<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file number:
June 30, 2000 0-25042
YOUNG BROADCASTING INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3339681
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
599 Lexington Avenue
New York, New York 10022
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 754-7070
____________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
____________________________
Number of shares of common stock outstanding as of July 31, 2000:
14,745,660 shares of Class A Common Stock and 2,292,637 shares of Class B Common
Stock.
================================================================================
<PAGE>
YOUNG BROADCASTING INC.
FORM 10-Q
Table of Contents
<TABLE>
<CAPTION>
Part I. Page
----
<S> <C>
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000........ 2
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 2000....................................................... 3
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 2000................................................................ 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 2000....................................................... 5
Notes to Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk.................... 17
Part II.
Item 4. Submission of Matters to a Vote of Security Holders.......................... 18
Item 6. Exhibits and Reports on Form 8-K............................................. 19
Signatures.................................................................................. 20
</TABLE>
<PAGE>
Item 1. Financial Statements.
Young Broadcasting Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1999* 2000
-----------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,952,144 $ 4,293,899
Trade accounts receivable, less allowance for doubtful accounts of
$1,761,000 in 1999 and $3,279,000 in 2000 65,438,176 92,665,335
Current portion of program license rights 28,268,497 11,726,996
Prepaid expenses 5,618,444 6,452,191
--------------------------------------
Total current assets 102,277,261 115,138,421
--------------------------------------
Property and equipment, less accumulated depreciation and amortization of
$144,394,626 in 1999 and $142,848,625 in 2000 87,057,414 115,650,524
Program license rights, excluding current portion 1,171,438 785,366
Deposits and other assets 33,850,994 40,703,339
Broadcasting licenses and other intangibles, less accumulated amortization of
$139,260,326 in 1999 and $141,274,723 in 2000 585,266,310 1,245,847,387
Deferred charges, less accumulated amortization of $13,659,344 in 1999 and
$15,320,125 in 2000 9,046,564 33,698,163
--------------------------------------
Total Assets $818,669,981 $1,551,823,200
======================================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 20,545,231 $ 22,965,078
Accrued expenses 19,526,849 29,608,103
Current installments of program license liability 24,440,679 8,145,639
Current installments of obligations under capital leases 923,567 894,582
--------------------------------------
Total current liabilities 65,436,326 61,613,402
Program license liability, excluding current installments 1,538,100 1,057,024
Long-term debt 644,000,000 1,273,647,221
Deferred taxes and other liabilities 77,036,273 83,729,817
--------------------------------------
Total liabilities 788,010,699 1,420,047,464
--------------------------------------
Minority interest - 941,645
Stockholders' equity:
Class A Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and
outstanding 11,142,472 shares at 1999 and 15,107,317 at 2000 11,143 15,108
Class B Common Stock, $.001 par value. Authorized 20,000,000 shares; issued and
outstanding 2,351,251 shares at 1999 and 2,292,637 at 2000 2,351 2,292
Additional paid-in capital 210,859,627 300,411,037
Accumulated deficit (180,213,839) (169,594,346)
--------------------------------------
Total stockholders' equity 30,659,282 130,834,091
--------------------------------------
Total liabilities and stockholders' equity $ 818,669,981 $1,551,823,200
======================================
</TABLE>
*Derived from the audited financial statements for the year ended
December 31, 1999
See accompanying notes to consolidated financial statements.
2
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------------------------------------
1999 2000 1999 2000
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenue $ 73,704,460 $ 74,926,728 $136,951,191 $147,090,618
Operating expenses 15,916,703 17,344,102 31,858,722 33,902,308
Amortization of program license rights 12,107,405 10,948,758 24,304,323 27,307,965
Selling, general and administrative expenses 12,784,802 12,937,091 25,452,156 26,818,983
Depreciation and amortization 11,977,475 11,803,295 23,852,156 22,669,115
Corporate overhead 2,158,818 4,539,614 4,221,525 7,033,698
Non-cash compensation 247,053 326,036 557,870 664,806
---------------------------------------------------------------------------
Operating income 18,512,204 17,027,832 26,704,439 28,693,743
---------------------------------------------------------------------------
Interest income 5,713 58,331 32,551 105,471
Interest expense (15,655,963) (16,143,217) (31,329,559) (31,710,583)
Gain on sale of station - - - 15,650,704
Other expense, net (256,271) (208,580) (544,644) (619,842)
---------------------------------------------------------------------------
(15,906,521) (16,293,466) (31,841,652) (16,574,250)
---------------------------------------------------------------------------
Income (loss) before provision for income taxes $ 2,605,683 $ 734,366 $ (5,137,213) $ 12,119,493
Provision for income taxes - - - 1,500,000
---------------------------------------------------------------------------
Net income (loss) $ 2,605,683 $ 734,366 $ (5,137,213) $ 10,619,493
===========================================================================
Income (loss) per common share
Basic $0.19 $0.05 $(0.38) $0.78
===========================================================================
Diluted $0.18 $0.05 $(0.38) $0.72
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-In Accumulated Stockholders'
Class A Class B Capital Deficit Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999..................... $11,143 $2,351 $210,859,627 $(180,213,839) $ 30,659,282
Contribution of shares into Company's
Defined contribution plan..................... 22 - 563,811 - 563,833
Conversion of Class B Common Stock
to Class A Common Stock....................... 59 (59) - - -
Exercise of stock options...................... 6 - 193,294 - 193,300
Repurchase and retirement of Class A Common
Stock......................................... (11) - (255,051) - (255,062)
Issuance of Class A Common Stock............. 3,889 - 89,049,356 - 89,053,245
Net income for the six months ended June 30,
2000.......................................... - - - 10,619,493 10,619,493
--------------------------------------------------------------------------
Balance at June 30, 2000......................... $15,108 $2,292 $300,411,037 $(169,594,346) $130,834,091
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 2000
------------------------------------------
<S> <C> <C>
Operating activities
Net (loss) income $ (5,137,213) $ 10,619,493
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 11,923,085 10,415,227
Amortization of program license rights 24,304,323 27,307,965
Amortization of broadcasting licenses, other intangibles and deferred charges 11,929,071 12,253,888
Non-cash compensation 557,870 664,806
Non-cash interest expense on outstanding indebtedness 53,544 -
Gain on sale of WKBT-TV - (15,650,704)
Loss on sale of fixed assets 33,523 49,984
Payments on programming license liabilities (24,166,389) (26,049,657)
(Increase) decrease in trade accounts receivable (7,869,752) 7,431,225
Increase in prepaid expenses (1,293,090) (165,359)
Increase in trade accounts payable 6,810,353 1,409,050
(Decrease) increase in accrued expenses and other liabilities (516,886) 4,899,763
------------------------------------------
Net cash provided by operating activities 16,628,439 33,185,681
------------------------------------------
Investing activities
Purchase of KRON-TV - (650,000,000)
Capital expenditures (4,800,135) (2,623,556)
Proceeds from sale of WKBT-TV - 23,983,758
Decrease (increase) in deposits and other assets (254,182) (6,081,766)
Increase in broadcast licenses and other intangibles (7,290) -
------------------------------------------
Net cash used in investing activities (5,061,607) (634,721,564)
------------------------------------------
Financing activities
Principal payments on long-term debt (5,145,000) (82,910,000)
Borrowings from working capital facility 6,327,000 3,910,000
Borrowings from new credit facility - 708,647,221
Deferred acquisition and debt refinancing costs incurred - (26,312,380)
Repurchase of Class A Common Stock (11,658,671) (255,062)
Proceeds from exercise of Common Stock options 171,187 193,300
Principal payments under capital lease obligations (234,961) (395,441)
------------------------------------------
Net cash (used in) provided by financing activities (10,540,445) 602,877,638
------------------------------------------
Net increase in cash 1,026,387 1,341,755
Cash and cash equivalents at beginning of year 663,298 2,952,144
------------------------------------------
Cash and cash equivalents at June 30 $ 1,689,685 $ 4,293,899
==========================================
Supplemental disclosure of cash flow information
Interest paid $ 31,391,710 $ 31,713,059
==========================================
Non-cash investing activities
Common stock issued in connection with purchase of KRON-TV - $ 89,053,245
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Principles of Consolidation
The accompanying consolidated financial statements include those of Young
Broadcasting Inc. and subsidiaries (the "Company"), consisting of eleven network
affiliated (three with CBS, six with ABC, and two with NBC) and one independent
television broadcasting stations, in the states of Michigan, Wisconsin,
Louisiana, Illinois, Tennessee, New York, Virginia, Iowa, South Dakota and
California. In addition, the accompanying consolidated financial statements
include a 51% interest in a cable news channel servicing the San Francisco area
and the Company's wholly-owned national television sales representation firm.
Significant intercompany transactions and accounts have been eliminated. The
accompanying condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. The interim financial statements are unaudited but include all adjustments,
which are of a normal recurring nature, that the Company considers necessary for
a fair presentation of the consolidated financial position and the consolidated
results of operations and cash flows for such period. Operating results of
interim periods are not necessarily indicative of results for a full year.
2. Sale of WKBT-TV
On February 29, 2000, the Company completed the sale of WKBT-TV, in La Crosse,
Wisconsin to Television Wisconsin, Inc. of Madison, Wisconsin for approximately
$24.0 million. The Company recorded a gain on the sale of approximately $15.7
million, and a provision for income taxes of $1.5 million in connection with the
sale in the first quarter of 2000. The proceeds from the sale were used to pay
down debt under the Senior Credit facility.
3. Acquisition
On June 26, 2000, the Company acquired the assets of KRON-TV ("KRON") and a
51% interest in the San Francisco cable channel BayTV ("BayTV") from The
Chronicle Publishing Company ("CPC"). Under the terms of the agreement, the
Company paid CPC $650 million in cash plus approximately 3.9 million shares of
the Company's Class A Common Stock. This acquisition was accounted for as a
purchase. Based on the Company's preliminary allocation of the purchase price,
net tangible and intangible assets amounted to approximately $61.8 million and
$677.3 million, respectively. Fixed assets are being depreciated over their
estimated useful lives and intangible assets are being amortized over their
estimated lives which do not exceed 40 years. The allocation is to be finalized
in the third quarter of 2000. The operating results of KRON-TV and BayTV are
included in the Company's consolidated results of operations from the date of
acquisition.
6
<PAGE>
Young Broadcasting Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma information gives effect to the acquisition
of KRON and BayTV as if it had been effected January 1, 1999 and 2000. The pro
forma information for the three and six months ended June 30, 2000 does not
purport to represent what the Company's results of operations would have been if
such transaction had been effected at such date and does not purport to project
results of operations of the Company in any future period.
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
Pro forma Pro forma Pro Forma Pro forma
6/30/99 6/30/00 6/30/99 6/30/00
---------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net operating revenue $108,065 $113,272 $197,752 $221,139
Operating income $ 27,980 28,854 $ 37,717 $ 50,126
Net (loss) income $ (2,737) (2,330) $(23,765) $ 2,406
Basic income (loss) per common share $ (0.16) $ (0.13) $ (1.35) $ 0.14
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements
The forward-looking statements are all statements, other than statements of
historical facts, included in this document. The forward-looking statements
contained in this report concern, among other things, certain statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Forward- looking statements involve risks and uncertainties, and
are subject to change based on various important factors, including the impact
of changes in national and regional economies, pricing fluctuations in local and
national advertising and volatility in programming costs.
Introduction
The operating revenues of the Company's stations are derived primarily from
advertising revenues and, to a much lesser extent, from compensation paid by the
networks to the stations for broadcasting network programming and national
representation fees. The stations' primary operating expenses are for employee
compensation, news gathering, production, programming and promotion costs. A
high proportion of the operating expenses of the stations are fixed.
Advertising is sold for placement within and adjoining a station's network and
locally originated programming. Advertising is sold in time increments and is
priced primarily on the basis of a program's popularity among the specific
audience an advertiser desires to reach, as measured principally by periodic
audience surveys. In addition, advertising rates are affected by the number of
advertisers competing for the available time, the size and demographic makeup of
the market served by the station and the availability of alternative advertising
media in the market area. Rates are highest during the most desirable viewing
hours, with corresponding reductions during other hours. The ratings of a local
station affiliated with a national television network can be affected by ratings
of network programming.
Most advertising contracts are short-term, and generally run only for a few
weeks. Most of the Company's annual gross revenue is generated from local
advertising, which is sold by a station's sales staff directly to local
accounts. The remainder of the advertising revenue primarily represents national
advertising, which is sold by Adam Young Inc. ("AYI"), a national advertising
sales representative which was merged with the Company in 1998. The stations
generally pay commissions to advertising agencies on local and regional
advertising; on national advertising, the stations also pay commissions to AYI.
Effective January 1, 1998, the commissions paid to AYI have been eliminated for
consolidation purposes.
The advertising revenues of the Company's stations are generally highest in
the second and fourth quarters of each year, due in part to increases in
consumer advertising in the spring and retail advertising in the period leading
up to and including the holiday season. In addition, advertising revenues are
generally higher during even numbered election years due to spending by
political candidates, which spending typically is heaviest during the fourth
quarter.
The Company defines "broadcast cash flow" as operating income before income
taxes and interest income and expense, plus depreciation and amortization
(including amortization of program license rights), non-cash compensation, and
corporate overhead, less payments for
8
<PAGE>
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 three and six
months ended June 30, 1999 and 2000:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 2000 1999 2000
---- ---- ---- ----
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Operating income............................ $ 18,512 $ 17,028 $ 26,704 $ 28,694
Add:
Amortization of program license rights.... 12,108 10,949 24,304 27,308
Depreciation and amortization............. 11,977 11,803 23,852 22,669
Corporate overhead........................ 2,159 4,540 4,222 7,034
Non-cash compensation..................... 247 326 558 665
Less:
Payments for program license liabilities.. (12,026) (10,617) (24,166) (26,050)
------------------------------- ---------------------------------
Broadcast cash flow......................... $ 32,977 $ 34,029 $ 55,474 $ 60,320
=============================== =================================
</TABLE>
Television Revenues
Set forth below are the principal types of television revenues received by the
Company's stations for the periods indicated and the percentage contribution of
each to the Company's total revenues, as well as agency and national sales
representative commissions:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
1999 2000 1999 2000
---- ---- ---- ----
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Local............ $ 56,042 65.2 $ 55,396 63.1 $104,539 65.5 $108,573 63.0
National......... 25,161 29.3 26,355 30.0 45,134 28.3 49,839 28.9
Network.......... 3,284 3.8 3,051 3.5 6,519 4.1 5,877 3.4
Political........ 369 0.4 1,496 1.7 506 0.3 4,739 2.8
Production/Other 1,132 1.3 1,428 1.7 2,880 1.8 3,247 1.9
----------------------------------------------------- --------------------------------------------------
Total........... 85,988 100.0 87,726 100.0 159,578 100.0 172,275 100.0
Commissions........ (12,284) (14.3) (12,799) (14.6) (22,627) (14.2) (25,184) (14.6)
----------------------------------------------------- --------------------------------------------------
Net Revenue........ $ 73,704 85.7 $ 74,927 85.4 $136,951 85.8 $147,091 85.4
===================================================== ==================================================
</TABLE>
Recent Developments
KRON-TV and BayTV Acquisition. On June 26, 2000, the Company acquired KRON-TV
and a 51% interest in the San Francisco cable channel BayTV from The Chronicle
Publishing
9
<PAGE>
Company. At the time of this acquisition, the Company entered into a new senior
credit facility, as defined in the Liquidity section, a portion of which was
used to finance the cash component of the acquisition and to pay the fees and
expenses associated with the acquisition. The Company paid Chronicle Publishing
$650 million in cash plus 3.9 million shares of Class A common stock. Chronicle
Publishing subsequently distributed these shares to its shareholders.
Share Repurchase Program. On June 27, 2000, the Company announced that our
Board of Directors had authorized the repurchase of up to $30 million of its
Class A common stock. The Company will make determinations regarding share
repurchases from time to time and such repurchases, if any, will be mad in the
open market, by block purchase, or in privately negotiated transactions, subject
to applicable legal and other requirements. As of August 7, 2000, the Company
had repurchased 571,100 shares of its Class A common stock under this repurchase
program.
Results of Operations
Three Months ended June 30, 2000 Compared to Three Months Ended June 30, 1999
The following historical financial information includes the results of KRON-TV
and BayTV ("KRON-TV") since their date of acquisition on June 26, 2000.
Net revenue for the three months ended June 30, 2000 was $74.9 million, an
increase of $1.2 million, or 1.6%, compared to $73.7 million for the three
months ended June 30, 1999, with KRON-TV accounting for all of such increase.
Local and national revenues were $55.4 million and $26.4 million for the three
months ended June 30, 2000 compared to $56.0 million and $25.2 million for the
three months ended June 30, 1999, a decrease in local revenues of $646,000 and
an increase in national revenues of $1.2 million. Political revenue for the
three months ended June 30, 2000 was $1.5 million, an increase of $1.1 million
from the three months ended June 30, 1999. The increase in political was
attributable to 2000 being a national election year with more state and local
elections, while 1999 had only limited state and local elections.
Operating expenses, including selling, general and administrative expenses,
for the three months ended June 30, 2000 were $30.3 million, compared to $28.7
million for the same period in 1999, an increase of $1.6 million, or 5.6%. KRON-
TV accounted for $938,000 of such increase.
Amortization of program license rights for the three months ended June 30,
2000 was $10.9 million, compared to $12.1 million for the three months ended
June 30, 1999, a decrease of $1.2 million, or 9.9%. This decrease was
attributable to two less regular season and one less Los Angeles Laker playoff
games aired by KCAL in the second quarter of 2000 compared to the second quarter
of 1999. KRON-TV recorded $221,000 of amortization expense in the second quarter
of 2000.
Depreciation of property and equipment and amortization of intangible assets
was $11.8 million for the three months ended June 30, 2000, compared to $12.0
million for the three months ended June 30, 1999, a decrease of $174,000, or
1.5%. KRON-TV recorded approximately $838,000 of depreciation and amortization
in the second quarter of 2000. The decrease is primarily attributable to fixed
assets and intangibles becoming fully depreciated and amortized.
10
<PAGE>
The Company made payments for program license liabilities of $10.6 million
during the three months ended June 30, 2000, compared to $12.0 million for the
three months ended June 30, 1999, a decrease of $1.4 million, with the reduction
in the number of Lakers games accounting for all of such decrease.
Corporate overhead for the three months ended June 30, 2000 was $4.5 million,
compared to $2.2 million for the three months ended June 30, 1999, an increase
of $2.3 million. Approximately $1.9 million of the increase relates to one-time
bonuses awarded to certain members of management upon the close of the KRON-TV
acquisition, as approved by the Board of Directors.
Non-cash compensation was $326,000 for the three months ended June 30, 2000,
compared to $247,000 for the comparable period in 1999. These amounts
represented non-cash charges for an employee-matching stock plan (the "Plan"),
included in the Company's 401(k) Plan.
Interest expense was $16.1 million for the second quarter ended June 30, 2000,
compared to $15.7 million for the same period in 1999, an increase of $487,000
or 3.1%. This increase is primarily attributable to the Company's higher
interest rates.
As a result of the factors discussed above, the net income for the three
months ended June 30, 2000 and 1999 was $734,000 and $2.6 million, respectively.
Broadcast cash flow was $34.0 million for the three months ended June 30,
2000, compared to $33.0 million for the three months ended June 30, 1999, an
increase of $1.0 million, or 3.0%. Approximately $888,000 was attributable to
KRON. Broadcast cash flow margins (broadcast cash flow divided by net revenues)
were 45.4% for the three months ended June 30, 2000, compared to 44.7% for the
three months ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
The following historical financial information includes the results of KRON-TV
and BayTV ("KRON-TV") since their date of acquisition on June 26, 2000.
Net revenue for the six months ended June 30, 2000 was $147.1 million, an
increase of $10.1 million, or 7.4%, compared to $137.0 million for the six
months ended June 30, 1999, with KRON-TV accounting for $1.6 million of this
increase. Improvement in various local market economies and the national
economy led to increases in the Company's gross local and national revenues of
2.9% and 8.5%, respectively, excluding KRON-TV. Political revenue for the six
months ended June 30, 2000 was $4.7 million, an increase of $4.2 million from
the same period in 1999. The increase is primarily attributable to 2000 being a
national election year with presidential primaries (most importantly in
California and Iowa) and many state and local elections, while 1999 had only
limited state and local elections.
Operating expenses, including selling, general and administrative expenses,
were $60.7 million for the six months ended June 30, 2000, compared to $57.3
million for the six months ended June 30, 1999, an increase of $3.0 million, or
5.9%. KRON-TV accounted for $938,000 of such increase and the remaining increase
was primarily attributable to higher local sales commissions resulting from
increased sales, and increased news and production costs from coverage of the
Tennessee Titans in the Super Bowl.
11
<PAGE>
Amortization of program license rights for the six months ended June 30, 2000
was $27.3 million compared to $24.3 million for the six months ended June 30,
1999, an increase of $3.0 million. KRON-TV accounted for $221,000 of this
increase. The remaining portion of this increase is attributable to the increase
in the number of Los Angeles Lakers and Clippers games televised during 2000,
compared to 1999.
Depreciation of property and equipment and amortization of intangible assets
was $22.7 million for the six months ended June 30, 2000, compared to $23.9
million for the six months ended June 30, 1999, a decrease of $1.2 million, or
5.0%. Depreciation and amortization at KRON-TV was $838,000. The decrease is
primarily attributable to equipment at the three stations acquired in 1994, that
had five year depreciable lives, thus becoming fully depreciated.
The Company made payments for program license liabilities of $26.0 million
during the six months ended June 30, 2000, compared with payments of $24.2
million during the six months ended June 30, 1999, an increase of $1.8 million,
with the Lakers and Clippers accounting for all of such increase.
Corporate overhead was $7.0 million for the six months ended June 30, 2000,
compared to $4.2 million for the six months ended June 30, 1999, an increase of
$2.8 million. Approximately $1.9 million of this increase was attributable to a
one-time bonus granted by the Board of Directors to certain members of
management upon the close of the KRON-TV acquisition.
Non-cash compensation was $665,000 for the six months ended June 30, 2000,
compared to $558,000 for the same period in 1999. These amounts represented non-
cash charges for an employee-matching stock plan (the "Plan"), included in the
Company's 401(k) Plan.
Interest expense was $31.7 million for the six months ended June 30, 2000,
compared to $31.3 million for the prior year period, an increase of $381,000, or
1.2%. The increase in interest expense is due to higher interest levels.
On February 29, 2000, the Company sold WKBT-TV for approximately $24.0 million
and recorded a gain on the sale of approximately $15.7 million. A state tax
provision of $1.5 million was recorded in the first quarter of 2000, as a result
of this gain.
As a result of the factors discussed above, the net income for the Company was
$10.6 million for the six months ended June 30, 2000, compared with a net loss
of $5.1 million for the same period in 1999.
Broadcast cash flow was $60.3 million for the six months ended June 30, 2000,
compared to $55.5 million for the same period in 1999, an increase of $4.8
million, or 8.6%. KRON-TV accounted for approximately $888,000 of this increase.
Broadcast cash flow margins (broadcast cash flow divided by net revenues) were
41.0% for the six months ended June 30, 2000, compared to 40.5% for the same
period in 1999.
12
<PAGE>
Pro Forma
---------
The following unaudited pro forma information gives effect to the acquisition
of KRON-TV and BayTV (including adjustments to amortization of intangible
assets, debt financing costs and depreciation of property and equipment) as if
it had been effected on January 1, 1999 and January 1, 2000. The pro forma
information does not purport to represent what the Company's results of
operations would have been if such transaction had been effected at such date
and do not purport to project results of operations of the Company in any future
period.
<TABLE>
<CAPTION>
Unaudited Pro Forma
-------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1999 2000 1999(1) 2000(1)
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues (2) $108,065 $113,272 $197,752 $221,139
Operating expenses, including selling, general
and administrative expenses 42,975 46,801 85,912 93,124
Amortization of program license rights 15,387 13,608 30,810 32,840
Depreciation and amortization of program license
rights 19,317 19,143 38,533 37,350
Corporate overhead 2,159 4,540 4,222 7,034
Non-cash compensation paid in common stock 247 326 558 665
---------------------------- ---------------------------
Operating income $ 27,980 $ 28,854 $ 37,717 $ 50,126
============================ ===========================
Broadcast cash flow (3) $ 49,538 $ 52,959 $ 80,677 $ 96,296
Broadcast cash flow margin 45.8% 46.8% 40.8% 43.5%
Operating cash flow (4) $ 47,379 $ 48,419 $ 76,455 $ 89,262
</TABLE>
(1) Pro forma adjustments reflect the amortization of intangible assets
associated with the KRON-TV and BayTV acquisition over a 40 year period and
increased annual depreciation resulting from the newly acquired property
and equipment depreciated over new estimated useful lives. In addition,
these adjustments reflect the amortization expense of the new debt
financing costs related to the new Senior Credit Facility.
(2) Net revenues are total revenues net of agency and national representation
commissions.
(3) "Broadcast cash flow" is defined, by the Company, as operating income
before income taxes and interest income and expense, plus depreciation and
amortization (including amortization of program license rights), non-cash
compensation and corporate overhead, less payments for program license
liabilities. Other television broadcasting companies may measure broadcast
cash flow in a different manner. The Company has included broadcast cash
flow data because such data are commonly used as a measure of performance
for broadcast companies and are also used by investors to measure a
company's ability to service debt. Broadcast cash flow is not, and should
not be used as, an indicator or alternative to operating income, net income
or cash flow as reflected in the Consolidated Financial Statements, is not
intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses, is not a measure of financial
performance under generally accepted accounting principles and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(4) "Operating cash flow" is defined, by the Company, as operating income
before income taxes and interest income and expense, plus depreciation and
amortization (including amortization of program license rights) and non-
cash compensation, less payments for program license liabilities. Other
television broadcasting companies may measure operating cash flow in a
different manner. The Company has included operating cash flow data because
such data are used by investors to measure a company's ability to service
debt and are used in calculating the amount of additional indebtedness that
the Company may incur in the future under the Indentures. Operating cash
flow does not purport to represent cash provided by operating activities as
reflected 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.
13
<PAGE>
Liquidity and Capital Resources
Cash provided by operations for the six months ended June 30, 2000 and 1999
was $33.1 million and $16.6 million, respectively. Changes in the Company's net
cash flows from operating activities are primarily the result of increases in
net revenues and a decrease of accounts payable during the six months ended June
30, 2000 as compared to the six months ended June 30, 1999.
Cash used in investing activities for the six months ended June 30, 2000 and
1999 of $634.7 million and $5.1 million, respectively. The increase in 2000 was
primarily due to the purchase of KRON-TV and BayTV for $650.0 million in cash,
net of the $24.0 million in proceeds from the sale of WKBT-TV.
Cash provided by financing activities for the six months ended June 30, 2000
was $602.8 million and cash used in financing activities for the six months
ended June 30, 1999 was $10.5 million. Financing activities for the six months
ended June 30, 2000 and 1999 include principal payments under the Company's
senior credit facility (the "Senior Credit Facility") of $82.9 million and $5.1
million, respectively. In June 2000, the Company borrowed approximately $708.6
million under a new senior credit facility (the "New Senior Credit Facility"),
to purchase KRON-TV, pay down the existing Senior Credit Facility and pay fees
relating to the KRON-TV acquisition and the New Senior Credit Facility. In 2000
and 1999, the Company repurchased and retired $255,000 and $11.7 million,
respectively, of Class A common stock.
On June 26, 2000, the Company entered into a New Senior Credit Facility which
provides for borrowings of up to an aggregate of $600.0 million in the form of a
five-and-three-quarter year amortizing term loan facility in the amount of
$125.0 million ("Term A"), and a six-and-three-quarter year amortizing term loan
facility in the amount of $475.0 million ("Term B"). In addition, on June 26,
2000, the Company amended and restated its existing Senior Credit Facility (the
"Amended and Restated Credit Facility"), which provides for borrowings of up to
an aggregate of $200.0 million, in the form of a $50 million term loan and a
five-and-one-half-year revolving credit facility in the amount of $150.0
million. The New Senior Credit facility and the Amended and Restated Credit
Facility are referred to as the "Senior Credit Facility." The Company borrowed
$708.6 million under the Senior Credit Facility to finance the cash portion of
the KRON-TV acquisition, pay-down $41.1 million outstanding under the old Credit
Facility, including interest, and pay closing costs relating to both.
The Senior Credit Facility allows the Company to increase the Term B facility
by up to an additional $150.0 million for general corporate purposes. The
minimum amount of the increase must be $25.0 million, notice must be given to
the Administrative Agent no later than November 15, 2001, and the additional
borrowings have to be made on or before December 31, 2001.
Pursuant to the Senior Credit Facility, the Company is prohibited from making
investments or advances to third parties exceeding $15.0 million unless the
third party becomes a guarantor of the Company's obligation. However, the
Company is permitted to purchase up to $30.0 million of its shares of common
stock, subject to the limitations set forth in the Senior Credit Facility and in
the Indentures. In addition, the Company may utilize the undrawn amounts under
the revolving portion of the Senior Credit Facility to retire or prepay
subordinated debt, subject to the limitations set forth in the Indentures.
14
<PAGE>
Interest under the Senior Credit Facility is payable at the LIBOR rate, "CD
Rate" or "Base Rate." In addition to the index rates, the Company pays a
floating percentage tied to the Company's ratio of total debt to operating cash
flow; ranging, in the case of LIBOR rate loans, from 1.50% based upon a ratio
under 5:1 to 2.75%, based upon a 7:1 or greater ratio for Term A advances and
Revolver facility; and 3.00% for Term B advances.
Each of the Subsidiaries has guaranteed the Company's obligations under the
Senior Credit Facility. The Senior Credit Facility is secured by the pledge of
all the stock of the Subsidiaries and a first priority lien on all of the assets
of the Company and its Subsidiaries.
The Senior Credit Facility requires the Company to maintain certain financial
ratios. The Company is required to maintain a total debt/operating cash flow
ratio ranging from 5.75x to 7.25x depending on senior debt leverages. The
Company is also required to maintain a debt/operating cash flow ratio ranging
from 2.00x to 4.00x depending on senior debt leverages. Additionally, the
Company is required to maintain an operating cash flow/total interest expense
ration ranging from 1.50x to 2.00x depending on senior debt leverages. The
Company is also required to maintain an operating cash flow minus capital
expenditures to pro forma debt service ratio of no less than 1.10x at any time.
Such ratios must be maintained as of the last day of the quarter for each of the
periods.
The Senior Credit Facility requires the Company to apply on April 30 of each
year 50% to 75% (depending upon the level of the Company's debt to operating
cash flow ratio at the end of such year) of its "Excess Cash Flow" for the
preceding completed fiscal year, beginning with Fiscal Year 2001, to reduce
outstanding debt under the Term Loan A advances and Term Loan B advances in
proportion to the outstanding principal amount of such advances. The Senior
Credit Facility also contains a number of customary covenants including, among
others, limitations on investments and advances, mergers and sales of assets,
liens on assets, affiliate transactions and changes in business.
On June 6, 2000, the Company entered into a swap agreement for $272.0 million
with two commercial banks who are also lenders under the Senior Credit Facility.
The swap's effective date is January 2, 2002 and expires on July 2, 2003. The
Company will pay a fixed interest rate of 7.2625% and the Company will receive
interest, from the commercial banks, based upon a three month LIBOR rate. The
net interest rate differential to be paid or received will be recognized as an
adjustment to interest expense.
On July 3, 2000, the Company entered into a swap agreement for $206.0 million
with a commercial bank who is also a lender under the Senior Credit Facility.
The swap's effective date is July 3, 2000 and expires on January 3, 2002. The
Company will pay a fixed interest rate of 7.0882% and the Company will receive
interest, from the commercial bank, based upon a six month LIBOR rate. The net
interest rate differential to be paid or received will be recognized as an
adjustment to interest expense.
It is anticipated that the Company will be able to meet the working capital
needs of its stations, scheduled principal and interest payments under the
Senior Credit Facility and the Company's senior subordinated notes and capital
expenditures, from cash on hand, cash flows from operations and funds available
under the Senior Credit Facility.
15
<PAGE>
Income Taxes
The Company and its Subsidiaries file a consolidated federal income tax return
and such state or local tax returns as are required. As of December 31, 1999,
the Company had $210.0 million of net operating loss ("NOL") carryforwards which
were subject to annual limitations imposed by Internal Revenue Code Section 382.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which was amended by Statement of Financial Accounting
Standard No. 137 ("SFAS 137"), which is effective for all quarters of fiscal
years beginning after June 15, 2000. SFAS No. 137 requires that the Company
recognize any derivatives as either assets or liabilities and measure those
instruments at fair value. Although management has not completed its assessment
of the impact of this standard on its results of operations and financial
position, management does not anticipate that the adoption of this statement
will be material.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Our Senior Credit Facility bears interest at floating rates. Accordingly, we
are exposed to potential losses related to changes in interest rates. We do not
enter into derivatives or other financial instruments for trading or speculative
purposes; however, in order to manage our exposure to interest rate risk, we
entered into derivative financial instruments in July 2000. These derivative
financial instruments are interest rate swap agreements that expire in varying
amounts through 2003.
17
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On April 27, 2000, the Company held a special meeting in lieu of the 2000
annual meeting of stockholders to (i) elect nine directors of the Company to
serve for a term of one year, (ii) ratify the selection of Ernst & Young LLP as
the Company's independent auditors for the year ending December 31, 2000, (iii)
approve an amendment to Young Broadcasting Inc.'s 1995 Stock Option Plan to
increase the total number of shares with respect to which options and stock
appreciation may be granted thereunder, (iv) authorize the issuance of up to
3,888,788 shares of the Company's Class A common stock in connection with the
acquisition of KRON-TV and BayTV, and (v) approve an amendment to the Company's
Restated Certificate of Incorporation to eliminate the required minimum
percentage ownership of the Company's common stock by the Company's management
group.
The following individuals were elected to serve as directors until the next
annual meeting:
<TABLE>
<CAPTION>
Vote For Vote Withheld
---------- -------------
<S> <C> <C>
Vincent J. Young 30,007,929 397,195
Adam Young 30,007,929 397,195
Ronald J. Kwasnick 30,007,929 397,195
James A. Morgan 30,007,929 397,195
Bernard F. Curry 30,007,929 397,195
Alfred J. Hickey, Jr. 30,007,929 397,195
Leif Lomo 30,007,929 397,195
Robert L. Winikoff 30,007,929 397,195
David C. Lee 30,007,929 397,195
</TABLE>
Such individuals constituted the entire Board of Directors and served as
directors of the Company immediately preceding the meeting.
The stockholders ratified the selection of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2000. The result of the
vote was as follows: 30,379,589 votes were for the selection and 21,885 votes
were against the selection.
The stockholders approved the proposed amendment to Young Broadcasting Inc.'s
1995 Stock Option Plan. The result of the vote was as follows: 26,047,112 votes
were for the amendment and 4,345,425 votes were against the amendment.
The stockholders authorized the issuance of up to 3,888,788 shares of the
Company's Class A Common Stock in connection with the acquisition of KRON-TV and
BayTV. The result of the vote was as follows: 25,623,241 votes for the issuance
and 2,842,190 votes were against the issuance.
The stockholders approved the proposed amendment to the Company's Restated
Certificate of Incorporation to eliminate the required minimum percentage
ownership of the Company's Common Stock by the Company's management group. The
result of the vote was as follows: 24,890,684 votes were for the amendment and
3,569,936 votes were against the amendment.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Exhibit Description
------ -------------------
3.1 Certificate of Amendment to Restated Certificate of Incorporation of
the Company (Filed as an exhibit to the Company's Post-Effective
Amendment No. 2 on Form S-3 to Form S-4 Registration Statement
(Registration No. 333 - 31156) under the Securities Act of 1933 and
incorporated herein by reference).
11 Statement Re Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the
second quarter of the fiscal year ending December 31, 2000.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YOUNG BROADCASTING INC.
Date: August 10, 2000 By: /s/ Vincent J. Young
---------------------------------
Vincent J. Young
Chairman
Date: August 10, 2000 By: /s/ James A. Morgan
---------------------------------
James A. Morgan
Executive Vice President and
Chief Financial Officer
(principal financial officer)
20
