10-Q 1 0001.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to_____________ COMMISSION FILE NUMBER: 0-27000 HEARST-ARGYLE TELEVISION, INC. (Exact name of registrant as specified in its charter)

DELAWARE 74-2717523 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 888 SEVENTH AVENUE (212) 887-6800 NEW YORK, NY 10106 (Registrant's telephone number, (Address of principal executive offices) including area code)

---------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of August 10, 2000, the Registrant had 92,314,131 shares of common stock outstanding. Consisting of 51,015,483 shares of Series A Common Stock, 41,298,648 shares of Series B Common Stock. ================================================================================ HEARST-ARGYLE TELEVISION, INC. Index

Page No. Part I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited).................. 1 Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 2000 (unaudited)........................................................................... 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 2000 (unaudited)........................................................................... 4 Notes to Condensed Consolidated Financial Statements......................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk................................................... 12 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders.......................................................... 13 Item 6. Exhibits and reports on Form 8-K............................................................................. 13 Signatures............................................................................................................... 14

Part I Financial Information Item 1. Financial Statements ------- -------------------- HEARST-ARGYLE TELEVISION, INC. Condensed Consolidated Balance Sheets

December 31, 1999 June 30, 2000 (Unaudited) ----------------------------------------------------------------- (In thousands) Assets Current assets: Cash and cash equivalents $ 5,632 $ 5,585 Accounts receivable, net 159,395 166,747 Program and barter rights 56,393 18,432 Deferred income taxes 3,905 3,905 Related party receivable - 893 Net assets held for sale - 2,450 Other 11,809 7,782 ---------- ---------- Total current assets 237,134 205,794 ---------- ---------- Property, plant and equipment, net 342,664 339,640 ---------- ---------- Intangible assets, net 3,230,842 3,187,053 ---------- ---------- Other assets: Deferred acquisition and financing costs, net 30,836 27,561 Investments 29,938 60,705 Program and barter rights, noncurrent 5,072 2,927 Other 36,741 37,289 ---------- ---------- Total other assets 102,587 128,482 ---------- ---------- Total assets $3,913,227 $3,860,969 ========== ==========

See notes to condensed consolidated financial statements. 1 HEARST-ARGYLE TELEVISION, INC. Condensed Consolidated Balance Sheets (Continued)

December 31, 1999 June 30, 2000 (Unaudited) ------------------------------------------------------------------ (In thousands) Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 16,289 $ 15,621 Accrued liabilities 39,649 40,738 Program and barter rights payable 56,715 19,401 Related party payable 9,343 - Other 1,669 3,139 ---------- ---------- Total current liabilities 123,665 78,899 ---------- ---------- Program and barter rights payable, noncurrent 5,386 2,762 Long-term debt 1,563,596 1,549,596 Deferred income taxes 787,358 786,856 Other liabilities 16,431 14,981 ---------- ---------- Total noncurrent liabilities 2,372,771 2,354,195 ---------- ---------- Stockholders' equity: Series A preferred stock 1 1 Series B preferred stock 1 1 Series A common stock 535 536 Series B common stock 413 413 Additional paid-in capital 1,271,666 1,273,065 Retained earnings 202,285 222,479 Treasury stock, at cost (58,110) (68,620) ---------- ---------- Total stockholders' equity 1,416,791 1,427,875 ---------- ---------- Total liabilities and stockholders' equity $3,913,227 $3,860,969 ========== ==========

See notes to condensed consolidated financial statements. 2 HEARST-ARGYLE TELEVISION, INC. Condensed Consolidated Statements of Income (Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 1999 2000 1999 2000 --------------------------------------------- (In thousands, except per share data) Total revenues $186,054 $196,546 $299,478 $366,476 Station operating expenses 81,584 83,175 137,486 164,248 Amortization of program rights 15,763 14,954 28,590 29,973 Depreciation and amortization 29,873 31,781 46,142 63,289 -------- -------- -------- -------- Station operating income 58,834 66,636 87,260 108,966 Corporate general and administrative expenses 4,324 3,931 8,341 7,966 -------- -------- -------- -------- Operating income 54,510 62,705 78,919 101,000 Interest expense, net 29,776 31,016 48,992 59,982 Equity in loss of affiliate - 1,470 - 2,377 -------- -------- -------- -------- Income before income taxes and extraordinary item 24,734 30,219 29,927 38,641 Income taxes 11,253 13,870 13,617 17,736 -------- -------- -------- -------- Income before extraordinary item 13,481 16,349 16,310 20,905 Extraordinary item, loss on early retirement of debt, net of income tax benefit of $2,041 for the three and six months ended June 30, 1999 (3,092) - (3,092) - -------- -------- -------- -------- Net income 10,389 16,349 13,218 20,905 Less preferred stock dividends (355) (355) (711) (711) -------- -------- -------- -------- Income applicable to common stockholders $ 10,034 $ 15,994 $ 12,507 $ 20,194 ======== ======== ======== ======== Income per common share - basic: Before extraordinary item $ 0.15 $ 0.17 $ 0.21 $ 0.22 Extraordinary item (0.04) - (0.04) - -------- -------- -------- -------- Net income $ 0.11 $ 0.17 $ 0.17 $ 0.22 ======== ======== ======== ======== Number of common shares used in the calculation 89,197 92,617 73,396 92,495 ======== ======== ======== ======== Income per common share - diluted: Before extraordinary item $ 0.15 $ 0.17 $ 0.21 $ 0.22 Extraordinary item (0.04) - (0.04) - -------- -------- -------- -------- Net income $ 0.11 $ 0.17 $ 0.17 $ 0.22 ======== ======== ======== ======== Number of common shares used in the calculation 89,225 92,634 73,452 92,515 ======== ======== ======== ========

See notes to condensed consolidated financial statements. 3 HEARST-ARGYLE TELEVISION, INC. Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30, 1999 2000 ---------------------------------------------- (In thousands) Operating Activities Net income $ 13,218 $ 20,905 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item, loss on early retirement of debt 5,133 - Depreciation 13,626 19,906 Amortization of intangible assets 32,516 43,383 Amortization of deferred financing costs 1,469 2,900 Amortization of program rights 28,590 29,973 Program payments (27,326) (29,825) Provision for doubtful accounts 648 1,013 Equity in loss of affiliate - 2,377 Fair value adjustments of interest rate protection agreements (321) - Deferred income taxes (792) (502) Changes in operating assets and liabilities, net (7,769) (15,950) ----------- -------- Net cash provided by operating activities 58,992 74,180 ----------- -------- Investing Activities Investment in Consumer Financial Network, Inc. - (25,024) Investment in Geocast Network Systems, Inc. - (8,000) Acquisition of Pulitzer Broadcasting Company (711,574) - Acquisition of Kelly Broadcasting Co. and Kelleproductions, Inc. (529,621) - Other investing activities (24) (136) Purchases of property, plant, and equipment: Special projects/buildings (21,532) (2,104) Digital (4,524) (1,560) Maintenance (10,371) (13,582) ----------- -------- Net cash used in investing activities (1,277,646) (50,406) ----------- --------

See notes to condensed consolidated financial statements. 4 HEARST-ARGYLE TELEVISION, INC. Condensed Consolidated Statements of Cash Flows (Continued) (Unaudited)

Six Months Ended June 30, 1999 2000 --------------------------------------------- (In thousands) Financing Activities Financing costs and other $ (10,510) $ - Issuance of Private Placement Debt 110,000 - Dividends paid on preferred stock (711) (711) Revolving Credit Facility: Proceeds from issuance of long-term debt 912,000 - Payment of long-term debt (912,000) - New Credit Facilities: Proceeds from issuance of long-term debt 790,000 191,000 Payment of long-term debt (146,000) (205,000) Series A Common Stock: Issuances 99,700 - Repurchases (3,519) (10,510) Proceeds from employee stock purchase plan 440 1,300 Exercise of stock options 725 100 ---------- --------- Net cash provided by (used in) financing activities 840,125 (23,821) ---------- --------- Decrease in cash and cash equivalents (378,529) (47) Cash and cash equivalents at beginning of period 380,980 5,632 ---------- --------- Cash and cash equivalents at end of period $ 2,451 $ 5,585 ========== ========= Supplemental Cash Flow Information: Businesses acquired in purchase transactions: Pulitzer Merger Fair market value of assets acquired $2,316,424 Fair market value of liabilities assumed (638,015) Issuance of Series A Common Stock (966,835) ---------- Net cash paid for acquisition $ 711,574 ========== Kelly Transaction Fair market value of assets acquired $ 547,512 Fair market value of liabilities assumed (17,891) ---------- Net cash paid for acquisition $ 529,621 ========== Cash paid during the period for interest $ 46,447 $ 57,520 ========== ========= Cash paid during the period for taxes $ 14,653 $ 13,321 ========== =========

See notes to condensed consolidated financial statements. 5 HEARST-ARGYLE TELEVISION, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 2000 1. Summary of Accounting Policies General The condensed consolidated financial statements include the accounts of Hearst- Argyle Television, Inc. (the "Company") and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six month period ended June 30, 1999 and 2000 are not necessarily indicative of the results that may be expected for a full year. 2. Acquisitions and Investments On March 18, 1999, the Company acquired the nine television and five radio stations ("Pulitzer Broadcasting Company") of Pulitzer Publishing Company ("Pulitzer") and a 3.5% interest in the Arizona Diamondbacks in a merger transaction (the "Pulitzer Merger"). In connection with the transaction, the Company issued 37.1 million shares of Series A Common Stock (quoted market value of $26.0625 on March 18, 1999) to Pulitzer shareholders (the "Pulitzer Issuance") and assumed $700 million in debt, which was repaid on the acquisition date using the Company's Revolving Credit Facility (the "Financing"), and paid $5 million for the interest in the Arizona Diamondbacks. In addition, the transaction was subject to an adjustment, which guaranteed the Company $41 million in working capital. The Pulitzer Merger was accounted for under the purchase method of accounting and, accordingly, the purchase price (including acquisition costs) of approximately $1.7 billion has been allocated to the acquired assets and liabilities based upon their fair market values. The excess of the purchase price and acquisition costs over the fair market value of the tangible assets acquired less the liabilities assumed was allocated to FCC licenses. On January 31, 2000, the Company exercised its fixed-price option to acquire the outstanding stock of Channel 58, Inc. (the licensee for KQCA-TV in Sacramento, California) (the "KQCA Acquisition"). The Company was previously programming and selling airtime of KQCA-TV under a Time Brokerage Agreement, which was acquired as part of the acquisition of Kelly Broadcasting Co. on January 5, 1999. The KQCA Acquisition was accounted for under the purchase method of accounting and, accordingly, the purchase price (including acquisition costs) of approximately $891,000 has been allocated to the acquired assets and liabilities based upon their fair market values. The excess of the purchase price and acquisition costs over the fair market value of the tangible assets acquired less the liabilities assumed was allocated to FCC license. The unaudited pro forma results of operations include (i) the historical results of the Company's 22 owned television stations (which excludes KQCA) and five owned radio stations, (ii) fees from the three television and two radio stations managed by the Company (see Note 5), and (iii) the time brokerage agreement for KQCA from January 1, 1999 to January 31, 2000 and the results of KQCA, after its acquisition by the Company, from February 1 to June 30, 2000, adjusted to reflect the Pulitzer Merger, the Pulitzer Issuance, the Financing and the issuance of 3.7 million shares of Series A Common Stock to The Hearst Corporation ("Hearst") for $100 million, as if the acquisition, the related financing and the equity issuances had occurred as of January 1, 1999, as follows:

Six Months Ended June 30, 1999 2000 -------------------------------------------- (unaudited) (In thousands, except per share data) Total revenues $344,106 $366,476 Net income $ 9,250 $ 20,905 Income applicable to common stockholders $ 8,539 $ 20,194 Income per common share - basic and diluted $ 0.09 $ 0.22 Pro forma number of shares used in calculations - basic 92,844 92,495 - diluted 92,897 92,515

6 HEARST-ARGYLE TELEVISION, INC. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) June 30, 2000 2. Acquisitions and Investments (continued) The above unaudited pro forma results are presented in response to applicable accounting rules relating to business acquisitions and are not necessarily indicative of the actual results that would be achieved had each of the stations been acquired at the beginning of the periods presented, nor are they indicative of future results of operations. On January 5, 1999, effective January 1, 1999, for accounting purposes, the Company acquired through a merger transaction all of the partnership interests in Kelly Broadcasting Co., in exchange for approximately $520.4 million in cash, including a working capital adjustment of $0.4 million. As a result of this transaction, the Company acquired television broadcast station KCRA-TV, Sacramento, California and the programming rights under an existing Time Brokerage Agreement, with respect to KQCA-TV, Sacramento, California. In addition, the Company acquired substantially all of the assets and certain of the liabilities of Kelleproductions, Inc., for approximately $10 million in cash. The merger and acquisition are collectively referred to as the "Kelly Transaction". The Kelly Transaction was accounted for under the purchase method of accounting and, accordingly, the purchase price and related acquisition costs of approximately $1.1 million have been allocated to the acquired assets and liabilities based upon their fair market values. The excess of the purchase price and acquisition costs over the fair market value of the tangible assets acquired less the liabilities assumed was allocated to FCC licenses and goodwill. On February 25, 2000, the Company invested an additional $8 million of cash for a total investment of $10 million, in Geocast Network Systems, Inc. ("Geocast") in return for an additional equity interest in Geocast. Geocast will use a portion of the Company's stations' digital broadcast spectrum as part of a new digital network infrastructure to deliver a program service, which includes the local stations' content and other national content and services, to personal computer users. As this total investment represents less than a 10% interest in Geocast, the investment is accounted for using the cost method. On March 22, 2000, the Company invested $25 million in Consumer Financial Network, Inc. ("CFN") for an equity interest in CFN. CFN is an online provider of consumer financial information and services. As this investment represents less than a 10% interest in CFN, the investment is accounted for using the cost method. 3. Long-Term Debt Long-term debt consists of the following:

December 31, June 30, 1999 2000 -------------------------------------------- (unaudited) (In thousands) New Credit Facilities $ 611,000 $ 597,000 Senior Notes 500,000 500,000 Private Placement Debt 450,000 450,000 Senior Subordinated Notes 2,596 2,596 ---------- ---------- Total long-term debt $1,563,596 $1,549,596 ========== ==========

Credit Facilities On April 12, 1999, the Company entered into two new revolving credit facilities (the "New Credit Facilities") with the Chase Manhattan Bank ("Chase"), as the administrative agent for a consortium of banks. The credit facilities were structured as a $1 billion revolver (the "$1 Billion Facility") and a $250 million revolver / term loan (the "$250 Million Facility"). Management elected to cancel the $250 Million Facility on April 10, 2000. The $1 Billion Facility, which has an outstanding balance of $597 million at June 30, 2000, will mature on April 12, 2004. 7 HEARST-ARGYLE TELEVISION, INC. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) June 30, 2000 4. Net Assets Held For Sale Included in the caption Net Assets Held For Sale on the accompanying condensed consolidated balance sheet as of June 30, 2000, are the net assets of WXII-AM and WLKY-AM, located in Greensboro, NC and Louisville, KY, respectively. On August 8, 2000, the Company sold the two radio stations, WXII-AM and WLKY-AM, to Truth Broadcasting Corporation. See Note 6. 5. Related Party Transactions The Company recorded revenues of approximately $1.5 million and $2.3 million during the three and six months ended June 30, 1999, respectively, and $1.3 million and $2.2 million during the three and six months ended June 30, 2000, respectively, relating to the Management Agreement (whereby the Company provides certain management services, such as sales, news, programming and financial and accounting management services, with respect to certain Hearst owned or operated television and radio stations); and expenses of approximately $765,000 and $1.5 million during the three and six months ended June 30, 1999, respectively, and $969,000 and $1.9 million during the three and six months ended June 30, 2000, respectively, relating to the Services Agreement (whereby Hearst provides the Company certain administrative services such as accounting, financial, legal, tax, insurance, data processing and employee benefits). The Company believes that the terms of all these agreements are reasonable to both sides; however, there can be no assurance that more favorable terms would not be available from third parties. The Company recorded net revenues of approximately $1.7 million during the three months ended June 30, 2000, relating to advertising sales to one of the Company's equity interest investments (which is accounted for using the cost method). See Note 2. 6. Subsequent Events On August 1, 2000, Emmis Communications Corp. ("Emmis") began managing the Company's radio stations in Phoenix, Arizona (KTAR-AM, KMVP-AM and KKLT-FM) under a Program Service and Time Brokerage Agreement for a period of up to three years. During the three-year period, the Company will receive a time brokerage fee from Emmis. Emmis has made an initial payment of $20 million to an intermediary for the option to acquire the stations during the three-year period for a total purchase price of $160 million. On August 8, 2000, the Company sold two of its radio stations, WXII-AM (Greensboro, NC) and WLKY-AM (Louisville, KY), to Truth Broadcasting Corporation for $3.5 million. See Note 4 for further discussion. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results ------- ----------------------------------------------------------------------- of Operations -------------- Results of Operations On March 18, 1999, the Company acquired the nine television and five radio stations ("Pulitzer Broadcasting Company") of Pulitzer Publishing Company ("Pulitzer") and a 3.5% interest in the Arizona Diamondbacks in a merger transaction (the "Pulitzer Merger"). In connection with the Pulitzer Merger, the Company issued approximately 37.1 million shares of Series A Common Stock to Pulitzer shareholders (the "Pulitzer Issuance"). Additionally, in connection with the Pulitzer Merger, the Company drew-down $725 million from the Revolving Credit Facility (the "Financing"). See Note 2 of the notes to the condensed consolidated financial statements. On June 30, 1999, the Company issued approximately 3.7 million shares of the Company's Series A Common Stock to The Hearst Corporation ("Hearst") for $100 million (the "Hearst Issuance"). On January 31, 2000, the Company exercised its fixed-price option to acquire the outstanding stock of Channel 58, Inc. (the licensee for KQCA-TV in Sacramento, California) for $850,000 (the "KQCA Acquisition"). The Company was previously programming and selling airtime of KQCA-TV under a Time Brokerage Agreement, which was acquired as part of the acquisition of Kelly Broadcasting Co. on January 5, 1999. Results of operations for the three and six months ended June 30, 2000 include: (i) the historical results of the Company's 22 owned television stations (which excludes KQCA) and five owned radio stations, and fees from the three television and two radio stations managed by the Company (see Note 5 of the notes to the condensed consolidated financial statements) for the entire period presented, and (ii) the time brokerage agreement for KQCA from January 1 through January 31, 2000 and the results of KQCA, after its acquisition by the Company, from February 1 through June 30, 2000. Results of operations for the three and six months ended June 30, 1999 include: (i) WCVB, WTAE, WBAL, KMBC, WISN, WLWT, KOCO, KITV, WAPT, KHBS/KHOG, KSBW, WPTZ/WNNE and KCRA; fees from the three television and two radio stations managed by the Company (see Note 5 of the notes to the condensed consolidated financial statements); and, the time- brokerage agreement for KQCA for the entire period; and, (ii) nine television stations and five radio stations acquired in the Pulitzer Merger from March 19 through June 30, 1999. The following discussion of results of operations does not include the pro forma effects of the Pulitzer Merger and the related Pulitzer Issuance and Financing or the Hearst Issuance. Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Total revenues. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives' commissions, (ii) network compensation and (iii) other revenues. Total revenues in the three months ended June 30, 2000 were $196.5 million, as compared to $186.1 million in the three months ended June 30, 1999, an increase of $10.4 million or 5.6%. The increase was primarily attributable to (i) increased demand for advertising by national and local advertisers principally in the internet, telecommunications and movies segments during the 2000 period, and (ii) an increase in political advertising revenues of $1.5 million during the 2000 period. Station operating expenses. Station operating expenses in the three months ended June 30, 2000 were $83.2 million, as compared to $81.6 million in the three months ended June 30, 1999, an increase of $1.6 million or 2%. The increase was primarily attributable to payroll increases. Amortization of program rights. Amortization of program rights in the three months ended June 30, 2000 was $15 million, as compared to $15.8 million in the three months ended June 30, 1999, a decrease of $0.8 million or 5.1%. Depreciation and amortization. Depreciation and amortization of intangible assets was $31.8 million in the three months ended June 30, 2000, as compared to $29.9 million in the three months ended June 30, 1999, an increase of $1.9 million or 6.4%. The increase was primarily attributable to increased capital expenditures in 1999 and 2000 related to digital conversions and special projects. Station operating income. Station operating income in the three months ended June 30, 2000 was $66.6 million, as compared to $58.8 million in the three months ended June 30, 1999, an increase of $7.8 million or 13.3%. The increase in station operating income was attributable to the items discussed above. 9 Corporate general and administrative expenses. Corporate general and administrative expenses were $3.9 million in the three months ended June 30, 2000, as compared to $4.3 million in the three months ended June 30, 1999, a decrease of $0.4 million or 9.3%. Interest expense, net. Interest expense, net was $31 million in the three months ended June 30, 2000, as compared to $29.8 million in the three months ended June 30, 1999, an increase of $1.2 million or 4%. This increase in interest expense was primarily attributable to (i) an increase in interest rates, which impacted the variable rate portion of the Company's debt, and (ii) the write-off of approximately $1.3 million unamortized deferred financing costs associated with management's election to cancel the $250 Million Facility on April 10, 2000 (see note 3 of the notes to the condensed consolidated financial statements), offset by a lower outstanding debt balance in the second quarter of 2000 than in the second quarter of 1999. Equity in loss of affiliate. The Company recorded an equity loss of affiliate of $1.5 million in the three months ended June 30, 2000. This loss represents the Company's equivalent equity interest in Internet Broadcasting Systems, Inc. ("IBS"). Income taxes. Income tax expense was $13.9 million in the three months ended June 30, 2000, as compared to $11.3 million in the three months ended June 30, 1999, an increase of $2.6 million or 23%. The effective rate was 45.9% for the three months ended June 30, 2000 as compared to 45.5% for the three months ended June 30, 1999. This represents federal and state income taxes as calculated on the Company's income before income taxes. The increase in the effective rate relates primarily to the full year impact in 2000, as compared to the partial year impact in 1999, of the non-tax-deductible goodwill amortization related to the Pulitzer Merger. Management believes that the Company's effective rate should decrease as future pre-tax income increases and the effect of such non- deductible expenses decreases. Extraordinary item. The Company recorded an extraordinary item of $3.1 million, net of the related income tax benefit, in the three months ended June 30, 1999. This extraordinary item, which resulted from the early retirement of the Company's Revolving Credit Facility, includes the write-off of the unamortized deferred financing costs associated with the Revolving Credit Facility. Net income. Net income was $16.3 million in the three months ended June 30, 2000, as compared to $10.4 million in the three months ended June 30, 1999, an increase of $5.9 million or 56.7%. This increase in net income was attributable to the items discussed above. Broadcast Cash Flow. Broadcast cash flow was $98.5 million in the three months ended June 30, 2000, as compared to $89.7 million in the three months ended June 30, 1999, an increase of $8.8 million or 9.8%. The increase was primarily attributable to (i) increased demand for advertising by national and local advertisers principally in the internet, telecommunications and movies segments during the 2000 period, and (ii) an increase in political advertising revenues of $1.5 million during the 2000 period. Broadcast cash flow margin increased to 50.1% for the three months ended June 30, 2000 from 48.2% for the three months ended June 30, 1999. Broadcast cash flow is defined as station operating income, plus depreciation and amortization, plus amortization of program rights, minus program payments. The Company has included broadcast cash flow data because management believes that such data are commonly used as a measure of performance among companies in the broadcast industry. Broadcast cash flow is also frequently used by investors, analysts, valuation firms and lenders as one of the important determinants of underlying asset value. Broadcast cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Total revenues. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives' commissions, (ii) network compensation and (iii) other revenues. Total revenues in the six months ended June 30, 2000 were $366.5 million, as compared to $299.5 million in the six months ended June 30, 1999, an increase of $67 million or 22.4%. The increase was primarily attributable to (i) the Pulitzer Merger which added $46 million to 2000 total revenues; (ii) an increase in political advertising revenues of $7.8 million during 2000 (includes the increase from Pulitzer Broadcasting Company stations after their acquisition on March 19, 1999); (iii) an increase in advertising revenues resulting from the carriage of the Superbowl on the Company's ten owned American Broadcasting Companies (ABC) affiliates; and, (iv) an increased demand for advertising by national and local advertisers principally in the internet, telecommunications and movies segments during the second quarter of 2000. Station operating expenses. Station operating expenses in the six months ended June 30, 2000 were $164.2 million, as compared to $137.5 million in the six months ended June 30, 1999, an increase of $26.7 million or 19.4%. The increase was primarily attributable to the Pulitzer Merger, which added $24.9 million to station operating expenses during 2000. 10 Amortization of program rights. Amortization of program rights in the six months ended June 30, 2000 was $30 million, as compared to $28.6 million in the six months ended June 30, 1999, an increase of $1.4 million or 4.9%. The increase was primarily attributable to the Pulitzer Merger. Depreciation and amortization. Depreciation and amortization of intangible assets was $63.3 million in the six months ended June 30, 2000, as compared to $46.1 million in the six months ended June 30, 1999, an increase of $17.2 million or 37.3%. The increase was primarily attributable to (i) the Pulitzer Merger, which added $14.7 million, to depreciation and amortization of intangibles during 2000 and, (ii) increased capital expenditures in 1999 and 2000 related to digital conversions and special projects. Station operating income. Station operating income in the six months ended June 30, 2000 was $101 million, as compared to $78.9 million in the six months ended June 30, 1999, an increase of $22.1 million or 28%. The increase in station operating income was attributable to the items discussed above. Corporate general and administrative expenses. Corporate general and administrative expenses were $8 million in the six months ended June 30, 2000, as compared to $8.3 million in the six months ended June 30, 1999, a decrease of $0.3 million or 3.6%. Interest expense, net. Interest expense, net was $60 million in the six months ended June 30, 2000, as compared to $49 million in the six months ended June 30, 1999, an increase of $11 million or 22.4%. This increase in interest expense was primarily attributable to (i) a larger outstanding debt balance during the first quarter of 2000 than in the first quarter of 1999, which was the result of the Financing in connection with the Pulitzer Merger, (ii) an increase in interest rates during the second quarter of 2000, which impacted the variable rate portion of the Company's debt, and (iii) the write-off of approximately $1.3 million unamortized deferred financing costs associated with management's election to cancel the $250 Million Facility on April 10, 2000 (see note 3 of the notes to the condensed consolidated financial statements). Equity in loss of affiliate. The Company recorded an equity loss of affiliate of $2.4 million in the six months ended June 30, 2000. This loss represents the Company's equivalent equity interest in Internet Broadcasting Systems, Inc. ("IBS"). Income taxes. Income tax expense was $17.7 million in the six months ended June 30, 2000, as compared to $13.6 million in the six months ended June 30, 1999, an increase of $4.1 million or 30.1%. The effective rate was 45.9% for the six months ended June 30, 2000 as compared to 45.5 % for the six months ended June 30, 1999. This represents federal and state income taxes as calculated on the Company's income before income taxes. The increase in the effective rate relates primarily to the full year impact in 2000, as compared to the partial year impact in 1999, of the non-tax-deductible goodwill amortization related to the Pulitzer Merger. Management believes that the Company's effective rate should decrease as future pre-tax income increases and the effect of such non- deductible expenses decreases. Extraordinary item. The Company recorded an extraordinary item of $3.1 million, net of the related income tax benefit, in the six months ended June 30, 1999. This extraordinary item, which resulted from the early retirement of the Company's Revolving Credit Facility, includes the write-off of the unamortized deferred financing costs associated with the Revolving Credit Facility. Net income. Net income was $20.9 million in the six months ended June 30, 2000, as compared to net income of $13.2 million in the six months ended June 30, 1999, an increase of $7.7 million or 58.3%. This increase in net income was attributable to the items discussed above. Broadcast Cash Flow. Broadcast cash flow was $172.4 million in the six months ended June 30, 2000, as compared to $134.7 million in the six months ended June 30, 1999, an increase of $37.7 million or 28%. The increase was primarily attributable to (i) the Pulitzer Merger, which added $18.6 million to broadcast cash flow during the 2000 period; (ii) an increase in political advertising revenues of $7.8 million; (iii) an increase in advertising revenues resulting from the carriage of the Superbowl on the Company's ten owned ABC affiliates; and, (iv) an increased demand for advertising by national and local advertisers principally in the internet, telecommunications and movies segments during the second quarter of 2000. Broadcast cash flow margin increased to 47% for the six months ended June 30, 2000 from 45% for the six months ended June 30, 1999. Broadcast cash flow is defined as station operating income, plus depreciation and amortization, plus amortization of program rights, minus program payments. The Company has included broadcast cash flow data because management believes that such data are commonly used as a measure of performance among companies in the broadcast industry. Broadcast cash flow is also frequently used by investors, analysts, valuation firms and lenders as one of the important determinants of underlying asset value. Broadcast cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies. 11 Liquidity and Capital Resources On April 12, 1999, the Company entered into two new revolving credit facilities (the "New Credit Facilities") with the Chase Manhattan Bank ("Chase"), as the administrative agent for a consortium of banks. The credit facilities were structured as a $1 billion revolver (the "$1 Billion Facility") and a $250 million revolver / term loan (the "$250 Million Facility"). Management elected to cancel the $250 Million Facility on April 10, 2000. The $1 Billion Facility, which has an outstanding balance of $597 million at June 30, 2000, will mature on April 12, 2004. On February 25, 2000, the Company invested an additional $8 million of cash for a total investment of $10 million, in Geocast Network Systems, Inc. ("Geocast") in return for an additional equity interest in Geocast. On March 22, 2000, the Company invested $25 million in Consumer Financial Network, Inc. ("CFN") for an equity interest in CFN. See Note 2 of the notes to the condensed consolidated financial statements. These equity investments were primarily funded through cash flow from operations and drawdowns from the New Credit Facilities. Capital expenditures were $52.3 million in 1999 and $17.2 million during the six months ended June 30, 2000. The Company invested approximately $2.1 million in special projects/towers, approximately $1.5 million in digital conversion projects at various stations and $13.6 million in maintenance projects, during the 2000 period. The Company expects to spend approximately $38.8 million for the year ended December 31, 2000 including approximately (i) $23.2 million in maintenance projects, (ii) $9.2 million in digital projects, and (iii) $6.4 million in special projects/towers. The Company anticipates that its primary sources of cash, those being current cash balances, operating cash flow and amounts available under the New Credit Facilities, will be sufficient to finance the operating and working capital requirements of its stations, the Company's debt service requirements and anticipated capital expenditures of the Company for both the next 12 months and the foreseeable future thereafter. Item 3. Quantitative and Qualitative Disclosures About Market Risk ------ ---------------------------------------------------------- The Company's Credit Facilities are sensitive to changes in interest rates. As of June 30, 2000, the Company is not involved in any derivative financial instruments. However, the Company may consider certain interest-rate risk strategies in the future. 12 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders ------- --------------------------------------------------- The Company held its annual stockholders meeting on May 9, 2000. All nominees standing for election as directors were elected. The following chart indicates the number of votes cast for and against and the number withheld with respect to each nominee for director: Proposal One ------------

Nominee For Against Withheld ------- --- ------- --------- Caroline L. Williams (1) 48,357,537 -0- 187,328 Frank A. Bennack, Jr. (2) 41,298,648 -0- -0- John G. Conomikes (2) 41,298,648 -0- -0- George R. Hearst, Jr. (2) 41,298,648 -0- -0- Bob Marbut (2) 41,298,648 -0- -0- Gilbert C. Maurer (2) 41,298,648 -0- -0-

_________ (1) Series A Director. To be elected by the holders of Series A shares voting as a class. (2) Series B Director. To be elected by the holders of Series B shares voting as a class. Item 6. Exhibits and reports on Form 8-K ------- -------------------------------- (a) Exhibits: --------- Exhibit No. ----------- 10.1 Option Agreement between Hearst-Argyle Properties, Inc. and Emmis Communications Corporation dated as of June 5, 2000. 27.1 Financial Data Schedule. (b) Reports on Form 8-K: -------------------- The Company did not file any reports on Form 8-K in the quarter ended June 30, 2000. 13 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Hearst-Argyle Television, Inc. ------------------------------ Registrant August 14, 2000 By: /s/ Harry T. Hawks --------------- ------------------ Date Harry T. Hawks, Executive Vice President and Chief Financial Officer,(Principal Financial and Accounting Officer) 14