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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual Report Pursuant
to Section 13 or 15(d)
of the Securities Exchange
Act of 1934
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For the fiscal year ended Commission file number:
December 31, 1999 0-25042
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YOUNG BROADCASTING INC.
(Exact name of registrant as specified in its charter)
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Delaware 13-3339681
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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599 Lexington Avenue 10022
New York, New York (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (212) 754-7070
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.001 Par Value
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of registrant held by non-
affiliates of the registrant as of January 31, 2000 was approximately
$600,098,931.
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Number of shares of Common Stock outstanding as of January 31, 2000:
11,153,085 shares of Class A Common Stock and 2,351,251 shares of Class B
Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
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Location in Form 10-K
Document in which incorporated
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Proxy Statement/Prospectus relating to the
Special Meeting in Lieu of the 2000 Annual
Meeting of Stockholders included as part of
the Registrant's Registration Statement on
Form S-4 filed with the SEC on February 25,
2000 Part III
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YOUNG BROADCASTING INC.
FORM 10-K
Table of Contents
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Page
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PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 19
Item 3. Legal Proceedings.......................................... 22
Item 4. Submission of Matters to a Vote of Security Holders........ 22
PART II
Item 5. Market for Registrant's Common Equity and Related 24
Stockholder Matters........................................
Item 6. Selected Financial Data.................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition 26
and Results of Operations..................................
Item 7A Quantitative and Qualitative Disclosures About Market 33
Risks......................................................
Item 8. Financial Statements and Supplementary Data................ 33
Item 9. Changes in and Disagreements with Accountants on Accounting 50
and Financial Disclosure...................................
PART III
Item 10. Directors and Executive Officers of the Registrant......... 50
Item 11. Executive Compensation..................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and 50
Management.................................................
Item 13. Certain Relationships and Related Transactions............. 50
PART IV
Item 14. Exhibits, Financial Statement, Schedules, and Reports on 51
Form 8-K...................................................
SIGNATURES.............................................................. 56
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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 STATEMENT 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.
PART I
Item 1. Business.
All market rank, rank in market, station audience rating and share, and
television household data in this report are from the Nielsen Station Index
Viewers and Profile dated November 1999, as prepared by A.C. Nielsen Company
("Nielsen"). Nielsen data provided herein refers solely to the United States
television markets. As used herein, the "Company" means Young Broadcasting Inc.
and, where the context requires, its subsidiaries (the "Subsidiaries").
General
The Company owns and operates twelve television stations in geographically
diverse markets and a national television sales representation firm, Adam Young
Inc. Six of the stations are affiliated with American Broadcasting Companies,
Inc. ("ABC"), four are affiliated with CBS Inc. ("CBS"), one is affiliated with
National Broadcasting Company, Inc. ("NBC"), and one is an independent station.
Each of the Company's stations is owned and operated by a direct or indirect
Subsidiary. The Company is presently the eighth largest ABC network affiliate
group in terms of households reached. The Company's sole independent television
station, KCAL, Los Angeles, California ("KCAL"), is the only independent VHF
television station operating in the Los Angeles market, which is ranked as the
second-largest television market in terms of population and the largest in
terms of estimated television revenue.
The Company was founded in 1986 by Vincent Young and his father, Adam Young.
Vincent Young, the Company's Chairman, has over 25 years of experience in the
television broadcast industry, and Adam Young has over 50 years of experience
in the industry. Ronald Kwasnick, the Company's President, has over 25 years of
experience in the industry.
The Company is a Delaware corporation that was formed in 1986. The Company's
principal offices are located at 599 Lexington Avenue, New York, New York
10022, and its telephone number is (212) 754-7070.
Recent Developments
KRON-TV and BAYTV Acquisition. On November 16, 1999, the Company entered
into an agreement to acquire KRON-TV and a 51% interest in the San Francisco
cable channel BayTV from the Chronicle Publishing Company ("CPC"). Under terms
of the agreement, the Company will pay CPC $650 million in cash plus up to
approximately 3.9 million shares of the Company's Class A Common Stock, subject
to adjustment. Furthermore, the purchase of KRON-TV will result in significant
tax savings from the amortization of intangibles which the Company estimates
will have a net present value of approximately $110 million. The deal is
subject to regulatory approval.
Pending Sale. On September 30, 1999, the Company entered into an agreement
with Television Wisconsin, Inc. of Madison, Wisconsin to sell WKBT-TV in La
Crosse/Eau Claire, Wisconsin for approximately $24.5 million. The sale is
currently pending regulatory approval.
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Stock Repurchase. During February and June 1999, the Company repurchased
348,400 shares of its Class A Common Stock in open market purchases pursuant to
a stock repurchase program for an aggregate price of approximately $14.0
million. Since 1997, the Company has repurchased 1,360,200 shares of its Class
A Common Stock in open market purchases for an aggregate price of approximately
$45.9 million. The Company is authorized, subject to certain limitations, to
effect up to an aggregate of $70.0 million of such purchases.
Stock Options. On August 3, 1999, the Company extended the expiration date
of 596,188 stock options issued in 1994 and 1995 to directors, officers and
employees. The original option agreements were to expire in 1999 and 2000. The
new option agreements are extended by ten years until 2009. As a result of this
modification to these stock option agreements, the Company recorded a non-cash
compensation charge of $18.3 million in the third quarter of 1999.
Operating Strategy
The Company continually seeks to increase its revenues and broadcast cash
flow (as defined). The Company's operating strategy focuses on increasing the
cash flow of its stations through advertising revenue growth and strict control
of programming and operating costs. The components of this strategy include the
following:
Targeted Marketing. The Company seeks to increase its revenues and broadcast
cash flow by expanding existing relationships with local and national
advertisers and attracting new advertisers through targeted marketing
techniques and carefully tailored programming. The Company works closely with
advertisers to develop campaigns that match specifically targeted audience
segments with the advertisers' overall marketing strategies. With this
information, the Company regularly refines its programming mix among network,
syndicated and locally-produced shows in a focused effort to attract audiences
with demographic characteristics desirable to advertisers. The Company's
success in increasing local advertising revenues is also attributable, in part,
to the upgrading of its local sales staff, performance-based compensation
arrangements and the implementation of systems of performance accountability.
Each station also benefits from the ongoing exchange of ideas and experiences
with the other stations.
The Company's stations utilize a variety of marketing techniques to increase
advertising revenues, including the following:
. Vendor Marketing. The Company's "vendor marketing" program has
experienced a great deal of success in the Company's markets. Under this
program, a station will contact the vendors of a particular store chain
and arrange for the vendors to purchase advertising for the store chain
in exchange for the store's commitment to purchase additional products
from the vendors. The result is that both the vendors' products and the
store chain are advertised, with the vendors collectively bearing the
cost of the advertisement.
. Live Remotes. Stations obtain premium advertising dollars by utilizing
live remotes on location at the offices or facilities of an advertiser.
The station will use its own staff and broadcasting equipment and, as a
result, the expense to the station is relatively low. Live
advertisements are broadcast continually over the course of a period of
the day and tend to show immediate results with viewers being attracted
to the live television event taking place within their community.
. Research. Each station designates personnel to research the amount of
advertising dollars expended in other media (such as radio, newspapers
and magazines) by advertisers within its market. The station will then
target individual advertisers seeking the same demographic groups sought
by the station for particular dayparts and will illustrate to the
advertisers the advantages of television advertising over other media
which do not target specific demographic groups.
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An important element in determining advertising rates is the station's
rating and share among a particular demographic group which the advertiser may
be targeting. The Company believes that its success is attributable to its
ability to reach desirable demographic groups with the programs it broadcasts.
Strong Local Presence. Each station seeks to achieve a distinct local
identity principally through the quality of its local news programming and by
targeting specific audience groups with special programs and marketing events.
Each station's local news franchise is the foundation of the Company's strategy
to strengthen audience loyalty and increase revenues and broadcast cash flow
for each station. Strong local news generates high viewership and results in
higher ratings both for programs preceding and following the news.
Strong local news product helps differentiate local broadcast stations from
cable system competitors, which generally do not provide this service. The cost
of producing local news programming generally is lower than other sources of
programming and the amount of local news programming can be increased for very
modest incremental increases in cost. Moreover, such programming can be
increased or decreased on very short notice, providing the Company with greater
programming flexibility.
In each of its markets, the Company develops additional information-oriented
programming designed to expand the Company's hours of commercially valuable
local news and other news programming with relatively small increases in
operating expenses. In addition to local news, each station utilizes special
programming and marketing events, such as prime time programming of local
interest or sponsored community events, to strengthen community relations and
increase advertising revenues. The Company places a special emphasis on
developing and training its local sales staff to promote involvement in
community affairs and stimulate the growth of local advertising sales.
Programming. The Company continually reviews its existing programming
inventory and seeks to purchase the most profitable and cost-effective
syndicated programs available for each time period. In developing its selection
of syndicated programming, management balances the cost of available syndicated
programs, their potential to increase advertising revenue and the risk of
reduced popularity during the term of the program contract. The Company seeks
to purchase only those programs with contractual periods that permit
programming flexibility and which complement a station's overall programming
strategy and counter competitive programming. Programs that can perform
successfully in more than one time period are more attractive due to the long
lead time and multi-year commitments inherent in program purchasing.
Cost Controls. Each station emphasizes strict control of its programming and
operating costs as an essential factor in increasing broadcast cash flow.
The Company relies primarily on its in-house production capabilities and
seeks to minimize its use of outside firms and consultants. The Company's size
benefits each station in negotiating favorable terms with programming suppliers
and other vendors. In addition, each station reduces its overhead costs by
utilizing the group benefits provided by the Company for all of the stations,
such as insurance and other employee group benefit plans. Through its strategic
planning and annual budget processes, the Company continually seeks to identify
and implement cost savings opportunities at each of its stations. The Company
closely monitors the expenses incurred by each of the stations and continually
reviews the performance and productivity of station personnel. The Company has
been successful in controlling its costs without sacrificing revenues through
efficient use of its available resources.
Acquisition Strategy
The Company believes that its ability to manage costs effectively while
enhancing the quality provided to station viewers gives the Company an
important advantage in acquiring and operating new stations. In assessing
acquisitions, the Company targets stations for which it has identified line
item expense reductions that can be implemented upon acquisition. The Company
emphasizes strict controls over operating expenses as it expands a station's
revenue base with the goal of improving a station's broadcast cash flow.
Typical cost
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savings arise from reducing staffing levels, substituting more cost-effective
employee benefit programs, reducing dependence on outside consultants and
research firms and reducing travel and other non-essential expenses. The
Company also develops specific proposals for revenue enhancement utilizing
management's significant experience in local and national advertising.
The Company plans to pursue favorable acquisition opportunities as they
become available. The Company is regularly presented with opportunities to
acquire television stations which it evaluates on the basis of its acquisition
strategy. Other than the KRON-TV and BAYTV Acquisition and the WKBT-TV sale
agreement, the Company does not presently have any agreements to acquire or
sell any television stations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Stations
The Company's stations are geographically diverse, which the Company
believes minimizes the impact of regional economic downturns. One station is
located in the west region (KCAL-Los Angeles, California), six stations are
located in the Midwest region (WBAY-Green Bay, Wisconsin, KWQC-Quad Cities,
KELO-Sioux Falls, South Dakota, WLNS-Lansing, Michigan, WTVO-Rockford, Illinois
and WKBT-La Crosse-Eau Claire), four stations are in the southeast region
(WKRN-Nashville, Tennessee, WRIC-Richmond, Virginia, WATE-Knoxville, Tennessee,
and KLFY-Lafayette, Louisiana), and one station is in the northeast region
(WTEN-Albany, New York).
Six of the Company's twelve stations are affiliated with ABC, four are
affiliated with CBS and one is affiliated with NBC. The Company believes that
this network diversity reduces the potential impact of a ratings decline
experienced by a particular network. KCAL is the only independent VHF
television station operating in the Los Angeles market. The following table
sets forth general information for each of the Company's stations:
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Station
Commercial Rank In-
Market Television Network Stations In Market Year
Rank(1) Households(2) Channel Affiliation in DMA(3) Market(4) Share(5) Acquired
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KCAL (Los Angeles, CA).. 2 5,135,140 9 IND 13 7 9 1996
WKRN (Nashville, TN).... 30 811,870 2 ABC 8 3 20 1989
WTEN (Albany, NY)....... 55 507,000 10(6) ABC 6 3 27 1989
WRIC (Richmond, VA)..... 60 474,610 8 ABC 5 3 26 1994
WATE (Knoxville, TN).... 63 451,870 6 ABC 5 2 22 1994
WBAY (Green Bay, WI).... 69 392,300 2 ABC 6 1 33 1994
KWQC (Quad Cities)...... 88 312,300 6 NBC 4 1 41 1996
WLNS (Lansing, MI)...... 106 237,130 6 CBS 4 1 35 1986
KELO (Sioux Falls, SD).. 114 231,900 11(7) CBS 4 1 45 1996
KLFY (Lafayette, LA).... 123 203,100 10 CBS 4 1 53 1988
WKBT (La Crosse-Eau
Claire, WI) (8)........ 129 182,310 8 CBS 4 2 26 1986
WTVO (Rockford, IL)..... 135 171,000 17 ABC 5 3 25 1988
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(1) Refers to the size of the television market or Designated Market Area
("DMA") as used by Nielsen.
(2) Refers to the number of television households in the DMA as estimated by
Nielsen.
(3) Represents the number of television stations ("reportable stations")
designated by Nielsen as "local" to the DMA, excluding public television
stations and stations which do not meet minimum Nielsen reporting
standards (weekly cumulative audience of less than 2.5%) for reporting in
the Sunday through Saturday, 7:00 a.m. to 1:00 a.m. period ("sign-on to
sign-off"). Does not include national cable channels. The number of
reportable stations may change for each reporting period. "Weekly
cumulative audience" measures the total number of different households
tuned to a station at a particular time during the week. "Share"
references used elsewhere herein measure the total daily households tuned
to a station at a particular time during the week.
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(4) Station's rank relative to other reportable stations, based upon the DMA
rating as reported by Nielsen sign-on to sign-off during November 1999.
(5) Represents an estimate of the share of DMA households viewing television
received by a local commercial station in comparison to other local
commercial stations in the market ("in-market share"), as measured sign-on
to sign-off.
(6) WTEN has a satellite station, WCDC (Adams, Massachusetts), Channel 19,
operating under a separate license from the FCC.
(7) KELO has three satellite stations, KDLO (Florence, South Dakota), Channel
3, KPLO (Reliance, South Dakota), Channel 6, and KCLO (Rapid City, South
Dakota), Channel 15, each of which operates under a separate license from
the FCC. KCLO operates in a separate DMA from that of KELO and the other
two satellites, wherein it ranks 172.
(8) Sale is pending approval by federal regulatory agencies.
The following is a description of each of the Company's stations:
KCAL, Los Angeles, California. The Company acquired KCAL from KCAL
Broadcasting, Inc., a subsidiary of the Walt Disney Company ("Disney"), on
November 22, 1996. KCAL has the distinction of being one of the first
commercial stations in the country. KCAL's first broadcast was on December 23,
1931. It is now the only independent VHF station in the Los Angeles market. Los
Angeles is the second largest DMA with an estimated 5,135,140 television
households and the country's largest television market in terms of estimated
advertising dollars spent on the medium. There are thirteen reportable stations
in the DMA. For the November 1999 ratings period, KCAL was ranked seventh after
the local ABC, NBC, CBS, WB, Fox, UPN and Univision affiliates, with an overall
sign-on to sign-off in-market share of 9%.
KCAL is a prominent news provider in the market, presenting 29.5 hours of
such programming each week and up to 25 special one-half hour reports each
year. In 1995, the station won the prestigious Edward R. Murrow Award as the
"Best Local Newscast in the Country." In 1996, KCAL was honored with nine
Golden Mikes, including Best 30 Minute Newscast and Best Daytime Newscast, ten
Emmys, five Radio Television News Directors awards, ten New York Film Festival
Awards, 17 Associated Press Awards and 31 Los Angeles Press Club Awards. In
1997, KCAL won five Golden Mikes. In 1998, KCAL won 8 Emmys and 4 Golden Mikes.
In 1999, KCAL won two Emmys for live sports coverage and two Golden Mikes for
news coverage. Since 1991, KCAL has been the most honored local station in Los
Angeles for news.
KCAL is also the broadcast station of choice for premier local sports
franchises with over 130 major televised sporting events each year. KCAL has
won numerous Emmy Awards and currently has agreements with the Los Angeles
Lakers (5 years remaining), Anaheim Angels (1 year remaining), Mighty Ducks of
Anaheim (3 years remaining), and Los Angeles Clippers (1 year remaining). The
station also has agreements to broadcast PAC 10 Football, the John Wooden
Classic and Fight Night Boxing events. These contracts enable KCAL to offer
advertisers year-round sports packages aimed at very attractive audience
categories.
As the largest market in the country's largest state, Los Angeles enjoys a
diverse industry makeup ranging from entertainment and manufacturing to
international trade and financial services. In addition to Los Angeles County,
KCAL reaches Orange, Santa Barbara and other counties in Southern California.
Orange County alone has ranked fifth, nationally, in both population and
population growth over the last five years. According to Investing in
Television Market Report '99 (4th Edition), published by BIA Publications, Inc.
(the "BIA Guide"), the average household income in the Los Angeles market in
1997 was $45,789, with an effective buying income projected to grow at an
annual rate of 2.3% through 2002. Historically, there has been a close
correlation between retail sales and expenditures on broadcast television
advertising in a given market. According to the BIA Guide, retail sales growth
for the Los Angeles market is projected to average 1.7% annually through 2002.
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WKRN, Nashville, Tennessee. WKRN, acquired by the Company from Knight-Ridder
Broadcasting, Inc. in June 1989, began operations in 1953 and is affiliated
with ABC. The Nashville market is the 30th largest DMA, with an estimated
811,870 television households. There are eight reportable stations in the DMA.
For the November 1999 ratings period, WKRN was rated third after the CBS and
NBC affiliates, with an overall sign-on to sign-off in-market share of 20%. The
station's syndicated programs include Live with Regis and Kathie Lee, Donnie &
Marie, Rosie, Friends, Wheel of Fortune, ER, Jenny Jones and National Enquirer.
The quality of the station's newscasts has been regularly recognized by its
broadcasting peers, highlighted by it winning of the prestigious Peabody Award
for investigative journalism. News 2 received the 1998 Mid-South Regional Emmy
for Overall News Excellence and has been named Outstanding News Operation in
the State of Tennessee by the Associated Press for three of the last four
years.
Nashville is the capital of Tennessee and the center of local, state and
federal government with three of its five largest employers being government
related. Prominent corporations located in the area include Dell Computer,
Bridgestone-Firestone, Nissan, Saturn, Columbia/HCA, Shoney's, Service
Merchandise and Bell South. Nashville is the home of several universities,
including Vanderbilt and Tennessee State. According to the BIA Guide, the
average household income in the Nashville market in 1997 was $42,956, with
effective buying income projected to grow at an annual rate of 6.5% through
2002. Historically, there has been a close correlation between retail sales and
expenditures on broadcast television advertising in a given market. According
to the BIA Guide, retail sales growth for the Nashville market is projected to
average 6.0% annually through 2002.
WKRN is a prime example of the Company's strategy to achieve a strong local
presence and has been recently nominated for Nashville's Corporate Donor of the
Year for its commitment to community service. Public Service involvement ranges
from raising food for the hungry of Middle Tennessee, The Ronald McDonald
House, to focusing on the issues and concerns of children through its "Kids to
Kids" and "One for the Community" fund raising effort.
ABC affiliates in Bowling Green, Kentucky and Jackson, Tennessee have
overlapping signals with WKRN on the north and west edges of the DMA, resulting
in some loss of viewers in those areas. The Company believes this overlap is
responsible for the lower station share compared to the NBC and CBS affiliates.
WTEN, Albany, New York. WTEN, acquired by the Company from Knight-Ridder
Broadcasting, Inc. in October 1989, began operations in 1953 and is affiliated
with ABC. WTEN added a satellite station, WCDC-TV Channel 19, in Adams,
Massachusetts in 1963 to serve more adequately the eastern edge of the market.
WCDC-TV was acquired concurrently with WTEN. (All references to WTEN include
WCDC-TV.)
The Albany market (which includes Schenectady and Troy) is the 55th largest
DMA, with an estimated 507,000 television households. There are six reportable
stations in the DMA, three of which broadcast in the VHF spectrum. During the
November 1999 ratings period, WTEN was third in the ratings, with a sign-on to
sign-off in-market share of 27%, compared to 30% for WNYT, the NBC affiliate,
31% for WRGB, the CBS affiliate, 11% for WXXA, the Fox affiliate and 0% for
WYPX, the PAX station, and 4% for WEWB, the WB affiliate that signed on as of
September 1999. The station's syndicated programs include Wheel of Fortune,
Jeopardy, Rosie, and Jenny Jones. WTEN has won numerous awards in recent years
for both local news and public affairs programming.
Albany is the capital of New York. The largest employers are the New York
State government, the State University of New York and the General Electric
Company. Other prominent corporations located in the area include Lockheed
Martin, Chubb Corp, State Farm Insurance, Key Corp. and Quad Graphics. These
employers, which are dependent upon a well-educated and skilled labor force to
remain competitive in their industries, are able to draw upon the nation's
largest concentration per capita of professionals with doctoral and post-
doctoral degrees. According to the BIA Guide, the average household income in
the Albany market in 1997 was $40,370, with effective buying income projected
to grow at an annual rate of 1.6% through 2002. Retail sales growth in this
market is also projected by the BIA Guide to average 1.7% annually during the
same period.
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The station has focused on its local newscasts, selective syndicated program
acquisitions and client marketing programs to maximize revenues. Selective use
of sales marketing programs has generated over $2 million of new incremental
revenue in 1999.
WTEN's share of market revenue was 24.6% in 1998 which is a 5% increase over
the prior year. The station achieved a market share of 24.7 for the calendar
year 1999.
WRIC, Richmond, Virginia. WRIC, acquired by the Company in November 1994
from Nationwide Communications Inc. ("Nationwide"), began operations in 1955
and is affiliated with ABC. The Richmond market (which also includes
Petersburg, Virginia) is the 60th largest DMA, with an estimated 474,610
television households. There are five reportable commercial television stations
in the DMA, three of which are VHF stations. For the November 1999 ratings
period, WRIC was in third place in the ratings, five points behind WWBT, the
NBC affiliate, and WTVR, the CBS affiliate, with a sign-on to sign-off in
market share of 26% compared to 31% for WWBT and WTVR. The station's syndicated
programming includes Wheel of Fortune, Jeopardy, Maury Povich, Rosie and Jerry
Springer. WRIC has won numerous awards in recent years from state journalism
organizations for its news operations.
Richmond is the capital of Virginia and home to numerous colleges and
universities, including the University of Richmond, Virginia Commonwealth
University (VCU) and the Medical College of Virginia. Philip Morris USA is the
largest employer in the market, employing approximately 6,900 area residents.
According to the BIA Guide, the average household income in the Richmond market
in 1997 was $41,951 with effective buying income projected to grow at an annual
rate of 3.6% through 2002. Retail sales growth is also projected by the BIA
Guide to average 4.4% annually during the same period.
WATE, Knoxville, Tennessee. WATE, also acquired by the Company in November
1994 from Nationwide, began operations in 1953 and is also affiliated with ABC.
The Knoxville, Tennessee market is the 63rd largest DMA, with an estimated
451,870 television households. There are five reportable stations in the DMA,
three of which are VHF stations. During the November 1999 ratings period, WATE
ranked second, with a sign-on to sign-off in-market share of 22%. The station's
syndicated programming includes Home Improvement, People's Court, Judge Judy
and Rosie. WATE has won numerous awards in recent years from state journalism
organizations, including Emmy Awards from the Tennessee Chapter of NATAS. In
1999, WATE also received a national Gabriel Award for a documentary on The
Holocaust.
According to the BIA Guide, the average household income in the Knoxville
market in 1997 was $36,917 with effective buying income projected to grow at an
annual rate of 5.4% through 2002. Retail sales growth is also projected by the
BIA Guide to average 5.5% annually during the same period.
WBAY, Green Bay, Wisconsin. WBAY, the third station acquired by the Company
in November 1994 from Nationwide, began operations in 1953 and is also
affiliated with ABC. The Green Bay market (which also includes Appleton,
Wisconsin) is the 69th largest DMA, with an estimated 392,300 television
households. There are six reportable stations in the DMA, four of which are VHF
stations. For the November 1999 ratings period, WBAY was first in the ratings.
with a sign-on to sign-off in-market share of 33%. The station's syndicated
programming includes Home Improvement, Seinfeld, Friends, Martha Stewart and
Dr. Joy Brown. WBAY has won numerous awards in recent years from state
journalism organizations for its news operations.
According to the BIA Guide, the average household income in the Green Bay
market in 1997 was $40,854 with effective buying income projected to grow at an
annual rate of 4.3% through 2002. Retail sales growth is also projected by the
BIA Guide to average 4.7% annually during the same period.
KWQC, Quad Cities. The Company acquired KWQC from Broad Street Television,
L.P. on April 15, 1996. The station began operations in 1949 and is affiliated
with NBC. The Davenport market, referred to as the Quad Cities Market, is the
88th largest DMA serving an estimated 312,300 television households in eastern
Iowa and western Illinois. There are four reportable stations in the DMA, three
of which are VHF. During the
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November 1999 ratings period, KWQC retained its number one position in the
market with a sign-on to sign-off in-market share of 41%. The station has
retained the number one position for over thirteen years and continues to
expand news programming and increase market share. The station's syndicated
programming includes Oprah, Jeopardy, Wheel of Fortune, Martha Stewart,
Hollywood Squares, Inside Edition and Cheers.
KWQC places a strong emphasis on local news and community related events and
broadcasts. The station annually produces several news specials in addition to
providing 25 1/2 hours of local news and information programming per week. KWQC
is involved in a variety of community events including Race For The Cure, Toys
For Tots, Festival of Trees, The Student Hunger Drive, the United Way Drive,
Bix 7 Race and Women's Lifestyle Fair.
John Deere Corporation and Eagle Country Markets are both headquartered in
the Quad Cities. Other major employers include the Rock Island Arsenal, Alcoa,
Trinity Medical Center, Oscar Mayer, J.I. Case and Modern Woodman. Riverboat
gambling has brought three boats to the market that have increased the tourism
business. The market has also experienced an increase in convention business.
According to the BIA Guide, the average household income in the Quad Cities
market in 1997 was $39,962 with effective buying income projected to grow at an
annual rate of 3.2% through 2002. Retail sales growth is also projected by the
BIA Guide to average 3.3% annually during the same period.
WLNS, Lansing, Michigan. WLNS, acquired by the Company from Backe
Communications, Inc. in September 1986, began operations in 1950 and is
affiliated with CBS. The Lansing market is the 107th largest DMA, with an
estimated 237,860 television households. WLNS is one of only two VHF network
affiliates in the DMA. During the November 1999 ratings period, WLNS was the
highest-rated station out of four reportable stations in its DMA, with a sign-
on to sign-off in-market share of 35%. The station's syndicated programming
includes Rosie, Entertainment Tonight, Hollywood Squares, and Montel Williams.
The station attributes its success to the experience of its local sales
staff, which focuses on developing strong relationships with local advertisers.
The station's revenue market share in 1998 was 40%. The projected market share
in 1999 is 42%. WLNS is also recognized as the dominant news station in the
Lansing market. The station consistently wins by wide margins against
competitors in its noon and 6:00 pm newscasts. For the November 1999 ratings
period, WLNS's newscasts finished ahead of its closest competitor by 33 share
points at noon and 9 share points at 6:00 pm. WLNS launched the market's first
5:30 pm newscast in 1989, which has since developed a solid audience share and
has consistently held the greatest share in its time period. In 1997, WLNS
added another half hour of local news at 5:00 pm, making WLNS one of the only
stations in the country of its market size to produce a 90 minute news block
each weekday evening from 5:00 pm to 6:30 pm. The station recognizes local news
programming as the key to its success and produces 18 to 20 special news
programs each year, including live town hall meetings in prime time on
community topics such as youth violence, and political debates in major
election years. The quality of the news broadcast at WLNS has resulted in
numerous state journalism and public service awards.
The economy of Lansing is dominated by three employers, the State of
Michigan, General Motors and Michigan State University, giving Lansing an
advantage over other Michigan cities whose economies rely more heavily on, and
are more prone to the cyclical nature of, the domestic automobile industry.
Lansing is the capital of Michigan and its various government agencies employ
an aggregate of approximately 15,500 people. General Motors has approximately
14,000 employees. Michigan State University has over 12,000 employees with a
student enrollment of over 42,000. Other significant industry sectors in the
area are plastics, non-electrical machinery, fabricated metal products, food
processing and printing. Companies represented in these groups include Owens-
Brockway, John Henry Co. and Dart Container. According to the BIA Guide, the
average household income in the Lansing market in 1997 was $40,704, with
effective buying income projected to grow at an annual rate of 2.7% through
2002. Retail sales growth in this market is also projected by the BIA Guide to
average 4.6% annually during the same period.
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KELO, Sioux Falls, South Dakota. On May 31, 1996, the Company acquired KELO
from a subsidiary of Midcontinent Media, Inc. The station began operations in
1953 and is affiliated with CBS. KELO added satellite station KDLO, Channel 3,
in Florence, South Dakota in 1955 to serve the northern South Dakota area, and
added satellite station KPLO, Channel 6, in Reliance, South Dakota in 1957 to
serve the central South Dakota area. In 1988, KCLO, Channel 15, then operating
as a translator facility, was added as a satellite station of KELO in Rapid
City, South Dakota. KELO fully serves two DMAs, as Rapid City is a separate
contiguous DMA. (All references to KELO include KDLO and KPLO. The following
information pertains only to the Sioux Falls DMA.)
The Sioux Falls market is the 114th largest DMA serving an estimated 231,900
television households encompassing counties in Minnesota, Iowa and Nebraska, as
well as 51 counties within South Dakota. There are four reportable stations in
the DMA, three of which are VHF. During the November 1999 ratings period, KELO
was first in the market with a sign-on to sign-off in-market share of 45%,
significantly ahead of the ABC, NBC and FOX affiliates, who had 30%, 15% and
9%, respectively. KELO-TV's newscast finished ahead of each of the competing
stations for every weekday and weekend newscast time period. Recognizing the
importance of local news, the station presents live newscasts seven times
daily, with notable ratings and sales success. The station's revenue market
share in 1999 was 48%. The projected market share in 2000 is 49%. The station's
syndicated programming includes Rosie, Entertainment Tonight, and Maury.
The largest employers in the market are Citibank and John Morrell. Sioux
Falls is the largest city in South Dakota, with a population of 120,500.
According to the BIA Guide, the average household income in the Sioux Falls
market in 1997 was $40,237 with effective buying income projected to grow at an
annual rate of 4.6% through 2001. Retail sales growth is also projected by the
BIA Guide to average 5.7% annually during the same period.
KLFY, Lafayette, Louisiana. KLFY, acquired by the Company from Texoma
Broadcasters, Inc. in May 1988, began operations in 1955 as the market's first
television station and is affiliated with CBS. KLFY is one of only two network-
affiliated VHF stations serving the Lafayette market. The third commercial
station in the market is a Fox affiliate operating on a UHF channel and a
fourth Station, KLAF, is a lower power station affiliated with the UPN and
Warner Brothers Network. The market is dominated by KLFY and the local ABC
affiliate. The signals from the NBC affiliates in Lake Charles, Baton Rouge and
Alexandria, Louisiana are available to households in the DMA. Since 1994, the
NBC affiliate in Lake Charles is selling advertising in the Lafayette market
with minimal success.
The Lafayette market is the 123rd largest DMA, with an estimated 203,100
television households. KLFY ranks first in the November 1999 ratings period
with an overall sign-on to sign-off in-market share of 53%, and has ranked
first in those viewership measurements consistently for prior ratings periods.
KLFY leads its competition in audience share in 27 major Nielsen dayparts. KLFY
is ranked number one during prime-time (7:00 p.m.-10:00 p.m., Monday-Saturday
and 6:00 p.m.-10:00 p.m., Sunday), the most sought after advertiser demographic
time period, with an in-market share of 45%. The station's syndicated programs
include The Maury Povich Show, Home Improvement, Coach, Rosie, Sally Jessy
Raphael, Hercules and Zena.
Historically, KLFY has placed a strong emphasis on local news and community-
related broadcasts. Each weekday begins with a three-hour live production of
"Passe Partout," a family-oriented program offering early morning news,
weather, sports and interviews on subjects relevant to local residents. For the
November 1999 ratings period, this program received a 6:00-7:00 a.m. in-market
share of 66%. The first 30 minutes of "Passe Partout" are broadcast in French
for the large French-speaking Cajun population in the area; the balance is in
English. KLFY also has won numerous awards in recent years from state
journalism organizations, including the 1995 and 1998 "Station of the Year"
award from the Louisiana Broadcasters Association.
KLFY has made community involvement an important part of its operations. The
12:00 noon news show is called "Meet Your Neighbor" and, in addition to an
emphasis on local news reporting, is a platform for community service segments.
In addition to ongoing commitments to blood drives, food and clothing drives, a
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big brother/big sister program and animal adoptions, the station has been the
motivating force behind some unusual projects. "Wednesday's Child" is a
nationally recognized weekly segment featuring a child in need of adoption, and
the effort has had a significant success rate in placing children. The station
has over the past thirteen years raised over two thousand tons of food for the
hungry with its annual "Food for Families" all-day live remote from 17
locations in the DMA. It has an annual "Coats for Kids" campaign to clothe
needy children and has raised over $9.6 million for the Muscular Dystrophy
Association's ("MDA") annual telethon. For its efforts, the station has
received awards from state and national service organizations, including the
MDA's special recognition award and Media of the Year awards from the Louisiana
Special Olympics and the Black Advisory Adoption Committee.
According to the BIA Guide, the average household income in the Lafayette
market in 1997 was $33,959, with effective buying income projected to grow at
an annual rate of 4.9% through 2002. Retail sales growth in this market is also
projected by the BIA Guide to average 5.7% annually during the same period.
WKBT, La Crosse, Wisconsin. WKBT, acquired (together with WLNS) by the
Company from Backe Communications Inc. in September 1986, began operations in
1954 and is affiliated with CBS. Although 90 miles apart, the cities of La
Crosse and Eau Claire are considered a single market by Nielsen, and WKBT's
signal covers both cities, reaching a twelve-county area that includes two
Minnesota counties and most of western Wisconsin. There are four reportable
stations in the DMA, but WKBT is one of only two local VHF stations.
The La Crosse-Eau Claire market is the 129th largest DMA, with an estimated
182,310 television households. The highest-rated local stations in the DMA are
WKBT and WEAU, the NBC affiliate. For the November 1999 ratings period, WKBT
had a sign-on to sign-off in-market share of 26%, which places WKBT second to
WEAU, which had a 32% share. The station's syndicated programming includes
Sally, Baywatch, Montel Williams, Hollywood Squares, VIP, Profiler and Martin
Short.
The station's newscasts, collectively broadcast as NewsChannel 8, focuses on
local coverage of news, weather and sports events. NewsChannel 8 offers 3 1/2
hours of local news each weekday.
Over the past several years, WKBT has won awards for news coverage from
state journalism organizations. Currently, WKBT is the only station in La
Crosse to provide closed-captioning of its local newscasts for its hearing
impaired viewers. The stations is also an active sponsor of many other local
community events and programs, including Toys for Tots, CrimeStoppers, and
Operation Firesafe. WKBT regularly contributes public service announcements and
hundreds of hours of volunteer labor to the community throughout the year.
The economy in the La Crosse-Eau Clair region is centered on skilled
industry, medical services, agriculture and education. Prominent corporations
located in the area include The Trane Company, the area's largest employer with
approximately 2,600 employees, Fleming Foods and La Crosse Footwear. Lutheran
Hospital, Franciscan Health Systems and Gunderson Clinic have made La Crosse a
health care hub for the entire western Wisconsin region and, combined, employ
approximately 4,400 area residents. Local educational institutions draw a large
student base to the market and include branches of the University of Wisconsin
in La Crosse and Eau Claire, as well as Viterbo College and Western Wisconsin
Technical College. According to BIA Guide, the average household income in the
La Crosse-Eau Claire market in 1996 was $35,331, with effective buying income
projected to grow at an annual rate of 3.3% through 2001. Retail sales growth
in this market is also projected by the BIA Guide to average 4.7% annually
during the same period.
WTVO, Rockford, Illinois. WTVO, the ABC affiliate in Rockford, Illinois
began operations in 1953 under the ownership of Winnebago Television
Corporation. The Company purchased Winnebago Television Corporation in
September 1988. WTVO switched its affiliation from NBC to ABC, effective as of
August 14, 1995.
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The Rockford market is the 135th largest DMA, with an estimated 171,000
television households. There are five reportable stations in the DMA, of which
one is a VHF station and the others, including WTVO, are UHF stations. In the
November 1999 ratings period, WTVO was number three in the market, with a sign-
on to sign-off in-market share of 25%, compared to 31% and 33% for the CBS and
NBC affiliates, respectively. The station's syndicated programs include Sally
Jessy Raphael, Rosie, Hollywood Squares, Dr. Joy Brown and Extra. The station
produces local interest programs such as Spotlight 17, Friday Football Blitz
and Friday Basketball Blitz.
Each year, the Northern Illinois Council of Advertising recognizes the
production creativity of local advertising agencies and television stations by
awarding "Raddys." Since 1990, WTVO has been the recipient of 18 Raddy awards
which span the categories of broadcast division, original footage, and
promotional (news) campaign.
WTVO's DMA encompasses a five-county area of northern Illinois, northwest of
Chicago. Rockford is the second largest city in Illinois. Over 1,000
manufacturing firms employ a total of over 50,000 persons in the Rockford area,
specializing in machine tool, automotive, aerospace, and consumer product
industries. Prominent manufacturers in the area include Hamilton Corporation,
the area's largest employer, Ingersoll Milling Machine Company and
Daimler/Chrysler Corporation's Neon facility. UPS has constructed a $60.0
million Midwestern freight hub at Rockford, and Motorola has a cellular phone
plant in nearby Harvard, Illinois. WTVO's share of revenue in 1999 is projected
to be 22% versus 1998's 24%. According to the BIA Guide, the average household
income in the Rockford market in 1997 was $42,557, with effective buying income
projected to grow at an annual rate of 3.2% through 2002. Retail sales growth
in this market is also projected by the BIA Guide to average 2.7% annually
during the same period.
Industry Background
General. Commercial television broadcasting began in the United States on a
regular basis in the 1940s. Currently there are a limited number of channels
available for broadcasting in any one geographic area. Television stations can
be distinguished by the frequency on which they broadcast. Television stations
that broadcast over the very high frequency ("VHF") band (channels 2-13) of the
spectrum generally have some competitive advantage over television stations
which broadcast over the ultra-high frequency ("UHF") band (channels above 13)
of the spectrum because the former usually have better signal coverage and
operate at a lower transmission cost. However, the improvement of UHF
transmitters and receivers, the complete elimination from the marketplace of
VHF-only receivers and the expansion of cable television systems have reduced
the VHF signal advantage. Any disparity between VHF and UHF is likely to
diminish even further in the coming era of digital television. See "Federal
Regulation of Television Broadcasting" below.
The Market for Television Programming. Television station revenues are
primarily derived from local, regional and national advertising and, to a
lesser extent, from network compensation and revenues from studio rental and
commercial production activities. Advertising rates are based upon a variety of
factors, including a program's popularity among the viewers an advertiser
wishes to attract, the number of advertisers competing for the available time,
the size and demographic makeup of the market served by the station, and the
availability of alternative advertising media in the market area. Rates are
also determined by a station's overall ratings and share in its market, as well
as the station's ratings and share among particular demographic groups which an
advertiser may be targeting. Because broadcast television stations rely on
advertising revenues, declines in advertising budgets, particularly in
recessionary periods, adversely affect the broadcast industry, and as a result
may contribute to a decrease in the revenues of broadcast television stations.
All television stations in the country are grouped by Nielsen, a national
audience measuring service, into approximately 210 generally recognized
television markets that are ranked in size according to various formulae based
upon actual or potential audience. Each DMA is determined as an exclusive
geographic area consisting of all counties in which the home-market commercial
stations receive the greatest percentage of total viewing hours. Nielsen
periodically publishes data on estimated audiences for the television stations
in the
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various television markets throughout the country. The estimates are expressed
in terms of the percentage of the total potential audience in the market
viewing a station (the station's "rating") and of the percentage of the
audience actually watching television (the station's "share"). Nielsen provides
such data on the basis of total television households and selected demographic
groupings in the market. Nielsen uses two methods of determining a station's
ability to attract viewers. In larger geographic markets, ratings are
determined by a combination of meters connected directly to selected television
sets and weekly diaries of television viewing, while in smaller markets only
weekly diaries are completed. The Los Angeles and Nashville markets are
metered.
Whether or not a station is affiliated with one of the three major networks
(NBC, ABC or CBS) has a significant impact on the composition of the station's
revenues, expenses and operations. A typical network affiliate receives the
majority of its programming each day from the network. This programming, along
with cash payments ("network compensation"), is provided to the affiliate by
the network in exchange for a substantial majority of the advertising time
during network programs. The network then sells this advertising time and
retains the revenues. The affiliate retains the revenues from time sold during
breaks in and between network programs and programs the affiliate produces or
purchases from non-network sources. The Fox Broadcasting Company ("Fox") has
established a network of independent stations whose operating characteristics
are similar to the major network affiliate stations although the number of
hours of network programming for Fox affiliates is less than that of the three
major networks. In recent years, Fox has effectively evolved into the fourth
network.
A fully independent station such as KCAL purchases or produces all of the
programming which it broadcasts, resulting in generally higher programming
costs than those of major-network affiliates in the same market. However, under
increasingly popular barter arrangements, a national program distributor may
receive advertising time in exchange for programming it supplies, with the
station paying a reduced fee or no cash fee at all for such programming.
Because the major networks regularly provide first-run programming during prime
time viewing hours, their affiliates generally (but do not always) achieve
higher audience shares, but have substantially less inventory of advertising
time to sell during those hours than independent stations, since the major
networks use almost all of their affiliates' prime time inventory for network
shows. The independent station is, in theory, able to retain its entire
inventory of advertising and all of the revenue obtained therefrom. The
independent stations' smaller audiences and greater inventory during prime time
hours generally result in lower advertising rates charged and more advertising
time sold during those hours, as compared with major affiliates' larger
audiences and limited inventory, which generally allow the major-network
affiliates to charge higher advertising rates for prime time programming. By
selling more advertising time, the independent station typically achieves a
share of advertising revenues in its market greater than its audience ratings.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations, and to a lesser extent, with radio
stations and cable system operators serving the same market. Traditional
network programming, and recently Fox programming, generally achieve higher
audience levels than syndicated programs aired by independent stations.
However, since greater amounts of advertising time are available for sale by
independent stations and Fox affiliates, they typically achieve a share of the
television market advertising revenues greater than their share of the market's
audience. Public broadcasting outlets in most communities compete with
commercial broadcasters for viewers.
Developments in the Television Market. Through the 1970s, network television
broadcasting enjoyed virtual dominance in viewership and television advertising
revenue, because network-affiliated stations competed only with each other in
most local markets. Beginning in the 1980s, however, this level of dominance
began to change as more local stations were authorized by the Federal
Communications Commission ("FCC") and marketplace choices expanded with the
growth of independent stations and cable television services. See "--Federal
Regulation of Television Broadcasting" below.
Cable television systems, which grew at a rapid rate beginning in the early
1970s, were initially used to retransmit broadcast television programming to
paying subscribers in areas with poor broadcast signal
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reception. In the aggregate, cable-originated programming has emerged as a
significant competitor for viewers of broadcast television programming,
although no single cable programming network regularly attains audience levels
amounting to more than any major broadcast network. With the increase in cable
penetration in the 1980s, the advertising share of cable networks has
increased. Notwithstanding such increases in cable viewership and advertising,
over-the-air broadcasting remains the dominant distribution system for mass
market television advertising. Basic cable penetration (the percentage of
television households which are connected to a cable system) in the Company's
television markets ranges from 60 % to 74%.
In acquiring programming to supplement network programming, network
affiliates compete with independent stations and Fox affiliates in their
markets. Cable systems generally do not compete with local stations for
programming. Although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations, such programs would not likely have been acquired by such stations in
any event. In the past, the cost of programming increased dramatically,
primarily because of an increase in the number of new independent stations and
a shortage of desirable programming. Recently, however, program prices have
stabilized as a result of increases in the supply of programming.
Competition
Competition in the television industry takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency. The broadcasting industry is continually faced with technological
change and innovation, the possible rise in popularity of competing
entertainment and communications media, and governmental restrictions or
actions of federal regulatory bodies, including the FCC and the Federal Trade
Commission, any of which could have a material effect on the Company's
operations.
Audience. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the daily
programming on the Company's stations is supplied by the network with which
each station is affiliated. In those periods, the stations are totally
dependent upon the performance of the network programs in attracting viewers.
There can be no assurance that such programming will achieve or maintain
satisfactory viewership levels in the future. Non-network time periods are
programmed by the station with a combination of self-produced news, public
affairs and other entertainment programming, including news and syndicated
programs purchased for cash, cash and barter, or barter only.
Independent stations, whose number has increased significantly over the past
decade, have also emerged as viable competitors for television viewership
share. Each of Time Warner, Inc. and Paramount Communications, Inc. has
recently launched a new television network and have entered into affiliation
agreements with certain independent commercial television stations. The
programming made available by these new networks is presently limited. The
Company is unable to predict the effect, if any, that such networks will have
on the future results of the Company's operations.
In addition, the development of methods of television transmission of video
programming other than over-the-air broadcasting, and in particular the growth
of cable television, has significantly altered competition for audience in the
television industry. These other transmission methods can increase competition
for a broadcasting station by bringing into its market distant broadcasting
signals not otherwise available to the station's audience and also by serving
as a distribution system for non-broadcast programming originated on the cable
system. Through the 1970s, network television broadcasting enjoyed virtual
dominance in viewership and television advertising revenues because network-
affiliated stations competed only with each other in most local markets.
Although cable television systems were initially used to retransmit broadcast
television programming to paid subscribers in areas with poor broadcast signal
reception, significant increases in cable television penetration occurred
throughout the 1970s and 1980s in areas that did not have signal reception
problems. As the technology of satellite program delivery to cable systems
advanced in the late 1970s, development of programming for cable television
accelerated dramatically, resulting in the emergence of
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multiple, national-scale program alternatives and the rapid expansion of cable
television and higher subscriber growth rates. Historically, cable operators
have not sought to compete with broadcast stations for a share of the local
news audience. Recently, however, certain cable operators have elected to
compete for such audiences, and the increased competition could have an adverse
effect on the Company's advertising revenues.
Other sources of competition include home entertainment systems (including
video cassette recorder and playback systems, videodisks and television game
devices), "wireless cable" service, satellite master antenna television
systems, low power television stations, television translator stations and,
most recently, direct broadcast satellite video distribution services which
transmit programming directly to homes equipped with special receiving
antennas.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels or direct broadcast satellites, are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly
targeted audiences. Reduction in the cost of creating additional channel
capacity could lower entry barriers for new channels and encourage the
development of increasingly specialized "niche" programming. This ability to
reach very narrowly defined audiences is expected to alter the competitive
dynamics for advertising expenditures. The Company is unable to predict the
effect that these or other technological changes will have on the broadcast
television industry or the future results of the Company's operations.
Programming. Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The stations compete against in-market broadcast station
competitors for exclusive access to off-network reruns (such as Roseanne) and
first-run product (such as Entertainment Tonight) in their respective markets.
Cable systems generally do not compete with local stations for programming,
although various national cable networks from time to time have acquired
programs that would have otherwise been offered to local television stations.
Competition for exclusive news stories and features is also endemic in the
television industry.
Time Warner, Inc. and Paramount Communications, Inc., each of which has
launched a new television network, also own or control a major production
studio. Outside production studios are the primary source of programming for
the networks. It is uncertain whether in the future such programming, which is
generally subject to short-term agreements between the studios and the
networks, will be moved to the new networks.
Advertising. Advertising rates are based upon the size of the market in
which the station operates, a program's popularity among the viewers that an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the station, the
availability of alternative advertising media in the market area, aggressive
and knowledgeable sales forces, and development of projects, features and
programs that tie advertiser messages to programming. In addition to competing
with other media outlets for audience share, the Company's stations also
compete for advertising revenues, which comprise the primary source of revenues
for the Subsidiaries. The Company's stations compete for such advertising
revenues with other television stations in their respective markets, as well as
with other advertising media, such as newspapers, radio stations, magazines,
outdoor advertising, transit advertising, yellow page directories, direct mail
and local cable systems. Competition for advertising dollars in the
broadcasting industry occurs primarily within individual markets. Generally, a
television broadcasting station in the market does not compete with stations in
other market areas. The Company's television stations are located in highly
competitive markets.
Network Affiliation Agreements
Each of the Company's network-affiliated stations is affiliated with its
network pursuant to an affiliation agreement (an "Affiliation Agreement").
WKRN, WTEN, WRIC, WATE, WBAY and WTVO are affiliated
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with ABC. KELO, WLNS, KLFY and WKBT are affiliated with CBS. The Quad Cities
Station (KWQC) is affiliated with NBC.
In October 1994, the Company and ABC entered into new Affiliation Agreements
for five of the Company's ABC-affiliated stations. Effective August 14, 1995,
the Company switched the affiliation of its then sole NBC affiliate to ABC. In
addition, in September 1994, the Company and CBS entered into new Affiliation
Agreements for three of the Company's CBS-affiliated stations. Such Affiliation
Agreements with ABC and CBS provide for successive contract terms of ten years.
The Affiliation Agreement for the Quad Cities Station provides for an initial
ten-year term, expiring November 1, 2004. On April 3, 1996, the Company and CBS
entered into new affiliation agreements for KELO and each of its satellite
stations which expire on October 2, 2006, followed by successive contract terms
of five years. Each Affiliation Agreement is automatically renewed subject to
either party's right to terminate at the end of any term after giving proper
notice thereof. Under the Affiliation Agreements, the networks also possess,
under certain circumstances (such as a transfer of control or adverse changes
in signal, operating hours or other mode of operation), the right to terminate
the Affiliation Agreement on prior written notice ranging between 15 and 45
days depending on the Affiliation Agreement. In addition, ABC has the right
upon 60 days prior notice to terminate the Affiliation Agreement with respect
to an ABC-affiliated station in a particular market if it acquires a different
station within such market.
Each Affiliation Agreement provides the affiliated station with the right to
broadcast all programs transmitted by the network with which it is affiliated.
In exchange, the network has the right to sell a substantial majority of the
advertising time during such broadcasts. In addition, for each hour that the
station elects to broadcast network programming, the network pays the station a
fee, specified in each Affiliation Agreement, which varies with the time of
day. Typically, "prime-time" programming (Monday through Saturday from 8:00
p.m.-11:00 p.m., Eastern time, and Sunday from 7:00 p.m.-11:00 p.m., Eastern
time) generates the highest hourly rates. Management believes that programming
costs are generally lower for network affiliates than for independent
television stations and prime-time network programs generally achieve higher
ratings than non-network programs. Management believes that the Company's
relationship with the networks is excellent and that all of its stations are
highly valued affiliates.
As an independent station, KCAL purchases all of its programming, resulting
in proportionally higher programming costs for the station. In this regard,
KCAL retains its entire inventory of advertising and all of the revenue
obtained therefrom. Furthermore, KCAL enters into barter arrangements whereby
program distributors may receive advertising time in exchange for the
programming they provide.
Federal Regulation of Television Broadcasting
Existing Regulation. Television broadcasting is subject to the jurisdiction
of the FCC under the Communications Act of 1934, as amended (the
"Communications Act"), most recently amended in significant respects by the
Telecommunications Act of 1996 (the "1996 Act"). The Communications Act
empowers the FCC, among other things: to determine the frequencies, location
and power of broadcast stations; to issue, modify, renew and revoke station
licenses; to approve the assignment or transfer of control of broadcast
licenses; to regulate the equipment used by stations; and to impose penalties
for violations of the Communications Act or FCC regulations. The FCC has also
adopted children's programming regulations for television broadcasters that
effectively require most television broadcasters to air at least three hours
per week of programming designed to meet the educational and informational
needs of children age 16 and younger. Failure to observe these or other rules
and policies can result in the imposition of various sanctions, including
monetary forfeitures or, for particularly egregious violations, the revocation
of a license. The Company's business will be dependent upon its continuing
ability to hold television broadcasting licenses from the FCC.
License Grant and Renewal. As a result of the 1996 Act, broadcast licenses
are now generally granted or renewed for terms of eight years, though licenses
may be renewed for a shorter period upon a finding by the FCC that the "public
interest, convenience and necessity" would be served thereby. The Company must
apply for renewal of each broadcast license. At the time an application is made
for renewal of a license, parties in
15
<PAGE>
interest may file petitions to deny, and such parties, as well as other members
of the public, may comment upon the service the station has provided during the
preceding license term and urge denial of the application. While broadcast
licenses are typically renewed by the FCC, even when petitions to deny are
filed against renewal applications, there can be no assurance that the licenses
for the Company's television stations will be renewed at their expiration dates
or, if renewed, that the renewal terms will be for the maximum eight-year
period. The non-renewal or revocation of one or more of the Company's primary
FCC licenses could have a material adverse effect on the Company's operations.
The main station licenses for the Company's television stations expire on the
following dates: WRIC, October 1, 2004; KLFY, June 1, 2005; WKRN, August 1,
2005, WATE, August 1, 2005; WLNS, October 1, 2005; WBAY, December 1, 2005;
WKBT, December 1, 2005; WTVO, December 1, 2005; KWQC, February 1, 2006; KCLO,
April 1, 2006; KELO, April 1, 2006; KDLO and KPLO (satellites of KELO), April
1, 2006; KCAL, December 1, 2006; WTEN, June 1, 2007; and WCDC, WTEN's satellite
station, April 1, 2007.
Multiple Ownership Restrictions. The Communications Act and FCC rules and
regulations also regulate broadcast ownership. The FCC has promulgated rules
that, among other matters, limit the ability of individuals and entities to own
or have an official position or ownership interest, known as an attributable
interest, above a specific level in broadcast stations as well as other
specified mass media entities. As detailed below, in August 1999, the FCC
substantially revised a number of its multiple ownership and attribution rules.
Although these rules became effective November 16, 1999, they may still be
stayed, modified or reconsidered in subsequent proceedings. In three separate
orders, the FCC revised its rules regarding restrictions on television
ownership, radio-television cross-ownership, and attribution of broadcast
ownership interests. The three orders resolve several long pending rulemaking
proceedings and respond, in part, to certain directives in the 1996 Act, where
Congress liberalized the radio ownership rules and directed the FCC to consider
certain additional deregulatory measures for television. The FCC's key
broadcast ownership rules, inclusive of the recent revisions, are summarized
below:
Local Radio Ownership. With respect to radio licenses, the maximum allowable
number of stations that can be commonly owned in a market varies depending on
the number of radio stations within that market, determined by using an FCC-
prescribed method. In markets with more than 45 stations, one company may own,
operate or control up to eight radio stations, with no more than five in either
AM or FM.
Local Television Ownership. The FCC's new TV "duopoly" rule permits parties
to own two TV stations without regard to signal contour overlap provided they
are located in separate markets referred to as designated market areas. In
addition, the new rules permit parties in larger designated market areas to own
up to two television stations in the same designated market area so long as at
least eight independently owned and operating full-power television stations
remain in the market at the time of acquisition and at least one of the two
stations is not among the top four-ranked stations in the market based on
audience share. Furthermore, without regard to numbers of remaining or
independently owned TV stations, the FCC will permit television duopolies
within the same designated market area so long as certain signal contours of
the stations involved do not overlap. Satellite stations that simply
rebroadcast the programming of a "parent" station continue to be exempt from
the duopoly rule if located in the same designated market area as the "parent"
station. The duopoly rule also applies to same-market Local Marketing
Agreements ("LMAs") involving more than 15% of the brokered station's program
time, although current LMAs will be exempt from the TV duopoly rule for a
limited period of time of either two or five years, depending on the date of
the adoption of the LMA. Further, the FCC may grant a waiver of the TV duopoly
rule if one of the two television stations is a "failed" or "failing" station,
or the proposed transaction would result in the construction of a new
television station.
National Television Ownership Cap. On the national level, the 1996 Act
raised the national audience coverage restriction on television station
ownership from 25% to 35% of the national audience. Accordingly, one party may
not have an attributable interest in television stations which reach more than
35% of all U.S. television households. Under its recently revised rules, if
entities have attributable interests in two stations in the same market, the
FCC will count the audience reach of that market only once for purposes of
applying the national cap.
16
<PAGE>
Radio-Television Cross Ownership. The so-called "one-to-a-market" rule has
until recently prohibited common ownership or control of a radio station,
whether AM, FM or both, and a television station in the same market, subject to
waivers in some circumstances. The FCC's new radio-television cross-ownership
rule uses a graduated test based on the number of independently owned media
voices in the local market. In the largest markets--i.e., markets with at least
20 independently owned media voices--a single entity can own up to one
television station and seven radio stations or, if permissible under the new TV
duopoly rule, two television stations and six radio stations. If the number of
independently owned media voices is less than 20 but at least 10, the number of
radio stations that can be owned by a television licensee in the same market
drops to 4. If the media voices number less than 10, a television licensee can
only own 1 radio station in the same market.
Attribution of Ownership. Under the FCC's recently revised attribution
rules, a direct or indirect purchaser of various types of securities of the
Company could violate FCC regulations or policies if that purchaser owned or
acquired an "attributable" interest in other media properties in the same area
as stations owned by the Company in a manner prohibited by the FCC. Under the
FCC's revised rules, an "attributable" interest for purposes of the
Commission's broadcast ownership rules generally includes:
. equity and debt interests, which combined exceed 33% of a licensee's
total assets, if the interest holder supplies more than 15% of total
weekly programming, or is a same-market media entity, whether TV, radio,
cable or daily newspaper;
. 5% or greater voting stock interest. It should be noted that equity
interests up to 49% are non-attributable if the licensee is controlled
by a single majority shareholder and the interest holder is not
otherwise attributable under the foregoing "equity/debt plus" standard;
. 20% or greater voting stock interest, if the holder is a qualified
passive investor;
. any equity interest in a limited liability company or limited
partnership, unless properly "insulated" from management activities; and
. all officers and directors (or general partners) of a licensee and its
direct or indirect parent.
Under the new rules, all non-conforming interests acquired before November
7, 1996 are permanently grandfathered and thus do not constitute attributable
ownership interests. Any nonconforming interests acquired after that date need
to be brought into compliance by August 5, 2000.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities to own or hold interests in broadcast licensees. Foreign
governments, representatives of foreign governments, non-citizens,
representatives of non-citizens and corporations or partnerships organized
under the laws of a foreign nation are barred from holding broadcast licenses.
Non-citizens, collectively, may directly or indirectly own up to one-fifth of
the capital stock of a licensee. In addition, a broadcast license may not be
granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation of which more than one-fourth of its
capital stock is owned or voted by non-citizens or their representatives, by
foreign governments or their representatives, or by non-U.S. corporations, if
the FCC finds that the public interest will be served by the refusal or
revocation of such license. Restrictions on alien ownership also apply, in
modified form, to other types of business organizations, including
partnerships.
Proposed Legislation and Regulation. The U.S. Congress and the FCC currently
have under consideration, and may in the future adopt, new laws, regulations
and policies regarding a wide variety of matters which could, directly or
indirectly, affect the operation and ownership of the Company's broadcast
properties. The Company is unable to predict the outcome of future federal
legislation or the impact of any such laws or regulations on the Company's
operations.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). Some of its provisions, such as signal carriage and retransmission
consent, have a direct effect on television broadcasting. Under these
provisions, television
17
<PAGE>
broadcasters, on a cable system-by-system basis, must make a choice once every
three years whether to proceed under the "must carry" rules or to waive that
right to mandatory but uncompensated carriage and, instead, to negotiate a
grant of retransmission consent to permit individual cable systems to carry
their signals in exchange for some form of consideration.
On March 31, 1997, in a 5-4 decision, the U.S. Supreme court upheld the
constitutionality of the must-carry provisions of the 1992 Cable Act. As a
result, the regulatory scheme promulgated by the FCC to implement the must-
carry provisions of the 1992 Cable Act remains in effect. Whether and to what
extent such must-carry rights will extend to the new digital television signals
(see below) to be broadcast by licensed television stations (including those
owned by the Company) over the next several years is still a matter to be
determined in a pending FCC rulemaking proceeding.
The 1992 Cable Act was amended in several important respects by the 1996
Act. Most notably, the 1996 Act repeals the cross-ownership ban between cable
and telephone entities and the FCC's former video dial-tone rules (permitting
telephone companies to enter the video distribution services market under
several new regulatory options). The 1996 Act also (a) eliminates the broadcast
network/cable cross-ownership limitation and (b) lifts the statutory ban on
TV/cable cross-ownership within the same market area (without, however,
eliminating the separate FCC regulatory restriction on TV/cable cross-
ownership, which remains in place).
Digital Television Service. The FCC has taken a number of steps to implement
digital television broadcasting service in the Untied States. It has adopted a
digital television table of allotments that provides all authorized television
stations with a second channel on which to broadcast a digital television
signal. In doing so, it has attempted to provide digital television coverage
areas that are comparable to stations' existing service areas. The FCC has also
ruled that television broadcast licensees may use their digital channels for a
wide variety of services such as high-definition television, multiple channels
of standard definition television programming, audio, data, and other types of
communications, subject to the requirement that each broadcaster provide at
least one free video channel equal in quality to the current technical
standard.
Digital television channels will generally be located in the range of
channels from channel 2 through channel 51. The FCC has required affiliates of
ABC, CBS, Fox and NBC in the top 10 television markets to begin digital
broadcasting by May 1, 1999. Many stations, including KCAL-TV, the Company's
independent station in Los Angeles, California, have already begun digital
broadcasting. Affiliates of the four major networks in the top 30 markets were
required to begin digital broadcasting by November 1, 1999, and all other
commercial broadcasters, including all of the Company's remaining stations,
must do so by May 1, 2002.
The FCC's plan calls for the digital television transition period to end in
the year 2006, at which time the FCC expects that television broadcasters will
cease non-digital broadcasting and return one of their two channels to the
government, allowing that spectrum to be recovered for other uses. Under the
Balanced Budget Act, however, the FCC is authorized to extend the December 31,
2006 deadline for reclamation of a television station's non-digital channel if,
in any given market one or more television stations affiliated with ABC, CBS,
NBC or Fox is not broadcasting digitally, and the FCC determines that such
stations have "exercised due diligence" in attempting to convert to digital
broadcasting; or less than 85% of the television households in the station's
market subscribe to a multichannel video service that carries at least one
digital channel from each of the local stations in that market, and less than
85% of the television households in the market can receive digital signals off
the air using either a set-top converter box for an analog television set or a
new digital television set.
The FCC is currently considering whether cable television system operators
should be required to carry stations' digital television signals in addition to
the currently required carriage of stations' analog signals. In July 1998, the
FCC issued a Notice of Proposed Rulemaking posing several different options for
the carriage of digital signals and solicited comments from all interested
parties. The FCC has yet to issue a decision on this matter.
18
<PAGE>
The implementation of digital television will also impose substantial
additional costs on television stations because of the need to replace
equipment and because some stations will need to operate at higher utility
costs and there can be no assurance that television stations will be able to
increase revenue to offset such costs. The FCC is also considering imposing new
public interest requirements on television licensees in exchange for their
receipt of digital television channels. In addition, the Communications Act
allows the FCC to charge a spectrum fee to broadcasters who use the digital
spectrum to offer subscription-based services. The FCC has adopted rules that
require broadcasters to pay a fee of 5% of gross revenues received from
ancillary or supplementary uses of the digital spectrum for which they charge
subscription fees, excluding revenues from the sale of commercial time. The
Company is unable to predict what future actions the FCC might take with
respect to digital television, nor can the Company predict the effect of the
FCC's present digital television implementation plan or such future actions on
its business. The Company will incur significant expense in the conversion to
digital television and is unable to predict the extent or timing of consumer
demand for any such digital television services.
Non-FCC Regulation. Television broadcast stations may be subject to a number
of other federal regulations, as well as numerous state and local laws, that
can either directly or indirectly impact their operations. Included in this
category are rules and regulations of the Federal Aviation Administration
affecting tower height, location and marking, plus federal, state and local
environmental and land use restrictions.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act or of the regulations and policies of the
FCC thereunder. Proposals for additional or revised regulations and
requirements are either pending before or considered by Congress and federal
regulatory agencies from time to time. Also, various of the foregoing matters
are now, or may become, the subject of court litigation, and the Company cannot
predict the outcome of any such litigation or the impact on its broadcast
business.
Employees
Approximately 200 of the Company's employees are represented by collective
localized bargaining agreements at various stations.
Item 2. Properties.
The Company's principal executive offices are located at 599 Lexington
Avenue, New York, New York 10022. The Company leases approximately 9,546 square
feet of space in New York (the "Master Lease"). The Master Lease expires in the
year 2009 with respect to 7,600 square feet and in 2002 with respect to 1,946
square feet.
The types of properties required to support television stations include
offices, studios, transmitter sites and antenna sites. A station's studios are
generally housed with its offices in downtown or business districts. The
transmitter sites and antenna sites are generally located in elevated areas so
as to provide maximum market coverage. The following table contains certain
information describing the general character of the Company's properties.
<TABLE>
<CAPTION>
Metropolitan Area Owned or
and Use Leased Approximate Size
----------------- -------- ----------------
<S> <C> <C> <C>
KCAL.......................... Los Angeles, California
Office and studio Owned 33,000 sq. ft.
Office and studio Leased 16,198 sq. ft.
Transmission tower site Leased 60,000 sq. ft.
WKRN.......................... Nashville, Tennessee
Office and studio Owned 43,100 sq. ft.
Land Owned 2.72 acres
Transmission tower site Owned 49.33 acres
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Metropolitan Area Owned or
and Use Leased Approximate Size
----------------- -------- ----------------
<S> <C> <C> <C>
WTEN......... Albany, NY
Office and studio Owned 39,736 sq. ft.
Land Owned 2.56 acres
New Scotland, NY
Transmission tower site
Land Owned 5.38 acres
Building Owned 2,800 sq. ft.
Mt. Greylock, Adams, MA
Transmission tower site
Land Leased 15,000 sq. ft.
Building Owned 2,275 sq. ft.
WRIC......... Richmond, VA
Office and studio Owned 34,000 sq. ft.
Land Owned 4 acres
Petersburg, VA
Transmission site Lease on
tower of space --
Chesterfield Co., VA(1)
Transmitter building Owned 900 sq. ft.
WATE......... Knoxville, TN
Office and studio Owned 34,666 sq. ft.
Land Owned 2.65 acres
Knox County, TN
Transmission tower site Owned 9.57 acres
House Mountain, TN
Prospective tower site Owned 5 acres
WBAY......... Green Bay, WI
Office and studio Owned 90,000 sq. ft.
Land Owned 1.77 acres
DePere, WI
Transmission tower site Owned 3.54 acres
Appleton, WI
Office Leased 1,506 sq. ft.
KWQC......... Davenport, Iowa
Office and Studio Owned 59,786 sq. ft.
Land Owned 86,978 sq. ft.
Bettendorf, Iowa
Office Transmission tower site Owned 37.323 acres
KELO......... Sioux Falls, South Dakota
Land, office and studio Owned 23,700 sq. ft.
Transmission tower site Owned 58.23 acres
Auxiliary transmission tower site Leased 26.42 acres
Reliance, South Dakota
Transmission tower site Owned 5.83 acres
Rapid City, South Dakota
Office and studio Leased 3,555 sq. ft.
Transmission tower site Leased 1 acre
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Metropolitan Area Owned or
and Use Leased Approximate Size
----------------- -------- ----------------
<S> <C> <C> <C>
Murdo, South Dakota
Transmission tower site Leased 1 acre
Philip, South Dakota
Transmission tower site Leased 8.23 acres
Wall, South Dakota
Transmission tower site Leased 4 acres
Beresford, South Dakota
Transmission tower site Leased 2.1 acres
Doppler Radar tower site Leased 0.02 acres
Diamond Lake, South Dakota
Transmission tower site Owned 1 acre
DeSmet, South Dakota
Transmission tower site Owned 0.55 acres
Garden City, South Dakota
Transmission tower site Owned 1 acre
Auxiliary transmission tower site Owned 1 acre
Farmer, South Dakota
Transmission tower site Owned 1 acre
Mt. Vernon, South Dakota
Transmission tower site Owned 1 acre
White Lake, South Dakota
Transmission tower site
New Underwood, South Dakota
Transmission tower site Leased 200 sq. ft.
Huron, South Dakota
Doppler Radar tower site Leased 480 sq. ft.
WLNS............... Lansing, Michigan
Office and studio Owned 19,000 sq. ft.
Land Owned 4.75 acres
Meridian, Michigan
Transmission tower site Owned 40 acres
KLFY............... Lafayette, Louisiana
Office and studio Owned 24,800 sq. ft.
Land Owned 3.17 acres
Maxie, Louisiana
Transmission tower site Leased 8.25 acres
Proposed transmission tower site Owned 142 acres
WKBT(2)............ La Crosse, Wisconsin
Office and studio Owned 12,600 sq. ft.
Gailesville, Wisconsin
Transmission tower site Owned 133,600 sq. ft.
WTVO............... Rockford, Illinois
Office and studio Owned 15,200 sq. ft.
Land Owned 14.4 acres
</TABLE>
- --------
(1) Station owns tower structure and related building, underlying property,
which is owned by a third with non-exclusive easement for access to party.
(2) Sale of station and property is pending federal regulatory approval.
21
<PAGE>
Item 3. Legal Proceedings.
The Company currently and from time-to-time is involved in litigation
incidental to the conduct of its business. There are no pending legal
proceedings to which the Company or any of the Subsidiaries is a party, or to
which any of their respective properties is subject, which, in the opinion of
Company management, is likely to have a material adverse effect on the
Company's business or financial condition.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
22
<PAGE>
Executive Officers of the Registrant.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Vincent J. Young............ 52 Chairman and Director
Adam Young.................. 86 Treasurer and Director
Ronald J. Kwasnick.......... 52 President and Director
James A. Morgan............. 51 Executive Vice President Secretary and Director
Deborah A. McDermott........ 45 Executive Vice President--Operations
</TABLE>
Vincent J. Young has been the Chairman and a director of the Company since
its inception in 1986. Mr. Young is also a member of the Compensation and Audit
Committees of the Company. Mr. Young co-founded the Company with Adam Young.
Vincent Young is also a director and the Chairman of each of the corporate
Subsidiaries. Prior to becoming the Chairman of the Company, he worked at Adam
Young Inc. for ten years in various marketing and representative capacities,
including Vice-President, General Sales Manager, Eastern Sales Manager and
Manager of the Chicago office. Vincent Young is the son of Adam Young.
Adam Young has been the Treasurer and a director of the Company since its
inception. Mr. Young is also a director and an executive officer of each of the
corporate Subsidiaries. Mr. Young founded Adam Young Inc. in 1944 and has been
active in television station representation since that time. Prior to the
formation of the Company, Mr. Young owned minority interests in two radio
stations, and a 30% interest in a television station in Youngstown, Ohio. Mr.
Young served on the Board of Directors of the Television Advertising Bureau
from 1977 to 1979 and has twice been President of the Station Representative
Association, initially from 1955 through 1957, then from 1978 through 1980.
Ronald J. Kwasnick has been the President of the Company since its inception
and became a director in December 1994. From 1986 to 1989, Mr. Kwasnick was
also the General Manager of WLNS, the Company's station in the Lansing,
Michigan market. Mr. Kwasnick joined the Company in 1986, after working as
Executive Vice President/Television for Adams Communications since 1984, where
he served as General Manager of a group of network-affiliated television
stations. Previously, since 1980, he had been the General Manager and President
of WILX in Lansing, Michigan. Prior to that, he spent ten years working in
various television sales management positions.
James A. Morgan joined the Company as its Executive Vice President in March
1993, became the Secretary of the Company in September 1994 and became a
director in May 1998. Mr. Morgan is also the Executive Vice President and
Secretary of each of the corporate Subsidiaries. From 1984 until he joined the
Company, he was a director and Senior Investment Officer at J.P. Morgan Capital
Corporation involved in investing the firm's own capital in various leveraged
and early growth stage companies.
Deborah A. McDermott became the Executive Vice President-Operations of the
Company in May 1996, and has been General Manager of WKRN, the Company's ABC
network affiliate serving the Nashville, Tennessee market, since 1990. From
1986 to 1989, when WKRN was acquired by the Company, and thereafter through
February 1990, she was Station Manager of that station.
All executive officers serve at the discretion of the Board of Directors.
23
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Class A Common Stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol YBTVA. The following table sets forth the range of
the high and low closing sales prices of the Class A Common Stock for the
periods indicated as reported by Nasdaq:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Quarters Ended
March 31, 1998................................................. $53.63 $39.00
June 30, 1998.................................................. 65.00 46.50
September 30, 1998............................................. 69.00 33.38
December 31, 1998.............................................. 43.13 22.63
March 31, 1999................................................. $45.63 $39.50
June 30, 1999.................................................. 44.38 37.75
September 30, 1999............................................. 65.00 40.00
December 31, 1999.............................................. 52.06 38.63
</TABLE>
At January 31, 2000, there were approximately 33 and 39 stockholders of
record of the Company's Class A and Class B Common Stock, respectively. Such
number does not include beneficial owners holding shares through nominee names.
Dividend Policy
The Company has never paid a dividend on its Common Stock and does not
expect to pay dividends on its Common Stock in the foreseeable future. The
terms of the Senior Credit Facility and the Indentures relating to the
Company's outstanding Senior Subordinated Notes (the "Indentures") restrict the
Company's ability to pay cash dividends on its Common Stock. Under the Senior
Credit Facility, the Company's ability to pay dividends on its Common Stock is
limited. See Management's Discussion and Analysis--Liquidity. Under the
Indentures, the Company is not permitted to pay any dividends on its Common
Stock unless at the time of, and immediately after giving effect to, the
dividend no default would result under the Indentures and the Company would
continue to have the ability to incur indebtedness. In addition, under the
Indentures, the dividend may not exceed an amount equal to the Company's cash
flow less a multiple of the Company's interest expense, plus the net proceeds
of the sale by the Company of additional capital stock.
24
<PAGE>
Item 6. Selected Financial Data.
The following table presents selected consolidated financial data of the
Company for the five years ended December 31, 1999, which have been derived
from the Company's audited consolidated financial statements.
The information in the following table should be read in conjunction with
"Management's Discussion and Analysis" and the Consolidated Financial
Statements and the notes thereto included elsewhere herein. The Company has not
paid dividends on its capital stock during any of the periods presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues(1)......... $ 122,530 $ 154,343 $ 263,535 $ 277,052 $ 280,659
Operating expenses,
including selling,
general and
administrative
expenses............... 51,614 64,689 106,708 116,712 114,974
Amortization of program
license rights......... 6,418 11,034 38,279 33,014 47,690
Depreciation and
amortization........... 24,572 30,946 46,941 49,472 47,983
Corporate overhead...... 3,348 4,344 7,150 7,860 8,227
Non-cash compensation
paid in common
stock(2)............... 1,167 848 967 1,146 19,102
Merger related costs.... -- -- -- 1,444 --
---------- ---------- ---------- ---------- ----------
Operating income........ 35,411 42,482 63,490 67,404 42,683
Interest expense........ 32,644 42,838 64,103 62,617 62,981
Other expenses (income),
net.................... 233 (1,261) 493 788 1,244
---------- ---------- ---------- ---------- ----------
Net (loss) income before
extraordinary Item..... 2,534 905 (1,106) 3,999 (21,542)
Extraordinary loss on
extinguishment of
debt................... (9,125) -- (9,243) -- --
---------- ---------- ---------- ---------- ----------
Net (loss) income....... $ (6,591) $ 905 $ (10,349) $ 3,999 $ (21,542)
========== ========== ========== ========== ==========
Basic net (loss) income
per common share before
extraordinary item..... $ 0.23 $ 0.08 $ (0.08) $ 0.28 $ (1.59)
Basic net (loss) income
per common share....... $ (0.61) $ 0.08 $ (0.74) $ 0.28 $ (1.59)
Basic shares used in
earnings per share
calculation............ 10,838,972 11,379,298 13,989,969 14,147,522 13,588,108
Other Financial Data:
Cash flow provided by
operating activities... $ 22,231 $ 24,707 $ 41,025 $ 54,292 $ 36,398
Cash flow used in
investing activities... (5,800) (496,841) (11,757) (34,154) (7,887)
Cash flow (used in)
provided by financing
activities............. (19,310) 475,713 (34,621) (21,127) (26,222)
Payments for program
license liabilities.... 6,747 10,385 38,610 33,337 46,678
Broadcast cash flow(3).. 64,169 79,269 118,217 127,003 119,007
Broadcast cash flow
margin................. 52.4% 51.4% 44.9% 45.8% 42.4%
Operating cash flow(4).. 60,821 74,926 111,067 119,143 110,780
Capital expenditures.... $ 4,484 $ 4,992 $ 9,034 $ 7,524 $ 9,360
Balance Sheet Data (as
of end of Period):
Total assets............ $ 296,098 $ 893,151 $ 845,966 $ 825,668 $ 818,670
Long-term debt
(including current
portion)............... 297,993 678,927 657,672 658,224 650,510
Stockholders' (deficit)
equity................. $ (25,544) $ 80,504 $ 59,846 $ 46,865 $ 30,659
</TABLE>
- --------
(1) Net revenues are total revenues net of agency and national representation
commissions.
(2) Represents non-cash charges for the issuance to key employees in 1996,
1997, 1998 and 1999 of shares of Class A Common Stock and in 1995 of
shares of Class A Common Stock and below-market options to purchase shares
of Class A Common Stock. In 1999, approximately $18.3 million relates to
the extension of the expiration date of stock options granted in 1994 and
1995.
25
<PAGE>
(3) "Broadcast cash flow" is defined, by the Company, as operating income
before income taxes and interest 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 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, reimbursement 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 expense, plus depreciation and
amortization (including amortization of program license rights), non-cash
compensation and merger related costs 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 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.
Item 7. 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." FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND
ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS, INCLUDING THE IMPACT
OF CHANGES ON 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. 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.
26
<PAGE>
Most advertising contracts are short-term, and generally run only for a few
weeks. Approximately 65% of the 1999 annual gross revenue of the Company's
stations was 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 recently
merged with the Company. The stations generally pay commissions to advertising
agencies on local, regional and national 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
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 years ended
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Operating Income.................................. $ 63,490 $ 67,404 $ 42,683
Add:
Amortization of program license rights.......... 38,279 33,014 47,690
Depreciation and amortization................... 46,941 49,472 47,983
Corporate overhead.............................. 7,150 7,860 8,227
Merger-relatedcosts............................. -- 1,444 --
Non-cash compensation paid in common stock...... 967 1,146 19,102
Less:
Payments for program license liabilities........ (38,610) (33,337) (46,678)
-------- -------- --------
Broadcast Cash Flow............................... $118,217 $127,003 $119,007
======== ======== ========
</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:
27
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1997 1998 1999
--------------- ------------------ ------------------
Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Local................. $197,519 63.7% $199,177 62.1% $212,558 65.0%
National.............. 95,106 30.6 90,281 28.2 93,796 28.7
Network compensation.. 12,600 4.1 12,610 3.9 12,400 3.8
Political............. 1,322 0.4 13,734 4.3 3,411 1.0
Production and other.. 3,725 1.2 4,848 1.5 5,027 1.5
Total............... 310,272 100.0 320,650 100.0 327,192 100.0
Agency and sales
representative
Commissions............ (46,737) (15.1) (43,598)(1) (13.6) (46,533)(1) (14.2)
Net Revenues............ $263,535 84.9% $277,052 86.4% $280,659 85.8%
</TABLE>
- --------
(1) National sales commission paid to AYI eliminated for consolidation
purposes were $6.4 million and $4.0 million for the years ended December
31, 1998 and 1999, respectively.
Year Ended December 31, 1999 compared to Year Ended December 31, 1998.
Net revenues for the year ended December 31, 1999 were $280.7 million, an
increase of $3.6 million, or 1.3%, compared to $277.1 million for the year
ended December 31, 1998. Improvements in various local market economies and the
national economy led to increases in the Company's gross local revenues and
gross national revenues of 6.7% and 3.9%, respectively, in 1999, compared to
1998. Political revenue for the year ended December 31, 1999 was $3.4 million,
a decrease of $10.3 million from the year ended December 31, 1998. The decrease
was attributable to 1998 being a national election year with many state and
local elections, while 1999 had limited state and local elections.
Operating expenses, including selling, general and administrative expenses
for the year ended December 31, 1999 were $115.0 million, compared to $116.7
million, for the year ended December 31, 1998, a decrease of $1.7 million, or
1.5%. Cost control plans implemented at the stations accounted for most of this
decrease.
Amortization of program license rights for the year ended December 31, 1999
was $47.7 million, compared to $33.0 million for the year ended December 31,
1998, an increase of $14.7 million, or 44.5%. The Los Angeles Lakers and
Clippers, two professional basketball teams, not playing in the fourth quarter
of 1998 because of the National Basketball Association ("NBA") lockout
accounted for approximately $12.3 million of the increase. The remaining
increase was the result of increased costs related to syndicated programming.
Depreciation of property and equipment and amortization of intangibles was
$48.0 million for the year ended December 31, 1999, compared with $49.5 million
for the comparable period in 1998, a decrease of $1.5 million or 3.0%. The
decrease is primarily the result of intangible assets becoming fully amortized
in 1998 and 1999 at stations acquired in 1988 and 1989.
The Company made payments for program license liabilities of $46.7 million
during the year ended December 31, 1999, compared to $33.3 million for the year
ended December 31, 1998, an increase of $13.4 million or 40.2%. As stated
above, in the amortization of program license rights, approximately $11.7
million is attributable to the NBA lockout. The remaining $1.7 million of the
increase is the result of increases in costs for syndicated programming.
Corporate overhead for the year ended December 31, 1999 was $8.2 million,
compared to $7.9 million for the comparable period in 1998, an increase of
$367, 000 or 4.7%. This increase was the result of increased personnel and
administrative costs.
Non-cash compensation was $19.1 million for the year ended December 31,
1999, compared to $1.1 million for the year ended December 31, 1998, an
increase of $18.0 million. The Company recorded a non-cash
28
<PAGE>
compensation charge of $18.3 million in the third quarter of 1999 for extending
the expiration date of stock options granted in 1994 and 1995.
Interest expense for the year ended December 31, 1999 was $63.0 million,
compared to $62.6 million for the same period in 1998, an increase of $364,000,
or 0.6%. The increase is primarily attributable to higher interest rates.
As a result of the factors discussed above, the Company's net loss was $21.5
million for the year ended December 31, 1999, compared with net income of $4.0
million for the same period in 1998, a decrease of $25.5 million.
Broadcast cash flow for the year ended December 31, 1999 was $119.0 million,
compared with $127.0 million for the year ended December 31, 1998, a decrease
of $8.0 million, or 6.3%. Broadcast cash flow margins (broadcast cash flow
divided by net revenues) for the year ended December 31, 1999 decreased to
42.4% from 45.8% for the same period in 1998. The decrease in broadcast cash
flow and broadcast cash flow margins was attributable to the increased
programming costs for the Lakers and Clippers.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The following historical information includes the results of Adam Young Inc.
("AYI") (merger agreement entered into on February 5, 1998), for all of 1998.
The operating results for 1997 do not include AYI, as the results were not
deemed to be material.
Net revenues for the year ended December 31, 1998 were $277.1 million, an
increase of $13.6 million, or 5.2%, compared to $263.5 million for the year
ended December 31, 1997. Improvement in various local market economies led to
an increase in the Company's gross local revenues of 1%, while gross national
was down 5.1% in 1998 compared to 1997. Political revenue for the year ended
December 31, 1998 was $13.7 million, an increase of $12.4 million from the year
ended December 31, 1997. The increase was attributable to 1998 being a national
election year with many state and local elections, while 1997 had only limited
state and local elections.
Operating expenses, including selling, general and administrative expenses
for the year ended December 31, 1998 were $116.7 million, compared to $106.7
million for the year ended December 31, 1997, an increase of $10.0 million, or
9.4%, with AYI accounting for $4.7 million of such increase. Additional news
costs at several stations and higher sales expenses relating to the increased
sales accounted for an additional $3.1 million and $857,000, respectively.
Amortization of program license rights for the year ended December 31, 1998
was $33.0 million, compared to $38.3 million for the year ended December 31,
1997, a decrease of $5.3 million, or 13.8%. The entire decrease is attributable
to the Los Angeles Lakers and Clippers, two professional basketball teams, not
playing games in the fourth quarter of 1998 as a result of the National
Basketball Association ("NBA") lockout.
Depreciation of property and equipment and amortization of intangibles was
$49.5 million for the year ended December 31, 1998, compared with $46.9 million
for the comparable period in 1997, an increase of $2.6 million or 5.5%. The
increase is primarily attributable to larger equipment purchases at the end of
1997 which were depreciated during 1998. AYI accounted for approximately
$131,000 of this increase.
The Company made payments for program license liabilities of $33.3 million
during the year ended December 31, 1998, compared to $38.6 million for the year
ended December 31, 1997, a decrease of $5.3 million, or 13.7%. As stated above,
in the amortization of program license rights, the entire decrease is
attributable to the NBA lockout.
Corporate overhead for the year ended December 31, 1998 was $7.9 million,
compared to $7.2 million for the comparable period in 1997, an increase of
$710,000 or 9.9%. This increase was the result of increased occupancy and
administrative costs.
29
<PAGE>
Non-cash compensation paid in Class A Common Stock for the year ended
December 31, 1998 was $1.1 million, compared to $1.0 million for the year ended
December 31, 1997.
Interest expense for the year ended December 31, 1998 was $62.6 million,
compared to $64.1 million for the same period in 1997, a decrease of $1.5
million, or 2.3%. The decrease is primarily attributable to lower interest
rates and lower debt levels.
As a result of the factors discussed above, the Company's net income was
$4.0 million for the year ended December 31, 1998, compared with a net loss of
$10.3 million for the same period in 1997, an increase of $14.3 million. The
1997 net loss included an extraordinary item of $9.2 million.
Broadcast cash flow for the year ended December 31, 1998 was $127.0 million,
compared with $118.2 million for the year ended December 31, 1997, an increase
of $8.8 million, or 7.5%. Broadcast cash flow margins (broadcast cash flow
divided by net revenues) for the year ended December 31, 1998 increased to
45.8% from 44.9% for the same period in 1997. The increase in broadcast cash
flow and broadcast cash flow margins was attributable to the increased local
and political revenues, as well as the elimination of AYI commissions.
Liquidity and Capital Resources
Cash provided by operations for the year ended December 31, 1999 was $36.4
million as compared to cash provided by operations of $54.3 million in 1998.
Changes in the Company's net cash flows from operating activities are primarily
the result of increases in accounts receivable and payments on program license
liabilities during the year ended December 31, 1999 as compared to the year
ended December 31, 1998.
The Company used cash in investing activities for the years ended December
31, 1999 and 1998 of $7.9 million and $34.2 million, respectively. The decrease
in 1999 was primarily attributable to the $30 million initial rights fee
payment to the Los Angeles Lakers in 1998 and the increased spending for
capital expenditures of approximately $1.9 million.
Cash used in financing activities for the years ended December 31, 1999 and
1998 was $26.2 million and $21.1 million, respectively. Financing activities
for the year ended December 31, 1999 and 1998 include principal payments under
the Company's senior credit facility (the "Senior Credit Facility") of $12.3
million and $37.8 million, respectively. In the third quarter of 1998, the
Company borrowed $30.0 million under the working capital facility for the Los
Angeles Lakers payment. In 1999 and 1998, the Company repurchased 348,400
shares for $14.0 million and 552,800 shares for $19.5 million, respectively, of
Class A Common Stock. In addition, in the third quarter of 1999, the Company
purchased $5 million of its 10 1/8% Senior Subordinated Notes at 103 3/8.
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 Company's 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 five year revolving credit facility (the "Senior Credit
Facility"). As of December 31, 1999, there was $79.0 million outstanding under
the Senior Credit Facility.
The Senior Credit Facility has a $285.0 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
30
<PAGE>
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.
Pursuant to the Senior Credit Facility, the Company is 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 $70.0 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. 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. Undrawn amounts under the Senior
Credit Facility are available to the Company for working capital requirements
and general corporate purposes.
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 0.75% based upon a ratio
under 4:1 to 2.00% based upon a 6:1 or greater ratio.
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 imposes restrictions on the Company's ability to
incur additional indebtedness. 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 Company's existing Senior Subordinated Notes
and that the net proceeds in excess of any permitted acquisition are used to
repay the outstanding balance of the Senior Credit Facility by the amount of
such excess. 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 requires the Company to maintain certain
financial ratios. The Company is required to maintain a total debt/operating
cash flow ratio ranging from 6.25x to 5.00x depending on senior debt leverages.
The Company is also required to maintain a senior debt/operating cash flow
ratio ranging from 2.75x to 2.25x depending on senior debt leverages.
Additionally, the Company is required to maintain an operating cash flow/total
interest expense ratio ranging from 1.75x to 2.25x 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 Company is required to apply the proceeds from permitted equity
issuances and certain subordinated debt issuances, to the extent it exceeds the
purchase price for permitted acquisitions or permitted redemptions of Senior
Subordinated Debt, to reduce the Company's senior debt levels. 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. The Company
may, subject to the financial covenants of the Senior Credit Facility, sell
assets constituting less than 15% of its operating cash flow.
Interest on the Company's 11 3/4% Senior Subordinated Notes due 2004 (the
"November 1994 Notes") is payable semi-annually on May 15 and November 15;
interest on the June 1995 Notes is payable semi-annually on February 15 and
August 15; interest on the January 1996 Notes is payable semi-annually on
January 15 and July 15; and interest on the June 1997 Notes is payable semi-
annually on June 15 and December 15. The Indentures impose certain limitations
on the ability of the Company and certain of its Subsidiaries to, among
31
<PAGE>
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 the 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.
On June 16, 1998, the Company entered into a new long-term agreement with
the Los Angeles Lakers ("Lakers") with broadcast rights through the 2004/2005
season. Under the terms of the seven year deal, KCAL-TV, Los Angeles,
California, will broadcast 41 Lakers pre-season and regular season away games
annually. Additionally, KCAL-TV has the broadcast rights to all post-season
away games not subject to NBA/network commitments. KCAL-TV has also obtained
the exclusive sales rights and control over broadcast, production and
inventory activities. The Company paid an initial rights fee of $30 million on
August 14, 1998 and will pay an additional $18.0 million per season. In the
event that all 41 games are not made available to KCAL-TV or are canceled, the
Company will receive a per game credit.
The Company is regularly presented with opportunities to acquire television
stations which it evaluates on the basis of its acquisition strategy. Certain
of these opportunities may result in extensive negotiations with the
prospective seller. Other than the KRON-TV and BayTV Acquisition and the WKBT-
TV sale, the Company does not presently have any agreements to acquire or sell
any television stations. The KRON-TV and BayTV Acquisition will be accounted
for as a purchase. See "Business-Acquisition Strategy."
Impact of Year 2000
State of Readiness
The Company evaluated the impact of the Year 2000 problem on its business
and its ability to deliver its product to its viewers. The Year 2000 problem
was the result of computer programs being written using two digits (rather
than four) to define the applicable year. Various computer programs that had
time-sensitive software may recognize a date using "00" as the Year 1900
rather than the Year 2000, which could have resulted in miscalculations or
system failures.
The evaluation included a review of its Year 2000 preparedness relative to
its products and systems, accounting software and computer hardware. The
Company also evaluated 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 developed a plan to assess and handle the Year 2000 problem.
The plan was 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.
Costs
Costs incurred directly related to addressing the Year 2000 problem were
not material. Since the Company did not utilize outside consulting firms and
utilized the employment resources within the Company to address
32
<PAGE>
the Year 2000 problem, the Company did not incur material costs in connection
with becoming Year 2000 compliant.
Contingency Plan
The Company developed contingency plans to minimize the effect of any
potential Year 2000 related disruptions. Virtually all of its stations had
plans in effect for natural disasters in the event a station was not able to
broadcast in the usual manner. The Company expanded these plans to include
additional systems, software and equipment deemed to be critical to its
broadcasts and business operations.
Results
The Company was not materially effected by any Year 2000 problems as of
January 31, 2000. None of the Company's computer hardware and software
experienced any material adverse effects, including signal interruption
resulting from the Year 2000 conversion.
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 has
$210 million of net operating loss ("NOL") carryforwards which are subject to
annual limitations imposed by Internal Revenue Code Section 382. See Note 8 to
Notes to Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
In June 1998, the Financial Accounting Standards Board issued Statement o f
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.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................... 36
Consolidated Balance Sheets as of December 31, 1998 and 1999............. 37
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999..................................................... 38
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999........................................ 39
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999..................................................... 40
Notes to Consolidated Financial Statements............................... 41
Schedule II--Valuation and Qualifying Accounts........................... 53
</TABLE>
33
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Young Broadcasting Inc.
We have audited the accompanying consolidated balance sheets of Young
Broadcasting Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Young Broadcasting Inc. and Subsidiaries at December 31, 1998 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
New York, New York
February 7, 2000
34
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 2)............. $ 663,298 $ 2,952,144
Trade accounts receivable, less allowance for
doubtful accounts of $2,012,000 in 1998 and
$1,761,000 in 1999............................ 53,835,994 65,062,866
Current portion of loans receivable--officers
(Note 11)..................................... 530,892 375,310
Current portion of program license rights
(Notes 2 and 4)............................... 15,250,015 28,268,497
Prepaid expenses............................... 10,845,065 13,718,474
------------- -------------
Total current assets......................... 81,125,264 110,377,291
Property and equipment, less accumulated
depreciation and amortization of $122,757,235 in
1998 and $144,394,626 in 1999 (Notes 2 and 10).. 96,736,970 88,102,344
Program license rights, excluding current portion
(Notes 2 and 4)................................. 1,987,123 1,171,438
Deposits and other assets........................ 28,005,890 24,706,034
Loans receivable--officers, excluding current
portion (Note 11)............................... 208,041 --
Broadcasting licenses and other intangibles, less
accumulated amortization of $118,631,102 in 1998
and $139,260,326 in 1999 (Note 2)............... 604,576,679 584,101,367
Deferred charges, less accumulated amortization
of $10,508,840 in 1998 and $13,659,344 in 1999
(Note 2)........................................ 13,027,559 10,211,507
------------- -------------
Total assets................................. $ 825,667,526 $ 818,669,981
============= =============
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable......................... $ 14,571,552 $ 20,545,231
Accrued interest (Notes 5 and 6)............... 13,090,459 12,682,009
Accrued expenses............................... 6,857,710 6,844,840
Current installments of program license
liability (Notes 2 and 4)..................... 12,412,040 24,440,679
Current installments of long-term debt (Note
5)............................................ 914,171 --
Current installments of obligations under
capital leases (Note 10)...................... 491,666 923,567
------------- -------------
Total current liabilities.................... 48,337,598 65,436,326
Program license liability, excluding current
installments (Notes 2 and 4).................... 2,196,256 1,538,100
Long-term debt, excluding current installments
(Note 5)........................................ 85,000,000 79,000,000
Senior Subordinated Notes (Note 6)............... 570,000,000 565,000,000
Deferred tax liabilities (Note 8)................ 71,450,273 71,450,273
Obligations under capital leases, excluding
current installments (Note 10).................. 1,818,273 5,586,000
------------- -------------
Total liabilities............................ 778,802,400 788,010,699
------------- -------------
Stockholders' equity (Note 7):
Class A Common Stock, $.001 par value.
Authorized 20,000,000 shares; issued and
outstanding 11,401,823 shares at 1998 and
11,142,472 shares at 1999..................... 11,402 11,143
Class B Common Stock, $.001 par value.
Authorized 20,000,000 shares; issued and
outstanding 2,408,447 shares at 1998 and
2,351,251 shares at 1999...................... 2,408 2,351
Additional paid-in capital..................... 205,523,080 210,859,627
Accumulated deficit............................ (158,671,764) (180,213,839)
------------- -------------
Total stockholders' equity................... 46,865,126 30,659,282
------------- -------------
Total liabilities and stockholders' equity... $ 825,667,526 $ 818,669,981
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net operating revenue................ $263,534,581 $277,051,669 $280,658,940
------------ ------------ ------------
Operating expenses................... 64,700,352 66,482,606 64,843,194
Amortization of program license
rights.............................. 38,279,226 33,013,564 47,689,774
Selling, general and administrative
expenses............................ 42,007,903 50,228,854 50,131,239
Depreciation and amortization........ 46,940,592 49,471,437 47,983,723
Corporate overhead................... 7,150,096 7,860,031 8,226,577
Non-cash compensation (Notes 7 and
9).................................. 967,112 1,146,335 19,101,560
Merger-related costs................. -- 1,444,588 --
------------ ------------ ------------
Operating income................. 63,489,300 67,404,254 42,682,873
------------ ------------ ------------
Interest expense..................... (64,102,237) (62,617,274) (62,980,836)
Other expenses, net.................. (493,331) (787,951) (1,244,112)
------------ ------------ ------------
(64,595,568) (63,405,225) (64,224,948)
------------ ------------ ------------
Income (loss) before extraordinary
item................................ (1,106,268) 3,999,029 (21,542,075)
Extraordinary loss on extinguishment
of debt............................. (9,243,128) -- --
------------ ------------ ------------
Net (loss) income................ $(10,349,396) $ 3,999,029 $(21,542,075)
============ ============ ============
Income (loss) per common share:
Basic:
Income (loss) before extraordinary
item.............................. $ (.08) $ .28 $ (1.59)
Extraordinary loss on
extinguishment of debt............ (.66) -- --
------------ ------------ ------------
Net income (loss) per common
share........................... $ (.74) $ .28 $ (1.59)
------------ ------------ ------------
Weighted average shares.......... 13,989,969 14,147,522 13,588,108
============ ============ ============
Diluted:
Income (loss) before extraordinary
item.............................. $ (.08) $ .27 $ (1.59)
Extraordinary loss on
extinguishment of debt............ (.66) -- --
------------ ------------ ------------
Net income (loss) per common
share........................... $ (.74) $ .27 $ (1.59)
------------ ------------ ------------
Weighted average shares.......... 13,989,969 14,760,454 13,588,108
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Common Stock
--------------- Additional Total
Class Paid-In Accumulated Stockholders'
Class A B Capital Deficit Equity
------- ------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 12,209 2,022 233,190,382 (152,700,390) 80,504,223
Contribution of shares
into Company's
defined contribution
plan................. 53 -- 1,574,958 -- 1,575,011
Exercise of stock
options.............. 23 -- 454,227 -- 454,250
Repurchase and
retirement of Class A
Common Stock......... (459) -- (12,338,021) -- (12,338,480)
Conversion of Class B
Common Stock to Class
A Common Stock....... 25 (25) -- -- --
Net loss for 1997..... -- -- -- (10,349,396) (10,349,396)
------- ------ ------------ ------------- ------------
Balance at December 31,
1997................... 11,851 1,997 222,881,546 (163,049,786) 59,845,608
Contribution of shares
into Company's
defined contribution
plan................. 22 -- 1,103,172 -- 1,103,194
Exercise of stock
options.............. 16 -- 358,703 -- 358,719
Repurchase and
retirement of Class A
Common Stock......... (552) -- (19,488,610) -- (19,489,162)
Conversion of Class B
Common Stock to Class
A Common Stock....... 65 (65) -- -- --
Issuance of Class A
Common Stock and
repurchase of Class B
Common Stock for the
Adam Young Inc.
merger............... -- 476 668,269 378,993 1,047,738
Net income for 1998... -- -- -- 3,999,029 3,999,029
------- ------ ------------ ------------- ------------
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................. 21 -- 854,205 -- 854,226
Conversion of Class B
Common Stock to Class
A Common Stock....... 57 (57) -- -- --
Exercise of stock
options.............. 12 -- 223,000 -- 223,012
Repurchase and
retirement of Class A
Common Stock......... (349) -- (14,031,241) -- (14,031,590)
Non-cash
compensation......... -- -- 18,290,583 -- 18,290,583
Net loss for 1999..... -- -- -- (21,542,075) (21,542,075)
------- ------ ------------ ------------- ------------
Balance at December 31,
1999................... $11,143 $2,351 $210,859,627 $(180,213,839) $ 30,659,282
======= ====== ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1998 1999
------------- ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net (loss) income................... $ (10,349,396) $ 3,999,029 $(21,542,075)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization of
property and equipment........... 19,522,619 23,998,934 23,985,741
Amortization of program license
rights........................... 38,279,226 33,013,564 47,689,774
Amortization of broadcasting
licenses, other intangibles and
deferred charges................. 27,417,973 25,472,503 23,997,982
Non-cash compensation paid in
Common Stock..................... 967,112 1,146,335 19,101,560
Non-cash interest expense on
outstanding indebtedness......... 275,588 189,386 85,829
Loss on disposal of fixed assets.. 467,920 72,977 167,480
Extraordinary loss on
extinguishment of debt........... 9,243,128 -- --
Deferred acquisition and debt
refinancing costs incurred....... (1,760,000) -- --
Payments on programming license
liabilities...................... (38,609,618) (33,336,886) (46,678,348)
Decrease (increase) in trade
accounts receivable.............. 480,554 7,571,176 (10,891,837)
Increase in prepaid expenses...... (143,678) (6,025,061) (3,715,479)
(Decrease) increase in trade
accounts payable................. (5,133,300) (1,468,593) 4,575,414
Increase (decrease) in accrued
expenses......................... 366,933 (341,121) (378,071)
------------- ------------ ------------
Net cash provided by operating
activities..................... 41,025,061 54,292,243 36,397,970
------------- ------------ ------------
Investing activities:
Capital expenditures................ (9,033,690) (7,524,480) (9,359,911)
(Increase) decrease in deposits and
other assets....................... (214,498) (26,362,234) 1,625,139
Increase in broadcast licenses and
other intangibles.................. (2,508,374) (267,186) (152,419)
------------- ------------ ------------
Net cash used in investing
activities..................... (11,756,562) (34,153,900) (7,887,191)
------------- ------------ ------------
Financing activities:
Proceeds from issuance of public
subordinated debt.................. 200,000,000 -- --
Borrowings from working capital
facility........................... -- 36,527,000 6,327,000
Principal payments on long term-
debt............................... (220,740,000) (37,787,000) (12,327,000)
Deferred acquisition and debt
refinancing costs incurred......... (1,206,520) (64,871) (552,705)
Repurchase of Senior Subordinated
Notes.............................. -- -- (5,000,000)
Repurchase of Class A and Class C
Common Stock....................... (12,338,480) (19,489,162) (14,031,590)
Proceeds from exercise of options... 454,249 358,719 223,012
Principal payments under capital
lease obligations.................. (790,064) (672,159) (860,650)
------------- ------------ ------------
Net cash used in financing
activities..................... (34,620,815) (21,127,473) (26,221,933)
------------- ------------ ------------
Net (decrease) increase in cash..... (5,352,316) (989,130) 2,288,846
Cash and cash equivalents at
beginning of year.................. 7,004,744 1,652,428 663,298
------------- ------------ ------------
Cash and cash equivalents at end of
year............................... $ 1,652,428 $ 663,298 $ 2,952,144
============= ============ ============
Supplemental disclosure of cash flow
information........................
Interest paid....................... $ 63,930,212 $ 62,214,784 $ 62,315,437
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Operations of the Company
The business operations of Young Broadcasting Inc. and subsidiaries (the
"Company") consist of eleven network affiliated stations (four with CBS, six
with ABC, and one with NBC), and one independent commercial television
broadcasting station in the states of Michigan, Wisconsin, Louisiana, Illinois,
Tennessee, New York, Virginia, Iowa, South Dakota and California, and a
national television sales representation firm.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of
Young Broadcasting Inc., its wholly-owned subsidiaries and three partnerships.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Concentration of Credit Risk
The Company provides advertising air time to national, regional and local
advertisers within the geographic areas in which the Company operates. Credit
is extended based on an evaluation of the customer's financial condition, and
advance payment is not generally required. Credit losses are provided for in
the consolidated financial statements and have consistently been within
management's expectations.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The principal areas of judgment relate to the allowance for
doubtful accounts and the realizability of program license rights. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Program License Rights
Program license rights are stated at cost, less accumulated amortization.
Program license rights acquired as part of a station acquisition are recorded
at their appraised value. Program rights with lives greater than one year, and
when the Company has the right to multiple showings, are amortized using an
accelerated method. Program rights expected to be amortized in the succeeding
year and amounts payable within one year are classified as current assets and
liabilities, respectively. Program rights with lives of one year or less are
amortized on a straight-line basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Equipment under capital leases is stated at the present value of the future
minimum lease payments at the inception of the lease, less accumulated
depreciation. Major renewals and improvements are charged to the property and
equipment accounts. Maintenance and repairs which do not improve or extend the
lives of the respective assets are expensed as incurred.
39
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Depreciation and amortization of property and equipment are calculated on
the straight-line basis over the estimated useful lives of the assets.
Equipment held under capital leases is generally amortized on a straight-line
basis over the shorter of the lease term or estimated useful life of the asset.
The estimated useful lives of depreciable assets are as follows:
<TABLE>
<CAPTION>
Estimated
Classification Useful Lives
-------------- ------------
<S> <C>
Land improvements............................................... 5-19 years
Buildings and building improvements............................. 5-40 years
Broadcast equipment............................................. 3-10 years
Office furniture, fixtures and other equipment.................. 5-8 years
Vehicles........................................................ 3-5 years
</TABLE>
Property and equipment at December 31, 1998 and 1999 consist of the
following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(in thousands)
-----------------
<S> <C> <C>
Land and land improvements................................ $ 8,035 $ 8,280
Buildings and building improvements....................... 37,726 38,099
Broadcast equipment....................................... 158,496 172,826
Office furniture, fixtures and other equipment............ 10,702 8,222
Vehicles.................................................. 4,535 5,070
-------- --------
$219,494 $232,497
======== ========
</TABLE>
Broadcasting Licenses and Other Intangibles
Intangible assets, which include broadcasting licenses, network affiliation
agreements, and other intangibles are carried on the basis of cost, less
accumulated amortization. Cost is based upon appraisals. Intangible assets are
amortized over varying periods, not exceeding 40 years. It is the Company's
policy to account for broadcasting licenses and other intangibles at the lower
of amortized cost or estimated realizable value. As part of an ongoing review
of the valuation and amortization of broadcasting licenses and other
intangibles of the Company and its subsidiaries, management assesses the
carrying value of the broadcasting licenses and other intangibles if facts and
circumstances suggest that there may be impairment. If this review indicates
that the broadcasting licenses and other intangibles will not be recoverable as
determined by a non-discounted cash flow analysis of the operating assets over
the remaining amortization period, the carrying value of the broadcasting
licenses and other intangibles would be reduced to estimated fair value.
Deferred Charges
Deferred charges incurred during 1997 consisted primarily of debt issuance
costs incurred in connection with the Company's 8 3/4% Senior Subordinated
Notes issued on June 23, 1997 (see Note 6), and an amendment to its Senior
Credit Facility (see Note 5). As a result of the amendment, approximately $9.2
million of net deferred charges incurred in 1996 were expensed in 1997 and
included as part of the extraordinary item in the accompanying statements of
operations.
Revenue
The Company's primary source of revenue is the sale of television time to
advertisers. Revenue is recorded when the advertisements are broadcast.
40
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Barter Arrangements
The Company, in the ordinary course of business, provides advertising air
time to certain customers in exchange for products or services. Barter
transactions are recorded on the basis of the estimated fair market value of
the products or services received. Revenue is recognized as the related
advertising is broadcast and expenses are recognized when the merchandise or
services are consumed or utilized. Barter revenue transactions related to the
purchase of equipment amounted to approximately $681,000, $203,000 and $228,000
in 1997, 1998 and 1999, respectively, and are depreciated in accordance with
Company policy as stated above. The Company has entered into barter agreements
with program syndicators for television programs with an estimated fair market
value, recorded as assets and liabilities at December 31, 1998 and 1999, of
$2.5 million and $2.7 million, respectively.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return and separate state tax returns. In addition, partnership returns are
filed for its three general partnerships. Since the partners are all
participants in the consolidation, all partnership income or losses are
ultimately included in the consolidated federal income tax return. The future
utilization of a significant portion of the Company's net operating losses for
federal income tax purposes is subject to an annual limitation (see Note 8).
3. Acquisition and Pending Sale of Stations
On November 16, 1999, the Company entered into an agreement to acquire 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 will pay CPC $650 million in cash plus up to
approximately 3.9 million shares of the Company's Class A Common Stock, subject
to adjustment. This acquisition will be accounted for as a purchase and is
expected to close sometime in the second or third quarter of 2000.
On September 30, 1999, the Company entered into an agreement with Television
Wisconsin, Inc. of Madison, Wisconsin, to sell WKBT-TV in LaCrosse, Wisconsin
for approximately $24.5 million. The operating results of WKBT are included in
the Company's consolidated results of operations.
The following unaudited pro forma information gives effect to the
acquisition of KRON and BayTV as if it had been effected on January 1, 1999.
The pro forma information for the year ended December 31, 1999 does not purport
to represent what the Company's results of operation would have been if such
transactions had been effected at such dates and do not purport to project
results of operations of the Company in any future period.
<TABLE>
<CAPTION>
Actual Pro Forma
December 31, 1999 December 31, 1999
----------------- -----------------
(dollars in thousands,
except per share data)
<S> <C> <C>
Net operating revenue....................... $280,659 $410,809
Operating income............................ 42,683 69,450
Net loss.................................... $(21,542) $(54,271)
Basic loss per common share................. $ (1.59) $ (3.11)
</TABLE>
The Company did not include estimated cost savings relating to, among other
things labor, benefits, programming costs, National representation fees,
advertising, promotion and other costs of approximately $16.0 million in the
table above. If such cost savings had been included, the adjusted Pro Forma
Operating income for December 31, 1999 would have been $85.5 million.
4. Program License Rights and Liability
The Company entered into agreements for program license rights which became
available in 1998 and 1999 of approximately $28.9 million and $59.7 million,
respectively.
41
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On June 16, 1998, the Company entered into a new long-term agreement with
the Los Angeles Lakers ("Lakers") with broadcast rights through the 2004/2005
season. Under the terms of the seven year deal, KCAL-TV, Los Angeles,
California, a wholly-owned subsidiary of the Company, will broadcast 41 Lakers
pre-season and regular season away games annually. Additionally, KCAL-TV
obtained the broadcast rights to all post-season away games not subject to
NBA/network commitments. KCAL-TV also obtained the exclusive sales rights and
control over broadcast, production and inventory activities. The Company paid
an initial rights fee of $30 million on August 14, 1998, which was recorded as
a deposit in the accompanying consolidated financial statements. The Company
will pay an additional $18.0 million per season. In the event that all 41 games
are not made available to KCAL-TV or are canceled, the Company will receive a
per game credit.
The unpaid program license liability, which is reflected in the December 31,
1999 balance sheet, is payable during each of the years subsequent to 1999 as
follows: 2000, $24.4 million; 2001, $997,000; $449,000 in 2002; and $91,000 in
2003.
The obligation for programming that has been contracted for, but not
recorded in the accompanying balance sheets because the program rights were not
currently available for airing aggregated approximately $19.8 million at
December 31, 1999.
5. Long-Term Debt
Long-term debt (excluding Senior Subordinated Notes) at December 31, 1998
and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(dollars in thousands)
<S> <C> <C>
Senior Credit Facility................................. $85,000 $79,000
Nationwide Seller Note................................. 914 --
----------- -----------
Total long-term debt................................. 85,914 79,000
Less:
Scheduled current maturities......................... 914 --
----------- -----------
Long-term debt excluding all current installments...... $85,000 $79,000
=========== ===========
</TABLE>
At December 31, 1999, the Company had outstanding borrowings of $79.0
million under the Revolver, which approximates its fair value as its interest
rate floats with market conditions. The Company pays an annual commitment fee
of 0.375% of the unused commitment.
The Senior Credit Facility provides, at the option of the Company, that
borrowed funds bear interest based upon the bank's base rate, London Interbank
Offered Rate (LIBOR), the customary "CD Rate" or "Base Rate." In addition to
the index rate, the Company pays a floating percentage on borrowings under the
Revolver tied to the interest rate option and the Company's ratio of total debt
to operating cash flow, ranging from 0.75% based upon a ratio under 4:1 to
2.00% based upon a 6:1 or greater ratio. For the year ended December 31, 1999,
this floating percentage was 1.75%. At December 31, 1999, the effective
interest rate for amounts outstanding under the Senior Credit Facility was
8.07%.
The Senior Credit Facility contains, among other things, limitations on
dividends and investments, and requires the Company to maintain certain
financial ratios. At December 31, 1999, the Company was in compliance with all
such covenants. The Senior Credit Facility is secured by a pledge of all the
stock of the Company's subsidiaries and a first priority lien on substantially
all of the assets of the Company. Each of the Company's subsidiaries guarantee
the obligations under the Senior Credit Facility.
42
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Senior Subordinated Notes
Senior Subordinated Notes at December 31, 1998 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
11.75% Senior Subordinated Notes.............................. $120,000 $120,000
10.125% Senior Subordinated Notes............................. 125,000 120,000
9% Senior Subordinated Notes.................................. 125,000 125,000
8.75% Senior Subordinated Notes............................... 200,000 200,000
-------- --------
Total Senior Subordinated Notes............................. $570,000 $565,000
======== ========
</TABLE>
On November 14, 1994, the Company issued 11 3/4% Senior Subordinated Notes
due 2004 with an aggregate principal amount of $120.0 million (the "November
1994 Notes"). Interest on the November 1994 Notes is payable semi-annually on
May 15 and November 15. The November 1994 Notes are redeemable, in whole or in
part, at the option of the Company on or after November 15, 1999, at the
redemption prices set forth in the Senior Subordinated Note Indenture
("Indenture") pursuant to which the November 1994 Notes were issued plus
accrued interest to the date of redemption.
On June 12, 1995, the Company issued 10 1/8% Senior Subordinated Notes due
2005 with an aggregate principal amount of $125.0 million (the "June 1995
Notes"). Interest on the June 1995 Notes is payable semi-annually on February
15 and August 15. 1995. The June 1995 Notes are redeemable, in whole or in
part, at the option of the Company on or after February 15, 2000, at the
redemption prices set forth in the Indenture pursuant to which the June 1995
Notes were issued plus accrued interest to the date of redemption. On August
17, 1999, the Company purchased $5 million of outstanding 10 1/8% Senior
Subordinated Notes through JP Morgan Securities at 103 3/8 or $5.2 million.
On January 16, 1996, the Company issued 9% Senior Subordinated Notes due
2006 with an aggregate principal amount of $125.0 million (the "January 1996
Notes"). Interest on the January 1996 Notes is payable semi-annually on January
15 and July 15. The January 1996 Notes are redeemable, in whole or in part, at
the option of the Company on or after January 15, 2001, at the redemption
prices set forth in the Indenture, pursuant to which the January 1996 Notes
were issued, plus accrued interest to the date of redemption.
On June 23, 1997, the Company issued 8 3/4% Senior subordinated Notes due
2007 with an aggregate principal amount of $200.0 million (the "June 1997
Notes"). Interest on the June 1997 Notes is payable semi-annually on June 15th
and December 15th. The June 1997 Notes are redeemable, in whole or in part, at
the option of the Company on or after June 15, 2002, at the redemption prices
set forth in the Indenture, pursuant to which the June 1997 Notes were issued,
plus accrued interest to the date of redemption. In addition, at anytime before
June 15, 2000, the Company, at its option, may redeem up to $67 million of the
June 1997 Notes, with the net proceeds of one or more public equity offerings,
at a redemption price equal to 108 3/4% of the principal amount thereof, plus
accrued interest to the date of redemption.
The Company's November 1994 Notes, June 1995 Notes, January 1996 Notes, and
June 1997 Notes (collectively the "Notes") are general unsecured obligations of
the Company and subordinated in right of payment to all senior debt, including
all indebtedness of the Company under the Senior Credit Facility. The Notes are
guaranteed, jointly and severally, on a senior subordinated unsecured basis by
all of the Company's subsidiaries.
Upon a change of control, each holder of the Notes will have the right to
require the Company to repurchase such holder's Notes at a price equal to 101%
of their principal amount plus accrued interest to the
43
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
date of repurchase. In addition, the Company will be obligated to offer to
repurchase Notes at 100% of their principal amount plus accrued interest to the
date of repurchase in the event of certain asset sales.
At December 31, 1999, the November 1994 Notes, June 1995 Notes, January 1996
Notes, and the June 1997 Notes were trading in the public market with ask
prices of 104.4, 102.0, 96.0 and 95.0, respectively.
7. Stockholders' Equity
Common Stock
The Company's stockholders' equity consists of three classes of common stock
designated Class A, Class B and Class C which are substantially identical
except for voting rights. The holders of Class A Common Stock are entitled to
one vote per share. Holders of Class B Common Stock are entitled to ten votes
per share. Holders of Class C Common Stock are not entitled to vote. Holders of
all classes of Common Stock entitled to vote will vote together as a single
class. Holders of Class C Common Stock may at any time convert their shares
into the same number of shares of Class A Common Stock. At December 31, 1999,
there were no holders of Class C Common Stock outstanding.
Ownership of Class B Common Stock is restricted to members of management and
by, or in trust for, family members of management ("Management Group"). In the
event that any shares of Class B Common Stock held by a member of the
Management Group are transferred outside of the Management Group, such shares
will automatically be converted into shares of Class A Common Stock. In
addition, if the total number of shares of Common Stock held by members of the
Management Group falls below 5% of the total number of shares of Common Stock
outstanding, all of the outstanding shares of Class B Common Stock
automatically will be reclassified as Class A Common Stock.
In any merger, consolidation or business combination, the consideration to
be received per share by holders of Class A and Class C Common Stock must be
identical to that received by holders of Class B Common Stock.
The terms of the Senior Credit Facility and the Indentures relating to the
Company's outstanding Senior Subordinated Notes (the "Indentures") restrict the
Company's ability to pay cash dividends on its Common Stock. Under the
Indentures, the Company is not permitted to pay any dividends on its Common
Stock unless at the time of, and immediately after giving effect to the
dividend, no default would result under the Indentures and the Company would
continue to have the ability to incur indebtedness. In addition, under the
Indentures, dividends may not exceed an amount equal to the Company's cash flow
less a multiple of the Company's interest expense, plus the net proceeds of the
sale by the Company of additional capital stock.
The Company regularly contributed Class A Common Stock into its defined
contribution plan (see Note 9) for the years ended 1997, 1998, and 1999.
Stock Option Plans
On May 22, 1995, the Company adopted the Young Broadcasting Inc. 1995 Stock
Option Plan ("1995 Stock Option Plan").
The 1995 Stock Option Plan was adopted to provide incentives for independent
directors, officers and employees. It may be administered by either the entire
Board of Directors of the Company or a committee consisting of two or more
members of the Board, each of whom is a non-employee director. The Board of
Directors or committee, as the case may be, is to determine, among other
things, the recipients of grants,
44
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
whether a grant will consist of incentive stock options ("ISOs"), non-qualified
stock options or stock appreciation rights ("SARs") (in tandem with an option
or free-standing) or a combination thereof, and the number of shares to be
subject to such options. ISOs may be granted only to officers and key employees
of the Company and its subsidiaries. Non-qualified stock options and SARs may
be granted to such officers and employees as well as to agents and directors of
and consultants to the Company, whether or not otherwise employees of the
Company.
The 1995 Stock Option Plan provides for the granting of ISOs to purchase the
Company's Common Stock at not less than the fair market value on the date of
the option grant and the granting of non-qualified options and SARs with any
exercise price. SARs granted in tandem with an option have the same exercise
price as the related option. The total number of shares with respect to which
options and SARs may be granted under the 1995 Stock Option Plan is currently
2,300,000. As of December 31, 1999, non-qualified and incentive stock options
for an aggregate of 1,858,353 shares at various prices from $19.75 to $61.20
have been granted to various individuals, including various executive officers.
The 1995 Stock Option Plan contains certain limitations applicable only to ISOs
granted thereunder. To the extent that the aggregate fair market value, as of
the date of grant, of the shares to which ISOs become exercisable for the first
time by an optionee during the calendar year exceed $100,000, the option will
be treated as a non-qualified option. In addition, if an optionee owns more
than 10% of the total voting power of all classes of the Company's stock at the
time the individual is granted an ISO, the option price per share cannot be
less than 110% of the fair market value per share and the term of the ISO
cannot exceed five years. No option or SAR may be granted under the Stock
Option Plan after February 5, 2005, and no option may be outstanding for more
than ten years after its grant.
On August 3, 1999, the Board of Directors extended the expiration date of
596,188 stock options issued in 1994 and 1995 to directors, officers and
employees. The original option agreements were to expire in 1999 and 2000. The
new option agreements are extended by ten years until 2009. As a result of this
modification to these stock option agreements, the Company recorded a non-cash
compensation charge of $18.3 million in the third quarter of 1999.
Those directors who are not also employees of the Company receive an annual
retainer as fixed by the Board of Directors, which may be in the form of cash
or stock options, or a combination of both, and also receive reimbursement of
out-of-pocket expenses incurred for each Board or committee meeting attended.
Non-employee directors also receive, upon becoming a director, a five-year
option to purchase up to 1,000 shares of Class A Common Stock at an exercise
price equal to 120% of the quoted price on the date of grant. No other
directors are compensated for services as a director.
Under the 1995 Stock Option Plan for the year ended December 31, 1999,
independent directors, officers and employees were not granted options to
purchase the Company's stock at less than the fair market value on the date of
the option grant. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No.123, ("SFAS No. 123")
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plan been determined based on the fair market value at
the grant date for awards in 1997, 1998, and 1999 consistent with the
provisions of SFAS No. 123, the Company's net (loss) income and (loss) income
per share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------ --------
(dollars in thousands,
except per share data)
<S> <C> <C> <C>
Net (loss) income--as reported.................. $(10,349) $3,999 $(21,542)
Net (loss) income--pro forma.................... $(12,531) $1,048 $(23,892)
Net (loss) income per basic common share--as
reported....................................... $ (0.74) $ 0.28 $ (1.59)
Net (loss) income per basic common share--pro
forma.......................................... $ (0.90) $ 0.07 $ (1.76)
</TABLE>
45
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years. The
fair value for these options was estimated at the date of grant using the
Black-Scholes model with the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield.............................................. 0%
Expected stock price volatility...................................... 25%
Risk-free interest rate:
1997............................................................... 5.80%
1998............................................................... 5.04%
1999............................................................... 6.66%
Expected life of options............................................. 5 years
</TABLE>
The weighted average fair value of options granted during 1997, 1998, and
1999 was $11.58, $14.20 and $17.19 respectively.
Changes during 1997, 1998 and 1999 in stock options are summarized below:
<TABLE>
<CAPTION>
Stock Options Weighted Average
Outstanding Exercise Price
------------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997................... 1,115,788 $24.45
Granted........................................ 246,657 36.16
Granted........................................ 13,790 39.88
Exercised...................................... (23,000) 19.81
--------- ------
Outstanding at December 31, 1997................. 1,353,235 26.83
Granted........................................ 130,792 26.83
Exercised...................................... (16,750) 21.42
Forfeited...................................... (2,907) 33.67
--------- ------
Outstanding at December 31, 1998................. 1,464,370 $28.25
Granted........................................ 405,500 25.18
Exercised...................................... (10,987) 20.29
Forfeited...................................... (530) 41.71
--------- ------
Outstanding at December 31, 1999................. 1,858,353 $27.59
========= ======
</TABLE>
Options for 775,563 shares, 920,755 shares, and 1,200,633 shares were
exercisable at December 31, 1997, 1998, and 1999, respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1999 Life Price 1999 Price
- --------------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$19.75-$21.73 589,564 9.5 19.80 589,564 19.80
$24.50-$26.95 395,500 8.8 24.63 98,880 24.70
$28.00-$33.83 513,850 7.0 30.74 358,853 30.77
$34.00-$39.875 237,447 7.7 36.58 113,014 36.59
$43.50-$61.20 121,992 8.3 44.25 40,322 45.76
--------- ---- ----- --------- -----
1,858,353 7.75 27.59 1,200,633 25.92
========= ==== ===== ========= =====
</TABLE>
46
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
At December 31, 1999, the Company has reserved 51,392 shares of its Class A
Common Stock and 1,806,961 shares of Class B Common Stock in connection with
stock options.
Stock Repurchases
During April and May of 1997, the Company repurchased 459,000 shares of its
Class A Common Stock in open-market purchases pursuant to a stock repurchase
program for an aggregate price of approximately $12.3 million.
During September and October of 1998, the Company repurchased 552,800 shares
of its Class A Common stock in open-market purchases pursuant to a stock
repurchase program for an aggregate price of approximately $19.5 million.
During February and June 1999, the Company repurchased 348,400 shares of its
Class A Common Stock in open market purchases pursuant to a stock repurchase
program for an aggregate price of approximately $14.0 million.
8. Income Taxes
At December 31, 1999, the Company had net operating loss ("NOL")
carryforwards for tax purposes of approximately $210.0 million expiring at
various dates through 2019. The availability of NOL carryforwards to offset
future income is subject to annual limitations imposed by Internal Revenue Code
Section 382 as a result of successive ownership changes.
These limitations are summarized as follows:
<TABLE>
<CAPTION>
NOL Carryforwards Annual Usage Limitation
----------------- -----------------------
<S> <C>
$129 million $ 8.9 million
54 million $20.9 million
27 million No limit
---------------
$210 million
---------------
---------------
</TABLE>
The amount of NOL carryforwards available to offset income in 1999 is
approximately $73.0 million based upon carryforwards of annual limitations and
NOLs with no limitations. To the extent that an annual NOL limitation is not
used, it carries and accumulates forward to future years.
47
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Stock Option Compensation Accrued................ $ -- $ 7,640,624
Accounts Receivable.............................. 804,800 812,805
Other............................................ 58,392 58,392
Net Operating Loss Carryforwards................. 83,467,477 84,802,263
Less: Valuation Allowance for Deferred Tax
Assets.......................................... (51,249,179) (59,517,704)
------------ ------------
Total Deferred Tax Assets...................... 33,081,490 33,796,380
------------ ------------
Deferred Tax Liabilities:
Fixed Assets..................................... 6,155,957 1,708,512
Intangibles...................................... 98,326,225 103,488,560
Other............................................ 49,581 49,581
------------ ------------
Total Deferred Tax Liabilities................. 104,531,763 105,246,653
------------ ------------
Net Deferred Tax Liability..................... (71,450,273) (71,450,273)
============ ============
</TABLE>
9. Employee Benefit Plans
The Company sponsors defined contribution plans ("Plan") which provide
retirement benefits for all eligible employees. The Plan participants may make
pretax contributions from their salaries up to the maximum allowed by the
Internal Revenue Code.
On January 1, 1997, the Company adopted and established a matching stock
plan ("Matching Plan"). According to the Matching Plan, the Company will
contribute one-half of every dollar a participant contributes, up to the first
3% of the participant's pay.
For the years ended December 31, 1997, 1998 and 1999, the Company paid and
accrued matching contributions (30,817; 25,243 and 21,545 shares of Class A
Common Stock, respectively) equal to 3% of eligible employee compensation,
amounting to $967,000, $1,146,000 and $811,000, respectively. The Company
effected such contributions by issuing shares on a quarterly basis. The fourth
quarter of 1999 was issued on January 10, 2000.
10. Commitments and Contingencies
The Company is obligated under various capital leases for certain broadcast
equipment, office furniture, fixtures and other equipment that expire at
various dates during the next seven years. At December 31, 1998 and 1999, the
net amount of property and equipment recorded under capital leases was $531,000
and $5,691,000, respectively. Amortization of assets held under capital leases
is included with depreciation and amortization of property and equipment.
The Company also has certain non-cancelable operating leases, primarily for
administrative offices, broadcast equipment and vehicles that expire over the
next five years. These leases generally contain renewal options for periods of
up to five years and require the Company to pay all costs such as maintenance
and insurance.
48
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and the present value
of future minimum capital lease payments as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
(dollars in thousands)
<S> <C> <C>
Year ending December 31:
2000......................................... $ 924 $ 4,522
2001......................................... 989 4,424
2002......................................... 1,016 3,135
2003......................................... 1,051 2,987
2004......................................... 1,854 2,476
Thereafter................................... 676 3,857
------ -------
Total minimum lease payments............... $6,510 $21,401
====== =======
</TABLE>
11. Related Party Transactions
The aggregate amount of loans outstanding, made to certain executive
officers and other employees of the Company, including accrued interest at
December 31, 1999 was approximately $375,000. The principal amount of the loans
will bear interest, payable annually, at the rate of 7.21%.
On November 8, 1995, the Board of Directors approved a loan forgiveness
program (the "Loan Forgiveness Program") for the payment that was due on
November 15, 1995 and the payments due in subsequent years. Under this program,
participants who choose to participate will have their annual installments
forgiven over the year following the scheduled payment date at the rate of one-
twelfth per month, as long as the employee continues to be employed by the
Company.
12. Quarterly Financial Data (Unaudited)
The following summarizes the Company's results of operations for each
quarter of 1999 and 1998 (in thousands, except per share amounts). The (loss)
income per common share computation for each quarter and the year are separate
calculations. Accordingly, the sum of the quarterly (loss) income per common
share amounts may not equal the (loss) income per common share for the year.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1999
Net revenues........... $ 63,247 $ 73,704 $ 64,190 $ 79,518
Operating income
(loss)................ 8,192 18,512 (5,380) 21,359
Net (loss) income...... (7,743) 2,606 (21,607) 5,202
Net (loss) income per
common share:
Basic................ $ (0.56) $ 0.19 $ (1.60) $ 0.39
Diluted.............. $ (0.56) $ 0.18 $ (1.60) $ 0.39
1998
Net revenues........... $ 64,581 $ 77,246 $ 62,944 $ 72,281
Operating income....... 8,615 23,114 12,822 22,853
Net (loss) income...... (7,335) 7,809 (3,452) 6,977
Net (loss) income per
common share:
Basic................ $ (0.52) $ 0.54 $ (0.24) $ 0.51
Diluted.............. $ (0.52) $ 0.52 $ (0.24) $ 0.49
</TABLE>
Quarterly depreciation and amortization is provided based on estimates.
49
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YOUNG BROADCASTING INC.
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ---------------------------- ------------- ----------
Additions
-------------------------------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts(1) Deductions(2) Period
----------- ---------- ---------- ----------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $2,210,000 323,000 -- 661,000 $1,872,000
Year ended December 31,
1998:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $1,872,000 488,000 52,000 400,000 $2,012,000
Year ended December 31,
1999
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $2,012,000 377,000 -- 628,000 $1,761,000
</TABLE>
- --------
(1) Amount relates to merger of Adam Young Inc.
(2) Write-off of uncollectible accounts.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information called for by Item 10 is set forth under the heading "Executive
Officers of the Registrant" at the end of Part I hereof and in "Proposal to
Elect Directors" and "Young's Directors and Executive Officers" in the
Company's Joint Proxy Statement/Prospectus relating to the Special Meeting in
lieu of the 2000 Annual Meeting of Stockholders included as part of the
Company's Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on February 25, 2000 (the "2000 Proxy Statement"), which is
incorporated herein by this reference.
Item 11. Executive Compensation.
Information called for by Item 11 is set forth under the heading "Executive
Compensation" in the 2000 Proxy Statement, which is incorporated herein by this
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information called for by Item 12 is set forth under the heading "Young's
Principal Stockholders" in the 2000 Proxy Statement, which is incorporated
herein by this reference.
Item 13. Certain Relationships and Related Transactions.
Information called for by Item 13 is set forth under the heading "Certain
Transactions" in the 2000 Proxy Statement, which is incorporated herein by this
reference.
50
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial statements and the schedule filed as a part of this report are
listed on the "Index to Consolidated Financial Statements" at page 35 herein.
All other schedules are omitted because either (i) they are not required under
the instructions, (ii) they are inapplicable, or (iii) the information is
included in the Consolidated Financial Statements.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of the year ended December 31, 1999.
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 15, 1999, among
Young Broadcasting Inc. and the Chronicle Publishing Company+
3.1(a) Restated Certificate of Incorporation of the Company*
3.1(b) Certificate of Amendment to Restated Certificate of Incorporation of
the Company**
3.1(c) Certificate of Amendment to Restated Certificate of Incorporation of
the Company***
3.2 Second Amended and Restated By-laws of the Company*
3.3 Certificate of Incorporation of Young Broadcasting of La Crosse, Inc.*
3.4 By-laws of Young Broadcasting of La Crosse, Inc.*
3.5 Certificate of Incorporation of Young Broadcasting of Lansing, Inc.*
3.6 By-laws of Young Broadcasting of Lansing, Inc.*
3.7 Certificate of Incorporation of Young Broadcasting of Albany, Inc.*
3.8 By-laws of Young Broadcasting of Albany, Inc.*
3.9 Certificate of Incorporation of Winnebago Television Corporation*
3.10 By-laws of Winnebago Television Corporation*
3.11 Certificate of Incorporation of Young Broadcasting of Nashville, Inc.*
3.12 By-laws of Young Broadcasting of Nashville, Inc.*
3.13 Certificate of Incorporation of YBT, Inc.*
3.14 By-laws of YBT, Inc.*
3.15 Certificate of Limited Partnership of WKRN, L.P.*
3.16 Agreement of Limited Partnership of WKRN, L.P.*
3.17 Certificate of Incorporation of Young Broadcasting of Louisiana, Inc.*
3.18 By-laws of Young Broadcasting of Louisiana, Inc.*
3.19 Certificate of Incorporation of LAT, Inc.*
3.20 By-laws of LAT, Inc.*
3.21 Certificate of Limited Partnership of KLFY, L.P.*
3.22 Agreement of Limited Partnership of KLFY, L.P.*
3.23 Certificate of Incorporation of Young Broadcasting of Knoxville, Inc.*
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
3.24 By-laws of Young Broadcasting of Knoxville, Inc.*
3.25 Certificate of Incorporation of YBK, Inc.*
3.26 By-laws of YBK, Inc.*
3.27 Certificate of Limited Partnership of WATE, L.P.*
3.28 Agreement of Limited Partnership of WATE, L.P.*
3.29 Certificate of Incorporation of Young Broadcasting of Richmond, Inc.*
3.30 By-laws of Young Broadcasting of Richmond, Inc.*
3.31 Certificate of Incorporation of Young Broadcasting of Green Bay, Inc.*
3.32 By-laws of Young Broadcasting of Green Bay, Inc.*
3.33 Certificate of Incorporation of Young Broadcasting of Davenport,
Inc.**
3.34 By-laws of Young Broadcasting of Davenport, Inc.**
3.35 Certificate of Incorporation of Young Broadcasting of Sioux Falls,
Inc.****
3.36 By-laws of Young Broadcasting of Sioux Falls, Inc.****
3.37 Certificate of Incorporation of Young Broadcasting of Rapid City,
Inc.****
3.38 By-laws of Young Broadcasting of Rapid City, Inc.****
3.39 Certificate of Incorporation of Young Broadcasting of Los Angeles,
Inc.****
3.40 By-laws of Young Broadcasting of Los Angeles, Inc.****
3.41 Certificate of Incorporation of Fidelity Television, Inc.****
3.42 By-laws of Fidelity Television, Inc.****
9.1(a) Voting Trust Agreement, dated July 1, 1991, between Adam Young, and
Vincent Young and Richard Young as trustees*
9.1(b) Amendment No. 1, dated as of July 22, 1994, to Voting Trust Agreement*
9.1(c) Amendment No. 2, dated as of April 12, 1995, to Voting Trust
Agreement**
9.1(d) Amendment No. 3, dated as of July 5, 1995, to Voting Trust Agreement**
9.1(e) Amendment No. 4, dated as of September 11, 1996, to Voting Trust
Agreement****
9.1(f) Amendment No. 5, dated as of January 21, 1997, to Voting Trust
Agreement****
9.1(g) Voting Trust Agreement, dated October 1, 1996, between Adam Young, and
Vincent Young as trustee****
10.1 Subscription and Shareholders Agreement, dated May 26, 1988, between
the Company and Ronald J. Kwasnick*
10.2(a) Employment Agreement, dated as of March 1, 1993, between the Company
and James A. Morgan*
10.2(b) Amendment, dated as of March 27, 1995, effective as of February 15,
1995, to Employment Agreement, dated as of March 1, 1993, between the
Company and James A. Morgan*****
10.3 Operating Agreement, dated December 29, 1989, between WKRN, L.P. and
Young Broadcasting of Nashville, Inc.*
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.4 Operating Agreement, dated December 29, 1989, between KLFY, L.P. and
Young Broadcasting of Louisiana, Inc.*
10.5 Operating Agreement between WATE, L.P. and Young Broadcasting of
Knoxville, Inc.*
10.6 Agreement, dated July 1, 1991, between Adam Young Inc. and Young
Broadcasting of Albany, Inc. (Agreement filed hereunder is
representative of five other substantially similar agreements. See
Schedule filed with this Exhibit)*
10.7 Affiliation Agreements, each dated October 10, 1994, between Young
Broadcasting of Albany, Inc. and ABC (for WTEN and WCDC)*
10.8 Affiliation Agreement, dated October 10, 1994, between WKRN, L.P. and
ABC*
10.9 Affiliation Agreement, dated September 19, 1994, between Young
Broadcasting of La Crosse, Inc. and CBS*
10.10 Affiliation Agreement, dated September 19, 1994, between KLFY, L.P.
and CBS*
10.11 Affiliation Agreement, dated May 17, 1995, between Winnebago
Television Corporation and ABC**
10.12 Affiliation Agreement, dated September 19, 1994, between Young
Broadcasting of Lansing, Inc. and CBS*
10.13 Affiliation Agreement, dated October 10, 1994, between Young
Broadcasting of Richmond, Inc. and ABC*
10.14 Affiliation Agreement, dated October 10, 1994, between WATE, L.P. and
ABC*
10.15 Affiliation Agreement, dated October 10, 1994, between Young
Broadcasting of Green Bay, Inc. and ABC*
10.16 Affiliation Agreement, dated February 3, 1995, between Broad Street
Television, L.P. and NBC**
10.17 Affiliation Agreement, dated April 3, 1996, between Young
Broadcasting of Sioux Falls, Inc. and CBS (KELO); Affiliation
Agreements (satellite), each dated April 3, 1996, between Young
Broadcasting of Sioux Falls, Inc. and CBS (KPLO and KDLO); and
Affiliation Agreement, dated April 3, 1996, between Young
Broadcasting of Rapid City, Inc. and CBS (KCLO)******
10.18(a) Lease, dated March 29, 1990, between Lexreal Associates, as Landlord,
and the Company*
10.18(b) First Amendment to Lease, dated January 14, 1997****
10.19(a) Master Equipment Lease Agreement, dated May 31, 1990, between First
Chicago Leasing Corporation and Young Broadcasting of Albany, Inc.*
10.19(b) Lease Supplement No. 1, dated May 31, 1990*
10.19(c) Lease Supplement No. 2, dated August 24, 1990*
10.19(d) Guaranty of the Company*
10.20(a) Master Equipment Lease Agreement, dated May 31, 1990, between First
Chicago Leasing Corporation and Young Broadcasting of Nashville,
Inc.*
10.20(b) Supplement No. 1, dated May 31, 1990*
10.20(c) Supplement No. 2, dated August 24, 1990*
10.20(d) Guaranty of the Company*
10.21 Credit Agreement for the Senior Credit Facility********
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.22 Asset Purchase and Sale Agreement, dated as of July 31, 1995, between
the Company and Broad Street Television, L.P. (schedules omitted;
Registrant agrees to furnish supplementally a copy of any schedule to
the Commission upon request)**
10.23 Asset Purchase and Sale Agreement, dated as of January 11, 1996,
between the Company and Midcontinent Television of South Dakota, Inc.
(schedules omitted; Registrant agrees to furnish supplementally a copy
of any schedule to the Commission upon request)*******
10.24 Acquisition Agreement, dated as of May 10, 1996, among the Company,
KCAL Broadcasting, Inc., KCAL-TV, Inc. and Disney Enterprises, Inc.
(schedules omitted; Registrant agrees to furnish supplementally a copy
of any schedule to the Commission upon request)******
10.25 Agreement and Plan of Merger, dated as of February 5, 1998, among the
Company, AYI Acquisition Corporation, and Adam Young Inc. and its
shareholders********
10.26 Subscription Agreement, dated October 10, 1994, between ABC and the
Company with the form of Warrant to be issued to ABC and the form of
Registration Rights Agreement attached thereto*
10.27 Indenture, dated November 14, 1994, among the Company, the Subsidiary
Guarantors and The First National Bank of Boston, as Trustee, relating
to the November 1994 Notes*
10.28 Indenture, dated June 1, 1995, among the Company, the Subsidiary
Guarantors and The First National Bank of Boston, as Trustee, relating
to the June 1995 Notes**
10.29 Indenture, dated January 1, 1996, among the Company, the Subsidiary
Guarantors and State Street Bank and Trust Company, as Trustee,
relating to the January 1996 Notes*******
10.30 Indenture, dated June 15, 1997, among the Company, the Subsidiary
Guarantors and First Union National Bank, as Trustee, relating to the
June 1997 Notes***
10.31 Young Broadcasting Inc. 1995 Stock Option Plan*****
10.32 Purchase Agreement, dated June 6, 1995, among the Company, the
Subsidiary Guarantors and BT Securities Corporation and J.P. Morgan
Securities Inc.**
10.33 Registration Rights Agreement, dated as of June 12, 1995, among the
Company, the Subsidiary Guarantors and BT Securities Corporation and
J.P. Morgan Securities Inc.**
10.34 Purchase Agreement, dated January 6, 1996, among the Company, the
Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities Inc.*******
10.35 Registration Rights Agreement, dated as of June 12, 1995, among the
Company, the Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner &
Smith Incorporated and J.P. Morgan Securities Inc.*******
10.36 Purchase Agreement, dated June 16, 1997, among the Company, the
Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ***
10.37 Registration Rights Agreement, dated June 23, 1997, among the Company,
the Subsidiary Guarantors and Merrill Lynch, Pierce, Fenner & Smith
Incorporated***
11.1 Statement re computation of per share earnings
18.1 Letter of Ernst & Young LLP regarding change in accounting principles*
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
54
<PAGE>
- --------
+ Filed as Annex A to the Joint Proxy Statement/Prospectus included as
part of the Company's Registration Statement on Form S-4 under the
Securities Act of 1933 filed with the SEC on February 25, 2000 and
incorporated herein by reference.
* Filed as an Exhibit to the Company's Registration Statement on Form
S-1, Registration No. 33-83336, under the Securities Act of 1933 and
incorporated herein by reference.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-4, Registration No. 33-94192, under the Securities Act of 1933 and
incorporated herein by reference.
*** Filed as an Exhibit to the Company's Registration Statement on Form
S-4, Registration No. 333-31429, under the Securities Act of 1933 and
incorporated herein by reference.
**** Filed as an Exhibit to the Company's Annual Report Form 10-K for the
fiscal year ended December 31, 1996 under the Securities Exchange Act
of 1934 and incorporated herein by reference.
***** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995 under the Securities
Exchange Act of 1934 and incorporated herein by reference.
****** Filed as an Exhibit to the Company's Registration Statement on Form
S-3, Registration No. 333-06241, under the Securities Act of 1933 and
incorporated herein by reference.
******* Filed as an Exhibit to the Company's Registration Statement on Form
S-4, Registration No. 333-2466, under the Securities Act of 1933 and
incorporated herein by reference.
******** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Exchange
Act of 1934 and incorporated herein by reference.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: February 22, 2000
By /s/ Vincent J. Young
_____________________________________
Vincent J. Young
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Vincent J. Young Chairman and Director February 22, 2000
____________________________________ (principal executive
Vincent J. Young officer)
/s/ Adam Young Treasurer and Director February 22, 2000
____________________________________
Adam Young
/s/ James A. Morgan Executive Vice President, February 22, 2000
____________________________________ Chief Financial Officer
James A. Morgan (principal financial officer
and principal accounting
officer) and Director
/s/ Ronald J. Kwasnick President and Director February 22, 2000
____________________________________
Ronald J. Kwasnick
/s/ Bernard F. Curry Director February 22, 2000
____________________________________
Bernard F. Curry
/s/ Alfred J. Hickey, Jr. Director February 22, 2000
____________________________________
Alfred J. Hickey, Jr.
/s/ Leif Lomo Director February 22, 2000
____________________________________
Leif Lomo
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Winikoff Director February 22, 2000
____________________________________
Robert L. Winikoff
/s/ David C. Lee Director February 22, 2000
____________________________________
David C. Lee
</TABLE>
57
<PAGE>
EXHIBIT 11.1
YOUNG BROADCASTING INC. AND SUBSIDIARIES
RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
Dec. 31, DEC. 31, DEC. 31,
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
SHARES OF COMMON STOCK OUTSTANDING FOR THE ENTIRE
PERIOD....................................................... 14,230,357 13,847,844 13,810,270
ISSUANCE OF 53,487, 22,169 AND 20,866 SHARES OF COMMON STOCK TO
THE COMPANY'S DEFINED CONTRIBUTION PLAN IN 1997, 1998
AND 1999, RESPECTIVELY....................................... 39,798 11,473 12,371
ISSUANCE OF 23,000, 16,750 AND 10,987 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS IN 1997, 1998 AND 1999, RESPECTIVELY 10,304 9,095 7,041
ISSUANCE OF 526,757 SHARES OF COMMON STOCK FOR THE
MERGER OF ADAM YOUNG INC..................................... - 474,803 -
RETIREMENT OF 50,450 SHARES OF COMMON STOCK FOR THE
MERGER OF ADAM YOUNG INC..................................... - (45,474) -
REPURCHASE OF 459,000, 552,800 AND 347,400 SHARES OF COMMON
STOCK UNDER BUYBACK PROGRAM IN 1997, 1998 AND 1999,
RESPECTIVELY................................................. (290,490) (150,219) (241,574)
-------------- ----------- ------------
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING.................................................. 13,989,969 14,147,522 13,588,108
DILUTIVE EFFECT OF 1,550,282 OPTIONS IN 1998 EXPECTED TO BE
EXERCISED UNDER THE TREASURY STOCK METHOD USING THE
WEIGHTED AVERAGE MARKET PRICE OF THE COMPANY'S
SHARES OF COMMON STOCK....................................... - 612,932 -
-------------- ----------- ------------
TOTAL DILUTIVE WEIGHTED AVERAGE SHARES OF COMMON
STOCK FOR THE PERIOD......................................... 13,989,969 14,760,454 13,588,108
-------------- ----------- ------------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM ....................... $ (1,106,269) $ 3,999,029 $(21,542,075)
============== =========== ============
NET (LOSS) INCOME.............................................. $(10,349,397) $ 3,999,029 $(21,542,075)
============== =========== ============
(LOSS) INCOME PER COMMON SHARE :
BASIC
BEFORE EXTRAORDINARY ITEM .................................. $ (0.08) $ 0.28 $ (1.59)
============== =========== ============
NET (LOSS) INCOME........................................... $ (0.74) $ 0.28 $ (1.59)
============== =========== ============
DILUTED
BEFORE EXTRAORDINARY ITEM................................... $ (0.08) $ 0.27 $ (1.59)
============== =========== ============
NET (LOSS) INCOME........................................... $ (0.74) $ 0.27 $ (1.59)
============== =========== ============
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
YOUNG BROADCASTING OF LOUISIANA, INC.
YOUNG BROADCASTING OF LANSING, INC.
YOUNG BROADCASTING OF LA CROSSE, INC.
YOUNG BROADCASTING OF ALBANY, INC.
YOUNG BROADCASTING OF NASHVILLE, INC.
WINNEBAGO TELEVISION CORPORATION
YBT, INC.
LAT, INC.
YOUNG BROADCASTING OF GREEN BAY, INC.
YOUNG BROADCASTING OF KNOXVILLE, INC.
YOUNG BROADCASTING OF RICHMOND, INC.
YBK, INC.
YOUNG BROADCASTING OF DAVENPORT, INC.
YOUNG BROADCASTING OF SIOUX FALLS, INC.
YOUNG BROADCASTING OF RAPID CITY, INC.
YOUNG BROADCASTING OF LOS ANGELES, INC.
FIDELITY TELEVISION, INC.
WKRN, G.P.
KLFY, L.P.
WATE, G.P.
ADAM YOUNG INC.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-8, No. 333-26997) pertaining to the Young
Broadcasting Inc. 1995 Stock Option Plan and Young Broadcasting Inc. 401(k)
Plan and to the incorporation by reference therein of our report dated February
7, 2000, with respect to the consolidated financial statements and schedule of
Young Broadcasting Inc. and subsidiaries included in its Annual Report (Form
10-K) for the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
New York, New York
February 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000929144
<NAME> YOUNG BROADCASTING, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,952
<SECURITIES> 0
<RECEIVABLES> 65,063
<ALLOWANCES> 1,761
<INVENTORY> 0
<CURRENT-ASSETS> 110,377
<PP&E> 232,497
<DEPRECIATION> 144,395
<TOTAL-ASSETS> 818,670
<CURRENT-LIABILITIES> 65,436
<BONDS> 565,000
13
0
<COMMON> 0
<OTHER-SE> 30,659
<TOTAL-LIABILITY-AND-EQUITY> 818,670
<SALES> 0
<TOTAL-REVENUES> 280,659
<CGS> 0
<TOTAL-COSTS> 237,976
<OTHER-EXPENSES> 1,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,981
<INCOME-PRETAX> (21,542)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,542)
<EPS-BASIC> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
