**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,  D.C.   20549**

 

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**FORM 10-Q**

 

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

 

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

 

**YOUNG BROADCASTING INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                                     |   | **13-3339681**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State of other  jurisdiction of  incorporation or organization) |   | (I.R.S. employer  identification no.) |
|                                                             |   |                                  |
| **599 Lexington Avenue**                                         |
| **New York,  New York 10022**                               |
| (Address of principal  executive offices)                        |
|                                                             |   |                                  |
| Registrant’s telephone number, including area code:         |   | **(212)  754-7070**              |

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

Yes  ý  No  o

 

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

 

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

 

 

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**YOUNG BROADCASTING INC.**

 

**FORM 10-Q**

 

**Table of Contents**

 
| Part I         | Financial Information | Page                                                                                                   |
|----------------|-----------------------|--------------------------------------------------------------------------------------------------------|
|           |                  |
|           | Item 1.               | Financial Statements  (unaudited)                                                                      | 2 |
|           |                  |                                                                                                   |   |
|           |                  | Consolidated Balance Sheets  as of December 31, 2002 and March 31, 2003                                | 2 |
|           |                  |                                                                                                   |   |
|           |                  | Consolidated  Statements of Operations for the Three Months Ended March 31, 2002 and 2003              | 3 |
|           |                  |                                                                                                   |   |
|           |                  | Consolidated  Statements of Stockholders’ Equity   for the Three Months Ended March 31, 2003 | 4 |
|           |                  |                                                                                                   |   |
|           |                  | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2003              | 5 |
|           |                  |                                                                                                   |   |
|           |                  | Notes to  Consolidated Financial Statements                                                            | 6 |
|           |                  |                                                                                                   |   |
|           | Item  2.              | Management’s  Discussion and Analysis of Financial Condition and Results of  Operations      | 10 |
|           |                  |                                                                                                   |   |
|           | Item  3.              | Quantitative  and Qualitative Disclosure About Market Risk                                             | 18 |
|           |                  |                                                                                                   |   |
|           | Item 4.               | Controls and  Procedures                                                                               | 19 |
|           |                  |                                                                                                   |   |
| Part II.       |                  |                                                                                                   |   |
|           |                  |                                                                                                   |   |
|           | Item 1.               | Legal Proceedings                                                                                      | 20 |
|           |                  |                                                                                                   |   |
|           | Item 6.               | Exhibits and  Reports on Form 8-K                                                                      | 20 |
|           |                  |                                                                                                   |
| Signatures     | 21                    |
|           |                  |                                                                                                   |
| Certifications | 22                    |
|                |                       |                                                                                                        |  |  |  |  |

 

 

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**Part I  Financial Information**

**Item 1. *Financial Statements***

Young Broadcasting Inc.and Subsidiaries

Consolidated Balance Sheets

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

* *

*Seeaccompanying notes to consolidated financial statements*

 

2

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**YoungBroadcasting Inc. and Subsidiaries**

**Consolidated Statements of Operations**

(Unaudited)

 
|                                                                                          |   | **Three  Months Ended March 31,** |         |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------|--------------|
|                                                                                          |   | **2002**                          |         | **2003** |   |
| Net operating revenue                                                                         |   | $                                 | 46,586,552   |   | $ | 47,237,922 |   |
|                                                                                          |   |                              |         |   |   |
| Operating  expenses                                                                           |   | 18,614,172                        |         | 18,506,978 |   |
| Amortization of  program license rights                                                       |   | 4,290,033                         |         | 4,625,396 |   |
| Selling, general  and administrative expenses                                                 |   | 14,572,832                        |         | 14,725,497 |   |
| Depreciation and  amortization                                                                |   | 6,111,654                         |         | 5,995,869 |   |
| Corporate  overhead                                                                           |   | 2,727,989                         |         | 3,137,295 |   |
| Non-cash  compensation                                                                        |   | 377,259                           |         | 314,017 |   |
| Operating loss                                                                                |   | (107,387                          | )            | (67,130 | ) |
|                                                                                          |   |                              |         |   |   |
| Interest  (expense), net                                                                      |   | (26,809,896                       | )            | (16,020,043 | ) |
| Non-cash change  on market valuation of swaps                                                 |   | (4,256,890                        | )            | (1,461,006 | ) |
| Other income  (expense), net                                                                  |   | (87,231                           | )            | (172,753 | ) |
|                                                                                          |   | (31,154,017                       | )            | (17,653,802 | ) |
|                                                                                          |   |                              |         |   |   |
| (Loss) income  from continuing operations before cumulative effect  of accounting change |   | (31,261,404                       | )            | (17,720,932 | ) |
|                                                                                          |   |                              |         |   |   |
| Discontinued  operations:                                                                     |   |                              |         |   |   |
| Income from  discontinued operations, net of applicable taxes                                 |   | 2,886,254                         |         | — |   |
| (Loss) before  cumulative effect of accounting change                                         |   | (28,375,150                       | )            | (17,720,932 | ) |
| Cumulative  effect of accounting change, net of applicable taxes                              |   | (268,713,885                      | )            | — |   |
| Net loss                                                                                      |   | $                                 | (297,089,035 | ) | $ | (17,720,932 | ) |
|                                                                                          |   |                              |         |   |   |
| Basic and  diluted net (loss) income per common share:                                        |   |                              |         |   |   |
| (Loss) income  from continuing operations before cumulative effect of accounting change       |   | $                                 | (1.59        | ) | $ | (0.90 | ) |
| Income from  discontinued operations, net                                                     |   | 0.15                              |         | — |   |
| Cumulative  effect of accounting change, net                                                  |   | (13.68                            | )            | — |   |
| Net loss per  common share                                                                    |   | $                                 | (15.12       | ) | $ | (0.90 | ) |
|                                                                                          |   |                              |         |   |   |
| Weighted average  shares – Basic and dilutive                                            |   | 19,645,921                        |         | 19,737,156 |   |

 

*Seeaccompanying notes to consolidated financial statements.*

 

3

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Young Broadcasting Inc.and Subsidiaries

 

Consolidated Statementsof Stockholders’ Equity 

(Unaudited)

 
| ** **

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

* *

*Seeaccompanying notes to consolidated financial statements*

 

4

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**Young Broadcasting Inc. and Subsidiaries**

 

**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                       |   | **Three Months Ended March 31,** |         |
|--------------------------------------------------------------------------------------------|--------|----------------------------------|--------------|
|                                                                                       |   | **2002**                         |         | **2003** |   |
| **Operating  activities**                                                                  |   |                             |         |   |   |
| Net loss                                                                                   |   | $                                | (297,089,035 | ) | **$** | **(17,720,932** | **)** |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |   |                             |         |   | ** ** |
| Cumulative  effect of change in accounting, net of taxes                                   |   | 268,713,885                      |         | **—** | ** ** |
| Depreciation and  amortization of property and equipment                                   |   | 4,964,104                        |         | **4,644,636** | ** ** |
| Amortization of  program license rights                                                    |   | 19,740,171                       |         | **4,625,396** | ** ** |
| Amortization of  broadcasting licenses, other intangibles and deferred charges             |   | 1,816,474                        |         | **1,351,233** | ** ** |
| Non-cash  compensation                                                                     |   | 377,259                          |         | **314,017** | ** ** |
| Non-cash change  on market valuation of swap                                               |   | 4,256,890                        |         | **1,461,006** | ** ** |
| Loss on sale of  fixed assets                                                              |   | 12,146                           |         | **1,159** | ** ** |
| Income from escrow  deposits                                                               |   | (157,755                         | )            | **(37,475** | **)** |
| Income tax  refund, net of estimated payment                                               |   | —                           |         | **27,000,000** | ** ** |
| Payments on  programming license liabilities                                               |   | (16,721,366                      | )            | **(4,562,571** | **)** |
| Decrease in  trade accounts receivable                                                     |   | 22,538,953                       |         | **6,699,799** | ** ** |
| Increase in  prepaid expenses                                                              |   | 904,135                          |         | **465,475** | ** ** |
| Decrease in  trade accounts payable                                                        |   | (1,657,730                       | )            | **(6,534,124** | **)** |
| Decrease in  accrued expenses and other liabilities                                        |   | (10,142,220                      | )            | **(9,549,268** | **)** |
| Net cash  provided by (used in) operating activities                                       |   | (2,444,089                       | )            | **8,158,351** | ** ** |
|                                                                                       |   |                             |         |   | ** ** |
| **Investing activities**                                                                   |   |                             |         |   | ** ** |
| Capital  expenditures                                                                      |   | (320,503                         | )            | **(2,509,354** | **)** |
| Increase in  deposits and other assets                                                     |   | (3,074,207                       | )            | **82,951** | ** ** |
| Net cash used in  investing activities                                                     |   | (3,394,710                       | )            | **(2,426,403** | **)** |
|                                                                                       |   |                             |         |   | ** ** |
| **Financing activities**                                                                   |   |                             |         |   | ** ** |
| Principal  payments on long-term debt                                                      |   | (10,177,000                      | )            | **—** | ** ** |
| Borrowings from  working capital facility                                                  |   | 15,553,394                       |         | **—** | ** ** |
| Deferred  acquisition and debt financing costs incurred                                    |   | (548,219                         | )            | **(14,514** | **)** |
| Principal  payments under capital lease obligations                                        |   | (293,347                         | )            | **(164,984** | **)** |
| Proceeds from  other financing activities                                                  |   | 3,770                            |         | **3,311** | ** ** |
| Net cash  provided by (used in) financing activities                                       |   | 4,538,598                        |         | **(176,187** | **)** |
|                                                                                       |   |                             |         |   | ** ** |
| **Net (decrease) increase in cash**                                                        |   | (1,300,201                       | )            | **5,555,761** | ** ** |
| Cash and cash  equivalents at beginning of year                                            |   | 1,936,794                        |         | **110,406,572** | ** ** |
| **Cash and cash equivalents at March  31**                                                 |   | $                                | 636,593      |   | **$** | **115,962,333** | ** ** |
|                                                                                       |   |                             |         |   | ** ** |
| **Supplemental disclosure of cash  flow information**                                      |   |                             |         |   | ** ** |
| Interest paid                                                                              |   | $                                | 34,259,489   |   | **$** | **20,095,582** | ** ** |
| Income tax  refund, net of estimated payment                                               |   | $                                | —       |   | **$** | **27,126,151** | ** ** |

* *

*Seeaccompanying notes to consolidated financial statements.*

 

5

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**YoungBroadcasting Inc. and Subsidiaries**

** **

**Notes toConsolidated Financial Statements**

**(Unaudited)**

** **

**1.Principles of Consolidation**

 

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

 

**2.  Sale of KCAL-TV**

 

On May 15, 2002, the Company completed thesale of KCAL-TV in Los Angeles, California to Viacom Inc. in an all cashtransaction for $650.0 million, less purchase price adjustments. The operatingresults of KCAL-TV are not included in the Company’s consolidated results fromcontinuing operations for the three months ended March 31, 2002. During thesecond quarter of 2002, the Company recorded a gain on the sale of $139.3million, net of a provision for income taxes of $147.7 million. On December 31,2002, the Company had accrued approximately $7.5 million of expenses related tothe sale of KCAL-TV and the Company’s obligation to reimburse Viacom Inc. forcertain costs. Payments and adjustments relating to this accrual will befinalized in the second quarter  of2003.

 

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

 

**3.  Stock-Based Compensation**

 

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

 

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

 

6

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

 

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

 

 
|                                                                                              |   | **Three Months Ended  March 31,** |     |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
| **(dollars in thousands, except per share data)**                                                 |   | **2002**                          |     | **2003** |   |
| Net income  (loss)-as reported                                                                    |   | $                                 | (297,089 | ) | $ | (17,721 | ) |
| Deduct total  stock-based employee compensation expense determined under fair value based  method |   | (909                              | )        | (1,226 | ) |
| Net income  (loss)-pro forma                                                                      |   | $                                 | (297,998 | ) | $ | (18,947 | ) |
| Net income (loss) per basic common share-as reported                                              |   | $                                 | (15.12   | ) | $ | (0.90 | ) |
| Net income (loss) per basic common share-pro forma                                                |   | $                                 | (15.17   | ) | $ | (0.96 | ) |

 

**4.  Goodwill and Other Intangibles**

 

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

 

In June 2001, the FASB issued Statement of FinancialAccounting Standards No. 142, *Goodwill andOther Intangible Assets*(“Statement 142”), whereby goodwill andindefinite lived intangible assets are no longer amortized but are reviewedannually for impairment, or more frequently, if impairment indicators arise.Intangible assets that have finite lives will continue to be amortized overtheir useful lives. The Company applied the new rules on accounting forgoodwill and other intangible assets on January 1, 2002, and as such ceasedamortizing goodwill, broadcast licenses and network affiliation agreements.Upon adoption, the Company completed its review for impairment of goodwill andcertain other intangibles and recognized an impairment loss of $268.7 million,net of tax benefits of approximately $39.5 million, as a cumulative effect ofaccounting change.  The asset that wasdetermined to be impaired was the broadcast license at KRON-TV in SanFrancisco, California.

 

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

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

 

7

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

 

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

 

**5.Income Taxes**

 

During 2002, the Company was able to realizea tax benefit from the utilization of the loss from operations, tax losscarryforwards, and the cumulative effect of the accounting change. The Companyhas recorded a deferred tax asset of $6.0 million and $2.0 million at December31, 2002 and March 31, 2003, respectively, related to existing temporarydifferences that are expected to generate future tax losses that can be carriedback to 2002.

 

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

 

**6.   Legal Proceedings**

 

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

 

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

 

9

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

 

**FORWARD-LOOKING STATEMENTS**

 

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

 

**Introduction**

 

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

 

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

 

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

 

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

 

**RecentDevelopments**

 

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

 

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

 

**Critical Accounting Policies**

 

The Company’s critical accounting for the impairment of property,equipment and intangible assets is assessing the recoverability by makingassumptions regarding estimated future cash flows and other factors todetermine the fair value of the respective assets. If these estimates orrelated assumptions materially change in the future, the Company may berequired to record impairment charges not previously recorded for these assets.At March 31, 2003, the Company had $88.7 million in net property and equipment,$25.5 million of goodwill, $512.4 million of broadcast licenses and $22.2million of other amortizable intangibles. In May 2002, the Company completedits review for impairment of goodwill and certain other intangibles upon theadoption of the new accounting standard in January 2002, recognized animpairment loss related to KRON-TV’s broadcast license of $268.7 million andrecorded it as a cumulative effect of an accounting change, net of tax benefitsof approximately $39.5 million. The Company will perform its annual impairmenttest in the fourth quarter of each year. Due to the uncertain economic andgeopolitical climate, management cannot determine with any certainty if anadditional  impairment of KRON-TV’sbroadcast license may occur. If an impairment loss is required, it will berecorded as a charge to continuing operations.

 

**TelevisionRevenues**

 

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

 

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

 

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**Resultsof Operations**

 

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

 

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

 

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

 

Operating expenses and selling, general andadministrative expenses for the three months ended March 31, 2003 and 2002 were$33.2 million for each period. On October 1, 2002, the Company implemented areorganization plan at KRON-TV, intended to reduce expenses for 2003.  Because of this plan and the Company’scontrol over operating costs of all of its stations, operating expenses did notincrease compared to the prior year period.

 

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

 

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

 

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

 

Non-cash compensation was $314,000 for the threemonths ended March 31, 2003, compared to $377,000 for the three months endedMarch 31, 2002, a decrease of $63,000.

 

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

 

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

 

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

 

Effective January 1, 2002, the Company recorded a cumulative effect ofaccounting change of $268.7 million net, net of tax benefits of approximately$39.5 million, relating to the adoption of Statement 142.

 

As a result of these factors discussed above, the netloss for the Company was $17.7 million for the three months ended March 31,2003, compared with a net loss of $297.1 million for the three months endedMarch 31, 2002, a change  of $279.4million.

 

**Liquidityand Capital Resources**

 

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

 

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

 

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

 

Cash used in investing activities for the three months ended March 31,2003 was $2.4 million, compared to $3.4 million for the three months endedMarch 31, 2002. During 2002 and 2003, the Company incurred significant capitalexpenditures for building digital transmission facilities, as required byFederal Communications Commission regulations. The timing of these projects hasbeen constrained by regulatory approvals, equipment availability, constructioncrew availability and weather conditions. Deposits for the Company decreased$83,000 for the three months ended March 31, 2003, as compared to an increaseof $3.1 million for the three months ended March 31, 2002. The decrease indeposits in 2003 was from completed digital construction projects beingrecorded as capital expenditures and the increase in 2002 deposits wereprimarily from the construction-in-progress for the digital conversion.Construction-in-progress balances at March 31, 2003 and December 31, 2002 were$7.9 million and $8.1 million, respectively. The Company estimates that, by theend of the second quarter of 2003,  $6.1million currently in construction-in-progress will be placed in service andrecorded as an addition to capital expenditures. For 2003, $2.5 million ofcapital expenditures were placed in service, however, since approximately $2.3million of the capital expenditures were paid for in 2002, the cash payments in2003 relating to capital expenditures were approximately $209,000.

 

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

 

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

 

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

 

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

 

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Interest under the Senior Credit Facility is payable at the LIBOR rate,“CD Rate” or “Base Rate.” In addition to the index rates, the Company pays afloating percentage tied to the Company’s ratio of total debt to operating cashflow; ranging, in the case of LIBOR rate loans, from 1.75%, based upon a ratiounder 5.0:1, to 3.5%, based upon a 7.0:1 or greater ratio for the Term Aadvances and revolver facility; and 3.75% for the Term B advances.

 

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

 

The Senior Credit Facility requires the Company to maintain certainfinancial ratios. Pursuant to Waiver and Amendment No. 7 to the Company’sSenior Credit Facility, compliance with all applicable financial ratios hasbeen waived commencing for the quarter ended June 30, 2002 until December 30,2003, and the Company is limited to $10.0 million of borrowing under the revolvingfacility until such time as the Company is in compliance with all applicablefinancial ratios (without giving effect to the waivers). Effective with theissuance of the Senior Notes, as defined below, the Company is not required tomaintain a total debt to operating cash flow ratio until June 30, 2004, whenthe commencing ratio will be 7.35x, the Company is required to maintain asenior debt to operating cash flow ratio ranging from 3.50x to 4.00x, and theCompany is required to maintain until December 31, 2004 a senior secured debtto operating cash flow ratio ranging from 1.75x to 2.00x.

 

The Senior Credit Facility requires the Company to apply on April 30 ofeach year 50% to 75% (depending upon the level of the Company’s debt tooperating cash flow ratio at the end of such year) of its “Excess Cash Flow”for the preceding completed fiscal year, beginning with Fiscal Year 2001, toreduce outstanding senior bank debt in proportion to the outstanding principalamount of such advances. The Senior Credit Facility also contains a number ofcustomary covenants including, among others, limitations on investments andadvances, mergers and sales of assets, liens on assets, affiliate transactionsand changes in business. As of December 31, 2002, there was no debt outstandingunder the Senior Credit Facility and thus no calculation of “Excess Cash Flow”was made for 2002.

 

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

 

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

 

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On August 12, 2002, the Company commencedoffers to purchase for cash all of its Senior Notes and a portion of itsoutstanding 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 theSenior Subordinated Notes are collectively referred to as the “Notes”). Theseoffers were made with the net proceeds from the sale of KCAL-TV, in accordancewith the 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 through September 17, 2002 in the case of theSenior Notes and September 24, 2002 in the case of the Senior SubordinatedNotes. The offers expired in accordance with their terms on September 12, 2002.

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

**IncomeTaxes**

 

The Company files a consolidated federal income taxreturn and such state and local tax returns as are required. The Companyrecorded a gain on the sale of KCAL-TV in 2002 of approximately $139.3 million,net of a provision for income taxes of $147.7 million. As a result of thisincome, the Company was able to realize a tax benefit from the utilization ofthe loss from operations for the year ended December 31, 2002, tax losscarryforwards, and the cumulative effect of an accounting change. In addition,the Company has recorded a deferred tax asset of $6.0 million and $2.0 millionas of December 31, 2002 and March 31, 2003, respectively, related to existingtemporary differences that are expected to generate future tax losses that canbe carried back to 2002.  The Companyrecorded an income tax receivable at December 31, 2002 of $28.8 million, of which$28.0 million was received in the first quarter of 2003.

 

**Contractual Obligations and OtherCommercial Commitments**

 

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

 

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

 

17

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

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

 

----

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

(2) Obligations for programming that has been contractedfor, but not recorded on the March 31, 2003 Balance Sheet because the programswere not currently available for airing.

 

**RecentlyIssued Accounting Standards**

 

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

 

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

 

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

 

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

 

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

 

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

 

18

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

 

Within the 90 days prior to the date of this report, under the supervisionand with the participation of management, including our Chief Executive Officerand our Chief Financial Officer, we have evaluated the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant toExchange Act Rule 13a-14.  Based uponthat evaluation, our Chief Executive Officer and our Chief Financial Officerhave concluded that our disclosure controls and procedures are effective intimely alerting them to material information relating to us (including ourconsolidated subsidiaries) required to be included in our periodic SECfilings.  There have been no significantchanges in our internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of their evaluation.

 

19

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**PARTII.  OTHER INFORMATION**

 

**Item1.  *LegalProceedings.***

 

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

Young Broadcasting ofRichmond, Inc. and Richard Real

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

 

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

 

The Company is involved in other legal proceedings and 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.

 

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

 

(a) *Exhibits.*

 
| **Exhibit  Number** |   | **Exhibit  Description**                        |
|---------------------|--------|-------------------------------------------------|
| 11                  |   | Statement Re Computation of Per Share Earnings. |

 

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

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

 

20

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

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

 

21

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**CERTIFICATIONS**

 

I, Vincent J.Young, certify that:

 
| 1)     | I have reviewed  this quarterly report on Form 10-Q of Young Broadcasting Inc. (“the  Registrant”);                                                                                                                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 2)     | Based on my  knowledge, this quarterly report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3)     | Based on my  knowledge, the financial statements, and other financial information included  in this quarterly report, fairly present in all material respects the  financial condition, results of operations and cash flows of the Registrant  as of, and for, the periods presented in this quarterly report;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 4)     | The Registrant’s  other certifying officers and I are responsible for establishing and  maintaining disclosure controls and procedures (as defined in Exchange Act  Rules 13a-14 and 15d-14) for the Registrant and we have:                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                  | designed such disclosure  controls and procedures to ensure that material information relating to the  Registrant, including its consolidated subsidiaries, is made known to us by  others within those entities, particularly during the period in which this  quarterly report is being prepared; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                  | evaluated the  effectiveness of the Registrant’s disclosure controls and procedures as of a  date within 90 days prior to the filing date of this quarterly report (the  “Evaluation Date”); and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                  | presented in  this quarterly report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the  Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 5)     | The Registrant’s  other certifying officers and I have disclosed, based on our most recent  evaluation, to the Registrant’s auditors and the audit committee of the  Registrant’s board of directors (or persons performing the equivalent  function):                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                  | all significant  deficiencies in the design or operation of internal controls which could  adversely affect the Registrant’s ability to record, process, summarize and  report financial data and have identified for the Registrant’s auditors any  material weaknesses in internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                  | any fraud,  whether or not material, that involves management or other employees who have  a significant role in the Registrant’s internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 6)     | The Registrant’s  other certifying officers and I have indicated in this quarterly report  whether or not there were significant changes in internal controls or in  other factors that could significantly affect internal controls subsequent to  the date of our most recent evaluation, including any corrective actions with  regard to significant deficiencies and material weaknesses. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |

 

 
|   | /s/ Vincent J.  Young                 |   |
|--------|---------------------------------------|--------|
|   | Vincent J. Young                      |
|   | Chairman and  Chief Executive Officer |
|   | May 12, 2003                          |

 

22

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I, James A.Morgan, certify that:

 
| 1)     | I have reviewed  this quarterly report on Form 10-Q of Young Broadcasting Inc. (“the  Registrant”);                                                                                                                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 2)     | Based on my  knowledge, this quarterly report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 3)     | Based on my  knowledge, the financial statements, and other financial information included  in this quarterly report, fairly present in all material respects the  financial condition, results of operations and cash flows of the Registrant  as of, and for, the periods presented in this quarterly report;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 4)     | The Registrant’s  other certifying officers and I are responsible for establishing and  maintaining disclosure controls and procedures (as defined in Exchange Act  Rules 13a-14 and 15d-14) for the Registrant and we have:                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                  | designed such  disclosure controls and procedures to ensure that material information  relating to the Registrant, including its consolidated subsidiaries, is made  known to us by others within those entities, particularly during the period  in which this quarterly report is being prepared; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                  | evaluated the  effectiveness of the Registrant’s disclosure controls and procedures as of a  date within 90 days prior to the filing date of this quarterly report; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                  | presented in  this quarterly report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the  Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 5)     | The Registrant’s  other certifying officers and I have disclosed, based on our most recent  evaluation, to the Registrant’s auditors and the audit committee of the  Registrant’s board of directors (or persons performing the equivalent  function):                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                  | all significant  deficiencies in the design or operation of internal controls which could  adversely affect the Registrant’s ability to record, process, summarize and  report financial data and have identified for the Registrant’s auditors any  material weaknesses in internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                  | any fraud,  whether or not material, that involves management or other employees who have  a significant role in the Registrant’s internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 6)     | The Registrant’s  other certifying officers and I have indicated in this quarterly report whether  or not there were significant changes in internal controls or in other  factors that could significantly affect internal controls subsequent to the  date of our most recent evaluation, including any corrective actions with  regard to significant deficiencies and material weaknesses. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |

 

 
|   | /s/ James A.  Morgan          |   |
|--------|-------------------------------|--------|
|   | James A. Morgan               |
|   | Executive Vice  President and |
|   | Chief Financial  Officer      |
|   | May 12, 2003                  |

 

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