMENT. THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS REPORT, CONCERN, AMONG OTHER THINGS, CERTAIN STATEMENTS UNDER
"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 and
national representation fees. 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. Most of the Company's annual gross revenue is generated from local
advertising, which is sold by a station's sales staff directly to local
accounts. The remainder of the advertising revenue primarily represents national
advertising, which is sold by Adam Young Inc. ("AYI"), a national advertising
sales representative which was merged with the Company in 1998. The stations
generally pay commissions to advertising agencies on local and regional
advertising; on national advertising, the stations also pay commissions to AYI.
Effective January 1, 1998, the commissions paid to AYI have been eliminated for
consolidation purposes.
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.
The Company defines "broadcast cash flow" as operating income before
income taxes and interest income and expense, plus depreciation and amortization
(including amortization of program license rights), non-cash compensation,
merger related costs and corporate overhead, less payments for program license
liabilities. Other television broadcasting companies may measure broadcast cash
flow in a different manner. The Company has included broadcast cash flow data
because such data are commonly used as a measure of performance for broadcast
7
<PAGE>
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, 1998 and 1999:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1999 1998 1999
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Operating income $23,114 $18,512 $31,729 $26,704
Add:
Amortization of program license rights.. 9,994 12,108 20,358 24,304
Depreciation and amortization............. 12,409 11,977 24,959 23,852
Corporate overhead 2,048 2,159 4,093 4,222
Merger-related costs......... - - 1,444 -
Non-cash compensation 300 247 596 558
Less:
Payments for program license liabilities (10,171) (12,026) (20,671) (24,166)
------------------------- ---------------------------
Broadcast cash flow........................... $37,694 $32,977 $62,508 $55,474
========================= ===========================
</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,
--------------------------- -------------------------
1998 1999 1998 1999
---- ---- ------ ----
Amount % Amount % Amount % Amount %
------- -- -------- -- ------ - ------ --
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Local.................. $56,605 63.4 $56,042 65.2 $104,283 63.7 $104,539 65.5
National.............. 26,121 29.3 25,161 29.3 47,147 28.8 45,134 28.3
Network.............. 3,375 3.8 3,284 3.8 6,450 3.9 6,519 4.1
Political.............. 2,101 2.3 369 0.4 3,085 1.9 506 0.3
Production/Other 1,064 1.2 1,132 1.3 2,802 1.7 2,880 1.8
----------- --------- ----------- ------- ----------- --------- ----------- -------
Total.......... 89,266 100.0 85,988 100.0 163,767 100.0 159,578 100.0
Commissions........ (12,020) (13.5) (12,284) (14.3) (21,940) (13.4) (22,627) (14.2)
----------- --------- ----------- ------- ----------- --------- ----------- -------
Net Revenue...... $77,246 86.5 $73,704 85.7 $141,827 86.6 $136,951 85.8
=========== ========= =========== ======= =========== ========= =========== =======
</TABLE>
8
<PAGE>
Results of Operations
Three Months ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net revenue for the three months ended June 30, 1999 was $73.7 million,
a decrease of $3.5 million, or 4.5%, compared to $77.2 million for the three
months ended June 30, 1998. Decreases in various local market economies led to a
reduction in the Company's gross local revenue of 1.0%, while gross national was
down 3.7% in 1999 compared to the second quarter of 1998. Political revenue for
the three months ended June 30, 1999 was $369,000, a decrease of $1.7 million
from the same period in 1998. The decrease was attributable to 1998 being a
national election year with many state and local elections, while 1999 had only
limited state and local elections.
Operating expenses, including selling, general and administrative
expenses, for the three months ended June 30, 1999 were $28.7 million, compared
to $29.4 million for the three months ended June 30, 1998, a decrease of
$679,000, or 2.3%.
Amortization of program license rights for the three months ended June
30, 1999 was $12.1 million, compared to $10.0 million for the three months ended
June 30, 1998, an increase of $2.1 million. The Lakers contract entered into in
the third quarter of 1998 accounted for approximately $1.2 million of such
increase. Increases for various syndicated programs accounted for the remaining
portion.
Depreciation of property and equipment and amortization of intangible
assets was $12.0 million for the three months ended June 30, 1999, compared to
$12.4 million for the three months ended June 30, 1998, a decrease of $432,000,
or 3.5%. This decrease is primarily attributable to fixed assets and intangibles
becoming fully depreciated and amortized.
The Company made payments for program license liabilities of $12.0
million during the three months ended June 30, 1999, compared to $10.2 million
for the three months ended June 30, 1998, an increase of $1.8 million, with the
new Lakers contract accounting for $1.1 million of such increase.
Corporate overhead for the three months ended June 30, 1999 was $2.2
million, compared to $2.0 million for the three months ended June 30, 1998, an
increase of $111,000 or 5.4%.
Non-cash compensation was $247,000 for the three months ended June 30,
1999, compared to $300,000 for the comparable period in 1998. These amounts
represented non-cash charges for an employee-matching stock plan (the "Plan"),
included in the Company's 401(k) Plan.
Interest income for the three months ended June 30, 1999 was $6,000
compared to $62,000 for the three months ended June 30, 1998, a decrease of
$56,000. This decrease is primarily attributable to lower cash levels resulting
from the use of cash and cash equivalents to repurchase common stock.
Interest expense was $15.7 million for the three months ended June 30,
1999, compared to $15.2 million for the three months ended June 30, 1998, an
increase of $474,000 or 3.1%. This decrease is primarily attributable to the
Company's higher debt levels.
As a result of the factors discussed above, net income was $2.6 million
for the three months ended June 30, 1999, compared to net income of $7.8 million
for the three months ended June 30, 1998.
9
<PAGE>
Broadcast cash flow was $33.0 million for the three months ended June
30, 1999, compared to $37.7 million for the three months ended June 30, 1998, a
decrease of $4.7 million, or 12.5%. Broadcast cash flow margins (broadcast cash
flow divided by net revenues) were 44.7% for the three months ended June 30,
1999, compared to 48.8% for the three months ended June 30, 1998.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net revenue for the six months ended June 30, 1999 was $137.0 million,
a decrease of $4.8 million, or 3.4%, compared to $141.8 million for the six
months ended June 30, 1998. Improvement in various local market economies led to
an increase in the Company's gross local revenues of 0.2%, while gross national
was down 4.3% in 1999 compared to the same period in 1998. Political revenue for
the six months ended June 30, 1999 was $506,000, a decrease of $2.6 million from
the same period in 1998. The decrease was primarily attributable to 1998 being a
national election year with many state and local elections, while 1999 had only
limited state and local elections.
Operating expenses, including selling, general and administrative
expenses, were $57.3 million for the six months ended June 30, 1999, compared to
$58.6 million for the six months ended June 30, 1998, a decrease of $1.3
million, or 2.2%.
Amortization of program license rights for the six months ended June
30, 1999 was $24.3 million compared to $20.4 million for the six months ended
June 30, 1998, an increase of $3.9 million. The Lakers contract entered into in
the third quarter of 1998 accounted for $2.5 million of such increase.
Depreciation of property and equipment and amortization of intangible
assets was $23.9 million for the six months ended June 30, 1999, compared to
$25.0 million for the six months ended June 30, 1998, a decrease of $1.1
million, or 4.4%. This decrease is primarily attributable to fixed assets and
intangibles becoming fully depreciated and amortized.
The Company made payments for program license liabilities of $24.2
million during the six months ended June 30, 1999, compared with payments of
$20.7 million during the six months ended June 30, 1998, an increase of $3.5
million, with the new Lakers contract accounting for $2.5 million of such
increase.
Corporate overhead was $4.2 million for the six months ended June 30,
1999, compared to $4.1 million for the period ended June 30, 1998, an increase
of $129,000.
Non-cash compensation was $558,000 for the six months ended June 30,
1999, compared to $596,000 for the same period in 1998. These amounts
represented non-cash charges for an employee-matching stock plan (the "Plan"),
included in the Company's 401(k) Plan.
Interest income for the six months ended June 30, 1999 was $33,000
compared to $112,000 for the same period in 1998, a decrease of $79,000. This
decrease is primarily attributable to the lower cash levels resulting from the
use of cash and cash equivalents to repurchase common stock.
Interest expense was $31.3 million for the six months ended June 30,
1999, compared with $30.9 million for the prior year period, a decrease of
$398,000, or 1.3%. The increase in interest expense is due to the Company's
higher debt levels.
10
<PAGE>
As a result of the factors discussed above, the Company's net loss was
$5.1 million for the six months ended June 30, 1999, compared with net income of
$473,000 for the same period in 1998.
Broadcast cash flow was $55.5 million for the six months ended June 30,
1999, compared to $62.5 million for the same period in 1998, a decrease of $7.0
million, or 11.2%. Broadcast cash flow margins (broadcast cash flow divided by
net revenues) were 40.5% for the six months ended June 30, 1999, compared to
44.1% for the same period in 1998.
Liquidity and Capital Resources
Cash provided by operations for the six months ended June 30, 1999 was
$16.6 million as compared to cash provided by operations of $21.9 million for
the same period in 1998. Changes in the Company's net cash flows from operating
activities are primarily the result of decreases in net revenues and an increase
of accounts payable during the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998.
The Company used cash in investing activities for the six months ended
June 30, 1999 and 1998 of $5.1 million and $1.6 million, respectively. The
increase in 1999 was primarily attributable to increased spending for property
and equipment.
Cash used in financing activities for the six months ended June 30,
1999 and 1998 was $10.5 million and $20.5 million, respectively. Financing
activities for the six months ended June 30, 1999 and 1998 include principal
payments under the Company's senior credit facility (the "Senior Credit
Facility") of $5.1 million and $20.3 million, respectively. In 1999, the Company
repurchased $11.7 million in Class A Common Stock.
It is anticipated that the Company will be able to meet the working
capital needs of the stations, principal and interest payments under the Senior
Credit Facility and the Company's senior subordinated notes (the "Senior
Subordinated Notes"), and to a lesser extent, capital expenditures from cash on
hand, cash flows from operations and funds available under the Senior Credit
Facility.
On November 25, 1997, the Senior Credit Facility was amended and
restated to provide the Company with the ability to borrow up to $300.0 million
in the form of a five-year revolving credit facility. As of June 30, 1999, there
was $81.0 million outstanding under the Senior Credit Facility.
Impact of Year 2000
State of Readiness
The Company is evaluating the impact of the Year 2000 problem on its
business and its ability to deliver its product to its viewers. The Year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Various computer programs that
have time-sensitive software may recognize a date using "00" as the Year 1900
rather than the Year 2000, which could result in miscalculations or system
failures.
11
<PAGE>
The evaluation includes a review of its Year 2000 preparedness relative
to its products and systems, accounting software and computer hardware. The
Company is also evaluating the potential Year 2000 impact as a result of its
reliance on third parties that may have the Year 2000 problem embedded in
software and hardware.
The Company has developed a plan to assess and handle the Year 2000
problem. The plan is as follows:
1. Inventorying and assessing the impact on affected technology and
systems;
2. Developing solutions for affected technology and systems;
3. Modifying or replacing affected technology and systems;
4. Testing and verifying solutions; and
5. Developing contingency plans.
As of July 30, 1999, Items 1 and 2 of the Company's Year 2000 Plan have
been completed, with no major issues being identified. Item 3 was substantially
completed as of July 30, 1999, and is estimated to be completed by August 1999.
Item 4 has been partially completed and is estimated to be completed by
September 1999. Contingency plans (Item 5) have been prepared for all of the
Company's locations and the Company anticipates them to be finalized by August
1999. Such plans will continue to be monitored into the year 2000.
Costs
Costs incurred to date directly related to addressing the Year 2000
problem have not been material. Since the Company is not utilizing outside
consulting firms and is utilizing the employment resources within the Company to
address the Year 2000 problem, the Company believes that it will not incur
material costs in connection with becoming Year 2000 compliant. However, the
total costs cannot be known with certainty until the Year 2000 actually arrives.
Risks
All of the Company's computer software is purchased or leased from
third party vendors, and the Company does not currently employ or contract
computer programmers to write Company specific software. The Company has
received communications from its significant third party vendors and service
providers stating that they are generally on target to become Year 2000
compliant in 1999 if they have not already done so. There can be no assurance
that these third party vendors and service providers will complete their own
Year 2000 compliant projects in a timely manner and that failure to do so would
not have an adverse impact on the Company's business. If significant third party
revenue sources, such as a national advertising agency, experience a Year 2000
problem, the Company could lose revenues for which there is no immediate
replacement and these losses could have a material adverse effect on the
Company's business, financial condition or results of operation.
The Company or a third party's failure to become Year 2000 ready, or
its inability to become compatible with third parties with which it has a
material relationship, may have a material adverse effect on the Company,
including significant signal interruption. However, the Company cannot currently
estimate the extent of any such adverse effects or any at all.
System failures or miscalculations could result in an inability of the
Company to process commercial logs, remit invoices to advertisers, accept an
agency's order or provide viewers with
12
<PAGE>
its broadcasts. The Company plans to develop a contingency plan to help reduce
the impact of any unforeseen system failures which may take place.
Contingency Plan
The Company will develop contingency plans to minimize the effect of
any potential Year 2000 related disruptions. Virtually all of its stations
currently have plans in effect for natural disasters in the event a station is
not able to broadcast in the usual manner. The Company will expand these plans
to include additional systems, software and equipment deemed to be critical to
its broadcasts and business operations. These plans are to be in place by August
1999.
Income Taxes
The Company and its Subsidiaries file a consolidated federal income tax
return and such state or local tax returns as are required. As of December 31,
1998, the Company had $209.0 million of net operating loss ("NOL") carryforwards
which were subject to annual limitations imposed by Internal Revenue Code
Section 382.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is required to adopt the provisions of the standard during the first quarter of
2000. Because the Company does not use derivatives, the Company does not expect
that the adoption of the new standard will have a material impact on the results
of operations or financial condition.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 4, 1999, the Company held its annual meeting of stockholders to
(i) elect nine directors of the Company to serve for a term of one year, (ii)
ratify and approve the selection of independent auditors of the Company to serve
until the 2000 annual meeting of stockholders, (iii) approve an amendment to
Young Broadcasting Inc.'s 1995 Stock Option Plan to increase the total number of
shares with respect to which options and stock appreciation may be granted
thereunder.
The following individuals were elected to serve as directors until the
next annual meeting:
Vote For Vote Withheld
-------- -------------
Vincent J. Young 27,454,301 227,145
Adam Young 27,454,301 227,145
Ronald J. Kwasnick 27,454,301 227,145
James A. Morgan 27,454,301 227,145
Bernard F. Curry 27,454,301 227,145
Alfred J. Hickey, Jr. 27,454,301 227,145
Leif Lomo 27,454,301 227,145
Robert L. Winikoff 27,454,301 227,145
David C. Lee 27,454,301 227,145
Such individuals constituted the entire Board of Directors and served
as directors of the Company immediately preceding the meeting.
The stockholders ratified and approved the selection of Ernst & Young
LLP as independent auditors of the Company to serve until the 2000 annual
meeting of stockholders. The result of the vote was as follows: 27,675,263 votes
were for the selection and 708 votes were against the selection.
The stockholders approved the proposed amendment to Young Broadcasting
Inc.'s 1995 Stock Option Plan. The result of the vote was as follows: 23,848,379
votes were for the amendment and 2,347,289 votes were against the amendment.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Exhibit Description
- ------ -------------------
11 Statement Re Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K
during the second quarter of the year ending December 31, 1999.
16
<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 13, 1999 By: /s/ Vincent J. Young
--------------------------
Vincent J. Young
Chairman
Date: August 13, 1999 By: /s/ James A. Morgan
--------------------------
James A. Morgan
Executive Vice President and
Chief Financial Officer
(principal financial officer)
17
<PAGE>
EXHIBIT 11
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,
1998 1999 1998 1999
------------------------- ---------------------------
<S> <C> <C> <C> <C>
SHARES OF COMMON STOCK OUTSTANDING
FOR THE ENTIRE PERIOD................................ 13,847,844 13,810,270 14,330,985 13,631,367
ISSUANCE OF 9,250 AND 10,547 SHARES OF COMMON STOCK
TO THE COMPANY'S DEFINED CONTRIBUTION PLAN IN
1998 AND 1999....................................... 5,523 6,631 4,941 6,214
ISSUANCE OF 5,000 AND 8,363 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS IN 1998 AND 1999........... 3,550 3,725 1,484 1,864
REPURCHASE OF 290,700 SHARES OF COMMON STOCK
UNDER BUYBACK PROGRAM IN 1999....................... - (135,847) - (15,388)
ISSUANCE OF 526,757 SHARES OF COMMON STOCK FOR THE
MERGER OF ADAM YOUNG INC............................ 421,988 - - -
RETIREMENT OF 50,450 SHARES OF COMMON STOCK FOR THE
MERGER OF ADAM YOUNG INC............................ (40,416) - - -
-------------- -------------- ------------ -------------
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING......................................... 14,238,489 13,684,779 14,337,410 13,624,057
DILUTED EFFECT OF 1,517,000 OPTIONS IN 1998 AND
1,921,314 OPTIONS IN 1999 EXPECTED TO BE EXERCISED
UNDER THE TREASURY STOCK METHOD USING THE
WEIGHTED AVERAGE MARKET PRICE OF THE COMPANY'S
SHARES OF COMMON STOCK.............................. 596,848 - 657,594 629,191
-------------- -------------- ------------ -------------
TOTAL DILUTED WEIGHTED AVERAGE SHARES OF
COMMON STOCK FOR THE PERIOD............................ 14,835,337 13,684,779 14,995,004 14,253,248
-------------- -------------- ------------ -------------
NET INCOME (LOSS)......................................... $473,132 $(5,137,213) $7,807,808 $2,605,683
============== ============== ============ =============
NET INCOME (LOSS) PER COMMON SHARE
BASIC
NET INCOME (LOSS).................................. $0.03 $(0.38) $0.54 $0.19
============== ============== ============ =============
DILUTED
NET INCOME (LOSS)................................ $0.03 $(0.38) $0.52 $0.18
============== ============== ============ =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1690
<SECURITIES> 0
<RECEIVABLES> 62237
<ALLOWANCES> 1764
<INVENTORY> 0
<CURRENT-ASSETS> 82315
<PP&E> 226152
<DEPRECIATION> 134338
<TOTAL-ASSETS> 809869
<CURRENT-LIABILITIES> 47409
<BONDS> 570000
0
0
<COMMON> 14
<OTHER-SE> 30806
<TOTAL-LIABILITY-AND-EQUITY> 809869
<SALES> 0
<TOTAL-REVENUES> 136951
<CGS> 0
<TOTAL-COSTS> 110247
<OTHER-EXPENSES> 545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31296
<INCOME-PRETAX> (5137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5137)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
