<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:
September 30, 2000 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 October 31, 2000:
14,253,553 shares of Class A Common Stock and 2,292,637 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. Consolidated Financial Statements.
Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000........... 2
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 2000.......................................................... 3
Consolidated Statements of Stockholders' Equity for the Nine Months Ended
September 30, 2000............................................................. 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 2000.......................................................... 5
Notes to Consolidated Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................ 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk............................ 17
Part II.
Item 6. Exhibits and Reports on Form 8-K...................................................... 18
Signatures............................................................................................. 19
</TABLE>
<PAGE>
Item 1. Financial Statements.
Young Broadcasting Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1999* 2000
---------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,952,144 $ 8,983
Trade accounts receivable, less allowance for doubtful accounts of
$1,761,000 in 1999 and $2,604,000 in 2000 65,438,176 82,545,471
Current portion of program license rights 28,268,497 24,274,125
Prepaid expenses 5,618,444 7,393,352
---------------------------------------
Total current assets 102,277,261 114,221,931
---------------------------------------
Property and equipment, less accumulated depreciation and amortization of
$144,394,626 in 1999 and $148,887,402 in 2000 87,057,414 111,330,802
Program license rights, excluding current portion 1,171,438 2,062,681
Deposits and other assets 33,850,994 43,090,597
Broadcasting licenses and other intangibles, less accumulated amortization of
$139,260,326 in 1999 and $150,014,241 in 2000 585,266,310 1,237,752,243
Deferred charges, less accumulated amortization of $13,659,344 in 1999 and
$16,111,893 in 2000 9,046,564 33,375,595
---------------------------------------
Total Assets $818,669,981 $1,541,833,849
=======================================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 20,545,231 $17,130,141
Accrued expenses 19,526,849 41,540,735
Current installments of program license liability 24,440,679 20,658,396
Current installments of obligations under capital leases 923,567 859,780
---------------------------------------
Total current liabilities 65,436,326 80,189,052
Program license liability, excluding current installments 1,538,100 2,443,190
Long-term debt 644,000,000 1,277,004,221
Deferred taxes and other liabilities 77,036,273 81,448,357
---------------------------------------
Total liabilities 788,010,699 1,441,084,820
=======================================
Minority interest - 941,645
Stockholders' equity:
Class A Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and
outstanding 11,142,472 shares at 1999 and 14,243,129 at 2000 11,143 14,244
Class B Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and
outstanding 2,351,251 shares at 1999 and 2,292,637 at 2000 2,351 2,292
Additional paid-in capital 210,859,627 271,015,387
Accumulated deficit (180,213,839) (171,224,539)
---------------------------------------
Total stockholders' equity 30,659,282 99,807,384
---------------------------------------
Total liabilities and stockholders' equity $ 818,669,981 $ 1,541,833,849
=======================================
</TABLE>
* Derived from the audited financial statements for the year ended December 31,
1999
See accompanying notes to consolidated financial statements.
2
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenue $64,190,044 $102,033,418 $201,141,235 $249,124,036
----------------------------------------------------------------------
Operating expenses 16,642,046 26,372,184 48,500,768 60,274,492
Amortization of program license rights 7,885,365 9,376,869 32,189,688 36,684,834
Selling, general and administrative expenses 12,495,541 17,101,183 37,947,697 43,920,166
Depreciation and amortization 12,209,028 15,749,490 36,061,184 38,418,605
Corporate overhead 2,020,150 2,356,109 6,241,675 9,389,807
Non-cash compensation 18,318,627 327,705 18,876,497 992,511
----------------------------------------------------------------------
Operating (loss) income (5,380,713) 30,749,878 21,323,726 59,443,621
----------------------------------------------------------------------
Interest income 36,994 45,817 69,545 151,288
Interest expense (15,861,315) (32,050,691) (47,190,874) (63,761,274)
Gain on sale of station - - - 15,650,704
Other expense, net (402,436) (375,197) (947,080) (995,039)
----------------------------------------------------------------------
(16,226,757) (32,380,071) (48,068,409) (48,954,321)
----------------------------------------------------------------------
(Loss) income before provision for income taxes (21,607,470) (1,630,193) (26,744,683) 10,489,300
Provision for income taxes - - - 1,500,000
----------------------------------------------------------------------
Net (loss) income $ (21,607,470) $ (1,630,193) $ (26,744,683) $ 8,989,300
======================================================================
(Loss) income per common share
Basic $(1.60) $(0.10) $(1.96) $0.61
======================================================================
Diluted $(1.60) $(0.10) $(1.96) $0.56
======================================================================
Weighted Average Shares
Basic 13,492,988 16,827,347 13,620,146 14,691,262
======================================================================
Diluted 13,492,988 16,827,347 13,620,146 15,925,841
======================================================================
</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, 1999........................ $11,143 $2,351 $210,859,627 $(180,213,839) $30,659,282
Contribution of shares into Company's
Defined contribution plan..................... 35 - 889,834 - 889,869
Conversion of Class B Common Stock
to Class A Common Stock...................... 59 (59) - - -
Exercise of stock options....................... 7 - 211,668 - 211,675
Repurchase and retirement of Class A Common
Stock........................................ (889) - (29,995,098) - (29,995,987)
Issuance of Class A Common Stock................ 3,889 - 89,049,356 - 89,053,245
Net income for the nine months ended
September 30, 2000............................ - - - 8,989,300 8,989,300
-------- ------ ------------ ------------- -----------
Balance at September 30, 2000....................... $14,244 $2,292 $271,015,387 $(171,224,539) $99,807,384
======== ====== ============ ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 2000
-------------------------------------
Operating activities
<S> <C> <C>
Net (loss) income $ (26,744,683) $ 8,989,300
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 18,068,164 16,582,253
Amortization of program license rights 32,189,688 36,684,834
Amortization of broadcasting licenses, other intangibles and deferred charges 17,993,020 21,836,352
Non-cash compensation 18,876,497 992,511
Non-cash interest expense on outstanding indebtedness 80,316 -
Gain on sale of WKBT-TV - (15,650,704)
Loss on sale of fixed assets 7,634 43,517
Payments on programming license liabilities (31,805,688) (35,395,409)
Decrease in trade accounts receivable 2,000,954 17,588,726
Increase in prepaid expenses (515,771) (1,106,520)
Increase (decrease) in trade accounts payable 2,310,013 (4,382,525)
Increase in accrued expenses and other liabilities 1,328,709 14,750,726
-------------------------------------
Net cash provided by operating activities 33,788,853 60,933,061
-------------------------------------
Investing activities
Purchase of KRON-TV - (650,000,000)
Capital expenditures (6,366,553) (4,502,030)
Proceeds from sale of WKBT-TV - 23,983,758
Decrease in deposits and other assets (254,495) (8,469,024)
Increase in broadcast licenses and other intangibles (11,514) -
-------------------------------------
Net cash used in investing activities (6,632,562) (638,987,296)
-------------------------------------
Financing activities
Repurchase of public subordinated debt (5,000,000) -
Principal payments on long-term debt (12,327,000) (105,910,000)
Borrowings from working capital facility 6,327,000 3,910,000
Borrowings from new credit facility - 735,004,221
Deferred acquisition and debt refinancing costs incurred (63,503) (27,477,132)
Repurchase of Class A Common Stock (14,031,590) (29,995,987)
Proceeds from exercise of Common Stock options 223,012 211,675
Principal payments under capital lease obligations (544,737) (631,703)
-------------------------------------
Net cash (used in) provided by financing activities (25,416,818) 575,111,074
-------------------------------------
Net increase (decrease) in cash 1,739,473 (2,943,161)
Cash and cash equivalents at beginning of year 663,298 2,952,144
-------------------------------------
Cash and cash equivalents at September 30 $ 2,402,771 $ 8,983
=====================================
Supplemental disclosure of cash flow information
Interest paid $ 45,046,920 $ 45,560,840
=====================================
Non-cash investing activities
Common stock issued in connection with purchase of KRON-TV $ - $ 89,053,245
=====================================
</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 (three with CBS, six with ABC, and two with NBC) and one
independent television broadcasting stations, in the states of Michigan,
Wisconsin, Louisiana, Illinois, Tennessee, New York, Virginia, Iowa, South
Dakota and California. In addition, the accompanying consolidated financial
statements include a 51% interest in a cable news channel servicing the San
Francisco area and the Company's wholly-owned 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. Sale of WKBT-TV
On February 29, 2000, the Company completed the sale of WKBT-TV, in La
Crosse, Wisconsin to Television Wisconsin, Inc. of Madison, Wisconsin for
approximately $24.0 million. The Company recorded a gain on the sale of
approximately $15.7 million, and a provision for income taxes of $1.5 million in
connection with the sale in the first quarter of 2000. The proceeds from the
sale were used to pay down debt under the senior credit facility.
3. Acquisition
On June 26, 2000, the Company acquired the assets of KRON-TV ("KRON")
and a 51% interest in the San Francisco cable channel BayTV ("BayTV") from The
Chronicle Publishing Company ("CPC"). Under the terms of the agreement, the
Company paid CPC $650.0 million in cash plus approximately 3.9 million shares of
the Company's Class A Common Stock. This acquisition was accounted for as a
purchase. Based on the Company's preliminary allocation of the purchase price,
net tangible and intangible assets amounted to approximately $61.8 million and
$677.3 million, respectively. Fixed assets are being depreciated over their
estimated useful lives and intangible assets are being amortized over their
estimated lives which do not exceed 40 years. The purchase price allocation is
to be finalized in the fourth quarter of 2000. The operating results of KRON-TV
and BayTV are included in the Company's consolidated results of operations from
the date of acquisition.
6
<PAGE>
The following unaudited pro forma information gives effect to the
acquisition of KRON-TV and BayTV as if it had been effected January 1, 1999 and
2000. The three month period ended September 30, 2000 is the Company's actual
results of operations including KRON-TV and BayTV. The pro forma information for
the three months ended September 30, 1999 and nine months ended September 30,
1999 and 2000 does not purport to represent what the Company's results of
operations would have been if such transaction had been effected at such date
and does not purport to project results of operations of the Company in any
future period.
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
Pro forma Actual Pro Forma Pro forma
9/30/99 9/30/00 9/30/99 9/30/00
----------- --------- ---------- ----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenue $94,603 $102,034 $292,355 $323,173
Operating income $1,755 $30,750 $39,472 $80,876
Net (loss) income $(29,260) $(1,630) $(53,025) $775
Basic (loss) income per common share $(1.68) $(0.10) $(3.03) $0.05
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements
The 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." Forward- looking statements involve risks and
uncertainties, and are subject to change based on various important factors,
including the impact of changes in national and regional economies, pricing
fluctuations in local and national advertising and volatility in programming
costs.
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, 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 companies and are also
used by investors to measure a company's ability to service debt. Broadcast cash
8
<PAGE>
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
nine months ended September 30, 1999 and 2000:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Operating (loss)income ...................... $ (5,381) $ 30,750 $ 21,324 $ 59,444
Add:
Amortization of program license rights . 7,886 9,377 32,190 36,685
Depreciation and amortization .......... 12,209 15,750 36,061 38,419
Corporate overhead ..................... 2,020 2,356 6,242 9,390
Non-cash ............................... 18,319 328 18,876 993
compensation
Less:
Payments for program license liabilities (7,640) (9,345) (31,806) (35,395)
--------- --------- --------- ---------
Broadcast flow cash ......................... $ 27,413 $ 49,216 $ 82,887 $ 109,536
========= ========= ========= =========
</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 Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
Amount % Amount % Amount % Amount %
------- -- -------- -- ------ - ------ --
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Local ............ $ 47,918 64.2 $ 65,597 55.0 $ 152,457 65.1 $ 174,170 59.8
National ......... 21,918 29.3 40,243 33.8 67,052 28.6 90,082 30.9
Network .......... 3,113 4.2 4,324 3.6 9,632 4.1 10,201 3.5
Political ........ 657 0.9 6,541 5.5 1,163 0.5 11,280 3.9
Production/Other 1,072 1.4 2,478 2.1 3,952 1.7 5,725 1.9
--------- ----- --------- ----- --------- ----- --------- -----
Total ............ 74,678 100.0 119,183 100.0 234,256 100.0 291,458 100.0
Commissions ...... (10,488) (14.0) (17,150) (14.4) (33,115) (14.1) (42,334) (14.5)
--------- ----- --------- ----- --------- ----- --------- -----
Net Revenue ...... $ 64,190 86.0 $ 102,033 85.6 $ 201,141 85.9 $ 249,124 85.5
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
Recent Developments
KRON-TV and BayTV Acquisition. On June 26, 2000, the Company acquired
KRON-TV and a 51% interest in the San Francisco cable channel BayTV from The
Chronicle Publishing
9
<PAGE>
Company. At the time of this acquisition, the Company entered into a new senior
credit facility, as described in the Liquidity section, a portion of which was
used to finance the cash component of the acquisition and to pay the fees and
expenses associated with the acquisition. The Company paid Chronicle Publishing
$650 million in cash plus 3,888,788 shares of Class A common stock. Chronicle
Publishing subsequently distributed these shares to its shareholders.
Share Repurchase Program. On June 27, 2000, the Company announced that
its Board of Directors had authorized the repurchase of up to $30 million of its
Class A common stock. The Company has repurchased 888,631 shares of its Class A
common stock under this repurchase program for an aggregate purchase price of
$30.0 million. Such repurchases, were made in the open market and by block
purchase, subject to applicable legal and other requirements.
Results of Operations
Three Months ended September 30, 2000 Compared to Three Months Ended September
30, 1999
The following historical financial information includes the results of
KRON-TV and BayTV ("KRON-TV") since their date of acquisition on June 26, 2000.
Net revenue for the three months ended September 30, 2000 was $102.0
million, an increase of $37.8 million, or 58.9%, compared to $64.2 million for
the three months ended September 30, 2000, with KRON accounting for $36.8
million of such increase. Local and national revenues were $65.6 million and
$40.2 million, respectively, for the three months ended September 30, 2000,
compared to $47.9 million and $21.9 million, respectively, for the three months
ended September 30, 1999, an increase in local revenues of $17.7 million and an
increase in national revenues of $18.3 million. Local and national revenues at
KRON for the three months ended September 30, 2000 were $19.2 million and $19.9
million, respectively. Political revenue for the three months ended September
30, 2000 was $6.5 million, an increase of $5.9 million from the three months
ended September 30, 1999, with KRON accounting for $914,000 of such increase.
The increase in political revenue was attributable to 2000 being a national
election year with more 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 September 30, 2000 were $43.5 million,
compared to $29.1 million for the same period in 1999, an increase of $14.4
million, or 49.5%. KRON-TV accounted for $12.7 million of such increase.
Amortization of program license rights for the three months ended
September 30, 2000 was $9.4 million, compared to $7.9 million for the three
months ended September 30, 1999, an increase of $1.5 million, or 19.0%. KRON-TV
recorded $2.1 million of amortization expense in the third quarter of 2000.
KCAL-TV aired five less Anaheim Angels baseball games in the third quarter of
2000 than in the third quarter of 1999, which reduced their amortization expense
approximately $480,000.
Depreciation of property and equipment and amortization of intangible
assets was $15.7 million for the three months ended September 30, 2000, compared
to $12.2 million for the three months ended September 30, 1999, an increase of
$3.5 million, or 28.7%. KRON-TV recorded approximately $5.2 million of
depreciation and amortization in the third quarter of 2000. The decrease, net of
KRON's costs, is primarily attributable to fixed assets and intangibles becoming
fully depreciated and amortized.
10
<PAGE>
The Company made payments for program license liabilities of $9.3
million during the three months ended September 30, 2000, compared to $7.6
million for the three months ended September 30, 1999, an increase of $1.7
million, or 22.4%. KRON-TV made approximately $2.0 million in program license
payments in the third quarter of 2000. The decrease, net of KRON's payments, is
primarily attributable to the five less Anaheim Angels baseball games.
Corporate overhead for the three months ended September 30, 2000 was
$2.3 million, compared to $2.0 million for the three months ended September 30,
1999, an increase of $336,000, or 16.6%.
Non-cash compensation was $328,000 for the three months ended September
30, 2000, compared to $18.3 million for the comparable period in 1999. The
Company recorded a non-cash compensation charge of $18.3 million in 1999 for
extending the expiration date of stock options granted in 1994 and 1995.
Interest expense was $32.0 million for the third quarter ended
September 30, 2000, compared to $15.9 million for the same period in 1999, an
increase of $16.1 million. This increase is primarily attributable to the higher
debt levels associated with the KRON acquisition.
As a result of the factors discussed above, the net loss for the three
months ended September 30, 2000 and 1999 was $1.6 million and $21.6 million,
respectively.
Broadcast cash flow was $49.2 million for the three months ended
September 30, 2000, compared to $27.4 million for the three months ended
September 30, 1999, an increase of $21.8 million, or 79.6%, with KRON accounting
for all of such increase. Broadcast cash flow margins (broadcast cash flow
divided by net revenues) were 48.2% for the three months ended September 30,
2000, compared to 42.7% for the same period in 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
The following historical financial information includes the results of
KRON-TV and BayTV ("KRON-TV") since their date of acquisition on June 26, 2000.
Net revenue for the nine months ended September 30, 2000 was $249.1
million, an increase of $48.0 million, or 23.9%, compared to $201.1 million for
the nine months ended September 30, 1999, with KRON-TV accounting for $38.4
million of this increase. Improvement in various local market economies and the
national economy led to increases in the Company's gross local and national
revenues of 1.0% and 3.3%, respectively, excluding KRON-TV. Political revenue
for the nine months ended September 30, 2000 was $11.3 million, compared to $1.2
million for the same period in 1999, with KRON accounting for $914,000 of such
increase. The increase is primarily attributable to 2000 being a national
election year with presidential primaries (most importantly in California and
Iowa) and many state and local elections, while 1999 had only limited state and
local elections.
Operating expenses, including selling, general and administrative
expenses, were $104.2 million for the nine months ended September 30, 2000,
compared to $86.4 million for the nine months ended September 30, 1999, an
increase of $17.8 million, or 20.6%. KRON-TV accounted for $13.4 million of such
increase. Approximately $1.2 million of this increase was attributable to New
Media/Internet expenses related to sales on the stations' Internet sites. The
remaining increase was primarily attributable to higher local
11
<PAGE>
sales commission resulting from increased sales and increased news and
production costs from coverage of the Tennessee Titans in the Super Bowl.
Amortization of program license rights for the nine months ended
September 30, 2000 was $36.7 million compared to $32.2 million for the nine
months ended September 30, 1999, an increase of $4.5 million. KRON-TV accounted
for $2.3 million of this increase. The remaining portion of this increase is
attributable to the increase in the number of Los Angeles Lakers and Clippers
games televised during 2000, compared to 1999; net of the reduction of Anaheim
Angels games aired in 2000 compared to 1999.
Depreciation of property and equipment and amortization of intangible
assets was $38.4 million for the nine months ended September 30, 2000, compared
to $36.1 million for the nine months ended September 30, 1999, an increase of
$2.3 million, or 6.4%. Depreciation and amortization at KRON-TV was $6.0
million. The decrease, net of KRON, was primarily attributable to equipment at
the three stations acquired in 1994 that had five year depreciable lives,
becoming fully depreciated.
The Company made payments for program license liabilities of $35.4
million during the nine months ended September 30, 2000, compared with payments
of $31.8 million during the nine months ended September 30, 1999, an increase of
$3.6 million. KRON-TV accounted for $2.0 million of this increase. The increase
in the Los Angeles Lakers and Clippers games televised, net of the reduction in
Anaheim Angels games televised, accounted for all of the remaining increase.
Corporate overhead was $9.4 million for the nine months ended September
30, 2000, compared to $6.2 million for the nine months ended September 30, 1999,
an increase of $3.2 million. Approximately $1.9 million of this increase was
attributable to a one-time bonus granted by the Board of Directors to certain
members of management upon the close of the KRON-TV acquisition. The remaining
increase was the result of increased personnel and administrative costs.
Non-cash compensation was $993,000 for the nine months ended September
30, 2000, compared to $18.9 million for the same period in 1999. The Company
recorded a non-cash compensation charge of $18.3 million in 1999 for extending
the expiration date of stock options granted in 1994 and 1995.
Interest expense was $63.8 million for the nine months ended September
30, 2000, compared to $47.2 million for the prior year period, an increase of
$16.6 million, or 35.2%. The increase in interest expense is due to higher debt
levels associated with the KRON acquisition.
On February 29, 2000, the Company sold WKBT-TV for approximately $24.0
million and recorded a gain on the sale of approximately $15.7 million. A state
tax provision of $1.5 million was recorded in the first quarter of 2000, as a
result of this gain.
As a result of the factors discussed above, the net income for the
Company was $9.0 million for the nine months ended September 30, 2000 compared
with a net loss of $26.7 million for the same period in 1999.
Broadcast cash flow was $109.5 million for the nine months ended
September 30, 2000, compared to $82.9 million for the same period in 1999, an
increase of $26.6 million, or 32.1%. KRON-TV accounted for approximately $22.7
million of this increase. Broadcast cash flow
12
<PAGE>
margins (broadcast cash flow divided by net revenues) were 44.0% for the nine
months ended September 30, 2000, compared to 41.2% for the same period in 1999.
Pro Forma
The following unaudited pro forma information gives effect to the
acquisition of KRON-TV and BayTV (including adjustments to amortization of
intangible assets, debt financing costs and depreciation of property and
equipment) as if it had been effected on January 1, 1999 and January 1, 2000.
The three month period ended September 30, 2000 is the Company's actual results
of operations including KRON-TV and BayTV. The pro forma information for the
three months ended September 30, 1999 and nine months ended September 30, 1999
and 2000 does not purport to represent what the Company's results of operations
would have been if such transaction had been effected at such date and does not
purport to project results of operations of the Company in any future period.
<TABLE>
<CAPTION>
Unaudited Pro Forma
-------------------
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------ ------------
1999 2000 1999(1) 2000(1)
---- ---- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues (2) $94,603 $102,034 $292,355 $323,173
Operating expenses, including selling, general
and administrative expenses 42,929 43,473 128,841 136,597
Amortization of program license rights 11,083 9,377 41,893 42,217
Depreciation and amortization 18,498 15,750 57,031 53,100
Corporate overhead 2,020 2,356 6,242 9,390
Non-cash compensation paid in common stock 18,318 328 18,876 993
------------ ------------ ----------- -----------
Operating income $1,755 $30,750 $39,472 $ 80,876
============ ============ =========== ===========
Broadcast cash flow (3) $41,034 $49,216 $121,711 $145,512
Broadcast cash flow margin 43.4% 48.2% 41.6% 45.0%
Operating cash flow (4) $39,014 $46,860 $115,469 $ 136,122
</TABLE>
(1) Pro forma adjustments reflect the amortization of intangible assets
associated with the KRON and BayTV acquisition over a 40 year period
and increased annual depreciation resulting from the newly acquired
property and equipment depreciated over new estimated useful lives. In
addition, these adjustments reflect the amortization expense of the new
debt financing costs related to the new Senior Credit Facility.
(2) Net revenues are total revenues net of agency and national
representation commissions.
(3) "Broadcast cash flow" is defined, by the Company, as operating income
before income taxes and interest income and expense, plus depreciation
and amortization (including amortization of program license rights),
non-cash compensation 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 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.
(4) "Operating cash flow" is defined, by the Company, as operating income
before income taxes and interest income and expense, plus depreciation
and amortization (including amortization of program license rights) and
non-cash compensation, less payments for program license liabilities.
Other television broadcasting companies may measure operating cash flow
in a different manner. The Company has included operating cash flow
data because such data are used by investors to measure a company's
ability to service debt and are 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
13
<PAGE>
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
Cash provided by operations for the nine months ended September 30,
2000 and 1999 was $60.9 million and $33.8 million, respectively. Changes in the
Company's net cash flows from operating activities are primarily the result of
increases in net revenues and a decrease of accounts payable during the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999.
Cash used in investing activities for the nine months ended September
30, 2000 and 1999 was $639.0 million and $6.6 million, respectively. The
increase in 2000 was primarily due to the purchase of KRON-TV and BayTV for
$650.0 million in cash, net of the $24.0 million in proceeds from the sale of
WKBT-TV.
Cash provided by financing activities for the nine months ended
September 30, 2000 was $575.1 million and cash used in financing activities for
the nine months ended September 30, 1999 was $25.4 million. Financing activities
for the nine months ended September 30, 2000 and 1999 include principal payments
under the Company's existing senior credit facility of $105.9 million and $12.3
million, respectively. In June 2000, the Company borrowed approximately $708.6
million under a new senior credit facility (the "New $600.0 million Senior
Credit Facility"), to purchase KRON-TV, pay down the existing senior credit
facility and pay fees relating to the KRON-TV acquisition and the New Senior
Credit Facility. In the nine months ended September 30, 2000 and 1999, the
Company repurchased and retired $30.0 million and $14.0 million, respectively,
of Class A common stock.
On June 26, 2000, the Company entered into the New $600.0 million
Senior Credit Facility which provides for borrowings of up to an aggregate of
$600.0 million in the form of a five-and-three-quarter year amortizing term loan
facility in the amount of $125.0 million ("Term A"), and a six-and-three-quarter
year amortizing term loan facility in the amount of $475.0 million ("Term B").
In addition, on June 26, 2000, the Company amended and restated its existing
senior credit facility (as amended, the "Amended and Restated Credit Facility"),
which provides for borrowings of up to an aggregate of $200.0 million, in the
form of a $50.0 million term loan and a five-and-one-half-year revolving credit
facility in the amount of $150.0 million. The New Senior Credit facility and the
Amended and Restated Credit Facility are referred to as the "Senior Credit
Facility." The Company borrowed $708.6 million under the Senior Credit Facility
to finance the cash portion of the KRON-TV acquisition, pay-down $41.1 million
outstanding under the existing senior credit facility, including interest, and
pay closing costs relating to both.
The Senior Credit Facility allows the Company to increase the Term B
facility by up to an additional $150.0 million for general corporate purposes.
The minimum amount of the increase must be $25.0 million, notice must be given
to the Administrative Agent no later than November 15, 2001, and the additional
borrowings have to be made on or before December 31, 2001.
Pursuant to the Senior Credit Facility, the Company is prohibited from
making investments or advances to third parties exceeding $15.0 million unless
the third party becomes a guarantor of the Company's obligation. However, the
Company is permitted to purchase up to
14
<PAGE>
$30.0 million of its shares of common stock, subject to the limitations set
forth in the Senior Credit Facility and in the Indentures. In addition, the
Company may utilize the undrawn amounts under the revolving portion of the
Senior Credit Facility to retire or prepay subordinated debt, subject to the
limitations set forth in the Indentures.
Interest under the Senior Credit Facility is payable at the LIBOR rate,
"CD Rate" or "Base Rate." In addition to the index rates, the Company pays 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 1.50% based upon a ratio
under 5:1 to 2.75%, based upon a 7:1 or greater ratio for Term A advances and
Revolver facility; and 3.00% for Term B advances.
Each of the 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 the Subsidiaries and a first priority lien on all of the
assets of the Company and its Subsidiaries.
The Senior Credit Facility requires the Company to maintain certain
financial ratios. The Company is required to maintain a total debt/operating
cash flow ratio ranging from 5.75x to 7.25x depending on senior debt leverages.
The Company is also required to maintain a debt/operating cash flow ratio
ranging from 2.00x to 4.00x depending on senior debt leverages. Additionally,
the Company is required to maintain an operating cash flow/total interest
expense ration ranging from 1.50x to 2.00x depending on senior debt leverages.
The Company is also required to maintain an operating cash flow minus capital
expenditures to pro forma debt service ratio of no less than 1.10x at any time.
Such ratios must be maintained as of the last day of the quarter for each of the
periods.
The Senior Credit Facility requires the Company to apply on April 30 of
each year 50% to 75% (depending upon the level of the Company's debt to
operating cash flow ratio at the end of such year) of its "Excess Cash Flow" for
the preceding completed fiscal year, beginning with Fiscal Year 2001, to reduce
outstanding debt under the Term Loan A advances and Term Loan B advances in
proportion to the outstanding principal amount of such advances. The Senior
Credit Facility also contains a number of customary covenants including, among
others, limitations on investments and advances, mergers and sales of assets,
liens on assets, affiliate transactions and changes in business.
On June 6, 2000, the Company entered into a swap agreement for $272.0
million with two commercial banks who are also lenders under the Senior Credit
Facility. The swap's effective date is January 2, 2002 and expires on July 2,
2003. The Company will pay a fixed interest rate of 7.2625% and the Company will
receive interest, from the commercial banks, based upon a three month LIBOR
rate. The net interest rate differential to be paid or received will be
recognized as an adjustment to interest expense.
On July 3, 2000, the Company entered into a swap agreement for $206.0
million with a commercial bank who is also a lender under the Senior Credit
Facility. The swap's effective date was July 3, 2000 and expires on January 3,
2002. The Company will pay a fixed interest rate of 7.0882% and the Company will
receive interest, from the commercial bank, based upon a six month LIBOR rate.
The net interest rate differential to be paid or received will be recognized as
an adjustment to interest expense.
It is anticipated that the Company will be able to meet the working
capital needs of its stations, scheduled principal and interest payments under
the Senior Credit Facility and the Company's senior subordinated notes and
capital expenditures, from cash on hand, cash flows from operations and funds
available under the Senior Credit Facility.
15
<PAGE>
Income Taxes
The Company files a consolidated federal income tax return and such
state or local tax returns as are required. As of December 31, 1999, the Company
had approximately $210.0 million of net operating loss ("NOL") carryforwards
which are subject to annual limitations imposed by Internal Revenue Code Section
382.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which was amended by Statement
of Financial Accounting Standards No. 137, and is effective for all quarters of
fiscal years beginning after June 15, 2000. SFAS No. 133 requires that the
Company recognize any derivatives as either assets or liabilities and measure
those instruments at fair value. Although management has not completed its
assessment of the impact of this standard on its results of operations and
financial position, management does not anticipate that the adoption of this
statement will be material.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Our Senior Credit Facility bears interest at floating rates.
Accordingly, we are exposed to potential losses related to changes in interest
rates. We do not enter into derivatives or other financial instruments for
trading or speculative purposes; however, in order to manage our exposure to
interest rate risk, we entered into derivative financial instruments in June and
July 2000. These derivative financial instruments are interest rate swap
agreements that expire in varying amounts through 2003.
17
<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 third quarter of the fiscal year ending December 31, 2000.
18
<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: November 10, 2000 By: /s/ Vincent J. Young
----------------
Vincent J. Young
Chairman
Date: November 10, 2000 By: /s/ James A. Morgan
--------------------------
James A. Morgan
Executive Vice President and
Chief Financial Officer
principal financial officer)
19
