**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,  D.C.   20549**

 

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**FORM 10-Q/A**

**Amendment No. 1**

 

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**Quarterly Report Pursuant toSection 13 or 15 (d) of theSecurities Exchange Act of 1934**

 

| **For the quarterly period ended  March 31, 2003** |
|----------------------------------------------------|
|                                               |
| **Commission file number: 0-25042**                |

 

**YOUNG BROADCASTING INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                                     |   | **13-3339681**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State of other  jurisdiction of  incorporation or organization) |   | (I.R.S. employer  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**              |

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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  ý  No  o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes  ý  No  o

 

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Number of shares of Common Stock outstanding as ofApril 30, 2003: 17,579,393 shares of Class A Common Stock, and 2,188,786 sharesof Class B Common Stock.

 

 

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**YOUNG BROADCASTING INC.**

 

**FORM 10-Q**

 

**Table of Contents**

 
| Part I     | Financial Information | Page                                                                                                   |
|------------|-----------------------|--------------------------------------------------------------------------------------------------------|
|       |                  |
|       | Item 1.               | Financial Statements  (unaudited)                                                                      | 2 |
|       |                  |                                                                                                   |   |
|       |                  | Consolidated Balance Sheets  as of December 31, 2002 and March 31, 2003                                | 2 |
|       |                  |                                                                                                   |   |
|       |                  | Consolidated  Statements of Operations for the Three Months Ended March 31, 2002 and 2003              | 3 |
|       |                  |                                                                                                   |   |
|       |                  | Consolidated  Statements of Stockholders’ Equity   for the Three Months Ended March 31, 2003 | 4 |
|       |                  |                                                                                                   |   |
|       |                  | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2003              | 5 |
|       |                  |                                                                                                   |   |
|       |                  | Notes to  Consolidated Financial Statements                                                            | 6 |
|       |                  |                                                                                                   |   |
|       | Item  2.              | Management’s  Discussion and Analysis of Financial Condition and Results of  Operations      | 10 |
|       |                  |                                                                                                   |   |
|       | Item  3.              | Quantitative  and Qualitative Disclosure About Market Risk                                             | 18 |
|       |                  |                                                                                                   |   |
|       | Item 4.               | Controls and  Procedures                                                                               | 19 |
|       |                  |                                                                                                   |   |
| Part II.   |                  |                                                                                                   |   |
|       |                  |                                                                                                   |   |
|       | Item 1.               | Legal Proceedings                                                                                      | 20 |
|       |                  |                                                                                                   |   |
|       | Item 6.               | Exhibits and  Reports on Form 8-K                                                                      | 20 |
|       |                  |                                                                                                   |
| Signatures | 21                    |
|            |                       |                                                                                                        |  |  |  |

 

**INTRODUCTORY NOTE**

 

This amendment to Young Broadcasting Inc.’s (the “Company”) Form 10-Qinitially filed with the Securities and Exchange Commission on May 12, 2003, isbeing filed to reflect the restatement of the Company’s statements ofoperations for the quarter ended March 31, 2002.  Certain items were also reclassified within the consolidatedfinancial statements.

 

•                 **Reallocation**-The consolidated statement of operations has beenadjusted to correct the allocation of income taxes among continuing operations,discontinued operations and cumulative effect of accounting change for thequarter ended March 31, 2002.  Theseadjustments impacted net loss for the quarter ended March 31, 2002 because ofthe reallocation of income tax benefits related to the cumulative effect ofaccounting change.  The effects on thecomponents of net loss are disclosed in Note 1 to the consolidated financialstatements.

 

•                 **Reclassifications**-The Company reclassified “non-cashcompensation” to selling, general and administrative expenses for all periodspresented in the accompanying consolidated financial statements and“Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”

 

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**Part I  Financial Information**

**Item 1. *Financial Statements***

Young Broadcasting Inc.and Subsidiaries

Consolidated Balance Sheets

 
|                                                                                                                                                  |   | **December  31,  2002** |        | **March 31,  2003** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|---------------------|------------|
|                                                                                                                                                  |   |                    |        | **(Unaudited)**     |       |
| **Assets**                                                                                                                                            |   |                    |        |                |       |
| Current assets:                                                                                                                                       |   |                    |        |                | ** ** |
| Cash and cash  equivalents                                                                                                                            |   | $                       | 110,406,572 |                | **$**      | **115,962,333** | ** ** |
| Trade accounts  receivable, less allowance for doubtful accounts of $1,229,000 in 2002 and  $1,367,000 in 2003                                        |   | 41,867,871              |        | **35,168,072**      | ** ** |
| Income taxes  receivable                                                                                                                              |   | 28,787,381              |        | **787,381**         | ** ** |
| Escrow account –  current                                                                                                                        |   | 13,248,057              |        | **13,285,532**      | ** ** |
| Current portion  of program license rights                                                                                                            |   | 12,910,034              |        | **14,565,760**      | ** ** |
| Prepaid expenses                                                                                                                                      |   | 3,445,842               |        | **2,980,367**       | ** ** |
| Total current  assets                                                                                                                                 |   | 210,665,757             |        | **182,749,445**     | ** ** |
|                                                                                                                                                  |   |                    |        |                | ** ** |
| Property and  equipment, less accumulated depreciation and amortization of $157,356,664 in  2002 and $161,955,167 in 2003                             |   | 90,509,977              |        | **88,373,536**      | ** ** |
| Program license  rights, excluding current portion                                                                                                    |   | 1,129,042               |        | **823,816**         | ** ** |
| Deposits and  other assets                                                                                                                            |   | 14,035,792              |        | **13,942,851**      | ** ** |
| Deferred tax  asset                                                                                                                                   |   | 6,000,000               |        | **2,000,000**       | ** ** |
| Goodwill                                                                                                                                              |   | 25,543,772              |        | **25,543,772**      | ** ** |
| Unamortized  intangible assets                                                                                                                        |   | 512,427,167             |        | **512,427,167**     | ** ** |
| Amortized  intangible assets, net                                                                                                                     |   | 22,992,256              |        | **22,161,569**      | ** ** |
| Deferred  charges, net                                                                                                                                |   | 9,280,535               |        | **8,784,493**       | ** ** |
| **Total Assets**                                                                                                                                      |   | $                       | 892,584,298 |                | **$**      | **856,806,649** | ** ** |
|                                                                                                                                                  |   |                    |        |                |       |
| **Liabilities and stockholders’  equity**                                                                                                        |   |                    |        |                | ** ** |
| Current  liabilities:                                                                                                                                 |   |                    |        |                | ** ** |
| Trade accounts  payable                                                                                                                               |   | $                       | 15,278,888  |                | **$**      | **14,649,810** | ** ** |
| Accrued interest                                                                                                                                      |   | 15,359,910              |        | **11,758,324**      | ** ** |
| Accrued income  tax liability                                                                                                                         |   | 699,439                 |        | **573,288**         | ** ** |
| Accrued expenses                                                                                                                                      |   | 20,912,536              |        | **15,305,653**      | ** ** |
| Current  installments of program license liability                                                                                                    |   | 12,300,554              |        | **8,257,389**       | ** ** |
| Current  installments of obligations under capital leases                                                                                             |   | 549,751                 |        | **629,880**         | ** ** |
| Total current  liabilities                                                                                                                            |   | 65,101,078              |        | **51,174,344**      | ** ** |
| Program license  liability, excluding current installments                                                                                            |   | 1,596,676               |        | **1,148,120**       | ** ** |
| Long-term debt                                                                                                                                        |   | 725,000,000             |        | **725,000,000**     | ** ** |
| Deferred taxes and  other liabilities                                                                                                                 |   | 20,984,542              |        | **15,987,599**      | ** ** |
| Obligations  under capital leases, excluding current installments                                                                                     |   | 1,492,346               |        | **1,247,233**       | ** ** |
| **Total liabilities**                                                                                                                                 |   | 814,174,642             |        | **794,557,296**     | ** ** |
| Stockholders’  equity:                                                                                                                           |   |                    |        |                | ** ** |
| Class A Common  Stock, $.001 par value. Authorized 40,000,000 shares; issued and outstanding  17,505,878 shares at 2002 and 17,549,217 shares at 2003 |   | 17,506                  |        | **17,549**          | ** ** |
| Class B Common  Stock, $.001 par value. Authorized 20,000,000 shares; issued and outstanding  2,211,666 shares at 2002 and 2,192,986 at 2003          |   | 2,212                   |        | **2,193**           | ** ** |
| Additional  paid-in capital                                                                                                                           |   | 376,234,121             |        | **376,557,189**     | ** ** |
| Accumulated  other comprehensive loss                                                                                                                 |   | (2,474,597              | )           | **(1,237,060**      | **)**      |
| Accumulated  deficit                                                                                                                                  |   | (295,369,586            | )           | **(313,090,518**    | **)**      |
| Total  stockholders’ equity                                                                                                                      |   | 78,409,656              |        | **62,249,353**      | ** ** |
| **Total liabilities and stockholders’  equity**                                                                                                  |   | $                       | 892,584,298 |                | **$**      | **856,806,649** | ** ** |

* *

*Seeaccompanying notes to consolidated financial statements*

 

2

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**YoungBroadcasting Inc. and Subsidiaries**

**Consolidated Statements of Operations**

(Unaudited)

 
|                                                                                 |   | **Three  Months Ended March 31,** |         |
|--------------------------------------------------------------------------------------|--------|-----------------------------------|--------------|
|                                                                                 |   | **2002 ***                        |         | **2003** |   |
| Net operating revenue                                                                |   | $                                 | 46,586,552   |   | $ | 47,237,922 |   |
|                                                                                 |   |                              |         |   |   |
| Operating  expenses (a)                                                              |   | 18,614,172                        |         | 18,506,978 |   |
| Amortization of  program license rights                                              |   | 4,290,033                         |         | 4,625,396 |   |
| Selling, general  and administrative expenses (a)                                    |   | 14,950,091                        |         | 15,039,514 |   |
| Depreciation and  amortization                                                       |   | 6,111,654                         |         | 5,995,869 |   |
| Corporate  overhead (a)                                                              |   | 2,727,989                         |         | 3,137,295 |   |
| Operating loss                                                                       |   | (107,387                          | )            | (67,130 | ) |
|                                                                                 |   |                              |         |   |   |
| Interest  (expense), net                                                             |   | (26,809,896                       | )            | (16,020,043 | ) |
| Non-cash change  on market valuation of swaps                                        |   | (4,256,890                        | )            | (1,461,006 | ) |
| Other income  (expense), net                                                         |   | (87,231                           | )            | (172,753 | ) |
|                                                                                 |   | (31,154,017                       | )            | (17,653,802 | ) |
|                                                                                 |   |                              |         |   |   |
| Loss from  continuing operations before cumulative effect  of accounting change |   | (31,261,404                       | )            | (17,720,932 | ) |
|                                                                                 |   |                              |         |   |   |
| Discontinued  operations:                                                            |   |                              |         |   |   |
| Income from  discontinued operations, net of applicable taxes                        |   | 2,886,254                         |         | — |   |
| Loss before  cumulative effect of accounting change                                  |   | (28,375,150                       | )            | (17,720,932 | ) |
| Cumulative  effect of accounting change, net of taxes                                |   | (184,904,433                      | )            | — |   |
| Net loss                                                                             |   | $                                 | (213,279,583 | ) | $ | (17,720,932 | ) |
|                                                                                 |   |                              |         |   |   |
| Basic and  diluted net loss per common share:                                        |   |                              |         |   |   |
| Loss from  continuing operations before cumulative effect of accounting change       |   | $                                 | (1.59        | ) | $ | (0.90 | ) |
| Income from  discontinued operations, net                                            |   | 0.15                              |         | — |   |
| Cumulative  effect of accounting change, net                                         |   | (9.42                             | )            | — |   |
| Net loss per  common share                                                           |   | $                                 | (10.86       | ) | $ | (0.90 | ) |
|                                                                                 |   |                              |         |   |   |
| Weighted average  shares – Basic and dilutive                                   |   | 19,645,921                        |         | 19,737,156 |   |

 

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* Restated

(a) Excluding depreciation expense

 

*Seeaccompanying notes to consolidated financial statements.*

 

3

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Young Broadcasting Inc.and Subsidiaries

 

Consolidated Statementsof Stockholders’ Equity 

(Unaudited)

 
| ** **

                                                    |   |        |   | **Additional  Paid-In  Capital** |   | **Accumulated  Deficit** |   | **Accumulated  Comprehensive  Loss** |        | **Comprehensive  Loss** |         | **Total  Stockholders’  Equity** |        |
|----------------------------------------------------------------------|--------|-------------|--------|----------------------------------|--------|--------------------------|--------|--------------------------------------|-------------|-------------------------|--------------|---------------------------------------|-------------|
| **Common Stock**                                                     |
| **Class A**                                                          |   | **Class B** |
| Balance at December 31, 2002                                         |   | $           | 17,506 |                             | $      | 2,212                    |   | $                                    | 376,234,121 |                    | $            | (295,369,586                          | )           | $ | (2,474,597 | ) |   |   | $ | 78,409,656 |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Contribution of shares into Company’s defined contribution plan |   | 17          |   |                             |   | 225,600                  |   |                                 |        |                    |         |                                  |        | 225,617 |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Conversion of Class B Common Stock to Class A Common Stock           |   | 19          |   | (19                              | )      |                     |   |                                 |        |                    |         |                                  |        |   |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Other                                                                |   |        |   |                             |   | 3,311                    |   |                                 |        |                    |         |                                  |        | 3,311 |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Employee stock purchase plan                                         |   | 7           |   |                             |   | 94,157                   |   |                                 |        |                    |         |                                  |        | 94,164 |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Net loss for the three months ended March 31, 2003                   |   |        |   |                             |   |                     |   | (17,720,932                          | )           |                    |         | $                                     | (17,720,932 | ) | (17,720,932 | ) |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Comprehensive Loss                                                   |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Realized expense on interest rate   swap                        |   |        |   |                             |   |                     |   |                                 |        | 1,237,537               |         | 1,237,537                             |        | 1,237,537 |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Total                                                                |   |        |   |                             |   |                     |   |                                 |        |                    |         | $                                     | (16,483,395 | ) |   |   |
|                                                                 |   |        |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Balance at March 31, 2003                                            |   | $           | 17,549 |                             | $      | 2,193                    |   | 376,557,189                          |        | $                       | (313,090,518 | )                                     | $           | (1,237,060 | ) | — |   | $ | 62,249,353 |   |
|                                                                      |        |             |        |                                  |        |                          |        |                                      |             |                         |              |                                       |             |  |  |  |  |  |  |  |  |  |

* *

*Seeaccompanying notes to consolidated financial statements*

 

4

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**Young Broadcasting Inc. and Subsidiaries**

 

**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                       |   | **Three Months Ended March 31,** |         |
|--------------------------------------------------------------------------------------------|--------|----------------------------------|--------------|
|                                                                                       |   | **2002 ***                       |         | **2003** |   |
| **Operating  activities**                                                                  |   |                             |         |   |   |
| Net loss                                                                                   |   | $                                | (213,279,583 | ) | **$** | **(17,720,932** | **)** |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |   |                             |         |   | ** ** |
| Cumulative  effect of change in accounting, net of taxes                                   |   | 184,904,433                      |         | **—** | ** ** |
| Depreciation and  amortization of property and equipment                                   |   | 4,964,104                        |         | **4,644,636** | ** ** |
| Amortization of  program license rights                                                    |   | 19,740,171                       |         | **4,625,396** | ** ** |
| Amortization of  broadcasting licenses, other intangibles and deferred charges             |   | 1,816,474                        |         | **1,351,233** | ** ** |
| Non-cash  compensation                                                                     |   | 377,259                          |         | **314,017** | ** ** |
| Non-cash change  on market valuation of swap                                               |   | 4,256,890                        |         | **1,461,006** | ** ** |
| Loss on sale of  fixed assets                                                              |   | 12,146                           |         | **1,159** | ** ** |
| Income from  escrow deposits                                                               |   | (157,755                         | )            | **(37,475** | **)** |
| Income tax  refund, net of estimated payment                                               |   | —                           |         | **27,000,000** | ** ** |
| Payments on  programming license liabilities                                               |   | (16,721,366                      | )            | **(4,562,571** | **)** |
| Decrease in  trade accounts receivable                                                     |   | 22,538,953                       |         | **6,699,799** | ** ** |
| Increase in  prepaid expenses                                                              |   | 904,135                          |         | **465,475** | ** ** |
| Decrease in  trade accounts payable                                                        |   | (1,657,730                       | )            | **(6,534,124** | **)** |
| Decrease in  accrued expenses and other liabilities                                        |   | (10,142,220                      | )            | **(9,549,268** | **)** |
| Net cash (used  in) provided by operating activities                                       |   | (2,444,089                       | )            | **8,158,351** | ** ** |
|                                                                                       |   |                             |         |   | ** ** |
| **Investing activities**                                                                   |   |                             |         |   | ** ** |
| Capital  expenditures                                                                      |   | (320,503                         | )            | **(2,509,354** | **)** |
| Increase in  deposits and other assets                                                     |   | (3,074,207                       | )            | **82,951** | ** ** |
| Net cash used in  investing activities                                                     |   | (3,394,710                       | )            | **(2,426,403** | **)** |
|                                                                                       |   |                             |         |   | ** ** |
| **Financing activities**                                                                   |   |                             |         |   | ** ** |
| Principal  payments on long-term debt                                                      |   | (10,177,000                      | )            | **—** | ** ** |
| Borrowings from  working capital facility                                                  |   | 15,553,394                       |         | **—** | ** ** |
| Deferred  acquisition and debt financing costs incurred                                    |   | (548,219                         | )            | **(14,514** | **)** |
| Principal  payments under capital lease obligations                                        |   | (293,347                         | )            | **(164,984** | **)** |
| Proceeds from  other financing activities                                                  |   | 3,770                            |         | **3,311** | ** ** |
| Net cash  provided by (used in) financing activities                                       |   | 4,538,598                        |         | **(176,187** | **)** |
|                                                                                       |   |                             |         |   | ** ** |
| **Net (decrease) increase in cash**                                                        |   | (1,300,201                       | )            | **5,555,761** | ** ** |
| Cash and cash  equivalents at beginning of year                                            |   | 1,936,794                        |         | **110,406,572** | ** ** |
| **Cash and cash equivalents at March  31**                                                 |   | $                                | 636,593      |   | **$** | **115,962,333** | ** ** |
|                                                                                       |   |                             |         |   | ** ** |
| **Supplemental disclosure of cash  flow information**                                      |   |                             |         |   | ** ** |
| Interest paid                                                                              |   | $                                | 34,259,489   |   | **$** | **20,095,582** | ** ** |
| Income tax  refund, net of estimated payment                                               |   | $                                | —       |   | **$** | **27,126,151** | ** ** |

 

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* Restated

 

*Seeaccompanying notes to consolidated financial statements.*

 

5

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**YoungBroadcasting Inc. and Subsidiaries**

** **

**Notes toConsolidated Financial Statements**

**(Unaudited)**

** **

**1. Basisof Presentation**

 

The business operations of Young Broadcasting Inc. and subsidiaries(the “Company”) consist of ten network affiliated stations (six with ABC, threewith CBS, and one with NBC), and one independent commercial televisionbroadcasting station. The markets served are located in Lansing, Michigan,Green Bay, Wisconsin, Lafayette, Louisiana, Rockford, Illinois, Nashville andKnoxville, Tennessee, Albany, New York, Richmond, Virginia, Davenport, Iowa,Sioux Falls, South Dakota and San Francisco, California. In addition, theaccompanying condensed consolidated financial statements include the Company’swholly owned national television sales representation firm. Significantintercompany transactions and accounts have been eliminated. The accompanyingcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States for interimfinancial statements and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. The interim financial statements are unaudited but include alladjustments, which are of a normal recurring nature, that the Company considersnecessary for a fair presentation of the consolidated financial position andthe consolidated results of operations and cash flows for such period.Operating results of interim periods are not necessarily indicative of resultsfor a full year.

 

The consolidated statement of operations for the three months endedMarch 31, 2002 has been adjusted to correct the allocation of income taxesrelating to the cumulative effect of accounting change.  The effect on the components of net loss areas follows (dollars in thousands, except per share data):

 
|                                                                           |   | **Three  Months Ended** |     |
|--------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                           |   | **March 31,  2002**     |     |
|                                                                           |   | **As  Reported**        |     | **As  Restated** |   |
|                                                                           |   |                    |     |   |   |
| Loss before  cumulative effect of accounting change                            |   | $                       | (28,375  | ) | $ | (28,375 | ) |
| Cumulative  effect of accounting change, net                                   |   | (268,714                | )        | (184,904 | ) |
| Net loss                                                                       |   | $                       | (297,089 | ) | $ | (213,279 | ) |
|                                                                           |   |                    |     |   |   |
| Basic loss per  common share:                                                  |   |                    |     |   |   |
| Loss from  continuing operations before cumulative effect of accounting change |   | $                       | (1.59    | ) | $ | (1.59 | ) |
|                                                                           |   |                    |     |   |   |
| Income from  discontinued operations, net                                      |   | 0.15                    |     | 0.15 |   |
|                                                                           |   |                    |     |   |   |
| Cumulative  effect of accounting change, net                                   |   | (13.68                  | )        | (9.42 | ) |
|                                                                           |   |                    |     |   |   |
| Net loss per  common share - basic                                             |   | $                       | (15.12   | ) | $ | (10.86 | ) |

 

**2.  Sale of KCAL-TV**

 

On May 15, 2002, the Company completed thesale of KCAL-TV in Los Angeles, California to Viacom Inc. in an all cashtransaction for $650.0 million, less purchase price adjustments. The operatingresults of KCAL-TV are not included in the Company’s consolidated results fromcontinuing operations for the three months ended March 31, 2002. During thesecond quarter of 2002, the Company recorded a gain on the sale of $153.9million, net of a provision for income taxes of $132.0 million. On December 31,2002, the Company had accrued approximately $7.5 million of expenses related tothe sale of KCAL-TV and the Company’s obligation to reimburse Viacom Inc. forcertain costs. Payments and adjustments relating to this accrual will befinalized in the second quarter  of2003.

 

The Company applied Financial Accounting Standard Board (“FASB”)Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment of Long-Lived Assets to be Disposed of*(“Statement 144”), and the new rules on accounting for the discontinuation of acomponent of an entity on January 1, 2002. As a result of applying Statement144, the Company recorded income from discontinued operations, net ofapplicable taxes related to KCAL-TV, of $2.9 million for the three months endedMarch 31, 2002.

 

**3.  Stock-Based Compensation**

 

The Company follows theprovisions of FASB Statement No. 123, *Accountingfor Stock-Based**Compensation*(“Statement 123”). The provisions of Statement 123 allow companies to eitherexpense the estimated fair value of stock options or to continue to follow theintrinsic value method set forth in Accounting Principles Board Opinion No. 25,*Accounting for Stock Issued to Employees,*(“APB25”), but disclose the pro forma effects on net income (loss) had the fairvalue of the options been expensed. The Company has elected to continue toapply APB 25 in accounting for its stock option incentive plans.

 

In accordance with APB 25and related interpretations, compensation expense for stock options isrecognized in income based on the excess, if any, of the quoted market price ofthe stock at the grant date of the award or other measurement date over theamount an employee must pay to acquire the stock. Generally, the exercise pricefor stock options granted to employees equals or

 

6

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exceeds the fair marketvalue of the Company’s common stock at the date of grant, thereby resulting inno recognition of compensation expense by the Company. For awards that generatecompensation expense as defined under APB 25, the Company calculates the amountof compensation expense and recognized the expense over the vesting period ofthe award.

 

The following tableillustrates the effect on net income (loss) and earnings per share if theCompany had applied the fair value recognition provisions of Statement 123.

 

 
|                                                                                              |   | **Three Months Ended  March 31,** |     |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
| **(dollars in thousands, except per share data)**                                                 |   | **2002**                          |     | **2003** |   |
| Net loss-as  reported                                                                             |   | $                                 | (213,279 | ) | $ | (17,721 | ) |
| Deduct total  stock-based employee compensation expense determined under fair value based  method |   | (909                              | )        | (1,226 | ) |
| Net loss-pro  forma                                                                               |   | $                                 | (214,188 | ) | $ | (18,947 | ) |
| Net loss per basic common share-as reported                                                       |   | $                                 | (10.86   | ) | $ | (0.90 | ) |
| Net loss per basic common share-pro forma                                                         |   | $                                 | (10.90   | ) | $ | (0.96 | ) |

 

**4.  Goodwill and Other Intangibles**

 

Goodwill represents the excess of the cost of an acquired televisionstation over the sum of the amounts assigned to assets acquired lessliabilities assumed. Intangible assets, which include broadcasting licenses,network affiliation agreements, and other intangibles, are carried on the basisof cost, less accumulated amortization. Cost is based upon appraisals. Prior toJanuary 1, 2002, goodwill and other intangible assets were amortized on astraight-line basis over varying periods, not exceeding 40 years.

 

In June 2001, the FASB issued Statement of FinancialAccounting Standards No. 142, *Goodwill and OtherIntangible Assets*(“Statement 142”), whereby goodwill and indefinitelived intangible assets are no longer amortized but are reviewed annually forimpairment, or more frequently, if impairment indicators arise. Intangibleassets that have finite lives will continue to be amortized over their usefullives. The Company applied the new rules on accounting for goodwill and otherintangible assets on January 1, 2002, and as such ceased amortizing goodwill,broadcast licenses and network affiliation agreements. Upon adoption, theCompany completed its review for impairment of goodwill and certain otherintangibles and recognized an impairment loss of $184.9 million, net of taxbenefits of approximately $123.3 million, as a cumulative effect of accountingchange.  The asset that was determinedto be impaired was the broadcast license at KRON-TV in San Francisco,California.

 

The following table sets forth the additional disclosures related togoodwill and intangible assets required under Statement 142:

 
|                                         |   | **As of  December 31, 2002** |    | **As of  March 31, 2003**     |   |
|----------------------------------------------|--------|------------------------------|---------|-------------------------------|--------|
|                                         |   | **Gross  Carrying  Amount**  |    | **Accumulated  Amortization** |   | **Net  Carrying  Amount** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Net  Carrying  Amount** |   |
|                                         |   | **(dollars  in thousands)**  |    |
| Unamortized  intangible assets:              |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Broadcast  licenses and network affiliations |   | $                            | 512,427 |                          | — |   | $ | 512,427 |   | $ | 512,427 |   | — |   | $ | 512,427 |   |
|                                         |   |                         |    |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortized  intangible assets:                |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Other intangible  assets                     |   | $                            | 28,899  |                          | $      | (5,907 | ) | $ | 22,992 |   | $ | 28,899 |   | $ | (6,737 | ) | $ | 22,162 |   |
|                                              |        |                              |         |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

7

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Aggregate amortization expense for the three months ended March 31,2002 and 2003 was $1.8 million and $1.4 million, respectively.

 

It is the Company’s policy to account for other definite-livedintangibles at the lower of amortized cost or estimated realizable value. Aspart of an ongoing review of the valuation and amortization of otherintangibles of the Company and its subsidiaries, management assesses thecarrying value of other definite-lived intangibles if facts and circumstancessuggest that there may be impairment. If this review indicates that otherdefinite-lived intangibles will not be recoverable as determined by anon-discounted cash flow analysis of the operating assets over the remainingamortization period, the carrying value of other intangibles would be reducedto estimated fair value.

 

**5.Income Taxes**

 

During 2002, the Company was able to realizea tax benefit from the utilization of the loss from operations, tax loss carryforwards,and the cumulative effect of the accounting change. The Company has recorded adeferred tax asset of $6.0 million and $2.0 million at December 31, 2002 andMarch 31, 2003, respectively, related to existing temporary differences thatare expected to generate future tax losses that can be carried back to 2002.

 

The Company recorded an income tax receivable at December 31, 2002 of$28.8 million, of which $28.0 million was received in the first quarter of2003.

 

**6.   Legal Proceedings**

 

On July 31, 2002, plaintiffs served upon Young Broadcasting Inc., YoungBroadcasting of Richmond, Inc. (“WRIC-TV”) and Richard Real a complaintalleging that the defendants defamed plaintiffs in a news story concerningJulian Graham Chevrolet that aired in April and May of 2002. Specifically, thenews story of television station WRIC-TV reported that Julian Graham Chevrolethad filed for bankruptcy. Neither Julian Graham nor Julian Graham Chevrolet hadfiled for bankruptcy. The Company has responded to the complaint and obtained adismissal of one of the two claims. The parties have exchanged writtendiscovery and have taken numerous depositions. The case was scheduled for trialto begin on March 10, 2003, however, when the court refused to allow plaintiffsto present their expert witnesses because they had not timely disclosed theidentities of these expert witnesses, plaintiffs voluntarily dismissed the casebut immediately re-filed the case. The re-filed case is substantially similarto the previous case. Specifically, plaintiffs have re-alleged themisappropriation claim that the Court previously dismissed. Additionally,plaintiffs have revised the amount of damages sought; increasing the amount ofcompensatory damages sought for Julian Graham, decreasing the amount of compensatorydamages sought for Julian Graham Chevrolet, and decreasing the amount ofpunitive damages sought for both. The total amount sought in the re-filed caseis $114.0 million; whereas, the total amount sought in the previous case was$100.0 million. Defendants should be able to again obtain a dismissal of themisappropriation claim, which will reduce the amount of requested damages inhalf (to $57.0 million). Trial is set for October 20, 2003. The Company hasvigorously defended this matter. The parties have again served writtendiscovery upon one another and will likely take a few more depositions. It istoo early to estimate the likelihood of plaintiff’s chances of recovery, or apotential amount of recovery. Approximately three months ago, plaintiffsoffered to settle for $10.0 million, which is the limit of coverage under theCompany’s insurance policy. The Company never responded to that offer.

 

8

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The Company is involved in other legal proceedings and litigationarising in the ordinary course of business. In the Company’s opinion, theoutcome of such proceedings and litigation currently pending will notmaterially affect the Company’s financial condition or results of operations.

 

9

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**Item2.   *Management’s Discussion and Analysis of FinancialCondition and Results of Operations.***

 

**FORWARD-LOOKING STATEMENTS**

 

**FORWARDLOOKING STATEMENTS ARE ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICALFACTS, INCLUDED IN THIS REPORT. THE FORWARD LOOKING STATEMENTS CONTAINED INTHIS REPORT CONCERN, AMONG OTHER THINGS, CERTAIN STATEMENTS UNDER “MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TOCHANGE BASED ON VARIOUS IMPORTANT FACTORS, INCLUDING THE IMPACT OF CHANGES INNATIONAL AND REGIONAL ECONOMIES, PRICING FLUCTUATIONS IN LOCAL AND NATIONALADVERTISING, VOLATILITY IN PROGRAMMING COSTS AND GEOPOLITICAL FACTORS.**

 

**Introduction**

 

The operating revenue of the Company’s stations is derived primarilyfrom advertising revenue and, to a much lesser extent, from compensation paidby the networks to the stations for broadcasting network programming. Thestations’ primary operating expenses are for employee compensation, newsgathering, production, programming and promotion costs. A high proportion ofthe operating expenses of the stations are fixed.

 

Advertising is sold for placement within and adjoining a station’snetwork and locally originated programming. Advertising is sold in time increments and is priced primarily on thebasis of a program’s popularity among the specific audience an advertiserdesires to reach, as measured principally by periodic audience surveys.  In addition, advertising rates are affectedby the number of advertisers competing for the available time, the size anddemographic makeup of the market served by the station and the availability ofalternative advertising media in the market area.  Rates are highest during the most desirable viewing hours, withcorresponding reductions during other hours. The ratings of a local station affiliated with a national televisionnetwork can be affected by ratings of network programming.

 

Most advertising contracts are short-term, and generally run only for afew weeks. Most of the Company’s annual gross revenue is generated from localadvertising, which is sold by a station’s sales staff directly to localaccounts. The remainder of the advertising revenue primarily representsnational advertising, which is sold by Adam Young Inc. (“AYI”), a wholly-ownednational advertising sales representative. The stations generally paycommissions to advertising agencies on local, regional and nationaladvertising.

 

The advertising revenue of the Company’s stations is generally highestin the second and fourth quarters of each year, due in part to increases inconsumer advertising in the spring and retail advertising in the period leadingup to and including the holiday season. In addition, advertising revenue is generally higher during evennumbered election years due to spending by political candidates, which spendingtypically is heaviest during the fourth quarter.

 

**RecentDevelopments**

 

*DigitalUpgrades*.  The Companyis in the process of completing upgrades to its television stations to enablethem to broadcast with digital technology. As of May 9, 2003, all of theCompany’s television stations were capable of digital television broadcastsexcept for WTEN-TV

 

10

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(Albany) and KELO-TV’s(Sioux Falls) satellite transmitters (KPLO-TV, KDLO-TV, KCLO-TV). All of thesestations are in the process of completing their installation and should be onthe air with digital transmissions before September 30, 2003. Applications, asrequired, have been filed with the Federal Communications Commissionsrequesting additional time to complete this work.

 

**Critical Accounting Policies**

 

The Company’s critical accounting for the impairment of property,equipment and intangible assets is assessing the recoverability by makingassumptions regarding estimated future cash flows and other factors todetermine the fair value of the respective assets. If these estimates orrelated assumptions materially change in the future, the Company may berequired to record impairment charges not previously recorded for these assets.At March 31, 2003, the Company had $88.7 million in net property and equipment,$25.5 million of goodwill, $512.4 million of broadcast licenses and $22.2million of other amortizable intangibles. In May 2002, the Company completedits review for impairment of goodwill and certain other intangibles upon theadoption of the new accounting standard in January 2002, recognized an impairmentloss related to KRON-TV’s broadcast license of $184.9 million and recorded itas a cumulative effect of an accounting change, net of tax benefits ofapproximately $123.3 million. The Company will perform its annual impairmenttest in the fourth quarter of each year. Due to the uncertain economic andgeopolitical climate, management cannot determine with any certainty if anadditional  impairment of KRON-TV’sbroadcast license may occur. If an impairment loss is required, it will berecorded as a charge to continuing operations.

 

**TelevisionRevenues**

 

Set forth below are the principal types of television revenues receivedby the Company’s stations for the periods indicated and the percentagecontribution of each to the Company’s total revenue, as well as agency andnational sales representative commissions:

 

|             |   | **Three  Months Ended March 31,** |   |
|------------------|--------|-----------------------------------|--------|
|             |   | **2002**                          |   | **2003** |   |
|             |   | **Amount**                        |   | **%** |   | **Amount** |   | **%** |   |
|             |   | **(dollars in thousands)**        |   |
| Revenues         |   |                              |   |   |   |   |   |   |   |
| Local            |   | $                                 | 29,027 |   | 54.2 |   | $ | 31,242 |   | 57.2 |   |
| National         |   | 17,067                            |   | 31.9 |   | 19,029 |   | 34.8 |   |
| Network          |   | 2,868                             |   | 5.4 |   | 2,431 |   | 4.4 |   |
| Political        |   | 2,944                             |   | 5.5 |   | 180 |   | 0.3 |   |
| Production/Other |   | 1,588                             |   | 3.0 |   | 1,792 |   | 3.3 |   |
| Total            |   | $                                 | 53,494 |   | 100.0 |   | $ | 54,674 |   | 100.0 |   |
|             |   |                              |   |   |   |   |   |   |   |
| Commissions      |   | (6,907                            | )      | (12.9 | ) | (7,436 | ) | (13.6 | ) |
|             |   |                              |   |   |   |   |   |   |   |
| Net Revenue      |   | $                                 | 46,587 |   | 87.1 |   | $ | 47,238 |   | 86.4 |   |

 

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**Resultsof Operations**

 

The results from continuing operations for the threemonths ended March 31, 2002 do not include the results of operations forKCAL-TV. These results are reflected as discontinued operations.

 

*ThreeMonths Ended March 31, 2003 Compared to Three Months Ended March 31, 2002*

 

Net revenue for the three months ended March 31, 2003was $47.2 million, an increase of $651,000, or 1.4%, compared to $46.6 millionfor the three months ended March 31, 2002. The war in Iraq caused the networksto pre-empt regularly scheduled programming and caused several advertisers tocancel their advertising spots, resulting in a loss of revenue.  The Company estimated that the warnegatively impacted revenues in the three months ended March 31, 2003 byapproximately $2.0 million to $2.5 million. Despite the pre-emptions andcancellations, the Company’s gross local and national revenues increased 7.6%and 11.5%, respectively. Network compensation for the three months ended March31, 2003 was $2.4 million; a decrease of $437,000, or 15.2% compared to $2.9million for the three months ended March 31, 2002.  The decrease in network compensation was the result of thepre-emption of scheduled programming as a result of the network coverage of thewar in Iraq.  Political revenue for thethree months ended March 31, 2003 was $180,000, a decrease of $2.8 million. Thedecrease in political revenue was attributable to the existence of stronglycontested local races in Iowa, California and South Dakota in 2002, while 2003had only limited state and local elections.

 

Operating expenses and selling, general andadministrative expenses for the three months ended March 31, 2003 and 2002 were$33.5 million for each period. On October 1, 2002, the Company implemented areorganization plan at KRON-TV, intended to reduce expenses for 2003.  Because of this plan and the Company’scontrol over operating costs of all of its stations, operating expenses did notincrease compared to the prior year period. Non-cash compensation was $314,000 for the three months ended March 31,2003, compared to $377,000 for the three months ended March 31, 2002, adecrease of $63,000.

 

Amortization of program license rights for the threemonths ended March 31, 2003 was $4.6 million, compared to $4.3 million for thethree months ended March 31, 2002, an increase of $335,000, or 7.8%.Approximately $239,000 of this increase was the result of the purchase of the *Oprah* show in September 2002 at one of theCompany’s stations.  The remainingincrease was for scheduled increases in programming contracts.

 

Depreciation of property and equipment andamortization of intangible assets was $6.0 million for the three months endedMarch 31, 2003, compared with $6.1 million for the comparable period in 2002, adecrease of $116,000, or 1.9%.

 

Corporate overhead for the three months ended March31, 2003 was $3.1 million, compared to $2.7 million for the comparable periodin 2002, an increase of $409,000 or 15.0%. This increase was a result ofadditional personnel fees and professional costs.

 

Interest expense for the three months ended March 31,2003 was $16.0 million, compared to $26.8 million for the same period in 2002,a decrease of $10.8 million, or 40.3%. The decrease was primarily attributable to lower debt levels resultingfrom the Company’s repayment in 2002 of all of its outstanding indebtednessunder its senior credit facility and portions of its senior notes and seniorsubordinated notes pursuant to the par offers, as well as from reductions ineffective interest rates relating to the Company borrowings under LIBOR andprime.  The Company had interest income,net, from its interest rate swaps of $522,000 and $273,000 for the three monthsended March 31, 2003 and 2002, and recorded it as a reduction of interestexpense.

 

12

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The Company recorded a $1.5 million and $4.3 millionnon-cash change in market valuation of swaps for the three months ended March31, 2003 and 2002, respectively. The Company recorded $1.2 million and $2.2million of non-cash interest expense for the three months ended March 31, 2003and 2002, respectively, relating to the amortization of other comprehensiveloss in connection with its swap transactions entered into in 2000 andterminated in June 2001. The Company also recorded a mark-to-market non-cashchange in fair value of approximately $223,000 and $2.0 million for the threemonths ended March 31, 2002 and 2003, respectively for its current outstandingfair value hedges.

 

On May 15, 2002, the Company completed the sale ofKCAL-TV to Viacom Inc. for $650.0 million, less purchase price adjustments. The Company recorded income fromdiscontinued operations, net of applicable taxes related to KCAL-TV, of $2.9million for the three months ended March 31, 2002.

 

Effective January 1, 2002, the Company recorded a cumulative effect ofaccounting change of $184.9 million net, net of tax benefits of approximately$123.3 million, relating to the adoption of Statement 142.

 

As a result of these factors discussed above, the netloss for the Company was $17.7 million for the three months ended March 31,2003, compared with a net loss of $213.3 million for the three months endedMarch 31, 2002, a change  of $279.4million.

 

**Liquidityand Capital Resources**

 

Cash provided by operations for the three months endedMarch 31, 2003 was $8.2 million compared to cash used in operations for thethree months ended March 31, 2002 of $2.4 million.  The war in Iraq caused the networks to pre-empt regularlyscheduled programming and caused several advertisers to cancel theiradvertising spots, resulting in a loss of revenue.  The Company estimated that the war negatively impacted revenuesin the three months ended March 31, 2003 by approximately $2.0 million to $2.5million.  Trade accounts payable decreased $6.5 millionand $1.7 million for the three months ended March 31, 2003 and 2002,respectively.  At December 31, 2002 theCompany had approximately $3.0 million in accounts payable relating to thereorganization plan at KRON-TV that was paid in January 2003. The lower debtlevels and reduced effective interest rates relating to the Company’sborrowings in 2002 resulted in a decrease in accrued expenses of $9.5 millionfor the three months ended March 31, 2003 compared to a decrease of $10.1million for the three months ended March 31, 2002. At December 31, 2002,the Company recorded an income tax receivable of $28.8 million, of which $28.0million was received in the first quarter of 2003. On March 15, 2003, theCompany paid $1.0 million in estimated income tax. Accounts receivabledecreased by $6.7 million for the three months ended March 31, 2003, comparedto a decrease in accounts receivable of $22.5 million for the three monthsended March 31, 2002.  The decline ofadvertising revenue in the San Francisco market, the loss of the NBCaffiliation at KRON-TV on January 1, 2002 and the resulting impact on ratingsnegatively affected the revenues at KRON-TV and caused accounts receivable todecrease sharply for the three months ended March 31, 2002.  As of December 31, 2002, the Company hadaccrued approximately $7.5 million of expenses related to the sale of KCAL-TVand the Company’s obligation to reimburse Viacom Inc. for certain costs.Payments and adjustments relating to this accrual will be finalized in thefirst half of 2003.

 

The performance of KRON-TV has a significant impact on the Company’soperating results. Consequently, the Company is particularly susceptible toeconomic conditions in

 

13

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the San Francisco advertising market. While 2003 first quarter revenues at KRON-TV were stronger than those inthe same period last year, the uncertain economic and geopolitical climate makethe outlook unclear.

 

Cash used in investing activities for the three months ended March 31,2003 was $2.4 million, compared to $3.4 million for the three months endedMarch 31, 2002. During 2002 and 2003, the Company incurred significant capitalexpenditures for building digital transmission facilities, as required byFederal Communications Commission regulations. The timing of these projects hasbeen constrained by regulatory approvals, equipment availability, constructioncrew availability and weather conditions. Deposits for the Company decreased$83,000 for the three months ended March 31, 2003, as compared to an increaseof $3.1 million for the three months ended March 31, 2002. The decrease indeposits in 2003 was from completed digital construction projects beingrecorded as capital expenditures and the increase in 2002 deposits wereprimarily from the construction-in-progress for the digital conversion.Construction-in-progress balances at March 31, 2003 and December 31, 2002 were$7.9 million and $8.1 million, respectively. The Company estimates that, by theend of the second quarter of 2003,  $6.1million currently in construction-in-progress will be placed in service and recordedas an addition to capital expenditures. For 2003, $2.5 million of capitalexpenditures were placed in service, however, since approximately $2.3 millionof the capital expenditures were paid for in 2002, the cash payments in 2003relating to capital expenditures were approximately $209,000.

 

Cash used in financing activities for the three months ended March 31,2003 was $176,000 compared to cash provided by financing activities for thethree months ended March 31, 2002 of $4.5 million. Financing activities for thethree months ended March 31, 2002 included principal payments and borrowingsunder the senior credit facilities of $10.2 million and $15.6 million,respectively.

 

As of March 31, 2003, the Company had $116.0 million of cash-on-handavailable for general corporate purposes. All of these funds were invested inshort-term, risk-averse investments, in accordance with the terms of theCompany’s indentures.

 

On June 26, 2000, the Company entered into a new senior credit facilitywhich provided for borrowings of up to an aggregate of $600.0 million (the “NewSenior Credit Facility”) in the form of an amortizing term loan facility in theamount of $125.0 million (“Term A”) that matures on November 30, 2005, and anamortizing term loan facility in the amount of $475.0 million (“Term B”) that matureson December 31, 2006. Upon the sale of KCAL-TV, all indebtedness outstandingunder these term loans was repaid in full. In addition, on June 26, 2000, theCompany amended and restated its existing senior credit facility (as amended,the “Amended and Restated Credit Facility”), to provide for borrowings of up toan aggregate of $200.0 million, in the form of a $50.0 million term loan and arevolving credit facility in the amount of $150.0 million, both of which matureon November 30, 2005. Upon the closing of the sale of KCAL-TV, all indebtednessoutstanding under this term loan and under the revolving facility was repaid infull. Pursuant to Amendment No. 6 to the Amended and Restated Credit Facility,the revolving credit portion of the loan facility was reduced to $100.0million. The New Senior Credit Facility and the Amended and Restated CreditFacility are referred to collectively as the “Senior Credit Facility.”

 

Pursuant to the Senior Credit Facility, the Company is prohibited frommaking investments or advances to third parties exceeding $15.0 million unlessthe third party becomes a guarantor of the Company’s obligation. In addition,the Company may utilize the undrawn amounts under the revolving portion of theSenior Credit Facility to retire or prepay subordinated debt, subject to thelimitations set forth in the indentures.

 

14

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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 afloating percentage tied to the Company’s ratio of total debt to operating cashflow; ranging, in the case of LIBOR rate loans, from 1.75%, based upon a ratiounder 5.0:1, to 3.5%, based upon a 7.0:1 or greater ratio for the Term Aadvances and revolver facility; and 3.75% for the Term B advances.

 

Each of the Subsidiaries has guaranteed the Company’s obligations underthe Senior Credit Facility. The Senior Credit Facility is secured by the pledgeof all the stock of the Subsidiaries and a first priority lien on all of theassets of the Company and its Subsidiaries.

 

The Senior Credit Facility requires the Company to maintain certainfinancial ratios. Pursuant to Waiver and Amendment No. 7 to the Company’sSenior Credit Facility, compliance with all applicable financial ratios hasbeen waived commencing for the quarter ended June 30, 2002 until December 30,2003, and the Company is limited to $10.0 million of borrowing under therevolving facility until such time as the Company is in compliance with allapplicable financial ratios (without giving effect to the waivers). Effectivewith the issuance of the Senior Notes, as defined below, the Company is notrequired to maintain a total debt to operating cash flow ratio until June 30,2004, when the commencing ratio will be 7.35x, the Company is required tomaintain a senior debt to operating cash flow ratio ranging from 3.50x to4.00x, and the Company is required to maintain until December 31, 2004 a seniorsecured debt to operating cash flow ratio ranging from 1.75x to 2.00x.

 

The Senior Credit Facility requires the Company to apply on April 30 ofeach year 50% to 75% (depending upon the level of the Company’s debt tooperating 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, toreduce outstanding senior bank debt in proportion to the outstanding principalamount of such advances. The Senior Credit Facility also contains a number ofcustomary covenants including, among others, limitations on investments andadvances, mergers and sales of assets, liens on assets, affiliate transactionsand changes in business. As of December 31, 2002, there was no debt outstandingunder the Senior Credit Facility and thus no calculation of “Excess Cash Flow”was made for 2002.

 

On December 7, 2001, the Company completed a private offering of $250.0million principal amount of its 81⁄2% Senior Notes due 2008 (the “Senior Notes”). The Senior Noteswere initially offered to qualified institutional buyers under Rule 144A and topersons outside the United States under Regulation S. The Company used all ofthe net proceeds of approximately $243.1 million to repay a portion of itsoutstanding indebtedness under its Senior Credit Facility, including prepaymentpremiums, and to pay fees related to the Senior Notes. On July 2, 2002, theCompany exchanged the Senior Notes for notes of the Company with substantiallyidentical terms of the Senior Notes, except the new notes do not contain termswith respect to transfer restrictions.

 

Concurrent with the closing of the Senior Notes, the Senior Notesindenture required the Company to place into an escrow account, for the benefitof the holders of the Senior Notes, an amount sufficient to pay the first fourinterest payments on the Senior Notes (the “Escrow Account”). The EscrowAccount of $41.4 million was funded by the Company from borrowings under itsSenior Credit Facility. The Company entered into an escrow agreement toprovide, among other things, that funds may be disbursed from the EscrowAccount only to pay interest on the Senior Notes (or, if a portion of theSenior Notes has been retired by the Company, funds representing the interestpayment on the retired Senior Notes will be released to the Company as long asno default exists under the indenture), and, upon certain repurchases orredemptions thereof, to pay principal of and premium, if any, thereon. Allfunds placed in the Escrow Account were invested on December 7, 2001 inTreasury Bills, Treasury Principal Strips and Treasury Interest Strips withmaturity dates in correlation with the interest payments for the first twoyears.

 

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On August 12, 2002, the Company commenced offersto purchase for cash all of its Senior Notes and a portion of its outstanding9% Senior Subordinated Notes due 2006, 83⁄4% Senior Subordinated Notes due 2007,and 10% Senior Subordinated Notes due 2011 (collectively referred to as the“Senior Subordinated Notes,” and the Senior Notes and the Senior SubordinatedNotes are collectively referred to as the “Notes”). These offers were made withthe net proceeds from the sale of KCAL-TV, in accordance with the terms of theindentures governing the Notes. The net proceeds of the KCAL-TV sale, pursuantto the terms of the indentures, were approximately $350.0 million. The purchaseprice for the Notes in the offers was equal to $1,000 per $1,000 principalamount of the notes tendered and accepted, plus accrued and unpaid interestthrough September 17, 2002 in the case of the Senior Notes and September 24,2002 in the case of the Senior Subordinated Notes. The offers expired inaccordance with their terms on September 12, 2002.

 

On September 18, 2002, pursuant to the termsof the Senior Note offer, the Company purchased $93.1 million aggregateprincipal amount of the Senior Notes (constituting all of the Senior Notesvalidly tendered and not withdrawn in the offer) and paid accrued interest ofapproximately $2.0 million thereon. On October 17, 2002, as a result of thepurchase of Senior Notes and in accordance with the escrow agreement relatingto the Senior Notes, approximately $11.8 million was released from the escrowaccount and is available to the Company for general corporate purposes.

 

On September 25, 2002, pursuant to the termsof the Senior Subordinated Note offer, the Company purchased $38.9 millionaggregate principal amount of its 9% Senior Subordinated Notes, $62.3 millionaggregate principal amount of its 83⁄4% Senior Subordinated Notes and $155.7million aggregate principal amount of its 10% Senior Subordinated Notes andpaid accrued interest of approximately $681,100, $1.5 million and $1.0 million,respectively, thereon. The principal amount of the Senior Subordinated Notespaid was determined based on the pro-ration provisions of the indenturesgoverning the Senior Subordinated Notes.

 

Debt amounts outstanding at  March 31, 2003 were as follows (dollars inthousands):

 
|                                        |   | **3/31/03** |    | **Annualized  Interest Amounts(1)** |   |
|---------------------------------------------|--------|-------------|---------|-------------------------------------|--------|
| Senior Credit Facility                      |   | $           | —  |                                | $      | — |   |
| 81⁄2% Senior Notes due 2008              |   | 156,890     |    | 13,336                              |   |
| 9% Senior Subordinated Notes due 2006       |   | 86,081      |    | 7,747                               |   |
| 83⁄4% Senior Subordinated Notes due 2007 |   | 137,730     |    | 12,051                              |   |
| 10% Senior Subordinated Notes due 2011      |   | 344,299     |    | 34,430                              |   |
| Total Debt (excluding capital leases)       |   | $           | 725,000 |                                | $      | 67,564 |   |

 

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(1) The annualizedinterest amounts are calculations of the outstanding principal amounts at3/31/03 multiplied by the interest rates of the related notes.

 

The Company’s total debt at March 31, 2003 was approximately $726.9million, consisting of $568.1 million of Senior Subordinated Notes, $156.9million of Senior Notes and $1.9 million of capital leases. In addition, atMarch 31, 2003, the Company had an additional $100.0 million of unusedavailable borrowings under the revolving credit portion of the Senior CreditFacility; provided, however, pursuant to Waiver and Amendment No. 7 to theSenior Credit Facility, the Company is limited to $10.0 million of borrowingsunder the revolving facility until such time as the Company is in compliancewith all applicable financial ratios (without giving effect to the waivers).

 

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On June 27, 2001, the Company entered into interest rate swapsagreements for a total notional amount of $100.0 million with two commercialbanks who are also lenders under the Senior Credit Facility. The swap’seffective date was September 4, 2001 and expires on March 1, 2011. The Companypays a floating interest rate based upon a six month LIBOR rate and the Companyreceives interest from the commercial banks, at a fixed rate of 10.0%. The netinterest rate differential received was recognized as an adjustment to interestexpense. The interest swaps are accounted for at market value and do notqualify for hedge accounting. The Company received approximately $14.0 millionat the inception of the swap agreements, which was used to pay the outstandingliability upon the termination of the old cash flow hedges, and recorded a swapliability. The Company recorded, for the three months ended March 31, 2003 and2002, $1.2 million and $2.2 million, respectively of non-cash interest expenserelating to the amortization of the old swap liability. The swap liability isbeing adjusted to fair value on a quarterly basis as a charge to current periodinterest expense over the term of the swap, which began on September 4, 2001.The Company recorded a mark-to-market change in fair value of $223,000 and $2.0million for the three months ended March 31, 2003 and 2002, respectively, forits current outstanding hedges.

 

The amount remaining in other comprehensive income from the terminatedswaps are being amortized to earnings over what would have been the life of theswaps.

 

It is anticipated that the Company will be able to meet the workingcapital needs of its stations, scheduled principal and interest payments underthe Company’s Senior Notes and Senior Subordinated Notes and capitalexpenditures, from cash on hand, cash flows from operations and funds availableunder the Senior Credit Facility.

 

**IncomeTaxes**

 

The Company files a consolidated federal income taxreturn and such state and local tax returns as are required. The Companyrecorded a gain on the sale of KCAL-TV in 2002 of approximately $153.9 million,net of a provision for income taxes of $132.0 million. As a result of thisincome, the Company was able to realize a tax benefit from the utilization ofthe loss from operations for the year ended December 31, 2002, tax loss carryforwards,and the cumulative effect of an accounting change. In addition, the Company hasrecorded a deferred tax asset of $6.0 million and $2.0 million as of December31, 2002 and March 31, 2003, respectively, related to existing temporarydifferences that are expected to generate future tax losses that can be carriedback to 2002.  The Company recorded anincome tax receivable at December 31, 2002 of $28.8 million, of which $28.0million was received in the first quarter of 2003.

 

**Contractual Obligations and OtherCommercial Commitments**

 

The Company has obligations and commitments under itslong-term debt agreements and instruments to make future payments of principaland interest. The Company also has obligations and commitments under certaincontractual arrangements to make future payments for goods and services. Thesearrangements secure the future rights to various assets and services to be usedin the normal course of operations. Under generally accepted accountingprinciples, certain of these arrangements (i.e., programming contracts that arecurrently available for airing) are recorded as liabilities in the Company’sconsolidated balance sheet, while others (i.e., operating lease arrangementsand programming not currently available) are not reflected as liabilities.

 

The following tables summarize separately theCompany’s material obligations and commitments at March 31, 2003 and the timingof payments required in connection therewith and the effect that such paymentsare expected to have on the Company’s liquidity and cash flow in futureperiods.

 

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The Company expects to fund the current obligationswith cash on hand, cash flow from operations and funds available under itsSenior Credit Facility.

 
|                                   |   | **Payments  Due by Period** |    |
|----------------------------------------|--------|-----------------------------|---------|
| **Contractual Obligations**            |   | **Total**                   |    | **Less than  1 year** |   | **1 – 3  years** |   | **4 – 5  years** |   | **After 5  years** |   |
|                                   |   | **(dollars  in thousands)** |    |
| Long-Term Debt  (principal only)       |   | $                           | 725,000 |   | $ | — |   | $ | 86,081 |   | $ | 294,620 |   | $ | 344,299 |   |
| Capital Lease  Obligations             |   | 1,877                       |    | 630 |   | 1,247 |   | — |   | — |   |
| Operating Leases                       |   | 7,972                       |    | 1,794 |   | 3,653 |   | 957 |   | 1,568 |   |
| Unconditional  Purchase Obligations(1) |   | 9,405                       |    | 8,257 |   | 1,148 |   | — |   | — |   |
| Other Long-Term  Obligations(2)        |   | 48,346                      |    | 6,825 |   | 34,379 |   | 7,142 |   | — |   |
| Total  Contractual Cash Obligations    |   | $                           | 792,600 |   | $ | 17,506 |   | $ | 126,508 |   | $ | 302,719 |   | $ | 345,867 |   |

 

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(1) Unpaid program license liability reflected on theMarch 31, 2003 balance sheet.

(2) Obligations for programming that has beencontracted for, but not recorded on the March 31, 2003 Balance Sheet becausethe programs were not currently available for airing.

 

**RecentlyIssued Accounting Standards**

 

In June 2001, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standards No. 143, *Accounting for Asset Retirement Obligations*("FAS 143"), effective for fiscal years beginning after June 15,2002.  This standard provides theaccounting for the cost of legal obligations associated with the retirement oflong-lived assets.  FAS 143 requiresthat companies recognize the fair value of a liability for asset retirementobligations in the period in which the obligations are incurred and capitalizethat amount as a part of the book value of the long-lived asset.  That cost is then depreciated over theremaining life of the underlying long-lived asset.  The provisions of FAS No. 143 became effective for the Companyduring the first quarter of 2003.  TheCompany has assessed the impact of this new standard and determined that theadoption of FAS No. 143 did not have a material effect on the Company'sfinancial statements.

 

In June 2002, the FASB issued Statement of Financial AccountingStandards No. 146, *Accounting for CostsAssociated with Exit of Disposal Activities*(“Statement 146”),effective for exit or disposal activities that are initiated after December 31,2002. The Company’s adoption of this new standard is not expected to have amaterial impact on the results of operating and financial position.

 

In April 2003, the FASB issued Statement of FinancialAccounting Standards No. 149, *Amendment ofStatement 133 on Derivative Instruments and Hedging Activities*("Statement 149"), effective for contracts entered into or modifiedafter June 30, 2003.  The Company'sadoption of this new standard is not expected to have a material impact on theresults of operating and financial position.

 

In May 2003, the FASB issued Statement of FinancialAccounting Standards No. 150, *Accounting forCertain Financial Instruments with Characteristics of both Liabilities andEquity* ("Statement 150"), effective immediately toinstruments entered into or modified after May 31, 2003 and to all otherinstruments that exist as of the beginning of the first interim financialreporting period beginning after June 15, 2003.  Application to pre-existing instruments should be recognized asthe cumulative effect of a change in accounting principle (application byretroactive restatement is precluded). Early adoption of Statement 150 is not permitted.  The Company's adoption of this new standardis not expected to have a material impact on the results of operating andfinancial position.

 

In January 2003, the FASB issued FASB Interpretation No. 46,Consolidation of Variable Interest Entities ("FIN 46"), whichrequires variable interest entities (commonly referred to as SPEs) to beconsolidated by the primary beneficiary of the entity if certain criteria aremet.  FIN 46 is effective immediatelyfor all new variable interest entities created or acquired after January 31,2003.  For variable interest entitiescreated or acquired prior to February 1, 2003, the provision of FIN 46 becomeeffective for the Company during the third quarter of 2003.  For variable interest entities acquiredprior to February 1, 2003, any difference between the net amount added to thebalance sheet and the amount of any previously recognized interest in thevariable interest entity would be recognized as a cumulative effect of anaccounting change.  The Company has notcompleted its review regarding FIN 46, however the Company's adoption of thisinterpretation is not expected to have a material impact on the results ofoperating and financial position.

 

**Item3**. ***Quantitative and Qualitative Disclosure About Market Risk.***

 

The Company’s Senior Credit Facility, with no amountsoutstanding as of March 31, 2003, bears interest at floating rates.Accordingly, to the extent there are amounts outstanding under the SeniorCredit Facility, the Company is exposed to potential losses related to changesin interest rates.

 

The Company’s Senior Subordinated Notes ofapproximately $568.1 million outstanding as of March 31, 2003 are generalunsecured obligations of the Company and are subordinated in right of paymentto all senior debt, including all indebtedness of the Company under the SeniorCredit Facility and the Senior Notes. The Senior Subordinated Notes have fixedrates of interest ranging from 83⁄4% to 10% and are ten-year notes maturing invarious years commencing 2006. The annualized interest expense on theoutstanding Senior Subordinated Notes is approximately $54.2 million.

 

The Company’s Senior Notes of approximately $156.9million outstanding as of March 31, 2003 have a fixed rate of interest of 81⁄2%and mature in 2008. The annualized interest expense on the outstanding seniornotes is approximately $13.3 million.

 

The Company does not enter into derivatives or otherfinancial instruments for trading or speculative purposes; however, in order tomanage its exposure to interest rate risk, the Company entered into derivativefinancial instruments in June 2001. These derivative financial instruments areinterest rate swap agreements that expire in 2011. The Company does not applyhedge accounting to these instruments.

 

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**Item4. *Controls and Procedures*.**

 

Our management carried out an evaluation, with theparticipation of our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of our disclosure controls and procedures as of March 31,2003. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported, within the time periods specified in therules and forms of the Securities and Exchange Commission.

 

There has not been any change in our internal control over financialreporting in connection with the evaluation required by Rule 13a-15(d) underthe Exchange Act that occurred during the quarter ended March 31, 2003 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PARTII.  OTHER INFORMATION**

 

**Item1.  *LegalProceedings.***

 

Julian Graham &Julian Graham Chevrolet, Inc. v. Young Broadcasting Inc.,

Young Broadcasting ofRichmond, Inc. and Richard Real

Case No. LP 1723-1(Circuit Court, City of Richmond, Virginia)

 

On July 31, 2002, plaintiffs served upon Young Broadcasting Inc., YoungBroadcasting of Richmond, Inc. (“WRIC-TV”) and Richard Real a complaintalleging that the defendants defamed plaintiffs in a news story concerningJulian Graham Chevrolet that aired in April and May of 2002. Specifically, thenews story of television station WRIC-TV reported that Julian Graham Chevrolethad filed for bankruptcy. Neither Julian Graham nor Julian Graham Chevrolet hadfiled for bankruptcy. The Company has responded to the complaint and obtained adismissal of one of the two claims. The parties have exchanged writtendiscovery and have taken numerous depositions. The case was scheduled for trialto begin on March 10, 2003, however, when the court refused to allow plaintiffsto present their expert witnesses because they had not timely disclosed theidentities of these expert witnesses, plaintiffs voluntarily dismissed the casebut immediately re-filed the case. The re-filed case is substantially similar tothe previous case. Specifically, plaintiffs have re-alleged themisappropriation claim that the Court previously dismissed. Additionally,plaintiffs have revised the amount of damages sought; increasing the amount ofcompensatory damages sought for Julian Graham, decreasing the amount ofcompensatory damages sought for Julian Graham Chevrolet, and decreasing theamount of punitive damages sought for both. The total amount sought in there-filed case is $114.0 million; whereas, the total amount sought in theprevious case was $100.0 million. Defendants should be able to again obtain adismissal of the misappropriation claim, which will reduce the amount ofrequested damages in half (to $57.0 million). Trial is set for October 20,2003. The Company has vigorously defended this matter. The parties have againserved written discovery upon one another and will likely take a few moredepositions. It is too early to estimate the likelihood of plaintiff’s chancesof recovery, or a potential amount of recovery. Approximately three months ago,plaintiffs offered to settle for $10.0 million, which is the limit of coverageunder the Company’s insurance policy. The Company never responded to thatoffer.

 

The Company is involved in other legal proceedings and litigation arisingin the ordinary course of business. In the Company’s opinion, the outcome ofsuch proceedings and litigation currently pending will not materially affectthe Company’s financial condition or results of operations.

 

**Item6. * Exhibits and Reports on Form 8-K.***

 

(a) *Exhibits.*

 
| **Exhibit  Number** |   | **Exhibit  Description**                        |
|---------------------|--------|-------------------------------------------------|
| 11                  |   | Statement Re Computation of Per Share Earnings. |
|                |   |                                            |
| 31.1                |   | Rule 13a-14(a)/15d-14(a) Certifications         |
|                |   |                                            |
| 32.1                |   | Section 1350 Certifications                     |

 

(b)  *Reports on Form 8-K.*  The Company filed the following reports onForm 8-K during the first quarter of the year ending December 31, 2003.

 
| **Date of Report** |   | **Date  Report  Filed with SEC** |   | **Items  Reported**              |   |
|--------------------|--------|----------------------------------|--------|----------------------------------|--------|
| March 19, 2003     |   | March 19, 2003                   |   | Item 9-Regulation FD  Disclosure |   |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused amendment no. 1 to thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|   |            |   |   |   |                                                  |
|--------|-----------------|--------|--------|--------|-------------------------------------------------------|
| Date:  | August 22, 2003 |   |   | By:    | /s/ James A. Morgan                                   |   |
|   |            |   |   |   | James A. Morgan                                       |
|   |            |   |   |   | Executive Vice President and  Chief Financial Officer |
|   |            |   |   |   | (principal financial officer)                         |

 

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