**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,  D.C.  20549**

 

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**FORM 10-Q**

 

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**QuarterlyReport Pursuant to Section 13 or 15 (d) of theSecurities Exchange Act of 1934**

 

| **For the quarterly period ended  September 30, 2003**                                                                                 |   | **Commission file number:  0-25042**  |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|
|                                                                                                                                   |   |                                  |
| **YOUNG  BROADCASTING INC.**                                                                                                           |
| (Exact name of registrant as 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 bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes  ý    No  o

 

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

 

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Number ofshares of Common Stock outstanding as of November 5, 2003: 17,680,022 shares ofClass A Common Stock, and 2,141,049 shares of Class B Common Stock.

 

 

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**YOUNG BROADCASTINGINC.**

 

**FORM10-Q**

 

**Tableof Contents**

 
| Part I     | Financial Information                                                                                          |
|------------|----------------------------------------------------------------------------------------------------------------|
|       |
|       | Item 1. Financial Statements (unaudited)                                                                  |
|       |
|       | Consolidated Balance Sheets as of December 31, 2002 and September 30,  2003                                    |
|       |
|       | Consolidated Statements of Operations for  the Three and Nine Months Ended September 30, 2002 and 2003         |
|       |
|       | Consolidated Statements of Stockholders’  Equity for the Nine Months Ended September 30, 2003             |
|       |
|       | Consolidated Statements of Cash Flows for  the Nine Months Ended September 30, 2002 and 2003                   |
|       |
|       | Notes to Consolidated Financial Statements                                                                     |
|       |
|       | Item 2.  Management’s Discussion  and Analysis of Financial Condition and Results of Operations |
|       |
|       | Item 3.  Quantitative and  Qualitative Disclosure About Market Risk                                  |
|       |
|       | Item 4.  Controls and Procedures                                                                     |
|       |
| Part  II.  |
|       |
|       | Item 1.  Legal Proceedings                                                                           |
|       |
|       | Item 6.  Exhibits and Reports on  Form 8-K                                                           |
|       |
| Signatures |
|            |                                                                                                                |  |

 

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**Part I  Financial Information**

**Item 1. *FinancialStatements***

 

Young Broadcasting Inc. and Subsidiaries

Consolidated Balance Sheets

 
|                                                                                                                                                  |   | **December  31,  2002** |        | **September  30,  2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|--------------------------|------------|
|                                                                                                                                                  |   |                    |        | **(Unaudited)**          | ** ** |
| **Assets**                                                                                                                                            |   |                    |        |                     |       |
| Current assets:                                                                                                                                       |   |                    |        |                     |       |
| Cash and cash equivalents                                                                                                                             |   | $                       | 110,406,572 | ** **               | **$**      | **98,315,094** | ** ** |
| Trade accounts receivable, less allowance  for doubtful accounts of $1,229,000 in 2002 and $1,594,000 in 2003                                         |   | 41,867,871              | ** **  | **37,966,869**           | ** ** |
| Income taxes receivable                                                                                                                               |   | 28,787,381              | ** **  | **5,382,525**            | ** ** |
| Escrow account – current                                                                                                                         |   | 13,248,057              | ** **  | **6,668,098**            | ** ** |
| Current portion of program license rights                                                                                                             |   | 12,910,034              | ** **  | **23,155,460**           | ** ** |
| Prepaid expenses                                                                                                                                      |   | 3,445,842               | ** **  | **3,777,613**            | ** ** |
| Total current assets                                                                                                                                  |   | 210,665,757             | ** **  | **175,265,659**          | ** ** |
|                                                                                                                                                  |   |                    | ** **  |                     | ** ** |
| Property and equipment, less accumulated  depreciation and amortization of $157,356,664 in 2002 and $170,139,852 in  2003                             |   | 90,509,977              | ** **  | **85,626,116**           | ** ** |
| Program license rights, excluding current  portion                                                                                                    |   | 1,129,042               | ** **  | **606,176**              | ** ** |
| Deposits and other assets                                                                                                                             |   | 14,035,792              | ** **  | **16,727,870**           | ** ** |
| Deferred tax asset                                                                                                                                    |   | 6,000,000               | ** **  | **—**               | ** ** |
| Goodwill                                                                                                                                              |   | 25,543,772              | ** **  | **25,543,772**           | ** ** |
| Unamortized intangible assets                                                                                                                         |   | 512,427,167             | ** **  | **512,427,167**          | ** ** |
| Amortized intangible assets, net                                                                                                                      |   | 22,992,256              | ** **  | **20,500,199**           | ** ** |
| Deferred charges, net                                                                                                                                 |   | 9,280,535               | ** **  | **7,787,329**            | ** ** |
| **Total Assets**                                                                                                                                      |   | $                       | 892,584,298 | ** **               | **$**      | **844,484,288** | ** ** |
|                                                                                                                                                  |   |                    |        |                     |       |
| **Liabilities and stockholders’ equity**                                                                                                         |   |                    | ** **  |                     | ** ** |
| Current liabilities:                                                                                                                                  |   |                    | ** **  |                     | ** ** |
| Trade accounts payable                                                                                                                                |   | $                       | 15,278,888  | ** **               | **$**      | **10,813,721** | ** ** |
| Accrued interest                                                                                                                                      |   | 15,359,910              | ** **  | **11,664,005**           | ** ** |
| Accrued income tax liability                                                                                                                          |   | 699,439                 | ** **  | **153,564**              | ** ** |
| Accrued expenses                                                                                                                                      |   | 20,912,536              | ** **  | **12,712,617**           | ** ** |
| Current installments of program license  liability                                                                                                    |   | 12,300,554              | ** **  | **19,271,941**           | ** ** |
| Current installments of obligations under  capital leases                                                                                             |   | 549,751                 | ** **  | **896,533**              | ** ** |
| Total current liabilities                                                                                                                             |   | 65,101,078              | ** **  | **55,512,381**           | ** ** |
| Program license liability, excluding  current installments                                                                                            |   | 1,596,676               | ** **  | **1,040,702**            | ** ** |
| Long-term debt                                                                                                                                        |   | 725,000,000             | ** **  | **725,000,000**          | ** ** |
| Deferred taxes and other liabilities                                                                                                                  |   | 20,984,542              | ** **  | **13,849,691**           | ** ** |
| Obligations under capital leases, excluding  current installments                                                                                     |   | 1,492,346               | ** **  | **647,415**              | ** ** |
| **Total liabilities**                                                                                                                                 |   | 814,174,642             | ** **  | **796,050,189**          | ** ** |
| Stockholders’ equity*:*                                                                                                                          |   |                    | ** **  |                     | ** ** |
| Class A Common Stock, $.001 par value.  Authorized 40,000,000 shares; issued and outstanding 17,505,878 shares at  2002 and 17,664,188 shares at 2003 |   | 17,506                  | ** **  | **17,664**               | ** ** |
| Class B Common Stock, $.001 par value.  Authorized 20,000,000 shares; issued and outstanding 2,211,666 shares at 2002  and 2,142,949 at 2003          |   | 2,212                   | ** **  | **2,143**                | ** ** |
| Additional paid-in capital                                                                                                                            |   | 376,234,121             | ** **  | **377,473,962**          | ** ** |
| Accumulated other comprehensive loss                                                                                                                  |   | (2,474,597              | )           | **—**               | ** ** |
| Accumulated deficit                                                                                                                                   |   | (295,369,586            | )           | **(329,059,670**         | **)**      |
| Total stockholders’ equity                                                                                                                       |   | 78,409,656              | ** **  | **48,434,099**           | ** ** |
| **Total liabilities and stockholders’ equity**                                                                                                   |   | $                       | 892,584,298 | ** **               | **$**      | **844,484,288** | ** ** |

 

*See accompanying notes to consolidatedfinancial statements*

 

2

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**Young Broadcasting Inc. and Subsidiaries**

**Consolidated Statements of Operations**

(Unaudited)

 
|                                                                                                                                             |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended,  September 30,** |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|----------------------------------------|---------|
|                                                                                                                                             |   | **Restated**                           |       |                                   |    | **Restated** |   |   |   |
|                                                                                                                                             |   | **2002**                               |       | **2003**                               |    | **2002** |   | **2003** |   |
| Net operating revenue                                                                                                                            |   | $                                      | 57,879,844 |                                   | $       | 51,378,480 |   | $ | 158,917,284 |   | $ | 152,555,431 |   |
|                                                                                                                                             |   |                                   |       |                                   |    |   |   |   |   |
| Operating expenses, excluding depreciation  expense                                                                                              |   | 19,509,537                             |       | 19,421,942                             |    | 56,572,853 |   | 56,781,149 |   |
| Amortization of program license rights                                                                                                           |   | 4,365,237                              |       | 4,521,582                              |    | 12,783,868 |   | 13,475,630 |   |
| Selling, general and administrative  expenses, excluding depreciation expense                                                                    |   | 14,408,974                             |       | 14,109,955                             |    | 43,841,659 |   | 43,940,557 |   |
| Depreciation and amortization                                                                                                                    |   | 5,795,947                              |       | 5,910,643                              |    | 17,813,713 |   | 17,759,786 |   |
| Corporate overhead, excluding depreciation  expense                                                                                              |   | 2,626,846                              |       | 3,153,515                              |    | 8,378,172 |   | 9,581,186 |   |
| Operating income                                                                                                                                 |   | 11,173,303                             |       | 4,260,843                              |    | 19,527,019 |   | 11,017,123 |   |
|                                                                                                                                             |   |                                   |       |                                   |    |   |   |   |   |
| Interest expense, net                                                                                                                            |   | (21,880,294                            | )          | (15,956,243                            | )       | (73,392,355 | ) | (47,874,065 | ) |
| Non-cash change on market valuation of  swaps                                                                                                    |   | 4,594,612                              |       | (3,176,678                             | )       | 4,305,039 |   | (2,444,231 | ) |
| Loss on extinguishment of debt                                                                                                                   |   | (4,698,470                             | )          | —                                 |    | (9,391,095 | ) | — |   |
| Other (expense) income, net                                                                                                                      |   | (179,304                               | )          | (43,189                                | )       | (437,501 | ) | (174,390 | ) |
|                                                                                                                                             |   | (22,163,456                            | )          | (19,176,110                            | )       | (78,915,912 | ) | (50,492,686 | ) |
|                                                                                                                                             |   |                                   |       |                                   |    |   |   |   |   |
| Loss from continuing operations before  benefit from income tax and cumulative effect of accounting change                                       |   | (10,990,153                            | )          | (14,915,267                            | )       | (59,388,893 | ) | (39,475,563 | ) |
| Benefit from income tax                                                                                                                          |   | 4,396,061                              |       | 3,595,144                              |    | 23,755,557 |   | 3,595,144 |   |
| Loss from continuing operations before  cumulative effect of accounting change                                                                   |   | (6,594,092                             | )          | (11,320,123                            | )  | (35,633,336 | ) | (35,880,419 | ) |
|                                                                                                                                             |   |                                   |       |                                   |    |   |   |   |   |
| (Loss) income from discontinued operations,  net of taxes, including gain on sale of station of $153.9 million in 2002 and  $2.2 million in 2003 |   | (2,255,493                             | )     | —                                 |    | 154,859,928 |   | 2,190,335 |   |
| Net income (loss) before cumulative effect  of accounting change                                                                                 |   | (8,849,585                             | )     | (11,320,123                            | )       | 119,226,592 |   | (33,690,084 | )  |
| Cumulative effect of accounting change, net  of taxes of $123.3 million                                                                          |   | —                                 |       | —                                 |    | (184,904,433 | ) | — |   |
| Net loss                                                                                                                                         |   | $                                      | (8,849,585 | )                                      | $       | (11,320,123 | ) | $ | (65,677,841 | ) | $ | (33,690,084 | ) |
|                                                                                                                                             |   |                                   |       |                                   |    |   |   |   |   |
| Basic and diluted net loss per common  share:                                                                                                    |   |                                   |       |                                   |    |   |   |   |   |
| Loss from continuing operations before  cumulative effect of accounting change                                                                   |   | $                                      | (0.34      | )                                      | $       | (0.57 | ) | $ | (1.81 | ) | $ | (1.81 | ) |
| (Loss) income from discontinued operations,  net                                                                                                 |   | (0.11                                  | )          | —                                 |    | 7.87 |   | 0.11 |   |
| Cumulative effect of accounting change, net                                                                                                      |   | —                                 |       | —                                 |    | (9.40 | ) | — |   |
| Net loss per common share-basic                                                                                                                  |   | $                                      | (0.45      | )                                      | $       | (0.57 | ) | $ | (3.34 | ) | $ | (1.70 | ) |
|                                                                                                                                             |   |                                   |       |                                   |    |   |   |   |   |
| Weighted average shares – Basic and  dilutive                                                                                               |   | 19,684,304                             |       | 19,803,188                             |    | 19,664,263 |   | 19,771,377 |   |

 

*See accompanyingnotes to consolidated financial statements.*

 

3

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Young Broadcasting Inc. and Subsidiaries

 

ConsolidatedStatements of Stockholders’ Equity

(Unaudited)

 
|                                                                  |   | **Common Stock** |   | **Additional  Paid-In  Capital** |   | **Accumulated  Deficit** |   | **Accumulated  Comprehensive  Loss** |        | **Comprehensive  Loss** |         | **Total  Stockholders’  Equity** |        |
|-----------------------------------------------------------------------|--------|------------------|--------|----------------------------------|--------|--------------------------|--------|--------------------------------------|-------------|-------------------------|--------------|---------------------------------------|-------------|
|                                                                  |   | **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 |   | 57               |   |                             |   | 828,900                  |   |                                 |        |                    |         |                                  |        | 828,957 |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Conversion of Class B Common Stock to Class A  Common Stock           |   | 69               |   | (69                              | )      |                     |   |                                 |        |                    |         |                                  |        |   |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Exercise of stock options                                             |   | 14               |   |                             |   | 181,708                  |   |                                 |        |                    |         |                                  |        | 181,722 |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Other                                                                 |   |             |   |                             |   | 3,311                    |   |                                 |        |                    |         |                                  |        | 3,311 |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Employee stock purchase plan                                          |   | 18               |   |                             |   | 225,922                  |   |                                 |        |                    |         |                                  |        | 225,940 |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Net loss for the nine months ended September 30,  2003                |   |             |   |                             |   |                     |   | (33,690,084                          | )           |                    |         | $                                     | (33,690,084 | ) | (33,690,084 | ) |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Comprehensive Loss                                                    |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Realized expense on interest rate swap                                |   |             |   |                             |   |                     |   |                                 |        | 2,474,597               |         | 2,474,597                             |        | 2,474,597 |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Total                                                                 |   |             |   |                             |   |                     |   |                                 |        |                    |         | $                                     | (31,215,487 | ) |   |   |
|                                                                  |   |             |   |                             |   |                     |   |                                 |        |                    |         |                                  |        |   |   |
| Balance at September 30, 2003                                         |   | $                | 17,664 |                             | $      | 2,143                    |   | 377,473,962                          |        | $                       | (329,059,670 | )                                     | $           | — |   | $ | — |   | $ | 48,434,099 |   |
|                                                                       |        |                  |        |                                  |        |                          |        |                                      |             |                         |              |                                       |             |  |  |  |  |  |  |  |  |  |

 

*See accompanyingnotes to consolidated financial statements*

 

4

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**YoungBroadcasting Inc. and Subsidiaries**

 

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

 
|                                                                             |   | **Nine  Months Ended September 30,** |        |
|----------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                             |   | **Restated**                         |        |   |   |
|                                                                             |   | **2002**                             |        | **2003** |   |
| **Operating activities**                                                         |   |                                 | ** **  |   | ** ** |
| Net loss                                                                         |   | $                                    | (65,677,841 | ) | **$** | **(33,690,084** | **)** |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |   |                                 |        |   | ** ** |
| Cumulative effect of change in accounting,  net of taxes                         |   | 184,904,433                          |        | **—** | ** ** |
| Gain on sale of KCAL-TV                                                          |   | (151,308,428                         | )           | **(2,190,335** | **)** |
| Benefit from income tax                                                          |   | (23,755,557                          | )           | **(3,595,144** | **)** |
| Depreciation and amortization of property  and equipment                         |   | 14,028,000                           |        | **13,744,554** | ** ** |
| Amortization of program license rights                                           |   | 32,839,551                           |        | **13,475,630** | ** ** |
| Amortization intangibles assets and  deferred charges                            |   | 4,772,745                            |        | **4,015,232** | ** ** |
| Non-cash compensation                                                            |   | 920,451                              |        | **876,168** | ** ** |
| Non-cash change on market valuation of swap                                      |   | (4,305,039                           | )           | **2,444,231** | ** ** |
| Loss on extinguishment of debt                                                   |   | 9,391,095                            |        | **—** | ** ** |
| Loss on sale of fixed assets                                                     |   | 17,920                               |        | **7,946** | ** ** |
| Income from escrow deposits                                                      |   | (963,976                             | )           | **(87,866** | **)** |
| Income tax (payments) refund, net                                                |   | (40,000,000                          | )           | **27,000,000** | ** ** |
| Interest payments from escrow account                                            |   | 11,098,000                           |        | **6,667,825** | ** ** |
| Payments on programming license liabilities                                      |   | (29,446,456                          | )           | **(13,789,943** | **)** |
| Decrease in trade accounts receivable                                            |   | 38,074,566                           |        | **4,072,264** | ** ** |
| (Increase) in prepaid expenses                                                   |   | (7,372,424                           | )           | **(331,771** | **)** |
| Increase (decrease) in trade accounts  payable                                   |   | 1,064,275                            |        | **(7,512,382** | **)** |
| Decrease in accrued expenses and other  liabilities                              |   | (6,332,337                           | )           | **(11,548,732** | **)** |
| Net cash used in operating activities                                            |   | (32,051,022                          | )           | **(442,407** | **)** |
|                                                                             |   |                                 |        |   | ** ** |
| **Investing activities**                                                         |   |                                 |        |   | ** ** |
| Proceeds  from sale of KCAL-TV                                                   |   | 632,167,115                          |        | **—** | ** ** |
| Capital expenditures                                                             |   | (7,335,994                           | )           | **(8,613,908** | **)** |
| Increase in deposits and other assets                                            |   | (1,822,339                           | )           | **(2,722,047** | **)** |
| Net cash provided by (used in) investing  activities                             |   | 623,008,782                          |        | **(11,335,955** | **)** |
|                                                                             |   |                                 |        |   | ** ** |
| **Financing activities**                                                         |   |                                 |        |   | ** ** |
| Principal payments on long-term debt                                             |   | (236,523,804                         | )           | **—** | ** ** |
| Borrowings from working capital facility                                         |   | 90,870,700                           |        | **—** | ** ** |
| Redemption of senior notes                                                       |   | (93,110,000                          | )           | **—** | ** ** |
| Redemption of subordinated notes                                                 |   | (256,890,000                         | )           |   | ** ** |
| Deferred acquisition and debt financing  costs incurred                          |   | (606,001                             | )           | **—** | ** ** |
| Principal payments under capital lease  obligations                              |   | (641,319                             | )           | **(498,149** | **)** |
| Proceeds from exercise of Common Stock  options                                  |   | 3,770                                |        | **181,722** | ** ** |
| Proceeds from other financing activities                                         |   | —                               |        | **3,311** | ** ** |
| Net cash used in financing activities                                            |   | (496,896,654                         | )           | **(313,116** | **)** |
|                                                                             |   |                                 |        |   | ** ** |
| **Net increase (decrease) in cash**                                              |   | 94,061,106                           |        | **(12,091,478** | **)** |
| Cash and cash equivalents at beginning of  year                                  |   | 1,936,794                            |        | **110,406,572** | ** ** |
| **Cash and cash equivalents at September 30**                                    |   | $                                    | 95,997,900  |   | **$** | **98,315,094** | ** ** |
|                                                                             |   |                                 |        |   | ** ** |
| **Supplemental disclosure of cash flow  information**                            |   |                                 |        |   | ** ** |
| Interest paid                                                                    |   | $                                    | 91,742,707  |   | **$** | **52,842,367** | ** ** |
| Income tax refund, net of payments                                               |   | $                                    | (40,000,000 | ) | **$** | **26,809,998** | ** ** |

 

*See accompanyingnotes to consolidated financial statements.*

 

5

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**Young BroadcastingInc. and Subsidiaries**

 

**Notes to ConsolidatedFinancial Statements**

**(Unaudited)**

 

**1. Basis ofPresentation**

 

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 accompanying condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial statements and with the instructions toForm 10-Q and Article 10 of Regulation S-X. The interim financial statementsare unaudited but include all adjustments, which are of a normal recurringnature, that the Company considers necessary for a fair presentation of theconsolidated financial position and the consolidated results of operations andcash flows for such period. Operating results of interim periods are notnecessarily indicative of results for a full year.

 

The consolidated statements of operations for the three and nine monthsended September 30, 2002 has been adjusted to correct the allocation of incometaxes among continuing operations, discontinued operations and cumulativeeffect of accounting change. The effect on the components of net income (loss)are as follows (dollars in thousands):

 
|                                                                                                       |   | **Three  Months Ended  September 30, 2002** |    | **Nine  Months Ended  September 30, 2002** |    |
|------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|---------|--------------------------------------------|---------|
|                                                                                                       |   | **As  Reported**                            |    | **As  Restated**                           |    | **As  Reported** |   | **As  Restated** |   |
| Loss from continuing operations before  benefit from income tax and cumulative effect of accounting change |   | $                                           | (10,990 | )                                     | $       | (10,990 | )  | $ | (59,389 | )  | $ | (59,389 | ) |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| (Provision) benefit from income tax                                                                        |   | (2,702                                      | )       | 4,396                                      |    | 119,320 |   | 23,756 |   |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| (Loss) income from continuing operations  before cumulative effect of accounting change                    |   | (13,692                                     | )       | (6,594                                     | )  | 59,931 |   | (35,633 | ) |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| Income (loss) from discontinued operations,  net of taxes, including gain on sale of station               |   | 4,842                                       |    | (2,256                                     | )       | 143,105 |   | 154,859 |   |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| (Loss) income before cumulative effect of  accounting change                                               |   | (8,850                                      | )  | (8,850                                     | )  | 203,036 |   | 119,226 |   |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| Cumulative effect of accounting change, net                                                                |   | —                                      |    | —                                     |    | (268,714 | ) | (184,904 | ) |
| Net loss                                                                                                   |   | $                                           | (8,850  | )                                          | $       | (8,850 | ) | $ | (65,678 | ) | $ | (65,678 | ) |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| Basic net loss per common share:                                                                           |   |                                        |    |                                       |    |   |   |   |   |
| (Loss) income from continuing operations  before cumulative effect of accounting change                    |   | $                                           | (0.70   | )                                     | $       | (0.34 | )  | $ | 3.05 |   | $ | (1.81 | ) |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| Income (loss) from discontinued operations,  net                                                           |   | 0.25                                        |    | (0.11                                      | )       | 7.28 |   | 7.87 |   |
|                                                                                                       |   |                                        |    |                                       |    |   |   |   |   |
| Cumulative effect of accounting change, net                                                                |   | —                                      |    | —                                     |    | (13.67 | ) | (9.40 | ) |
| Net loss per common share-basic                                                                            |   | $                                           | (0.45   | )                                          | $       | (0.45 | ) | $ | (3.34 | ) | $ | (3.34 | ) |

 

Certain balances in the prior quarters have been reclassified toconform to the presentation adopted in the current quarter.

 

6

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**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 cash transactionfor $650.0 million, less purchase price adjustments. The operating results ofKCAL-TV are not included in the Company’s consolidated results from continuingoperations for the nine months ended September 30, 2002.

 

**3. Stock-Based Compensation**

### ** **

The Company follows the provisions of FASBStatement No. 123, *Accounting forStock-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 25 and relatedinterpretations, compensation expense for stock options is recognized in incomebased on the excess, if any, of the quoted market price of the stock at thegrant date of the award or other measurement date over the amount an employeemust pay to acquire the stock. Generally, the exercise price for stock optionsgranted to employees equals or exceeds the fair market value of the Company’scommon stock at the date of grant, thereby resulting in no recognition ofcompensation expense by the Company. For awards that generate compensationexpense as defined under APB 25, the Company calculates the amount ofcompensation expense and recognized the expense over the vesting period of theaward.

 

The following table illustrates the effect onnet loss and earnings per share if the Company had applied the fair valuerecognition provisions of Statement 123.

 
|                                                                                              |   | **Three Months Ended  September 30,** |    | **Nine Months Ended  September 30,** |    |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|---------|
|                                                                                              |   | **Restated**                          |    | **Restated**                         |    |
| **(dollars in thousands, except per share data)**                                                 |   | **2002**                              |    | **2003**                             |    | **2002** |   | **2003** |   |
| Net  loss-as reported                                                                             |   | $                                     | (8,850  | )                                    | $       | (11,320 | ) | $ | (65,678 | ) | $ | (33,690 | ) |
| Deduct  total stock-based employee compensation expense determined under fair value  based method |   | (833                                  | )  | (1,273                               | )  | (2,155 | )  | (3,724 | ) |
| Net  loss-pro forma                                                                               |   | $                                     | (9,683  | )                                    | $       | (12,593 | ) | $ | (67,833 | ) | $ | (37,414 | ) |
| Net loss  per basic common share-as reported                                                      |   | $                                     | (0.45   | )                                    | $       | (0.57 | ) | $ | (3.34 | ) | $ | (1.70 | ) |
| Net loss  per basic common share-pro forma                                                        |   | $                                     | (0.49   | )                                    | $       | (0.64 | ) | $ | (3.45 | ) | $ | (1.89 | ) |

 

**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.

 

7

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In June 2001, the FASB issued Statement of Financial AccountingStandards No. 142, *Goodwill and Other IntangibleAssets*(“Statement 142”), whereby goodwill and indefinite livedintangible 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  September 30, 2003** |   |
|--------------------------------|--------|------------------------------|---------|-------------------------------|--------|
|                           |   | **(dollars  in thousands)**  |    |
|                           |   | **Gross  Carrying  Amount**  |    | **Accumulated  Amortization** |   | **Net  Carrying  Amount** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Net  Carrying  Amount** |   |
| Unamortized intangible assets: |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Broadcast licenses             |   | $                            | 455,926 |                          | — |   | $ | 455,926 |   | $ | 455,926 |   | — |   | $ | 455,926 |   |
| Network Affiliations           |   | $                            | 56,501  |                          | — |   | $ | 56,501 |   | $ | 56,501 |   | — |   | $ | 56,501 |   |
|                           |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Amortized intangible assets:   |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Other intangible assets        |   | $                            | 28,899  |                          | $      | (5,907 | ) | $ | 22,992 |   | $ | 28,899 |   | $ | (8,399 | ) | $ | 20,500 |   |
|                                |        |                              |         |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Aggregate amortization expense for the nine months ended September 30,2002 and 2003 was $4.8 million and $4.0 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 at December 31, 2002, related to existingtemporary differences that are expected to generate future tax losses that canbe carried back to 2002.

 

The Company recorded an income tax receivableat December 31, 2002 of $28.8 million, of which $28.0 million was received inthe first quarter of 2003.

 

8

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**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 Defendants defamed Plaintiffs in a news story concerning JulianGraham Chevrolet that aired in April and May of 2002. In October 2003 asettlement agreement was entered into between Young Broadcasting of Richmond,Inc. and Julian Graham Chevrolet for a monetary sum significantly less than thePlaintiff’s original claim, all of which is covered under the Company’sinsurance policy.

 

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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**Item 2. *Management’s Discussion and Analysis of FinancialCondition and Results of Operations.***

 

**FORWARD-LOOKINGSTATEMENTS**

 

**FORWARD LOOKINGSTATEMENTS ARE ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS,INCLUDED IN THIS REPORT. THE FORWARD LOOKING STATEMENTS CONTAINED IN THISREPORT 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.

 

**Recent Developments**

 

*Digital Upgrades*.  As of October 31, 2003, all of theCompany’s television stations were capable of digital television broadcastsexcept for WTEN-TV (Albany). Because this station is awaiting a resolutionbetween the FCC and the Canadian government relating to overlaps, an extensionis not required.

 

10

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**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 September 30, 2003, the Company had $85.6 million in net property andequipment, $25.5 million of goodwill, $455.9 million of broadcast licenses, $56.5million of network affiliations and $20.5 million of other amortizableintangibles.  The Company completed itsreview for impairment of goodwill and certain other intangibles upon theadoption of the new accounting standard in January 2002, recognized animpairment loss related to KRON-TV’s broadcast license of $184.9 million andrecorded it as a cumulative effect of an accounting change, net of tax benefitsof approximately $123.3 million. The Company performs its annual impairmenttest in the fourth quarter of each year. The 2002 annual impairment test didnot result in any additional charges. Due to the uncertain economic climate,management cannot determine with any certainty if an additional impairment ofKRON-TV’s broadcast license may occur. If an impairment loss is required, itwill be recorded as a charge to continuing operations.

 

**Television Revenues**

 

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 September 30,** |       | **Nine  Months Ended September 30,** |   |
|------------------|--------|--------------------------------------------|------------|-------------------------------------------|--------|
|             |   | **2002  Amount**                           |       | **%**                                     |   | **2003  Amount** |   | **%** |   | **2002  Amount** |   | **%** |   | **2003  Amount** |   | **%** |   |
|             |   | **(dollars in  thousands)**                | ** ** |
| Revenues         |   |                                       |       |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Local            |   | $                                          | 31,775     |                                      | 47.8   |   | $ | 33,901 |   | 57.0 |   | $ | 94,474 |   | 51.8 |   | $ | 100,572 |   | 57.0 |   |
| National         |   | 20,977                                     |       | 31.5                                      |   | 19,908 |   | 33.5 |   | 59,331 |   | 32.5 |   | 61,612 |   | 34.9 |   |
| Network          |   | 2,659                                      |       | 4.0                                       |   | 2,516 |   | 4.2 |   | 8,606 |   | 4.7 |   | 7,595 |   | 4.3 |   |
| Political        |   | 8,932                                      |       | 13.4                                      |   | 2,188 |   | 3.7 |   | 15,241 |   | 8.4 |   | 3,039 |   | 1.7 |   |
| Production/Other |   | 2,170                                      |       | 3.3                                       |   | 985 |   | 1.6 |   | 4,861 |   | 2.6 |   | 3,728 |   | 2.1 |   |
| Total            |   | 66,513                                     |       | 100.0                                     |   | 59,498 |   | 100.0 |   | 182,513 |   | 100.0 |   | 176,546 |   | 100.0 |   |
|             |   |                                       |       |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commissions      |   | (8,633                                     | )          | (13.0                                     | )      | (8,120 | ) | (13.6 | ) | (23,596 | ) | (12.9 | ) | (23,991 | ) | (13.6 | ) |
|             |   |                                       |       |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Revenue      |   | $                                          | 57,880     |                                      | 87.0   |   | $ | 51,378 |   | 86.4 |   | $ | 158,917 |   | 87.1 |   | $ | 152,555 |   | 86.4 |   |

 

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**Results of Operations**

 

*Three Months EndedSeptember 30, 2003 Compared to Three Months Ended September 30, 2002*

 

The results from continuing operations for the three months endedSeptember 30, 2002 do not include the results of operations for KCAL-TV.These results are reflected as discontinued operations.

 

Net revenue for the three months ended September 30, 2003 was$51.4 million, a decrease of $6.5 million, or 11.2%, compared to $57.9 millionfor the three months ended September 30, 2002. Political revenue for thethree months ended September 30, 2003 was $2.2 million, a decrease of $6.7million, or 75.3%, compared to $8.9 million for the three months endedSeptember 30, 2002. The decrease in political revenue was attributable tothe existence of strongly contested local races in Iowa, California and SouthDakota in 2002, while 2003 had only limited state and local elections. Althoughfor the three months ended September 30, 2003 net revenue decreasedcompared to the prior year period, the Company’s gross local revenue increased6.7%, while gross national revenue decreased 5.2%. The Company’s station inGreen Bay had a reduction in its gross revenue of approximately $1.2 million inthe third quarter of 2003 compared to the same period in 2002, because thestation no longer broadcasts the Packers pre-game show. Network compensationfor the three months ended September 30, 2003 was $2.5 million, a decreaseof $143,000, or 5.4%, compared to $2.6 million for the three months endedSeptember 30, 2002.  The decreasein network compensation was the result of amendments to the network affiliationagreement between the Company and the ABC network.  These amendments reduce the amount of compensation paid by ABC toour ABC network affiliates but gives the stations more advertising spots withinnetwork programming.

 

Operating expenses and selling, general and administrative expenses forthe three months ended September 30, 2003 was $33.5 million, a decrease of$387,000, or 1.1%, compared to $33.9 million for the three months endedSeptember 30, 2002. Approximately $454,000 of this decrease was due to areduction in production costs at the Company’s station in Green Bay, which nolonger broadcasts the Packers pre-game show. The Company did have increased expenses from higher health insurance andproperty and casualty insurance costs, and various other expenses. OnOctober 1, 2002, the Company implemented a reorganization plan at KRON-TV,intended to reduce expenses for 2003. This plan and the Company’s control over the operating costs of all ofits stations allowed the net increase in expenses to be kept to a minimum.Included in the selling, general and administrative expenses is non-cashcompensation of $273,000 and $239,000 for the three months ended September 30,2003 and 2002, respectively.  All ofthis non-cash compensation relates to the Company’s contribution of commonstock to its 401(k) plan.

 

Amortization of program license rights for the three months endedSeptember 30, 2003 was $4.5 million, compared to $4.4 million for thethree months ended September 30, 2002, an increase of $156,000, or 3.6%.All of this increase was the result of the purchase of the broadcast rights tothe *Oprah* show at several of theCompany’s stations and increased renewal costs relating to several othersyndicated programs.

 

Depreciation of property and equipment and amortization of intangibleassets for the three months ended September 30, 2003 was $5.9 million, anincrease of $115,000, or 2.0%, compared to $5.8 million for the three monthsended September 30, 2002.

 

Corporate overhead for the three months ended September 30, 2003was $3.1 million, compared to $2.6 million for the comparable period in 2002,an increase of $527,000 or 20.1%. This increase was a result of additional personnelfees relating to the promotion of three station general managers to newcorporate vice president positions, as well as increased legal and professionalfees relating to the Company’s review of and compliance with corporategovernance legislation.

 

Interest expense for the three months ended September 30, 2003 was$16.0 million, compared to $21.9 million for the same period in 2002, adecrease of $5.9 million, or 26.9%.  Thedecrease was primarily attributable to lower debt levels resulting from the Company’srepayment in 2002 of all of its outstanding

 

12

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indebtedness under its senior credit facility and portions of itssenior notes and senior subordinated notes pursuant to the par offers completedin September 2002, as well as from reductions in effective interest ratesrelating to the Company’s borrowings under LIBOR and prime.  The Company received payments on itsinterest rate swaps of $692,000 and $368,000 for the three months endedSeptember 30, 2003 and 2002, which are recorded as a reduction of interestexpense.

 

The Company recorded $3.2 million of non-cash expense during the threemonths ended September 30, 2003 and $4.6 million of non-cash income duringthe three months ended September 30, 2002, related to changes in marketvaluation of its swaps. The Company recorded $1.7 million for the three monthsended September 30, 2002 relating to the amortization of othercomprehensive loss in connection with its swap transactions entered into in2000 and terminated in June 2001; and a mark-to-market non-cash change infair value of approximately $3.2 million and $6.3 million for the three monthsended September 30, 2003 and 2002, respectively, for its currentoutstanding fair value hedges.

 

The Company recorded a loss on extinguishmentof debt of $4.7 million in the third quarter of 2002 relating to the purchaseof senior notes and senior subordinated notes pursuant to the par offers (see“Liquidity and Capital Resources”).

 

As a result of the factors discussed above, the net loss for theCompany was $11.3 million for the three months ended September 30, 2003,compared with a net loss of $8.8 million for the three months endedSeptember 30, 2002, a change of $2.5 million.

 

*Nine Months EndedSeptember 30, 2003 Compared to Nine Months Ended September 30, 2002*

 

The results from continuing operations for the nine months endedSeptember 30, 2002 do not include the results of operations for KCAL-TV.These results are reflected as discontinued operations.

 

Net revenue for the nine months ended September 30, 2003 was$152.6 million, a decrease of $6.3 million, or 4.0%, compared to $158.9 millionfor the nine months ended September 30, 2002. The war in Iraq caused thenetworks to pre-empt regularly scheduled programming in the last month of thefirst quarter of 2003 and caused several advertisers to cancel theiradvertising spots, resulting in a loss of revenue in the first quarter of2003.  The Company estimated that thewar negatively impacted revenues in the first quarter of 2003 by approximately$2.0 million to $2.5 million. Despite the pre-emptions and cancellations in thenine months ended September 30, 2003, the Company’s gross local andnational revenues increased 6.5% and 3.8%, respectively, compared to the ninemonths ended September 30, 2002. The Company’s station in Green Bay had a reduction in its gross revenue ofapproximately $1.2 million in the nine months ended September 30, 2003compared to the same period in 2002 because the station no longer broadcaststhe Packers pre-game show. Network compensation for the nine months endedSeptember 30, 2003 was $7.6 million, a decrease of $1.0 million, or 11.6%,compared to $8.6 million for the nine months ended September 30, 2002.  A portion of the decrease in networkcompensation was the result of the pre-emption of scheduled programming as aresult of the network coverage of the war in Iraq. The remaining decrease innetwork compensation was the result of a new network affiliation agreemententered into by the Company with the ABC network.  The new compensation agreement reduces the amount of compensationpaid by ABC to our ABC network affiliates but gives the stations moreadvertising spots within network programming. Political revenue for the ninemonths ended September 30, 2003 was $3.0 million, a decrease of $12.2million. The decrease in political revenue was attributable to the existence ofstrongly contested local races in Iowa, California and South Dakota in 2002,while 2003 had only limited state and local elections.

 

13

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Operating expenses and selling, general and administrative expenses forthe nine months ended September 30, 2003 was $100.7 million, an increaseof $307,000, or 0.3%, compared to $100.4 million for the nine months endedSeptember 30, 2002. Because the station in Green Bay did not broadcast thePackers pre-game show, the station had a reduction in production costs ofapproximately $454,000. The Company did have increased expenses from higherhealth insurance and property and casualty insurance costs, and various otherexpenses. On October 1, 2002, the Company implemented a reorganizationplan at KRON-TV, intended to reduce expenses for 2003.  This plan and the Company’s control over theoperating costs of all of its stations allowed the net increase in expenses tobe kept to a minimum. Included in the selling, general and administrativeexpenses is non-cash compensation of $876,000 and $920,000 for the nine monthsended September 30, 2003 and 2002, respectively.  All of this non-cash compensation relates to the Company’scontribution of common stock to its 401(k) plan.

 

Amortization of program license rights for the nine months endedSeptember 30, 2003 was $13.5 million, compared to $12.8 million for thenine months ended September 30, 2002, an increase of $692,000, or 5.4%.All of this increase was the result of the purchase of the broadcast rights tothe *Oprah* show at several of theCompany’s stations and increased renewal costs relating to several othersyndicated programs.

 

Depreciation of property and equipment and amortization of intangibleassets was $17.8 million for the nine months ended September 30, 2003 and2002.

 

Corporate overhead for the nine months ended September 30, 2003was $9.6 million, compared to $8.4 million for the comparable period in 2002,an increase of $1.2 million or 14.3%. This increase was a result of additionalpersonnel fees relating to the promotion of three station general managers tonew corporate vice president positions in May 2003, as well as increasedlegal and professional fees relating to the Company’s review of and compliancewith corporate governance legislation.

 

Interest expense for the nine months ended September 30, 2003 was$47.9 million, compared to $73.4 million for the same period in 2002, adecrease of $25.5 million, or 34.7%. 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 completed in September 2002,as well as from reductions in effective interest rates relating to the Companyborrowings under LIBOR and prime.  TheCompany received payments on its interest rate swaps of $1.9 million and $1.1million for the nine months ended September 30, 2003 and 2002, which arerecorded as a reduction of interest expense.

 

The Company recorded $2.4 million of non-cash expense during the nine monthsended September 30, 2003 and $4.3 million of non-cash income during thenine months ended September 30, 2002, related to changes in the marketvaluation of its swaps. The Company recorded $2.5 million and $6.2 million forthe nine months ended September 30, 2003 and 2002, respectively, relatingto the amortization of other comprehensive loss in connection with its swaptransactions entered into in 2000 and terminated in June 2001; and amark-to-market non-cash change in fair value of approximately $30,000 and $10.5million for the nine months ended September 30, 2003 and 2002,respectively, for its current outstanding fair value hedges.

 

The Company recorded a loss on extinguishmentof debt of $9.4 million for the nine months ended September 30, 2002 relatingto the permanent repayment of the term loan facilities under the Company’ssenior credit facilities and the purchase of the senior notes and seniorsubordinated notes pursuant to the par offers (see “Liquidity and CapitalResources”).

 

On May 15, 2002, the Company completed the sale of KCAL-TV toViacom Inc. for $650.0 million, less purchase price adjustments. The Company recorded a gain on the sale ofapproximately $2.2 million and  $153.9million, net of a provision for income taxes, for the nine months endedSeptember 30, 2003 and 2002,

 

14

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respectively.The Companyrecorded income from discontinued operations, net of applicable taxes relatedto KCAL-TV, of $1.0 million for the nine months ended September 30, 2002.

 

Effective January 1, 2002, the Company recorded a cumulativeeffect of accounting change of $184.9 million net, net of tax benefits ofapproximately $123.3 million, relating to the adoption of Statement 142.

 

As a result of the factors discussed above, the net loss for theCompany was $33.7 million for the nine months ended September 30, 2003,compared with a net loss of $65.7 million for the nine months endedSeptember 30, 2002, a change of $32.0 million.

 

**Liquidity and CapitalResources**

 

Cash used in operations for the nine months ended September 30,2003 was $442,000 compared to $32.1 million for the nine months endedSeptember 30, 2002.  The war inIraq caused the networks to pre-empt regularly scheduled programming in thelast month of the first quarter of 2003 and caused several advertisers tocancel their advertising spots, resulting in a loss of revenue in the firstquarter of 2003.  The Company estimatedthat the war negatively impacted revenues in the first quarter of 2003 by approximately$2.0 million to $2.5 million. Political revenue decreased $12.2 million for thenine months ended September 30, 2003, compared to the same period in 2002.The decrease 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. Tradeaccounts payable decreased $7.5 million for the nine months endedSeptember 30, 2003, compared to an increase for the nine months ended September 30,2002 of $1.1 million.  AtDecember 31, 2002 the Company had approximately $3.0 million in accountspayable relating to the reorganization plan at KRON-TV, which were paid inJanuary 2003. The lower debt levels and reduced effective interest ratesrelating to the Company’s borrowings in 2002 contributed to a decrease inaccrued expenses of $11.5 million for the nine months ended September 30,2003 compared to a decrease of $6.3 million for the nine months endedSeptember 30, 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 were finalized in the secondquarter of 2003. At December 31, 2002, the Company recorded an income taxreceivable of $28.8 million, of which $28.0 million was received in the firstquarter of 2003. On March 15, 2003, the Company paid $1.0 million inestimated income tax. Accounts receivable decreased by $4.1 million for thenine months ended September 30, 2003, compared to a decrease in accountsreceivable of $38.1 million for the nine months ended September 30,2002.  The decline of advertisingrevenue in the San Francisco market during 2002, the loss of the NBCaffiliation at KRON-TV on January 1, 2002 and the resulting impact onratings which negatively affected the revenues at KRON-TV, as well as the saleof KCAL-TV on May 15, 2002, combined to cause accounts receivable todecrease sharply for the nine months ended September 30, 2002.

 

The performance of KRON-TV has a significant impact on the Company’soperating results. Consequently, the Company is particularly susceptible toeconomic conditions in the San Francisco advertising market.  While revenues in the first nine months of2003 at KRON-TV were stronger than those in the same period last year, thecontinuing uncertain economic climate makes the outlook unclear.

 

Cash used in investing activities for the nine months ended September 30,2003 was $11.3 million, compared to cash provided by investing activities of$623.0 million for the nine months ended September 30, 2002. During 2002and 2003, the Company incurred significant capital expenditures for buildingdigital transmission facilities, as required by Federal CommunicationsCommission regulations. The timing of these projects has been constrained byregulatory approvals, equipment availability, construction crew availabilityand weather conditions. Deposits for the Company increased $2.7 million and$1.8 million for the nine months ended September 30, 2003 and 2002,respectively. The increase in deposits in 2003 was from additions toconstruction-in-progress for the digital conversion and a new accounting systemcurrently being

 

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implemented by the Company. Construction-in-progress balances atSeptember 30, 2003 and December 31, 2002 were $9.6 million and $8.1million, respectively. The Company estimates that, by the end of the fourthquarter of 2003, $9.0 million of capital expenditures, which are currentlycategorized as construction-in-progress, will be placed in service and recordedas an addition to capital expenditures. For 2003, $8.6 million of capitalexpenditures have been placed in service, however, since approximately $4.5million of the capital expenditures were paid for in 2002, the cash payments in2003 relating to capital expenditures were approximately $4.1 million.

 

Cash used in financing activities was $313,000 and $496.9 million forthe nine months ended September 30, 2003 and 2002, respectively. Duringthe first nine months of 2002, the Company used approximately $225.3 million ofthe net proceeds from the sale of KCAL-TV to repay in full all indebtedness thenoutstanding under its senior credit facilities. The remaining net proceeds,after closing costs and tax provisions, of approximately $350.0 million wereused in the third quarter of 2002 to repay outstanding indebtedness under theCompany’s Senior Notes and Senior Subordinated Notes.  The Company made payments under capital lease obligation of$498,000 and $641,000 for the nine months ended September 30, 2003 and2002, respectively, a decrease of $143,000 or 22.3%.  All of this decrease was the result the elimination of severalcapital lease obligations in 2002 for KCAL-TV.

 

As of September 30, 2003, the Company had $98.3 million ofcash-on-hand available for general corporate purposes. All of these funds wereinvested in short-term, risk-averse investments, in accordance with the termsof the Company’s indentures.

 

On June 26, 2000, the Company entered into a new senior creditfacility which provided for borrowings of up to an aggregate of $600.0 million(the “New Senior Credit Facility”) in the form of an amortizing term loanfacility in the amount of $125.0 million (“Term A”) that matures onNovember 30, 2005, and an amortizing term loan facility in the amount of$475.0 million (“Term B”) that matures on December 31, 2006. Upon the saleof KCAL-TV, all indebtedness outstanding under these term loans was repaid infull. In addition, on June 26, 2000, the Company amended and restated itsexisting senior credit facility (as amended, the “Amended and Restated CreditFacility”), to provide for borrowings of up to an aggregate of $200.0 million,in the form of a $50.0 million term loan and a revolving credit facility in theamount of $150.0 million, both of which mature on November 30, 2005. Uponthe closing of the sale of KCAL-TV, all indebtedness outstanding under thisterm loan and under the revolving facility was repaid in full. Pursuant toAmendment No. 6 to the Amended and Restated Credit Facility, the revolvingcredit portion of the loan facility was reduced to $100.0 million. The NewSenior Credit Facility and the Amended and Restated Credit Facility arereferred 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.

 

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 Company’s subsidiaries has guaranteed the Company’sobligations under the Senior Credit Facility. The Senior Credit Facility issecured by the pledge of all the stock of the Company’s subsidiaries and afirst priority lien on all of the assets of the Company and its subsidiaries.

 

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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 untilDecember 30, 2003, and the Company is limited to $10.0 million ofborrowing under the revolving facility until such time as the Company is incompliance with all applicable financial ratios (without giving effect to thewaivers). Effective with the issuance of the Senior Notes, as defined below,the Company is not required to maintain a total debt to operating cash flowratio until June 30, 2004, when the commencing ratio will be 7.35x, theCompany is required to maintain a senior debt to operating cash flow ratioranging from 3.50x to 4.00x, and the Company is required to maintain untilDecember 31, 2004 a senior secured debt to operating cash flow ratioranging from 1.75x to 2.00x.

 

The Senior Credit Facility requires the Company to apply onApril 30 of each year 50% to 75% (depending upon the level of theCompany’s debt to operating cash flow ratio at the end of such year) of its“Excess Cash Flow” for the preceding completed fiscal year, beginning withFiscal Year 2001, to reduce indebtedness outstanding under the Senior CreditFacility in proportion to the outstanding principal amount of such advances.The Senior Credit Facility also contains a number of customary covenants including,among others, limitations on investments and advances, mergers and sales ofassets, liens on assets, affiliate transactions and changes in business. As ofDecember 31, 2002, there was no debt outstanding under the Senior CreditFacility and thus no calculation of “Excess Cash Flow” was required for 2002.

 

On December 7, 2001, the Company completed a private offering of$250.0 million principal amount of its 81⁄2% Senior Notes due 2008 (the “SeniorNotes”). The Senior Notes were initially offered to qualified institutionalbuyers under Rule 144A and to persons outside the United States underRegulation S. The Company used all of the net proceeds of approximately $243.1million to repay a portion of its outstanding indebtedness under its SeniorCredit Facility, including prepayment premiums, and to pay fees related to theSenior Notes. On July 2, 2002, the Company exchanged the Senior Notes fornotes of the Company with substantially identical terms to the Senior Notes,except the new notes do not contain terms with respect to transferrestrictions.

 

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 in TreasuryBills, Treasury Principal Strips and Treasury Interest Strips with maturitydates in correlation with the interest payments for the first two years.  As of September 30, 2003 there was $6.7million remaining in the Escrow Account, which amount will be used to fund theinterest payment due on the Senior Notes on December 15, 2003. Afterpayment of interest due on December 15, 2003, the Escrow Account will beterminated.

 

On August 12, 2002, the Companycommenced offers to purchase for cash all of its Senior Notes and a portion ofits outstanding 9% Senior Subordinated Notes due 2006, 83⁄4% Senior SubordinatedNotes due 2007, and 10% Senior Subordinated Notes due 2011 (collectivelyreferred to as the “Senior Subordinated Notes,” and the Senior Notes and the SeniorSubordinated Notes are collectively referred to as the “Notes”). These offerswere made with the net proceeds from the sale of KCAL-TV, in accordance withthe terms of the indentures governing the Notes. The net proceeds of theKCAL-TV sale, pursuant to the terms of the indentures, were approximately$350.0 million. The purchase price for the Notes in the offers was equal to$1,000 per $1,000 principal amount of the notes tendered and accepted, plusaccrued and unpaid interest

 

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through September 17, 2002 in the caseof the Senior Notes and September 24, 2002 in the case of the SeniorSubordinated Notes. The offers expired in accordance with their terms onSeptember 12, 2002.

 

On September 18, 2002, pursuant to theterms of 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 ofthe purchase of Senior Notes and in accordance with the escrow agreementrelating to the Senior Notes, approximately $11.8 million was released from theescrow account and is available to the Company for general corporate purposes.

 

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

 

Debt amounts outstanding atSeptember 30, 2003 were as follows (dollars in thousands):

 
|                                         |   | **9/30/03** |    | **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 annualized interest amounts are calculations of the outstandingprincipal amounts at 9/30/03 multiplied by the interest rates of the relatednotes.

 

The Company’s total debt at September 30, 2003 was approximately$726.5 million, consisting of $568.1 million of Senior Subordinated Notes,$156.9 million of Senior Notes and $1.5 million of capital leases. In addition,at September 30, 2003, the Company had an additional $100.0 million ofunused available borrowings under the revolving credit portion of the SeniorCredit Facility; provided, however, pursuant to Waiver and Amendment No. 7 tothe Senior 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).

 

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 Company pays a floating interest rate based upon a six month LIBOR rate andthe Company receives interest from the commercial banks, at a fixed rate of10.0%. The net interest rate differential received was recognized as anadjustment to interest expense. The interest swaps are accounted for at marketvalue and do not qualify for hedge accounting. The Company receivedapproximately $14.0 million at the inception of the swap agreements, which wasused to pay the outstanding liability upon the termination of the old cash flowhedges, and recorded a swap liability. The Company recorded $2.5 million and$6.2 million for the nine months ended September 30, 2003 and 2002,respectively, relating to the amortization of the old swap liability. The swapliability is being adjusted to fair value on a quarterly basis as a charge tocurrent period interest expense over the term of the swap, which began onSeptember 4, 2001. The Company recorded a mark-to-market change in fairvalue of $30,000 and $10.5 million for the nine months ended September 30,2003 and 2002, respectively, for its current outstanding hedges.

 

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The Company anticipates that it 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.

 

**Income Taxes**

 

The Company files a consolidated federal income tax return and suchstate and local tax returns as are required. During the second quarter of 2002,the Company recorded a gain on the sale of KCAL-TV of $153.9 million, net of aprovision for income taxes of $132.0 million. As a result of this income, theCompany was able to realize a tax benefit from the utilization of the loss fromoperations for the year ended December 31, 2002, tax loss carryforwards,and the cumulative effect of an accounting change. In addition, the Companyrecorded a deferred tax asset of $6.0 million as of December 31, 2002,related to existing temporary differences that are expected to generate futuretax losses that can be carried back to 2002. The Company recorded an income tax receivable at December 31, 2002of $28.8 million, of which $28.0 million was received in the first quarter of2003.

 

**Contractual Obligations and Other CommercialCommitments**

 

The Company has obligations and commitments under its long-term debtagreements and instruments to make future payments of principal and interest.The Company also has obligations and commitments under certain contractualarrangements to make future payments for goods and services. These arrangementssecure the future rights to various assets and services to be used in thenormal course of operations. Under generally accepted accounting principles,certain of these arrangements (i.e., programming contracts that are currentlyavailable for airing) are recorded as liabilities in the Company’s consolidatedbalance sheet, while others (i.e., operating lease arrangements and programmingnot currently available) are not reflected as liabilities.

 

The following table summarizes separately the Company’s materialobligations and commitments at September 30, 2003 and the timing ofpayments required in connection therewith and the effect that such payments areexpected to have on the Company’s liquidity and cash flow in futureperiods.  The Company expects to fundthe current obligations with cash on hand, cash flow from operations and fundsavailable under its Senior 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             |   | 1,544     |    | 897                         |   | 647                         |   | — |   | — |   |
| Operating Leases                      |   | 7,898     |    | 1,951                       |   | 3,444                       |   | 965 |   | 1,538 |   |
| Unconditional Purchase Obligations(1) |   | 20,313    |    | 19,272                      |   | 1,041                       |   | — |   | — |   |
| Other Long-Term Obligations (2)       |   | 61,136    |    | 7,037                       |   | 32,237                      |   | 17,461 |   | 4,401 |   |
| Total Contractual Cash Obligations    |   | $         | 815,891 |                        | $      | 29,157                      |   | $ | 123,450 |   | $ | 313,046 |   | $ | 350,238 |   |

 

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(1) Unpaid program license liability reflected on theSeptember 30, 2003 balance sheet.

(2) Obligations for programming that has been contracted for, but notrecorded on the September 30, 2003 Balance Sheet because the programs werenot currently available for airing.

 

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**Recently IssuedAccounting Standards**

 

In June 2001, the Financial AccountingStandards Board issued 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 the accounting for the cost of legal obligationsassociated with the retirement of long-lived assets. FAS 143 requires thatcompanies 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 isthen depreciated over the remaining life of the underlying long-lived asset.The provisions of FAS No. 143 became effective for the Company during the firstquarter of 2003. The Company has assessed the impact of this new standard anddetermined that the adoption of FAS No. 143 did not have a material effect onthe Company’s financial statements.

 

In April 2003, the FASB issued Statement of Financial AccountingStandards No. 149, *Amendment of Statement133 on Derivative Instruments and Hedging Activities*(“Statement149”), effective for contracts entered into or modified after June 30,2003, and hedging relationships designated after June 30, 2003.  The Company’s adoption of this new standarddid not have a material impact on the results of operating and financialposition.

 

In May 2003, the FASB issued Statement of Financial AccountingStandards No. 150, *Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity*(“Statement150”), effective immediately to instruments entered into or modified afterMay 31, 2003 and to all other instruments that exist as of the beginningof the first interim financial reporting period beginning**after June 15, 2003.  Application to pre-existing instrumentsshould be recognized as the cumulative effect of a change in accountingprinciple (application by retroactive restatement is precluded).  Early adoption of Statement 150 is notpermitted.  The Company’s adoption ofthis new standard did not have a material impact on the results of operatingand financial position.

 

In January 2003, the FASBissued FASB Interpretation No. 46, *Consolidationof Variable Interest Entities* (“FIN 46”), which requires variableinterest entities (commonly referred to as SPEs) to be consolidated by theprimary beneficiary of the entity if certain criteria are met.  FIN 46 is effective immediately for all newvariable interest entities created or acquired after January 31, 2003. InOctober 2003, the FASB issued a Staff Position which defers the effectivedate of FIN 46 until December 31, 2003 for variable interest entities thatexisted prior to February 1, 2003. For variable interest entities createdor 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 tothe balance 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 is currently in the process of analyzing theimpact of FIN 46, however, management does not believe that the new standardwill have a material impact on its consolidated financial statements.

 

**Item 3**. ***Quantitative and QualitativeDisclosure About Market Risk.***

 

The Company’s Senior Credit Facility, with no amounts outstanding as ofSeptember 30, 2003, bears interest at floating rates. Accordingly, to theextent there are amounts outstanding under the Senior Credit Facility, theCompany is exposed to potential losses related to changes in interest rates.

 

The Company’s Senior Notes of approximately $156.9 million outstandingas of September 30, 2003 are general unsecured obligations of the Company.The Senior Notes have a fixed rate of interest of 81⁄2% and mature in 2008. Theannualized interest expense on the outstanding senior notes is approximately$13.3 million.

 

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The Company’s Senior Subordinated Notes of approximately $568.1 millionoutstanding as of September 30, 2003 are general unsecured obligations ofthe Company and are subordinated in right of payment to all senior debt,including all indebtedness of the Company under the Senior Credit Facility andthe Senior Notes. The Senior Subordinated Notes have fixed rates of interestranging from 83⁄4% to 10% and are ten-year notes maturing in various yearscommencing 2006. The annualized interest expense on the outstanding SeniorSubordinated Notes is approximately $54.2 million.

 

The Company does not enter into derivatives or other financialinstruments for trading or speculative purposes; however, in order to manageits exposure to interest rate risk, the Company entered into derivativefinancial instruments in June 2001. These derivative financial instrumentsare interest rate swap agreements that expire in 2011. The Company does notapply hedge accounting to these instruments.

 

**Item 4. *Controlsand Procedures*.**

 

Our management carried out an evaluation, with the participation of ourChief Executive Officer and Chief Financial Officer, of the effectiveness ofour disclosure controls and procedures as of September 30, 2003. Basedupon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective to ensurethat information required to be disclosed by us in reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported, within the time periods specified in the rules andforms of the Securities and Exchange Commission.

 

There has not been any changein our internal control over financial reporting in connection with theevaluation required by Rule 13a-15(d) under the Exchange Act that occurredduring the quarter ended September 30, 2003 that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

 

**PART II.****  OTHER INFORMATION**

 

**Item1.  *LegalProceedings.***

 

Julian Graham & Julian Graham Chevrolet,Inc. v. Young Broadcasting Inc.,Young Broadcasting of Richmond, Inc. and Richard RealCase No. LP 1723-1 (Circuit Court, City of Richmond, Virginia)

 

On July 31, 2002, Plaintiffs served upon Young Broadcasting Inc.,Young Broadcasting of Richmond, Inc. (“WRIC-TV”) and Richard Real a complaintalleging that Defendants defamed Plaintiffs in a news story concerning JulianGraham Chevrolet that aired in April and May of 2002. In October 2003a settlement agreement was entered into between the Young Broadcasting ofRichmond, Inc. and Julian Graham Chevrolet for a monetary sum significantlyless than the Plaintiff’s original claim, all of which is covered under theCompany’s insurance policy.

 

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.

 

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**Item 6. * Exhibits andReports on Form 8-K.***

(a) *Exhibits.*

 
| **Exhibit  Number** |   | **Exhibit  Description**                        |
|---------------------|--------|-------------------------------------------------|
|                |   |                                            |
| 11                  |   | Statement Re Computation of Per Share Earnings. |
| 31                  |   | Rule 13a-14(a)/15d-14(a) Certifications         |
| 32                  |   | Section 1350 Certifications                |

 

b)  *Reports on Form 8-K.*

 

During the quarter ended September 30, 2003, the Company filed orfurnished the following current reports on Form 8-K with the Securities &Exchange Commission:

 

Current report on Form 8-K, dated August 12, 2003, was furnishedon August 12, 2003. The item reported was:

 

•                  Item 12 –Regulation FD Disclosure, which reported the issuance of a press releaseannouncing the Company’s financial results for the quarter ended June 30,2003.

 

Current report on Form 8-K, dated August 15, 2003, was furnishedon August 15, 2003. The item reported was:

 

•                  Item 12 –Regulation FD Disclosure, which reported the issuance of a comparison ofrevised tax accounting presentations for 2002.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|   |                   | YOUNG BROADCASTING INC. |
|--------|------------------------|-------------------------|
|   |                   |                    |
|   |                   |                    |
| Date:  | November 12, 2003 | By:                     |  /s/ Vincent J. Young |   |
|   |                   |                    | Vincent J. Young |
|   |                   |                    | Chairman |
|   |                   |                    |
|   |                   |                    |
| Date:  | November 12, 2003 | By:                     |  /s/ James A. Morgan |   |
|   |                   |                    | James A. Morgan |
|   |                   |                    | Executive Vice President and  Chief Financial Officer  (principal financial officer) |

 

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