As filed with the Securities and Exchange Commission on January 14, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended November 30, 1997 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: 0-23264
EMMIS BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1542018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 NORTH MERIDIAN STREET
SUITE 1200
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Zip Code)
(317) 266-0100
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(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 12 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
The number of shares outstanding of each of the Registrant's classes of common
stock, as of January 13, 1998, was:
8,323,386 Shares of Class A Common Stock, $.01 Par Value
2,560,894 Shares of Class B Common Stock, $.01 Par Value
<PAGE>
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . .4
Condensed Consolidated Balance Sheets
at November 30, 1997 and February 28, 1997 . . . . . . .4
Condensed Consolidated Statements of
Operations for the three and nine months
ended November 30, 1997 and 1996 . . . . . . . . . . . .6
Condensed Consolidated Statements of Cash
Flows for the nine months ended
November 30, 1997 and 1996. . . . . . . . . . . . . . .8
Notes to Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . . . . 10
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 19
<PAGE> -2-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Emmis Broadcasting Corporation and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of Emmis
Broadcasting Corporation ( and Indiana corporation) and Subsidiaries as of
November 30, 1997, and the related condensed consolidated statements of
operations for the three-month and nine-month periods ended November 30, 1997
and 1996 and the condensed consolidated statement of cash flows for the nine-
month periods ended November 30, 1997 and 1996. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Emmis Broadcasting Corporation as
of February 28, 1997, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year then ended (not
presented separately herein), and in our report dated April 2, 1997, we
expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of February 28, 1997, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
December 19, 1997.
<PAGE> -3-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
February 28, November 30,
1997 1997
------ ------
(Note 1) (unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,191 $12,293
Accounts receivable, net 20,831 36,299
Current income tax receivable 2,482 344
Prepaid expenses and other 4,243 5,043
-------- --------
Total current assets 28,747 53,979
Property and equipment, net 12,991 24,274
Intangible assets, net 131,743 184,208
Other assets, net 16,235 12,830
-------- --------
Total assets $ 189,716 $ 275,291
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,868 $ 54
Book cash overdraft 1,942 -
Accounts payable 3,687 7,195
Accrued salaries and commissions 1,561 3,612
Accrued interest 174 820
Deferred revenue 1,593 2,622
Other 1,459 1,639
------- -------
Total current liabilities 13,284 15,942
LONG-TERM DEBT, NET OF CURRENT MATURITIES 112,304 183,094
OTHER NONCURRENT LIABILITIES 436 2,858
DEFERRED INCOME TAXES 29,270 28,020
------- -------
Total liabilities 155,294 229,914
------- -------
<PAGE> -4-
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value;
authorized 34,000,000 shares; issued
and outstanding 8,410,956 shares at
February 28, 1997 and 8,300,252 shares
at November 30, 1997 84 83
Class B common stock, $.01 par value;
authorized 6,000,000 shares; issued
and outstanding 2,574,470 shares at
February 28, 1997 and November 30, 1997 26 26
Additional paid-in capital 70,949 69,787
Accumulated deficit (36,637) (24,519)
------- -------
Total shareholders' equity 34,422 45,377
------- -------
Total liabilities and shareholders'
equity $ 189,716 $ 275,291
======= =======
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
<PAGE> -5-
<PAGE>
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
(Unaudited) (Unaudited)
--------------------- --------------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
GROSS BROADCASTING REVENUES $ 32,631 $ 43,003 $ 96,064 $ 116,878
LESS: AGENCY COMMISSIONS 5,111 6,758 15,123 18,182
------- ------- ------- -------
NET BROADCASTING REVENUES 27,520 36,245 80,941 98,696
Broadcasting operating expenses 13,978 19,200 39,286 50,739
Publication and other revenue, net
of operating expenses 229 556 1,044 1,047
International business development
expenses 277 327 810 932
Corporate expenses 1,489 1,966 4,329 5,338
Depreciation and amortization 1,405 1,902 4,070 5,407
Noncash compensation 520 1,120 2,782 3,532
Time brokerage fee - 2,126 - 3,542
------- ------- ------- -------
OPERATING INCOME 10,080 10,160 30,708 30,253
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (2,329) (3,337) (7,348) (10,356)
Other income (expense), net 19 116 255 322
------- ------- ------- -------
Total Other Income (Expense) (2,310) (3,221) (7,093) (10,034)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 7,770 6,939 23,615 20,219
PROVISION FOR INCOME TAXES 3,115 2,860 9,415 8,100
------- ------- ------- -------
NET INCOME $ 4,655 $ 4,079 $ 14,200 $ 12,119
======== ======= ======= =======
<PAGE> -6-
Net income per common and common
equivalent share $ .41 $ .35 $ 1.24 $ 1.05
======== ======= ======= =======
Net income per fully diluted
common share $ .41 $ .35 $ 1.24 $ 1.05
======== ======= ======= =======
Weighted average common shares outstanding:
Before full dilution 11,387,357 11,559,908 11,463,307 11,555,890
Assuming full dilution 11,387,357 11,559,908 11,463,543 11,592,803
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
<PAGE> -7-
<PAGE>
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended November 30,
(Unaudited)
-------------------
1996 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 14,200 $ 12,119
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization of
property and equipment 1,159 1,866
Amortization of debt issuance costs
and cost of interest rate cap agreements 898 1,920
Amortization of intangible assets 2,911 3,541
Benefit from deferred income taxes - (1,250)
Compensation related to stock options
granted 2,246 2,929
Contribution of common stock to profit sharing plan 536 603
Gain on sale of 60% ownership in Duncan's American
Radio, Inc. (195) -
Provision for bad debts 632 894
(Increase) decrease in certain current
assets -
Accounts receivable (7,100) (16,362)
Prepaid expenses and other (1,171) 1,338
Increase (decrease) in certain current
liabilities -
Accounts payable 660 1,566
Accrued salaries and commissions (740) 2,051
Accrued interest (79) 646
Deferred revenue 315 29
Other (1,335) 2,602
(Increase) decrease in other assets, net (257) (958)
----- -----
Net cash provided by operating
activities 12,680 13,534
----- -----
INVESTING ACTIVITIES:
Purchases of property and equipment (6,666) (6,492)
Acquisition of WALC-FM, WKBQ-AM, and WKKX-FM (6,060) (36,964)
Net proceeds from sale of 60% ownership interest
in Duncan's American Radio, Inc. 240 -
Acquisition of WTLC-FM and WTLC-AM - (15,336)
Acquisition of Cincinnati Magazine - (1,979)
Acquisition of Network Indiana - (709)
----- -------
Net cash used by investment
activities (12,486) (61,480)
------- -------
<PAGE> -8-
FINANCING ACTIVITIES:
Payments on long-term debt (1,063) (11,224)
Proceeds from Long-term debt - 79,200
Purchase of interest rate cap agreements and
other debt related costs - (4,230)
Purchase of the Company's Class A Common Stock - (7,000)
Proceeds from exercise of stock options and
related income tax benefits 695 2,302
------ ------
Net cash provided (used) by
financing activities (368) 59,048
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (174) 11,102
CASH AND CASH EQUIVALENTS:
Beginning of period 1,218 1,191
------ ------
End of period $ 1,044 $12,293
====== ======
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 6,529 $ 7,789
Income taxes 8,687 6,575
ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM:
Fair value of assets acquired $ 44,642
Cash paid 43,642
------
Liabilities assumed $1,000
======
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
<PAGE> -9-
<PAGE>
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
(Unaudited)
NOVEMBER 30, 1997
------------------
NOTE 1. GENERAL
--------
The condensed consolidated interim financial statements included herein have
been prepared by Emmis Broadcasting Corporation and Subsidiaries (Emmis or the
Company) without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, Emmis believes that the disclosures are adequate to make
the information presented not misleading. The condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended February 28, 1997.
In the opinion of the registrant, the accompanying interim financial
statements contain all material adjustments (consisting only of normal recurring
adjustments), necessary to present fairly the consolidated financial position of
Emmis at November 30, 1997 and the results of its operations for the nine months
ended November 30, 1997 and 1996 and its cash flows for the nine months ended
November 30, 1997 and 1996.
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
-------------
On March 31, 1997, Emmis completed its acquisition of substantially all of
the assets of radio stations WALC-FM, WKBQ-AM, and WKKX-FM in St. Louis from
Zimco, Inc. for approximately $43.1 million in cash plus an agreement to
broadcast approximately $1 million in trade spots for Zimco, Inc. over a period
of several years. Emmis financed the acquisition through additional borrowings
under its existing Credit Facility. The acquisition was accounted for as a
purchase.
Concurrent with the signing of the asset purchase agreement, Emmis entered
into a time brokerage agreement that permitted Emmis to operate the acquired
stations effective December 1, 1996 through the date of closing. Operating
results of these stations are reflected in the consolidated statements of
operations commencing December 1, 1996.
<PAGE> -10-
On May 15, 1997, the Company entered into an agreement involving radio
station WQCD-FM in New York City whereby the current owner of the station has
the option to require the Company to purchase the station at any date through
May 2000. The current owner may extend the option for an additional one-year
period. The Company has an option to acquire the radio station during the two
month period subsequent to the current owner's option. In connection therewith,
the Company has issued an irrevocable letter of credit totaling $50 million as
security to the current owner of the Company's obligations under this
agreement. The purchase price agreed to ranges from approximately $145 million
to $160 million based on certain events and conditions as specified in the
agreement.
In connection with the above agreement, the Company entered into a time
brokerage agreement which permitted it to begin operating the station effective
July 1, 1997. This agreement expires upon the purchase of the station by the
Company or by agreement by the parties to terminate. In consideration for the
time brokerage agreement, the Company will pay a monthly fee of approximately
$700,000. If the current owner elects to extend the option beyond May 2000, the
monthly fee to operate the station will be waived during the extension period.
Operating results of WQCD-FM are reflected in the condensed consolidated
statement of operations for the period from July 1, 1997 through November 30,
1997.
On October 1, 1997, the Company acquired the assets of Network Indiana and
AgriAmerica from Wabash Valley Broadcast Corporation for $.7 million in cash.
Emmis financed the acquisition through additional borrowings under its
existing Credit Facility. The acquisition was accounted for as a purchase.
On November 1, 1997, the Company completed its acquisition of substantially
all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting,
L.P. for approximately $15.1 million in cash. Emmis financed the acquisition
through additional borrowings under its existing Credit Facility. The
acquisition was accounted for as a purchase.
On November 1, 1997, the Company acquired CINCINNATI MAGAZINE from CM Media,
Inc. for approximately $2.0 million in cash. Emmis financed the acquisition
through additional borrowings under its existing Credit Facility. The
acquisition was accounted for as a purchase.
A pro forma condensed consolidated statement of operations is presented below
for the three and nine months ended November 30, 1996, assuming the acquisition
of WALC-FM, WKBQ-AM, WKKX-FM, WTLC-FM and AM, and CINCINNATI MAGAZINE and the
operation of WQCD-FM, under the Time Brokerage Agreement, all had occurred on
the first day of the nine month period ended November 30, 1996. Pro forma
results for the three and nine month periods ended November 30, 1997, include
pro forma adjustments for March and actual results for April through November
for the acquisition of WALC-FM, WKBQ-FM and WKKX-FM, pro forma results for
March through June and actual results for July through November for the
operation of WQCD-FM under the Time Brokerage Agreement, and pro forma results
for March through October and actual results for November for the acquistion of
WTLC-FM and AM. Pro forma results for CINCINNATI MAGAZINE and Network Indiana
have been excluded as they are not significant to the operations of the Company.
Pro forma interest expense, depreciation of property and equipment and
amortization expense related to the intangibles resulting from the allocation of
the purchase price for the above acquisitions and pro forma time brokerage fees
for the operation of WQCD-FM have been included in the pro forma statements
presented below.
<PAGE> -11-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED
--------------------------------
STATEMENT OF OPERATIONS
----------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1996 1997 1996 1997
---- ---- ---- ----
Pro forma Pro forma Pro forma Pro forma
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net broadcasting revenues $ 33,943 $ 36,726 $ 99,272 $ 107,444
Broadcasting operating expenses 17,696 19,594 50,997 55,641
Publication and other revenue,
net of operating expenses 229 556 1,043 1,047
International business development
expenses 277 327 810 932
Corporate expenses 1,489 1,966 4,328 5,338
Depreciation and amortization 1,946 1,995 5,292 5,912
Noncash compensation 520 1,120 2,782 3,532
Time Brokerage Fee 2,126 2,126 6,375 6,375
------ ------ ------ ------
Operating income 10,118 10,154 29,731 30,761
Interest expense (3,355) (3,538) (10,426) (11,341)
Other income (expense), net 22 115 263 321
------ ------ ------ ------
Income before income taxes 6,785 6,731 19,568 19,741
Provision for income taxes 2,715 2,690 7,825 7,895
------ ------ ------ ------
Net income $ 4,070 $ 4,041 $ 11,743 $ 11,846
====== ====== ====== ======
Net income per common and common
equivalent share $ .36 $ .35 $ 1.02 $ 1.03
====== ====== ====== ======
Net income per fully diluted common
share $ .36 $ .35 $ 1.02 $ 1.02
====== ====== ====== ======
Weighted average shares outstanding
Before full dilution 11,387,357 11,559,908 11,463,307 11,555,890
Assuming full dilution 11,387,357 11,559,908 11,463,543 11,592,803
</TABLE>
The pro forma condensed consolidated statements of operations presented above
do not purport to be indicative of the results that actually would have been
obtained if the indicated transactions had been effective at the beginning of
the three and nine month periods ended November 30, 1996 and 1997, and is not
intended to be a projection of future results or trends.
<PAGE> -12-
NOTE 3. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
-------------------------------------------------
Net income per common and common equivalent share is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Weighted average common shares outstanding assumes the exercise of
stock options when the effect would be dilutive.
Fully diluted net income per share assumes the fully dilutive effect of the
exercise of stock options.
NOTE 4. ACCOUNTING PRONOUNCEMENTS
-------------------------
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", was issued. This new statement supersedes APB Opinion No.
15, "Earnings Per Share", and supersedes or amends other related accounting
pronouncements. SFAS No. 128 must be adopted by the Company in the fourth
quarter of fiscal 1998. All prior period earnings per share (EPS) data will be
restated when the new statement is adopted. SFAS No. 128 replaces the
presentation of net income per common and common equivalent share with a
presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures such as the Company's. Basic
EPS excludes dilution and is computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Pro forma EPS, assuming the Company had adopted SFAS No. 128 as of March 1,
1996 is as follows:
<TABLE>
<CAPTION>
Nine Month Period Ended November 30, 1996 1997
- ------------------------------------ ---- ----
<S> <C> <C>
Weighted Average Common Shares 10,918,554 11,034,856
Weighted Average Common Shares
and Potential Common Shares 11,319,611 11,450,283
Net income per common share $ 1.30 $ 1.10
Net income per common share-
Assuming dilution $ 1.25 $ 1.06
</TABLE>
NOTE 5. INCOME TAXES
------------
Under Statement of Financial Accounting Standards No. 109, the Company
recognizes income taxes under the liability method of accounting for income
taxes. The liability method measures the expected tax impact of future taxable
income or deductions resulting from differences in the tax and financial
reporting bases of assets and liabilities reflected in the consolidated balance
sheet and the expected tax impact of carryforwards for tax purposes.
<PAGE> -13-
Income tax expense is reported during interim periods on the basis of the
estimated annual effective tax rate for the taxable jurisdictions in which the
Company operates.
NOTE 6. OTHER SIGNIFICANT EVENTS
------------------------
In June 1997, Emmis acquired 194,444 shares of its common stock from Morgan
Stanley Dean Witter Discover and Co. at $36 per share. The aggregate purchase
price of $7.0 million was financed through additional borrowings under the
Company's existing Credit Facility.
On July 1, 1997, the Company entered into an amended and restated Credit
Facility. As a result of the early payoff of the refinanced debt, the Company
recorded a loss of approximately $ 1.3 million in the quarter ending August 31,
1997 related to unamortized deferred debt issuance costs which is recorded as
interest expense in the accompanying condensed consolidated statement of
operations. The amended and restated Credit Facility matures on February 28,
2005 and consists of the following:
Credit Facility Amount
- --------------- ------
Revolving Credit Facility Up to $250,000,000; subject
to certain adjustments as
defined in the Credit
Facility; An additional
commitment for $100,000,000
may be requested by Emmis
prior to May 31, 1999.
Term Note $100,000,000
Revolving Credit Facility/Term Note $150,000,000
The Credit Facility provides for Letters of Credit to be made available to
the Company not to exceed $50,000,000. The aggregate amount of outstanding
Letters of Credit and amounts borrowed under the Revolving Credit Facility
cannot exceed the Revolving Credit Facility commitment.
All outstanding amounts under the Credit Facility bear interest, at the
option of Emmis, at a rate equal to the Eurodollar Rate or an alternative base
rate (as defined in the Credit Facility) plus a margin. The margin over the
Eurodollar Rate or the alternative base rate varies from time to time, depending
on Emmis' ratio of debt to earnings before interest, taxes, depreciation and
amortization (EBITDA), as defined in the agreement. Interest is due on a
calendar quarter basis under the alternative base rate and at least every three
months under the Eurodollar Rate.
<PAGE> -14-
The Credit Facility requires the Company to maintain interest rate protection
agreements through July 2000. The notional amount required varies based upon
Emmis' ratio of adjusted debt to EBITDA, as defined in the Credit Facility.
The aggregate amount of the Revolving Credit Facility reduces quarterly
beginning May 31, 2000. Amortization of the outstanding principal amount under
the Term Note and Revolving Credit Facility/Term Note is payable in quarterly
installments beginning May 31, 2000. The annual amortization and reduction
schedules as of February 28, 1998, assuming the entire $500 million Credit
Facility were outstanding prior to the scheduled amortization payments are as
follows:
SCHEDULED AMORTIZATION/REDUCTION OF
----------------------------------
CREDIT FACILITY AVAILABILITY
----------------------------
(In thousands)
<TABLE>
<CAPTION>
Revolving
Revolving Credit Facility/
Year ended Credit Facility Term Note Term Note
February 28(29) Amortization Amortization Amortization Total
- -------------- ------------- ------------ ------------ ------
<S> <C> <C> <C> <C>
2001 $ 37,500 $ 15,000 $15,000 $67,500
2002 50,000 20,000 22,500 92,500
2003 50,000 20,000 22,500 92,500
2004 50,000 20,000 37,500 107,500
2005 62,500 25,000 52,500 140,000
------- ------- ------- -------
Total $250,000 $100,000 $150,000 $500,000
======= ======= ======= =======
</TABLE>
Commencing with the fiscal year ending February 28, 2001 and continuing
through February 29, 2004, in addition to the scheduled amortization/reduction
of the Credit Facility, within 60 days after the end of each fiscal year, the
Credit Facility is permanently reduced by 50% of the Company's excess cash flow
if the ratio of adjusted debt (as defined in the Credit Facility) to EBITDA
exceeds 5 to 1. Excess cash flow is generally defined as EBITDA reduced by cash
taxes, capital expenditures, required debt service, increases in working capital
(net of cash or cash equivalents), the fixed fees paid under the WQCD-FM time
brokerage agreement, and $3,000,000. The net proceeds of any sale of certain
assets must also be used to permanently reduce borrowings under the Credit
Facility. If the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and
certain other conditions are met, the Company will be permitted in certain
circumstances to reborrow the amount of the net proceeds within nine months
solely for the purpose of funding an acquisition.
<PAGE> -15-
The Credit Facility contains various financial and operating covenants and
other restrictions with which Emmis must comply, including, among others,
restrictions on additional indebtedness, engaging in businesses other than radio
broadcasting and publishing, paying cash dividends, redeeming or repurchasing
capital stock of Emmis and use of borrowings, as well as requirements to
maintain certain financial ratios. The Credit Facility also prohibits Emmis,
under certain circumstances, from making acquisitions and disposing of certain
assets without the prior consent of the lenders, and provides that an event of
default will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant
equity investment in Emmis (as specified in the Credit Facility), (ii) the
ability to elect a majority of Emmis' directors or (iii) control of a majority
of shareholder voting power. Substantially all of Emmis' assets, including the
stock of Emmis' subsidiaries, are pledged to secure the Credit Facility.
In August 1997, Emmis formed a wholly owned Hungarian subsidiary to acquire
a radio broadcasting license. In September 1997, Emmis sold a 46 percent
interest in this subsidiary to third parties. In November 1997, this
subsidiary was awarded, in connection with a competitive bidding process, the
right to purchase a radio broadcasting license from the Hungarian government for
approximately $20 million. This subsidiary is included in the consolidated
financial statements of Emmis.
NOTE 7. SUBSEQUENT EVENT
----------------
On January 13, 1998, Emmis received FCC approval to contribute radio station
WKBQ-AM in St. Louis to Northside Seventh Day Adventist Church near St. Louis.
In connection with this contribution, Emmis will recognize as contribution
expense the carrying value of the assets of this station totalling approximately
$5 million in the quarter ended February 28, 1998.
NOTE 8. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the November 30, 1996 financial
statements to be consistent with the November 30, 1997 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The performance of a radio group, such as the Company, is customarily
measured by the ability of its stations to generate Broadcast Cash Flow and
Operating Cash Flow. Operating Cash Flow is defined as operating income before
depreciation, amortization and noncash compensation expenses and time brokerage
fees. Broadcast Cash Flow is defined as net broadcasting revenues less
broadcasting operating expenses. Although Broadcast Cash Flow and Operating
Cash Flow are not measures of performance calculated in accordance with
generally accepted accounting principles, and should be viewed as a supplement
to and not a substitute for the Company's results of operations presented on the
basis of generally accepted accounting principles, the Company believes that
Broadcast Cash Flow and Operating Cash Flow are useful because they are
generally recognized by the radio broadcasting industry as a measure of
performance and are used by analysts who report on the performance of broadcast
companies.
<PAGE> -16-
RESULTS OF OPERATIONS
Net broadcasting revenues for the quarter ended November 30, 1997 were $36.2
million compared to $27.5 million for the same quarter of the prior year, an
increase of $8.7 million or 31.7%. Net broadcasting revenues for the nine
month period ended November 30, 1997 were $98.7 million compared to $80.9
million for the same period of the prior year, an increase of $17.8 million or
21.9%. This increase is principally due to the St. Louis acquisition, the
operation of WQCD-FM under a time brokerage agreement, and the ability to
realize higher advertising rates at the Company's broadcasting properties,
resulting from higher ratings at certain broadcasting properties, as well as
increases in general radio spending in the markets in which the Company
operates. On a pro forma basis, as defined in Note 2, net broadcasting
revenues would have increased $2.8 million or 8.2% for the quarter and $8.1
million or 8.2% for the nine month period.
Broadcasting operating expenses for the quarter ended November 30, 1997 were
$19.2 million compared to $14.0 million for the same quarter of the prior year,
an increase of $5.2 million or 37.4%. Broadcasting operating expenses for the
nine month period ended November 30, 1997 were $50.7 million compared to $39.3
million for the same period of the prior year, an increase of $11.4 million or
29.2%. This increase is principally attributable to the St. Louis acquisition,
the operation of WQCD-FM under a time brokerage agreement and increased
promotional spending at the Company's broadcasting properties. On a pro forma
basis, broadcasting operating expenses would have increased $1.9 million or
10.7% for the quarter and $4.6 million or 9.1% for the nine month period.
Broadcast Cash Flow for the fiscal quarter ended November 30, 1997 was $17.0
million compared to $13.5 million for the same quarter of the prior year, an
increase of $3.5 million or 25.9%. Broadcast Cash Flow for the nine month
period ended November 30, 1997 was $48.0 million compared to $41.7 million for
the same period of the prior year, an increase of $6.3 million or 15.1%. This
increase is due to increased net broadcasting revenues partially offset by
increased broadcasting operating expenses as discussed above. On a pro forma
basis, broadcast cash flow would have increased $.9 million or 5.4% for the
quarter and $3.5 million or 7.3% for the nine month period.
Corporate expenses for the quarter ended November 30, 1997 were $2.0 million
compared to $1.5 million for the same quarter of the prior year, an increase of
$0.5 million or 32.0%. Corporate expenses for the nine month period ended
November 30, 1997 were $5.3 million compared to $4.3 millioni for the same
period of the prior year, an increase of $1.0 million or 23.3%. This increase
was primarily due to increased travel expenses and other expenses related to
potential acquisitions and increased professional fees related to a corporate
tax restructuring.
<PAGE> -17-
International business development expenses for the quarters ended November
30, 1997 and 1996 were $.3 million. International business development expenses
for the nine month period ended November 30, 1997 were $.9 million compared to
$.8 million for the same period of the prior year, an increase of $.1 million
or 15.1%. These expenses reflect costs associated with Emmis International
Corporation. The purpose of this wholly owned subsidiary is to identify,
investigate and develop international broadcast investments or other
international business opportunities. Expenses consist primarily of salaries,
travel and various administrative costs.
Operating Cash Flow for the quarter ended November 30, 1997 was $15.3 million
compared to $12.0 million for the same quarter of the prior year, an increase of
$3.3 million or 27.5%. Operating Cash Flow for the nine month period ended
November 30, 1997 was $42.7 million compared to $37.6 million for the same
period of the prior year, an increase of $5.1 million or 13.8%. This increase
is principally due to an increase in broadcast cash flow partially offset by an
increase in corporate expenses. On a pro forma basis, operating cash flow
would have increased $.7 million or 4.7% for the quarter and $2.4 million or
5.4% for the nine month period.
Interest expense was $3.3 million for the quarter ended November 30, 1997
compared to $2.3 million for the same quarter of the prior year, an increase of
$1.0 million or 43.3%. Interest expense was $10.4 million for the nine month
period ended November 30, 1997 compared to $7.3 million for the same period of
the prior year, an increase of $3.1 million or 40.9%. This increase reflects
higher outstanding debt due to the St. Louis acquisition and the write off of
deferred financing costs associated with the refinancing of the Company's
Credit Facility offset by voluntary repayments made under the Company's Credit
Facility and a rate decrease under the new Credit Facility. On a pro forma
basis, interest expense would have increased $.1 million or 5.5% for the
quarter and $.9 million or 8.8% for the nine month period.
LIQUIDITY AND CAPITAL RESOURCES
The increase in accounts receivable from February 28, 1997 to November 30,
1997 is due to the increase of net broadcasting revenues in the quarter ended
November 30, 1997 compared to the quarter ended February 28, 1997. The
increase of net broadcasting revenues in the quarter ended November 30, 1997
is due to the Indianapolis acquisition and operation of WQCD-FM under the Time
Brokerage Agreement.
In the fiscal quarter ended November 30, 1997, the Company made voluntary
payments of $5.5 million under its Credit Facility.
In August 1996, Emmis announced its plan to build an office building in
downtown Indianapolis for its corporate office and its Indianapolis operations.
The project is expected to be completed in 1999 for an estimated cost of $25
million, net of reimbursable construction costs of $2 million. This amount
reflects an increase over the original amount due to the acquisition of WTLC-FM,
WTLC-AM and Network Indiana. Certain factors such as additional studio costs
related to digital technology and historical landmark requirements may cause the
cost of this project to increase. The Company plans to fund this project
through additional borrowings under the Credit Facility.
<PAGE> -18-
In the fiscal quarter ended November 30, 1997, the Company had capital
expenditures of $4.5 million. These capital expenditures consist primarily of
progress payments in connection with the Indianapolis building project.
The Company expects that cash flow from operating activities will be
sufficient to fund all debt service, working captial and capital expenditure
requirements. As part of its business strategy, the Company frequently
evaluates potential acquisitions of radio stations. In connection with future
acquisition opportunities, the Company may incur additional debt or issue
additional equity or debt securities depending on market conditions and other
factors.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS.
The following exhibits are filed or incorporated by reference as a part of
this report:
11 Statements re: Calculations of per share net income
15 Letter re: unaudited interim financial information
27 Financial data schedule (Edgar version only)
REPORTS ON FORM 8-K
The Company filed Form 8-K on April 15, 1997, to report the closing under
the Asset Purchase Agreement dated as of October 31, 1996, by and between Zimco,
Inc. and Emmis Broadcasting Corporation, as amended by first and second
amendments to the Asset Purchase Agreement.
Additionally, the Company filed Form 8-K/A on June 16, 1997, to include the
financial statements of Zimco, Inc. as of December 31, 1996 and pro forma
financial information.
<PAGE> -19-
<PAGE>
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.
EMMIS BROADCASTING CORPORATION
Date: January 14, 1998 By: /s/ Howard L.Schrott
-------------------------
Howard L. Schrott
Vice President(Authorized
Corporate Officer), Chief
Financial Officer and
Treasurer
<PAGE> -20-
EXHIBIT 11
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE OF CALCULATION OF PER SHARE NET INCOME
-----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, 1997 November 30, 1997
----------------- -----------------
Net Weighted Net Weighted
Income Average Per Income Average Per
(Unaudited) Shares Share (Unaudited) Shares Share
-------- -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding and net income
used in the determination of basic
net income per share $ 4,079,000 11,119,573 $ .37 $ 12,119,000 11,150,511 $ 1.09
Options 440,335 405,379
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
net income per common and common
equivalent share $ 4,079,000 11,559,908 $ .35 $ 12,119,000 11,555,890 $ 1.05
Options (A) 36,913
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
fully diluted net income per share $ 4,079,000 11,559,908 $ .35 $ 12,119,000 11,592,803 $ 1.05
=========== ========== ===== =========== ========== =====
(A) Excluded due to anti-dilutive effect
</TABLE>
<PAGE>
EXHIBIT 11
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE OF CALCULATION OF PER SHARE NET INCOME
-----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, 1996 November 30, 1996
----------------- -----------------
Net Weighted Net Weighted
Income Average Per Income Average Per
(Unaudited) Shares Share (Unaudited) Shares Share
-------- -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding and net income
used in the determination of basic
net income per share $ 4,655,000 10,897,017 $ .43 $ 14,200,000 10,961,460 $ 1.30
Options 490,340 501,847
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
net income per common and common
equivalent share $ 4,655,000 11,387,357 $ .41 $ 14,200,000 11,463,307 $ 1.24
Options (A) 236
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
fully diluted net income per share $ 4,655,000 11,387,357 $ .41 $ 14,200,000 11,463,543 $ 1.24
=========== ========== ===== ========== ========== =====
(A) Excluded due to anti-dilutive effect
</TABLE>
<PAGE>
EXHIBIT 11
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE OF CALCULATION OF PRO FORMA PER SHARE NET INCOME
---------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, 1997 November 30, 1997
----------------- -----------------
Pro Forma Weighted Pro Forma Weighted
Net Average Per Net Average Per
Income Shares Share Income Shares Share
-------- -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding and net income
used in the determination of basic
net income per share $ 4,041,000 11,119,573 $ .36 $ 11,846,000 11,150,511 $ 1.06
Options 440,335 405,379
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
net income per common and common
equivalent share $ 4,041,000 11,559,908 $ .35 $ 11,846,000 11,555,890 $ 1.03
Options (A) 36,913
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
fully diluted net income per share $ 4,041,000 11,559,908 $ .35 $ 11,846,000 11,592,803 $ 1.02
=========== ========== ===== ========== ========== =====
(A) Excluded due to anti-dilutive effect
</TABLE>
EXHIBIT 11
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE OF CALCULATION OF PRO FORMA PER SHARE NET INCOME
---------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, 1996 November 30, 1996
----------------- -----------------
Pro Forma Weighted Pro Forma Weighted
Net Average Per Net Average Per
Income Shares Share Income Shares Share
-------- -------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding and net income
used in the determination of basic
net income per share $ 4,070,000 10,897,017 $ .37 $ 11,743,000 10,961,460 $ 1.07
Options 490,340 501,847
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
net income per common and common
equivalent share $ 4,070,000 11,387,357 $ .36 $ 11,743,000 11,463,307 $ 1.02
Options (A) 236
----------- ---------- ----- ---------- ---------- -----
Used in the determination of
fully diluted net income per share $ 4,070,000 11,387,357 $ .36 $ 11,743,000 11,463,543 $ 1.02
=========== ========== ===== ========== ========== =====
(A) Excluded due to anti-dilutive effect
</TABLE>
January 14, 1998
Mr. Howard Schrott
chief Financial Officer
Emmis Broadcasting Corporation
950 N. Meridian Street, Suite 1200
Indianapolis, Indiana 46204
Dear Mr. Schrott:
We are aware that Emmis Broadcasting Corporation has incorporated by
reference in its Registration Statement No. 33-83890 its Form 10-Q for
the quarter ended November 30, 1997, which includes our report dated
December 19, 1997, covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the
registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and
11 of the Act.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000783005
<NAME> EMMIS BROADCASTING CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 12,293
<SECURITIES> 0
<RECEIVABLES> 38,029
<ALLOWANCES> 1,730
<INVENTORY> 0
<CURRENT-ASSETS> 53,979
<PP&E> 42,343
<DEPRECIATION> 18,069
<TOTAL-ASSETS> 275,291
<CURRENT-LIABILITIES> 15,942
<BONDS> 183,094
0
0
<COMMON> 109
<OTHER-SE> 45,268
<TOTAL-LIABILITY-AND-EQUITY> 275,291
<SALES> 43,003
<TOTAL-REVENUES> 43,003
<CGS> 6,758
<TOTAL-COSTS> 6,758
<OTHER-EXPENSES> 25,555
<LOSS-PROVISION> 414
<INTEREST-EXPENSE> 3,337
<INCOME-PRETAX> 6,939
<INCOME-TAX> 2,860
<INCOME-CONTINUING> 4,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,079
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
