**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,  D.C.  20549**

 

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**FORM 10-Q**

 

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**Quarterly Report Pursuant to Section 13 or 15 (d) of the**

**Securities Exchange Act of 1934**

 

| **For the quarterly period ended** |   | **Commission file number:** |
|------------------------------------|--------|-----------------------------|
| **March 31, 2004**                 |   | **0-25042**                 |

 

**YOUNG BROADCASTING INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    |   | **13-3339681**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State of other jurisdiction of  incorporation or organization) |   | (I.R.S. employer  identification no.) |

 

**599 Lexington Avenue**

**New York,  New York 10022**

(Address of principal executive offices)

 

Registrant’s telephone number,including area code:         **(212)  754-7070**

 

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Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes  ýNo  o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act).Yes  ý   No  o

 

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Number ofshares of Common Stock outstanding as of April 26, 2004: 17,762,127 shares ofClass A Common Stock, and 2,104,433 shares of Class B Common Stock.

 

 

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**YOUNG BROADCASTINGINC.**

 

**FORM 10-Q**

 

**Table of Contents**

 
| Part I     | Financial Information                    |                                                                                            |
|------------|------------------------------------------|-------------------------------------------------------------------------------------------------|
|       |                                     |                                                                                            |   |
|       | Item 1. Financial Statements (unaudited) |                                                                                            |
|       |                                     |                                                                                            |   |
|       |                                     | Consolidated Balance Sheets as of December 31, 2003 and March 31,  2004                         |   |
|       |                                     |                                                                                            |   |
|       |                                     | Consolidated Statements of Operations for  the Three Months Ended March 31, 2003 and 2004       |   |
|       |                                     |                                                                                            |   |
|       |                                     | Consolidated Statements of Stockholders’  Equity for the Three Months Ended March 31, 2004 |   |
|       |                                     |                                                                                            |   |
|       |                                     | Consolidated Statements of Cash Flows for  the Three Months Ended March 31, 2003 and 2004       |   |
|       |                                     |                                                                                            |   |
|       |                                     | Notes to Consolidated Financial Statements                                                      |   |
|       |                                     |                                                                                            |   |
|       | Item 2.                                  | Management’s Discussion and Analysis of  Financial Condition and Results of Operations     |   |
|       |                                     |                                                                                            |   |
|       | Item 3.                                  | Quantitative and Qualitative Disclosure  About Market Risk                                      |   |
|       |                                     |                                                                                            |   |
|       | Item 4.                                  | Controls and Procedures                                                                         |   |
|       |                                     |                                                                                            |   |
| Part II    |                                     |                                                                                            |   |
|       |                                     |                                                                                            |   |
|       | Item 1.                                  | Legal Proceedings                                                                               |   |
|       |                                     |                                                                                            |   |
|       | Item 6.                                  | Exhibits and Reports on Form 8-K                                                                |   |
|       |                                     |                                                                                            |   |
| Signatures |                                     |
|            |                                          |                                                                                                 |  |  |

 

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**PartI  Financial Information**

**Item1. *Financial Statements***

 

Young Broadcasting Inc. and Subsidiaries

ConsolidatedBalance Sheets

 
|                                                                                                                                                  |   | **December  31,  2003** |          | **March 31,  2004** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------------|---------------------|------------|
|                                                                                                                                                  |   |                    |          | **(Unaudited)**     |       |
| **Assets**                                                                                                                                            |   |                    |          |                |       |
| Current assets:                                                                                                                                       |   |                    |          |                |       |
| Cash and cash equivalents                                                                                                                             |   | $                       | 331,150,335   |                | **$**      | **88,882,608** | ** ** |
| Trade accounts receivable, less allowance  for doubtful accounts of  $1,125,000  in 2003 and $1,373,000 in 2004                                  |   | 43,287,278              |          | **36,105,486**      | ** ** |
| Current portion of program license rights                                                                                                             |   | 14,041,957              |          | **11,614,694**      | ** ** |
| Prepaid expenses                                                                                                                                      |   | 3,150,901               |          | **2,483,558**       | ** ** |
| Total current assets                                                                                                                                  |   | 391,630,471             |          | **139,086,346**     | ** ** |
|                                                                                                                                                  |   |                    |          |                | ** ** |
| Property and equipment, less accumulated  depreciation and amortization of   $159,898,113 in 2003 and $164,611,770 in 2004                       |   | 95,008,191              |          | **93,441,038**      | ** ** |
| Program license rights, excluding current  portion                                                                                                    |   | 680,428                 |          | **601,795**         | ** ** |
| Deposits and other assets                                                                                                                             |   | 7,454,872               |          | **8,271,036**       | ** ** |
| Indefinite-lived intangible assets                                                                                                                    |   | 475,995,697             |          | **475,995,697**     | ** ** |
| Definite-lived intangible assets, net                                                                                                                 |   | 77,053,891              |          | **75,980,353**      | ** ** |
| Deferred charges, net                                                                                                                                 |   | 13,840,698              |          | **12,322,794**      | ** ** |
| **Total Assets**                                                                                                                                      |   | $                       | 1,061,664,248 |                | **$**      | **805,699,059** | ** ** |
|                                                                                                                                                  |   |                    |          |                |       |
| **Liabilities and stockholders’ equity**                                                                                                         |   |                    |          |                | ** ** |
| Current liabilities:                                                                                                                                  |   |                    |          |                | ** ** |
| Trade accounts payable                                                                                                                                |   | $                       | 8,725,654     |                | **$**      | **11,218,258** | ** ** |
| Accrued interest                                                                                                                                      |   | 16,075,312              |          | **12,167,959**      | ** ** |
| Accrued expenses                                                                                                                                      |   | 17,220,773              |          | **13,229,578**      | ** ** |
| Current installments of program license  liability                                                                                                    |   | 13,425,084              |          | **7,528,249**       | ** ** |
| Current installments of long-term debt                                                                                                                |   | 223,811,000             |          | **—**          | ** ** |
| Current installments of obligations under  capital leases                                                                                             |   | 1,026,959               |          | **889,675**         | ** ** |
| Total current liabilities                                                                                                                             |   | 280,284,782             |          | **45,033,719**      | ** ** |
| Program license liability, excluding  current installments                                                                                            |   | 847,988                 |          | **658,676**         | ** ** |
| Long-term debt, excluding current  installments                                                                                                       |   | 741,559,285             |          | **741,103,522**     | ** ** |
| Other liabilities                                                                                                                                     |   | 10,408,276              |          | **10,383,215**      | ** ** |
| Obligations under capital leases, excluding  current installments                                                                                     |   | 234,154                 |          | **217,387**         | ** ** |
| **Total liabilities**                                                                                                                                 |   | 1,033,334,485           |          | **797,396,519**     | ** ** |
| Stockholders’ equity*:*                                                                                                                          |   |                    |          |                | ** ** |
| Class A Common Stock, $.001 par value.  Authorized 40,000,000 shares; issued and outstanding 17,695,857 shares at  2003 and 17,741,668 shares at 2004 |   | 17,696                  |          | **17,742**          | ** ** |
| Class B Common Stock, $.001 par value.  Authorized 20,000,000 shares; issued and outstanding 2,129,414 shares at 2003  and 2,106,633 at 2004          |   | 2,129                   |          | **2,106**           | ** ** |
| Additional paid-in capital                                                                                                                            |   | 377,802,562             |          | **379,077,339**     | ** ** |
| Accumulated other comprehensive loss                                                                                                                  |   | (2,082,402              | )             | **(2,082,402**      | **)**      |
| Accumulated deficit                                                                                                                                   |   | (347,410,222            | )             | **(368,712,245**    | **)**      |
| Total stockholders’ equity                                                                                                                       |   | 28,329,763              |          | **8,302,540**       | ** ** |
| **Total liabilities and stockholders’ equity**                                                                                                   |   | $                       | 1,061,664,248 |                | **$**      | **805,699,059** | ** ** |

 

*See accompanyingnotes to consolidated financial statements*

 

2

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**Young Broadcasting Inc. and Subsidiaries**

**Consolidated Statements of Operations**

(Unaudited)

 
|                                                                          |   | **Three  Months Ended March 31,** |        |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                                          |   | **2003**                          |        | **2004** |   |
| Net operating revenue                                                         |   | $                                 | 47,237,922  | ** ** | **$** | **50,949,344** | ** ** |
|                                                                          |   |                              | ** **  |   | ** ** |
| Operating expenses, excluding depreciation  expense                           |   | 18,506,978                        | ** **  | **18,447,076** | ** ** |
| Amortization of program license rights                                        |   | 4,625,396                         |        | **4,760,806** | ** ** |
| Selling, general and administrative  expenses, excluding depreciation expense |   | 15,039,514                        |        | **15,719,499** | ** ** |
| Depreciation and amortization                                                 |   | 6,726,691                         |        | **6,500,220** | ** ** |
| Corporate overhead, excluding depreciation  expense                           |   | 3,137,295                         |        | **5,825,441** | ** ** |
| Operating loss                                                                |   | (797,952                          | )           | **(303,698** | **)** |
|                                                                          |   |                              |        |   | ** ** |
| Interest (expense), net                                                       |   | (16,020,043                       | )           | **(16,985,943** | **)** |
| Non-cash change on market valuation of  swaps                                 |   | (1,461,006                        | )           | **1,261,684** | ** ** |
| Loss on extinguishment of debt                                                |   | —                            |        | **(5,323,375** | **)** |
| Other income (expense), net                                                   |   | (172,753                          | )           | **49,309** | ** ** |
|                                                                          |   | (17,653,802                       | )           | **(20,998,325** | **)** |
|                                                                          |   |                              |        |   | ** ** |
| Net loss                                                                      |   | $                                 | (18,451,754 | ) | **$** | **(21,302,023** | **)** |
|                                                                          |   |                              |        |   | ** ** |
| Basic and diluted net loss per common  share:                                 |   |                              |        |   | ** ** |
| Net loss per common share                                                     |   | $                                 | (0.93       | ) | **$** | **(1.07** | **)** |
|                                                                          |   |                              |        |   | ** ** |
| Weighted average shares – Basic and  dilutive                            |   | 19,737,156                        |        | **19,843,990** | ** ** |

 

*See accompanying notes to consolidatedfinancial statements.*

 

3

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Young Broadcasting Inc. and Subsidiaries

 

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 
|                                                                  |   | **Common  Stock** |   | **Additional  Paid-In** |   | **Accumulated** |   | **Accumulated  Comprehensive** |        | **Total  Stockholders’** |   |
|-----------------------------------------------------------------------|--------|-------------------|--------|-------------------------|--------|-----------------|--------|--------------------------------|-------------|-------------------------------|--------|
|                                                                  |   | **Class A**       |   | **Class B**             |   | **Capital**     |   | **Deficit**                    |        | **Loss**                      |   | **Equity** |   |
| Balance at December 31, 2003                                          |   | $                 | 17,696 |                    | $      | 2,129           |   | $                              | 377,802,562 |                          | $      | (347,410,222 | ) | $ | (2,082,402 | ) | $ | 28,329,763 |   |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Contribution of shares into Company’s  defined contribution plan |   | 12                |   |                    |   | 236,495         |   |                           |        |                          |   | 236,507 |   |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Conversion of Class B Common Stock to Class  A Common Stock           |   | 23                |   | (23                     | )      |            |   |                           |        |                          |   |   |   |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Non-cash stock compensation                                           |   |              |   |                    |   | 830,250         |   |                           |        |                          |   | 830,250 |   |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Employee stock purchase plan                                          |   | 8                 |   |                    |   | 152,087         |   |                           |        |                          |   | 152,095 |   |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Exercise of stock options                                             |   | 3                 |   |                    |   | 55,945          |   |                           |        |                          |   | 55,948 |   |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Net loss for the three months ended March  31, 2004                   |   |              |   |                    |   |            |   | (21,302,023                    | )           |                          |   | (21,302,023 | ) |
|                                                                  |   |              |   |                    |   |            |   |                           |        |                          |   |   |   |
| Balance at March 31, 2004                                             |   | $                 | 17,742 |                    | $      | 2,106           |   | $                              | 379,077,339 |                          | $      | (368,712,245 | ) | $ | (2,082,402 | ) | $ | 8,302,540 |   |

 

*See accompanying notes to consolidatedfinancial statements*

 

4

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**Young BroadcastingInc. and Subsidiaries**

 

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

 
|                                                                                       |   | **Three  Months Ended March 31,** |        |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                                                       |   | **2003**                          |        | **2004** |   |
| **Operating activities**                                                                   |   |                              | ** **  |   | ** ** |
| Net loss                                                                                   |   | $                                 | (18,451,754 | ) | **$** | **(21,302,023** | **)** |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                              |        |   | ** ** |
| Depreciation and amortization of property  and equipment                                   |   | 4,644,636                         |        | **4,776,160** | ** ** |
| Amortization of program license rights                                                     |   | 4,625,396                         |        | **4,760,806** | ** ** |
| Amortization of intangibles and deferred  charges                                          |   | 2,082,055                         |        | **1,724,059** | ** ** |
| Non-cash compensation                                                                      |   | 314,017                           |        | **1,141,733** | ** ** |
| Non-cash change on market valuation of swap                                                |   | 1,461,006                         |        | **(1,261,684** | **)** |
| Loss on extinguishment of debt                                                             |   | —                            |        | **1,305,790** | ** ** |
| Loss on sale of fixed assets                                                               |   | 1,159                             |        | **17,939** | ** ** |
| Income from escrow deposits                                                                |   | (37,475                           | )           | **—** | ** ** |
| Income tax refund, net of estimated payment                                                |   | 27,000,000                        |        | **—** | ** ** |
| Payments on programming license liabilities                                                |   | (4,562,571                        | )           | **(4,612,950** | **)** |
| Decrease in trade accounts receivable                                                      |   | 6,699,799                         |        | **7,214,741** | ** ** |
| Decrease in prepaid expenses                                                               |   | 465,475                           |        | **657,174** | ** ** |
| Decrease in trade accounts payable                                                         |   | (6,534,124                        | )           | **(1,235,503** | **)** |
| Decrease in accrued expenses and other  liabilities                                        |   | (9,549,268                        | )           | **(7,502,222** | **)** |
| Net cash provided by (used in) operating  activities                                       |   | 8,158,351                         |        | **(14,315,980** | **)** |
|                                                                                       |   |                              |        |   | ** ** |
| **Investing activities**                                                                   |   |                              |        |   | ** ** |
| Capital expenditures                                                                       |   | (2,227,638                        | )           | **(3,249,726** | **)** |
| Increase in deposits and other assets                                                      |   | (198,765                          | )           | **(374,442** | **)** |
| Net cash used in investing activities                                                      |   | (2,426,403                        | )           | **(3,624,168** | **)** |
|                                                                                       |   |                              |        |   | ** ** |
| **Financing activities**                                                                   |   |                              |        |   | ** ** |
| Redemption of senior subordinated notes                                                    |   | —                            |        | **(223,811,000** | **)** |
| Deferred debt financing costs incurred                                                     |   | (14,514                           | )           | **(418,476** | **)** |
| Principal payments under capital lease  obligations                                        |   | (164,984                          | )           | **(154,051** | **)** |
| Proceeds from exercise of stock options                                                    |   | —                            |        | **55,948** | ** ** |
| Proceeds from other financing activities                                                   |   | 3,311                             |        | **—** | ** ** |
| Net cash used in financing activities                                                      |   | (176,187                          | )           | **(224,327,579** | **)** |
|                                                                                       |   |                              |        |   | ** ** |
| **Net increase (decrease) in cash**                                                        |   | 5,555,761                         |        | **(242,267,727** | **)** |
| Cash and cash equivalents at beginning of  year                                            |   | 110,406,572                       |        | **331,150,335** | ** ** |
| **Cash and cash equivalents at March 31**                                                  |   | $                                 | 115,962,333 |   | **$** | **88,882,608** | ** ** |
|                                                                                       |   |                              |        |   | ** ** |
| **Supplemental disclosure of cash flow information**                                       |   |                              |        |   | ** ** |
| Interest paid                                                                              |   | $                                 | 20,095,582  |   | **$** | **21,657,119** | ** ** |
| Income tax refund, net of estimated payment                                                |   | $                                 | 27,000,000  |   | **$** | **—** | ** ** |

 

*See accompanying notes to consolidatedfinancial statements.*

 

5

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**Young Broadcasting Inc. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**1.  Principles of Consolidation**

 

The business operations ofYoung Broadcasting Inc. and subsidiaries (the “Company”) consist of ten networkaffiliated stations (six with ABC, three with CBS, and one with NBC) and oneindependent commercial television broadcasting station. The markets served arelocated in Lansing, Michigan, Green Bay, Wisconsin, Lafayette, Louisiana,Rockford, Illinois, Nashville and Knoxville, Tennessee, Albany, New York,Richmond, Virginia, Davenport, Iowa, Sioux Falls, South Dakota and SanFrancisco, California. In addition, the accompanying condensed consolidatedfinancial statements include the Company’s wholly owned national televisionsales representation firm. Significant intercompany transactions and accountshave been eliminated.

 

The accompanying condensedconsolidated financial statements have been prepared in accordance withaccounting 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.

 

Certain prior year balanceshave been reclassified to conform to the presentation adopted in the currentfiscal year. Operating results of interim periods are not necessarilyindicative of results for a full year. For further information, refer to the consolidated financial statementsand footnotes thereto included in the Company’s annual report on Form 10-K forthe year ended December 31, 2003.

 

**2.   Stock-Based Compensation**

 

TheCompany follows the provisions of FASB Statement No. 123, *Accounting for Stock-Based**Compensation* (“Statement 123”). Theprovisions of Statement 123 allow companies to either expense the estimatedfair value of stock options or to continue to follow the intrinsic value methodset 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.

 

Inaccordance with APB 25 and related interpretations, compensation expense forstock options is recognized in income based on the excess, if any, of thequoted market price of the stock at the grant date of the award or othermeasurement date over the amount an employee must pay to acquire the stock.Generally, the exercise price for stock options granted to employees equals orexceeds the fair market value of the Company’s common stock at the date ofgrant, thereby resulting in no recognition of compensation expense by theCompany. For awards that generate compensation expense as defined under APB 25,the Company calculates the amount of compensation expense and recognized theexpense over the vesting period of the award.

 

Thefollowing table illustrates the effect on net loss and earnings per share ifthe Company had applied the fair value recognition provisions of Statement 123.

 

6

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|                                                                                             |   | **Three  Months Ended  March 31,** |    |
|--------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
| **(dollars in thousands, except per share data)**                                                |   | **2003**                           |    | **2004** |   |
| Net loss-as reported                                                                             |   | $                                  | (18,452 | ) | $ | (21,302 | ) |
| Add stock based employee compensation  expense included in reported net loss                     |   | —                             |    | 830 |   |
| Deduct total stock-based employee  compensation expense determined under fair value based method |   | (1,226                             | )       | (918 | ) |
| Net loss-pro forma                                                                               |   | $                                  | (19,678 | ) | $ | (21,390 | ) |
| Net loss per basic common share-as reported                                                      |   | $                                  | (0.93   | ) | $ | (1.07 | ) |
| Net loss per basic common share-pro forma                                                        |   | $                                  | (1.00   | ) | $ | (1.08 | ) |

 

**3. Intangible Assets**

 

Intangible assets, whichinclude broadcasting licenses, network affiliation agreements, and otherintangibles, are carried on the basis of cost, less accumulated amortization.Cost is based upon appraisals performed at the time of acquisition. Broadcastlicenses are considered to have an indefinite life. Network affiliationagreements and other definite-lived intangible assets are amortized overperiods up to 25 years.

 

The following table sets forththe additional disclosures related to intangible assets required underStatement 142:

 
|                                |   | **As of  December 31, 2003** |    | **As of  March 31, 2004**     |   |
|-------------------------------------|--------|------------------------------|---------|-------------------------------|--------|
|                                |   | **(dollars  in thousands)**  |    |
|                                |   | **Gross  Carrying  Amount**  |    | **Accumulated  Amortization** |   | **Net  Carrying  Amount** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Net  Carrying  Amount** |   |
| Indefinite-lived intangible assets: |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Broadcast licenses                  |   | $                            | 475,996 |                          | — |   | $ | 475,996 |   | $ | 475,996 |   | — |   | $ | 475,996 |   |
|                                |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Definite-lived intangible assets:   |   |                         |    |                          |   |   |   |   |   |   |   |   |   |
| Network Affiliations                |   | $                            | 93,193  |                          | $      | (25,957 | ) | $ | 67,236 |   | $ | 93,193 |   | $ | (26,688 | ) | $ | 66,505 |   |
| Other intangible assets             |   | 14,045                       |    | (4,227                        | )      | 9,818 |   | 14,045 |   | (4,570 | ) | 9,475 |   |
|                                |   | $                            | 107,238 |                          | $      | (30,184 | ) | $ | 77,054 |   | $ | 107,238 |   | $ | (31,258 | ) | $ | 75,980 |   |

 

Aggregate amortization expensefor the three months ended March 31, 2003 and 2004 was $2.1 million and $1.7million, respectively.

 

It is the Company’s policy toaccount for other definite-lived intangible assets at the lower of amortizedcost or estimated realizable value. As part of an ongoing review of thevaluation and amortization of other intangible assets of the Company and itssubsidiaries, management assesses the carrying value of other definite-livedintangible assets if facts and circumstances suggest that there may beimpairment. If this review indicates that other definite-lived intangibleassets will not be recoverable as determined by a non-discounted cash flowanalysis of the operating assets over the remaining amortization period, thecarrying value of other intangible assets would be reduced to estimated fairvalue.

 

7

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**4. Long -Term Debt**

 

On December 23, 2003, theCompany completed a private add-on offering of $90.0 million principal amountof its 8 1⁄2% Senior Notes due 2008 (the “Senior Notes Add-On”). The Senior NotesAdd-On were offered to qualified institutional buyers under Rule 144A and topersons outside the United States under Regulation S. The Senior Notes Add-Onwas sold at a premium of approximately $6.2 million. On January 22, 2004, theCompany used the net proceeds of approximately $94.1 million to redeem all ofthe Company’s 9% senior subordinated notes due 2006 plus accrued interest.  On March 22, 2004, the Company filed aregistration statement with the Securities and Exchange Commission (“SEC”) withrespect to an offer to exchange the Senior Notes Add-On for notes of theCompany with substantially identical terms of the Senior Notes Add-On, exceptthe new notes will not contain terms with respect to transferrestrictions.  The registrationstatement has not been declared effective by the SEC as of May 8, 2004.

 

On December 23, 2003, theCompany completed a private offering of $140.0 million principal amount of its83⁄4% Senior Subordinated Notes due 2014 (the “December 2003 Notes”). TheDecember 2003 Notes were offered to qualified institutional buyers under Rule144A and to persons outside the United States under Regulation S. On January22, 2004, the Company used the net proceeds of approximately $136.5 million toredeem all of the Company’s 83⁄4% Senior Subordinated Notes due 2007, plus aredemption premium and accrued interest. On March 22, 2004, the Company filed aregistration statement with the SEC with respect to an offer to exchange theDecember 2003 Notes for notes of the Company with substantially identical termsof the December 2003 Notes, except the new notes will not contain terms withrespect to transfer restrictions.  Theregistration statement has not been declared effective by the SEC as of May 8,2004.

 

Long-term debt at December 31,2003 and March 31, 2004 consisted of the following:

 
|                                         |   | **12/31/03** |    | **3/31/04** |   |
|----------------------------------------------|--------|--------------|---------|-------------|--------|
| Senior Credit Facility                       |   | $            | —  |        | $      | — |   |
| 81⁄2% Senior Notes due 2008               |   | 253,109      | (1)     | 252,798     | (1)    |
| 8 3⁄4% Senior Subordinated Notes due 2014 |   | 140,000      |    | 140,000     |   |
| 9% Senior Subordinated Notes due 2006        |   | 86,081       | (2)     | —      |   |
| 83⁄4% Senior Subordinated Notes due 2007  |   | 137,730      | (2)     | —      |   |
| 10% Senior Subordinated Notes due 2011       |   | 348,450      | (3)     | 348,306     | (3)    |
| Total Debt (excluding capital leases)        |   | $            | 965,370 |        | $      | 741,104 |   |

 

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(1)   Includesan unamortized premium balance of $6.2 million and $5.9 million as of December31, 2003 and March 31, 2004, respectively.

 

(2)   Redeemedin full on January 22, 2004

 

(3)   Includesunamortized premium balances of $4.2 million and $4.0 million as of December31, 2003 and March 2004, respectively.

 

8

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**5. Income Taxes**

 

Duringthe year ended December 31, 2003, the Company recorded a $3.6 million benefitfrom income taxes related to the reversal of prior year overprovision for statetaxes. No tax benefit was recorded with respect to the loss for 2004, as itsutilization is not more likely than not to be realized. The Company provides avaluation allowance for deferred tax assets for which it does not considerrealization of such assets to be more likely than not. At December 31, 2003,the Company had net operating loss (“NOL”) carryforwards for tax purposes ofapproximately $129.9 million expiring at various dates through 2023, for whicha full valuation allowance has been provided.

 

**6. Employee Benefit Plans**

 

The Company’s defined benefitpension plan covers the IBEW Local 45 of KRON-TV employees.

 

The Companyexpects to contribute between $250,000 and $350,000 to the benefit plan in2004.

 

Components of thenet periodic benefit plan were as follows:

 
|                                                             |   | **Three  Months Ended March 31,** |     |
|------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                             |   | **2003**                          |     | **2004** |   |
| Expected return of plan assets                                   |   | $                                 | (166,027 | ) | $ | (164,965 | ) |
| Service cost                                                     |   | (86,906                           | )        | (102,096 | ) |
| Interest cost                                                    |   | (144,559                          | )        | (151,060 | ) |
| Amortization of the unrecognized obligation  or transition asset |   | (5,933                            | )        | (5,933 | ) |
| Recognized (gains) or loss                                       |   | 158,223                           |     | 20,765 |   |
| Recognized prior service costs                                   |   | 14,044                            |     | 14,044 |   |
| Net periodic benefit (cost)                                      |   | $                                 | (231,158 | ) | $ | (389,245 | ) |

 

**7. Earnings Per Share**

 

Theweighted average number of shares outstanding during the period has been usedto calculate earnings per share.   Thestock options outstanding have not been included in the computation of earningsper share because they would be anti-dilutive.

 

9

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

 

**FORWARD-LOOKINGSTATEMENTS**

 

**FORWARD LOOKING STATEMENTS ARE ALLSTATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN THIS REPORT.THE FORWARD LOOKING STATEMENTS CONTAINED IN THIS REPORT CONCERN, AMONG OTHERTHINGS, CERTAIN STATEMENTS UNDER “MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.” FORWARD LOOKING STATEMENTSINVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO CHANGE BASED ON VARIOUSIMPORTANT FACTORS, INCLUDING THE IMPACT OF CHANGES IN NATIONAL AND REGIONALECONOMIES, PRICING FLUCTUATIONS IN LOCAL AND NATIONAL ADVERTISING, VOLATILITYIN PROGRAMMING COSTS AND GEOPOLITICAL FACTORS.**

 

**Introduction**

 

The operating revenue of theCompany’s stations is derived primarily from advertising revenue and, to a muchlesser extent, from compensation paid by the networks to the stations forbroadcasting network programming. The stations’ primary operating expenses arefor employee compensation, newsgathering, production, programming and promotioncosts. A high proportion of the operating expenses of the stations are fixed.

 

Advertising is sold forplacement within and adjoining a station’s network and locally originatedprogramming.  Advertising is sold intime increments and is priced primarily on the basis of a program’s popularityamong the specific audience an advertiser desires to reach, as measuredprincipally by periodic audience surveys. In addition, advertising rates are affected by the number of advertiserscompeting for the available time, the size and demographic makeup of the marketserved by the station and the availability of alternative advertising media inthe market area.  Rates are highestduring the most desirable viewing hours, with corresponding reductions duringother hours.  The ratings of a localstation affiliated with a national television network can be affected byratings of network programming.

 

Most advertising contracts areshort-term, and generally run only for a few weeks. Most of the Company’sannual gross revenue is generated from local advertising, which is sold by astation’s sales staff directly to local accounts. The remainder of theadvertising revenue primarily represents national advertising, which is sold byAdam Young Inc. (“AYI”), a wholly owned national advertising salesrepresentative. The stations generally pay commissions to advertising agencieson local, regional and national advertising.

 

The advertising revenue of theCompany’s stations is generally highest in the second and fourth quarters ofeach year, due in part to increases in consumer advertising in the spring andretail advertising in the period leading up to and including the holiday season.  In addition, advertising revenue isgenerally higher during even numbered election years due to spending bypolitical candidates, which spending typically is heaviest during the fourthquarter.

 

**RecentDevelopments**

 

*Digital Upgrades*.  TheCompany has completed the upgrade of its television stations to enable them tobroadcast with digital technology.  Asof April 26, 2004, the FCC has not granted the digital construction permitapplication for WTEN-TV (Albany) because the FCC and the Canadian

 

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government have to resolve certaininterference issues. However, it is expected that temporary reduced poweroperation for WTEN’s digital station will be authorized in the near future.

 

**CriticalAccounting Policies**

 

The Company’s criticalaccounting for the impairment of property, equipment and intangible assets isassessing the recoverability by making assumptions regarding estimated futurecash flows and other factors to determine the fair value of the respectiveassets. If these estimates or related assumptions materially change in thefuture, the Company may be required to record impairment charges not previouslyrecorded for these assets. At March 31, 2004, the Company had $93.4 million innet property and equipment, $476.0 million of indefinite-lived intangibleassets and $76.0 million of definite-lived intangible assets, net. The Companywill perform its 2004 annual impairment test in the fourth quarter of 2004unless impairment indicators exist before the fourth quarter.

 

**Television Revenues**

 

Set forth below are theprincipal types of television revenues received by the Company’s stations forthe periods indicated and the percentage contribution of each to the Company’stotal revenue, as well as agency and national sales representative commissions:

 
|             |   | **Three  Months Ended March 31,** |   |
|------------------|--------|-----------------------------------|--------|
|             |   | **2003  Amount**                  |   | **%** |   | **2004  Amount** |   | **%** |   |
|             |   | **(dollars  in thousands)**       |   |
| Revenues         |   |                              |   |   |   |   |   |   |   |
| Local            |   | $                                 | 31,242 |   | 57.2 |   | $ | 31,908 |   | 53.8 |   |
| National         |   | 19,029                            |   | 34.8 |   | 18,952 |   | 32.0 |   |
| Network          |   | 2,431                             |   | 4.4 |   | 2,520 |   | 4.2 |   |
| Political        |   | 180                               |   | 0.3 |   | 4,009 |   | 6.8 |   |
| Production/Other |   | 1,792                             |   | 3.3 |   | 1,905 |   | 3.2 |   |
| Total            |   | $                                 | 54,674 |   | 100.0 |   | $ | 59,294 |   | 100.0 |   |
|             |   |                              |   |   |   |   |   |   |   |
| Commissions      |   | (7,436                            | )      | (13.6 | ) | (8,345 | ) | (14.1 | ) |
|             |   |                              |   |   |   |   |   |   |   |
| Net Revenue      |   | $                                 | 47,238 |   | 86.4 |   | $ | 50,949 |   | 85.9 |   |

 

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**Results of Operations**

 

*Three Months Ended March 31, 2004 Compared toThree Months Ended March 31, 2003*

 

Net revenue for the threemonths ended March 31, 2004 was $50.9 million, an increase of $3.7 million, or7.8%, compared to $47.2 million for the three months ended March 31, 2003.Political revenue for the three months ended March 31, 2004 was $4.0 million,an increase of $3.8 million, compared to $180,000 for the three months endedMarch 31, 2003. The increase in political revenue was attributable to theexistence of strongly contested local races in Iowa, California and SouthDakota in 2004, as well as the national Democratic primaries, while 2003 hadonly limited state and local elections. The Company’s gross local revenuesincreased 2.1% for the three months ended March 31, 2004 compared to the threemonths ended March 31, 2003 and the national revenues remained flat compared tothe prior year period. Network compensation for the three months ended March31, 2004 was $2.5 million, an increase of $89,000, or 3.7%, compared to $2.4million for the three months ended March 31, 2003.

 

Operating expenses, includingselling, general and administrative expenses, for the three months ended March31, 2004 were $34.1 million, compared to $33.5 million for the three monthsended March 31, 2003, an increase of $620,000, or 1.8%. The Company hadincreases to its health insurance and property and casualty insurance costs,and various other expenses.  Included inthe selling, general and administrative expenses is non-cash compensation of$312,000 for the three months ended March 31, 2004, compared to non-cashcompensation of $314,000 for the three months ended March 31, 2003.

 

Amortization of program licenserights for the three months ended March 31, 2004 was $4.7 million, compared to$4.6 million for the three months ended March 31, 2003, an increase of$135,000, or 2.9%.

 

Depreciation of property andequipment and amortization of intangible assets was $6.5 million for the threemonths ended March 31, 2004, compared with $6.7 million for the comparableperiod in 2003, an decrease of $226,000, or 3.4%. On February 17, 2004, theCompany announced that it had adopted a new policy for recognizing the usefullives of its network affiliation agreements and that such intangibles will beamortized over a period of 25 years. Previously, these assets were accounted for as having an indefinitelife.  As a result of this decision, theCompany restated its earnings for the full year ended December 31, 2002 and forthe first three quarters of 2003.

 

Corporate overhead for thethree months ended March 31, 2004 was $5.8 million, compared to $3.1 millionfor the comparable period in 2003, an increase of $2.7 million or 87.1%.Approximately $2.2 million of this increase related to the severance packageprovided to the Company’s former president, who retired on March 31, 2004.  Approximately $53,000 of this increase wasthe result of additional personnel fees relating to the promotion of threestation general managers to new corporate vice president positions in May2003.  The Company also experiencedincreases in the directors and officers liability insurance policy, whichaccounted for approximately $111,000 of this increase.  The remaining portion of the increaserelates to increased legal and professional fees relating to the Company’sreview of and compliance with corporate governance legislation.

 

Interest expense for the threemonths ended March 31, 2004 was $17.0 million, compared to $16.0 million forthe same period in 2003, an increase of $966,000, or 6.0%.  The increase was primarily attributable tohigher debt levels for the first twenty-two days of 2004 associated with

 

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the Company’s redemption onJanuary 22, 2004 of its 9% senior subordinated notes due 2006 and 8 3⁄4% seniorsubordinated notes due 2007.  TheCompany received payments on its interest rate swaps of $871,000 and $522,000for the three months ended March 31, 2004 and 2003, which was recorded as areduction of interest expense.

 

The Company recorded a $1.3million and $1.5 million non-cash change in market valuation of interest rateswaps for the three months ended March 31, 2004 and 2003, respectively.  The Company recorded non-cash income ofapproximately $1.3 million for the three months ended March 31, 2004 from amark-to-market change in its current outstanding economic hedges.  The Company recorded $1.2 million ofnon-cash interest expense for the three months ended March 31, 2003 relating tothe amortization of other comprehensive loss in connection with its swaptransactions entered into in 2000 and terminated in June 2001. The Company alsorecorded a mark-to-market non-cash change in fair value of approximately$233,000 for the three months ended March 31, 2003, for its then outstandingfair value economic hedges (see “Liquidity and Capital Resources”).

 

The Company recorded a loss onextinguishment of debt resulting from the write-off of related unamortizeddeferred financing costs for the three months ended March 31, 2004 of $5.3million relating to the redemption on January 22, 2004 of its 9% seniorsubordinated notes due 2006 and 8 3⁄4% senior subordinated notes due 2007 (see “Liquidityand Capital Resources”).

 

As a result of the factorsdiscussed above, the net loss for the Company was $21.3 million for the threemonths ended March 31, 2004, compared with a net loss of $18.5 million for thethree months ended March 31, 2003, a change of $2.8 million.

 

**Liquidity and Capital Resources**

 

Cash used in operations for thethree months ended March 31, 2004 was $14.3 million as compared to cashprovided by operations of $8.2 million for the same period in 2003.  Political revenue for the three months endedMarch 31, 2004 was $4.0 million, an increase of $3.8 million, compared to$180,000 for the three months ended March 31, 2003. The increase in politicalrevenue was attributable to the existence of strongly contested local races inIowa, California and South Dakota in 2004, as well as the national Democraticprimaries, while 2003 had only limited state and local elections. Amortizationof program license rights on the Consolidated Statements of Cash Flows was $4.7million and $4.6 million for the three months ended March 31, 2004 and 2003,respectively, an increase of $135,000. Similarly, payments on program licenseliabilities on the Consolidated Statements of Cash Flows were $4.6 million forthe three months ended March 31, 2004 and 2003. Trade accounts payabledecreased $1.2 million and $6.5 million for the three months ended March 31,2004 and 2003, respectively. At December 31, 2002, the Company hadapproximately $3.0 million in accounts payable relating to the reorganizationplan at KRON-TV, which were paid in January 2003.  Accruedexpenses decreased $7.5 million and $9.5 million for the three months endedMarch 31, 2004 and 2003, respectively. Accounts receivable decreased by$7.2 million and $6.7 million for the three months ended March 31, 2004 and2003, respectively. Historically, revenues are lower in the first quarter ofthe year for television broadcasters compared to the fourth quarter, due inpart to increases in retail advertising in the fourth quarter leading up to andincluding the holiday season and a subsequent decrease in accounts receivablebalances in the first quarter of the succeeding year. In the first quarter of2003, the Company received $27.0 million in income tax refunds, net ofestimated payments, because of overpayments in 2002.

 

The performance of KRON-TV hasa large proportionate impact on the Company’s operating results. Consequently,the Company is particularly susceptible to economic conditions in the SanFrancisco advertising market. While revenues in the first quarter of 2004 atKRON-TV were

 

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stronger than those in thefirst quarter of 2003, the continuing uncertain economic climate in SanFrancisco makes the outlook unclear.

 

Cash used in investing activitieswas $3.6 million and $2.4 million for the three months ended March 31, 2004 and2003, respectively. Capital expenditures for the three months ended March 31,2004 and 2003 were $3.2 million and $2.2 million, respectively. During 2003,the Company incurred significant capital expenditures for building digitaltransmission facilities, as required by Federal Communications Commissionregulations. Deposits and other assets for the Company increased $374,000 and$199,000 for the three months ended March 31, 2004 and 2003, respectively. Theincrease in deposits and other assets for the three months ended March 31, 2004was the result of the Company’s mark-to-market non-cash income in the change infair value of approximately $1.3 million for its current outstanding economichedges.

 

Cash used in financingactivities was $224.3 million and $176,000 for the three months ended March 31,2004 and 2003, respectively. On December 23, 2003, the Company received theproceeds from the sale of the December 2003 Notes (as defined) of $140.0million principal amount (see below). On January 22, 2004, the Company used thenet proceeds of approximately $136.5 million to redeem the 83⁄4% SeniorSubordinated Notes due 2007, plus a redemption premium and accrued interest.  In addition, on December 23, 2003, theCompany received the proceeds from the sale of the Senior Notes Add-On (asdefined) of $90.0 million principal amount and a premium of approximately $6.2million (see below). On January 22, 2004, the Company used all of the netproceeds of approximately $94.1 million to redeem all of the Company’s 9%Senior Subordinated Notes due 2006 plus accrued interest (see below). Inconnection with the December 2003 Notes and the Senior Notes Add-On, theCompany recorded approximately $418,000 of deferred debt financing costs thatwill be amortized over the lives of the respective notes. In January 2004, uponthe redemption of the 83⁄4% Senior Subordinated Notes due 2007 and the 9% SeniorSubordinated Notes due 2006, the Company wrote off all the remaining relateddeferred debt financing costs, net of accumulated amortization, ofapproximately $1.3 million and recorded it as a loss on extinguishment ofdebt.  The Company made payments under capital lease obligations of $154,000 and$165,000 for the three months ended March 31, 2004 and 2003, respectively. TheCompany received proceeds from the exercise of stock option of $56,000 for thethree months ended March 31, 2004.

 

As of March 31, 2004, theCompany had $88.9 million of cash-on-hand available for general corporatepurposes. All of these funds were invested in short-term, risk-averseinvestments, in accordance with the indentures.

 

On December 22, 2003, theCompany amended and restated its senior credit facility (as amended, the “SeniorCredit Facility”). The Senior Credit Facility consists of a revolving creditfacility in the amount of $20.0 million that is currently available to theCompany and that matures in June 2008.

 

Pursuant to the Senior CreditFacility, the Company is prohibited from making investments or advances tothird parties exceeding $15.0 million unless the third party becomes aguarantor of the Company’s obligation. In addition, the Company may utilize theundrawn amounts under the Senior Credit Facility to retire or prepaysubordinated debt, subject to the limitations set forth in the indentures.

 

At March 31, 2004, the Companyhad no outstanding borrowings under the Senior Credit Facility. The Companypays an annual commitment fee tied to the Company’s ratio of total debt tooperating cash flow, ranging from 1.0%, if the ratio is greater than or equalto 7.0x; 0.75% if the ratio is greater than or equal to 5.0x and less than7.0x; and 0.50% per annum at any time that the ratio is less than 5.0x of theunused available borrowings under the Senior Credit Facility.

 

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The Senior Credit Facility provides, at the option of the Company, thatborrowed funds bear interest based upon the London Interbank Offered Rate(LIBOR), the customary “CD Rate” or “Base Rate.”  In addition to the index rate, the Company pays a fixedincremental percentage at 2.25% with the Base Rate and 3.25% with LIBOR.

 

Each of the Subsidiaries hasguaranteed the Company’s obligations under the Senior Credit Facility. TheSenior Credit Facility is secured by the pledge of all the stock of theSubsidiaries and a first priority lien on all of the assets of the Company andits subsidiaries.

 

The Senior Credit Facilityrequires the Company to maintain a senior secured debt to operating cash flowratio of not more than 1.75x (net of cash up to $50.0 million).  The Company is also required to maintain acash and short-term investment balance of at least $50.0 million.

 

On December 23, 2003, theCompany completed a private add-on offering of $90.0 million principal amountof its 81⁄2% Senior Notes due 2008 (the “Senior Notes Add-On”). The Senior NotesAdd-on were offered to qualified institutional buyers under Rule 144A and topersons outside the United States under Regulation S. The Senior Notes Add-Onwas sold at a premium of approximately $6.2 million. On January 22, 2004, theCompany used the net proceeds of approximately $94.1 million to redeem all ofthe Company’s 9% senior subordinated notes due 2006 plus accrued interest. OnMarch 22, 2004, the Company filed a registration statement with the SEC withrespect to an offer to exchange the Senior Notes Add-On for notes of theCompany with substantially identical terms of the Senior Notes Add-On, exceptthe new notes will not contain terms with respect to transfer restrictions. Theregistration statement has not been declared effective by the SEC as of May 8,2004.

 

On December 23, 2003, theCompany completed a private offering of $140.0 million principal amount of its83⁄4 % Senior Subordinated Notes due 2014 (the “December 2003 Notes”). TheDecember 2003 Notes were offered to qualified institutional buyers under Rule144A and to persons outside the United States under Regulation S. On January22, 2004, the Company used the net proceeds of approximately $136.5 million toredeem all of the Company’s 83⁄4% Senior Subordinated Notes due 2007, plus aredemption premium and accrued interest. On March 22, 2004, the Company filed aregistration statement with the SEC with respect to an offer to exchange theDecember 2003 Notes for notes of the Company with substantially identical termsof the December 2003 Notes, except the new notes will not contain terms withrespect to transfer restrictions. The registration statement has not beendeclared effective by the SEC as of May 8, 2004.

 

Debtamounts outstanding at December 31, 2003 and March 31, 2004 were as follows(dollars in thousands):

 
|                                         |   | **12/31/03** |    | **3/31/04** |   | **Annualized  Interest Payments(1)** |   |
|----------------------------------------------|--------|--------------|---------|-------------|--------|--------------------------------------|--------|
| Senior Credit Facility                       |   | $            | —  |        | $      | —                               |   | $ | — |   |
|                                         |   |         |    |        |   |                                 |   |
| 81⁄2% Senior Notes due 2008               |   | 253,109      | (2)     | 252,798     | (2)    | 20,986                               |   |
| 8 3⁄4% Senior Subordinated Notes due 2014 |   | 140,000      |    | 140,000     |   | 12,250                               |   |
| 9% Senior Subordinated Notes due 2006        |   | 86,081       | (3)     | —      |   | —                               |   |
| 83⁄4% Senior Subordinated Notes due 2007  |   | 137,730      | (3)     | —      |   | —                               |   |
| 10% Senior Subordinated Notes due 2011       |   | 348,450      | (4)     | 348,306     | (4)    | 34,430                               |   |
| Total Debt (excluding capital leases)        |   | $            | 965,370 |        | $      | 741,104                              |   | $ | 67,666 |   |

 

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(1)          The annualized interestpayments are calculated based on the outstanding principal amounts at March 31,2004, multiplied by the interest rates of the related notes.

 

15

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(2)          Includes an unamortizedpremium balance of $6.2 million and $5.9 million as of December 31, 2003 andMarch 31, 2004, respectively.

 

(3)          Redeemed in full onJanuary 22, 2004

 

(4)          Includes unamortizedpremium balances of $4.2 million and $4.0 million as of December 31, 2003 andMarch 2004, respectively.

 

The Company’s total debt atMarch 31, 2004 was approximately $742.2 million, consisting of $484.3 millionof Senior Subordinated Notes, $246.9 million of Senior Notes, $9.9 million ofbond premiums and $1.1 million of capital leases. In addition, at March 31,2004, the Company had an additional $20.0 million of unused availableborrowings under the Senior Credit Facility.

 

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

 

**Income Taxes**

 

The Company files aconsolidated federal income tax return and such state or local tax returns asare required. For the year endedDecember 31, 2003, the Company recorded a $3.6 million benefit from incometaxes related to the reversal of prior year overprovision for state taxes. Notax benefit was recorded with respect to the loss for 2004, as its utilizationis not more likely than not to be realized. The Company provides a valuationallowance for deferred tax assets for which it does not consider realization ofsuch assets to be more likely than not. At December 31, 2003, the Company hadnet operating loss (“NOL”) carryforwards for tax purposes of approximately$129.9 million expiring at various dates through 2023, for which a fullvaluation allowance has been provided.

 

**ContractualObligations and Other Commercial Commitments**

 

The Company has obligations andcommitments under its long-term debt agreements and instruments to make futurepayments of principal and interest. The Company also has obligations andcommitments under certain contractual arrangements to make future payments forgoods and services. These arrangements secure the future rights to variousassets and services to be used in the normal course of operations. Undergenerally accepted accounting principles, certain of these arrangements (i.e.,programming contracts that are currently available for airing) are recorded asliabilities on the Company’s consolidated balance sheet, while others (i.e.,operating lease arrangements and programming not currently available) are notreflected as liabilities.

 

The following tables summarizeseparately the Company’s material obligations and commitments at March 31, 2004and the timing of payments required in connection therewith and the effect thatsuch payments are expected to have on the Company’s liquidity and cash flow infuture periods.  The Company expects tofund these obligations with cash on hand, cash flow from operations and fundsavailable under its Senior Credit Facility.

 
|                                  |   |                       |    | **Payments  Due by Period** |   |
|---------------------------------------|--------|----------------------------|---------|-----------------------------|--------|
| **Contractual Obligations**           |   | **Total**                  |    | **Less than  1 year**       |   | **1 – 3  years** |   | **4 – 5  years** |   | **After 5  years** |   |
|                                  |   | **(dollars in thousands)** |    |
| Long-Term Debt (principal only)       |   | $                          | 731,189 |                        | $      | — |   | $ | — |   | $ | 246,890 |   | $ | 484,299 |   |
| Capital Lease Obligations             |   | 1,107                      |    | 890                         |   | 217 |   | — |   | — |   |
| Operating Leases                      |   | 6,898                      |    | 2,052                       |   | 3,234 |   | 932 |   | 680 |   |
| Unconditional Purchase Obligations(1) |   | 8,187                      |    | 7,528                       |   | 659 |   | — |   | — |   |
| Other Long-Term Obligations(2)        |   | 82,850                     |    | 6,827                       |   | 52,796 |   | 12,308 |   | 10,919 |   |
| Total Contractual Cash Obligations    |   | $                          | 830,231 |                        | $      | 17,297 |   | $ | 56,906 |   | $ | 260,130 |   | $ | 495,898 |   |

 

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(1)   Unpaid program license liability reflected onthe March 31, 2004 balance sheet.

(2)          Obligations for programming that has beencontracted for, but not recorded on the March 31, 2004 Balance Sheet becausethe programs were not currently available for airing.

 

**Impact of Recently Issued AccountingStandards**

 

In January 2003, the FASB issued FASB Interpretation No. 46, *Consolidation of Variable Interest Entities*(“FIN 46”), which requires variable interest entities (commonly referred to asSPEs) to be consolidated by the primary beneficiary of the entity if certaincriteria are met. FIN 46 is effective immediately for all new variable interestentities created or acquired after January 31, 2003. For variable interestentities created or acquired prior to February 1, 2003, the provision of FIN 46become effective for the Company during the third quarter of 2003.  For variable interest entities acquiredprior to February 1, 2003, any difference between the net amount added to thebalance sheet and the amount of any previously recognized interest in thevariable interest entity would be recognized as a cumulative effect of anaccounting change.  In December 2003,the FASB delayed the implementation date of FIN 46 until March 31, 2004 forentities that are not “special purpose entities” under existing GAAP. TheCompany’s equity investments do not qualify as SPE’s, therefore, managementelected to defer adoption of FIN 46 until March 31, 2004.  The Company’s adoption of this new standarddid not have a material impact on the results of operating and financialposition.

 

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

 

The Company’s Senior CreditFacility, with no amounts outstanding as of March 31, 2004, bears interest atfloating rates. Accordingly, to the extent there are amounts outstanding underthe Senior Credit Facility, we are exposed to potential losses related tochanges in interest rates.

 

The Company’s SeniorSubordinated Notes of approximately $484.3 million outstanding principal as ofMarch 31, 2004 are general unsecured obligations of the Company and aresubordinated in right of payment to all senior debt, including all indebtednessof the Company under the Senior Credit Facility and the Senior Notes. TheSenior Subordinated Notes have fixed rates of interest ranging from 83⁄4% to 10%and are ten-year notes maturing in various years commencing 2011. Theannualized interest expense on the outstanding Senior Subordinated Notes isapproximately $46.7 million.

 

The Company’s Senior Notes ofapproximately $246.9 million outstanding principal as of March 31, 2004 have afixed rate of interest of 81⁄2% and mature in 2008. The annualized interestexpense on the outstanding Senior Notes is approximately $21.0 million.

 

The Company does not enter intoderivatives or other financial instruments for trading or speculative purposes;however, in order to manage its exposure to interest rate risk, the Companyentered into a derivative financial instrument in June 2001. The derivativefinancial instrument is an interest rate swap agreement that expires in 2011.The Company does not apply hedge accounting to these instruments.

 

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

 

Our management carried out anevaluation, with the participation of our Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of our disclosure controls andprocedures as of March 31, 2004. Based upon that evaluation, our ChiefExecutive Officer and Chief Financial

 

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Officer concluded that ourdisclosure controls and procedures were effective to ensure that informationrequired to be disclosed by us in reports that we file or submit under theSecurities Exchange Act of 1934 is recorded, processed, summarized andreported, within the time periods specified in the rules and forms of theSecurities and Exchange Commission.

 

There has not been any change in our internal controlover financial reporting in connection with the evaluation required by Rule13a-15(d) under the Exchange Act that occurred during the quarter ended March31, 2004 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**Item 1. *Legal Proceedings.***

 

The Company is involved inlegal proceedings and litigation arising in the ordinary course of business. Inthe Company’s opinion, the outcome of such proceedings and litigation currentlypending will not materially affect the Company’s financial condition or resultsof operations.

 

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

 

(a) *Exhibits.*

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

 

(b)  *Reports on Form 8-K.* The Company filed the following reports on Form 8-K during the firstquarter of the year ending December 31, 2004.

 
| **Date of  Report** |   | **Date Report  Filed with SEC** |   | **Items Reported**                                    |
|---------------------|--------|---------------------------------|--------|-------------------------------------------------------|
| February 17,  2004  |   | February 17,  2004              |   | Item  12-Results of Operation and Financial Condition |

 

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**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|   |         | YOUNG  BROADCASTING INC. |
|--------|--------------|--------------------------|
|   |         |                     |   |
| Date:  | May 10, 2004 |                     | By: |  /s/  Vincent J. Young |   |
|   |         |                     |   | Vincent J.  Young |   |
|   |         |                     |   | Chairman |   |
|   |         |                     |   |
|   |         |                     |   |
| Date:  | May 10, 2004 |                     | By: |  /s/  James A. Morgan |   |
|   |         |                     |   | James A.  Morgan |   |
|   |         |                     |   | Executive  Vice President and |   |
|   |         |                     |   | Chief  Financial Officer |   |
|   |         |                     |   | (principal  financial officer) |   |

 

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