<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENTS TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 6, 1999
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 0-23264 35-1542018
(State or jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
40 Monument Circle, Suite 700
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 266-0100
Not applicable
(Former name or former address, if changed since last report)
==============================================================================
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets, February 28, 1997 and February 28, 1998
Consolidated Statements of Operations for the three-year period ended
February 28, 1998
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for the three-year period ended February 28,1998
Consolidated Statements of Cash Flows for the three year period ended
February 28, 1998
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets, February 28, 1998 and November 30, 1998 (unaudited)
Consolidated Statements of Operations for the nine months ended November 30,
1997 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended
November 30, 1997 and 1998 (unaudited)
Notes to Consolidated Financial Statements
EXHIBITS:
None
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of EMMIS
COMMUNICATIONS CORPORATION (an Indiana corporation) and Subsidiaries as of
February 28, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended February 28, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Emmis Communications
Corporation and Subsidiaries as of February 28, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended February 28, 1998 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
March 31, 1998 (except with
respect to the matter discussed
in Note 1b as to which the date
is April 30, 1999).
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------
1997 1998
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,191 $ 5,785
Accounts receivable, net of allowance for doubtful
accounts of $820 and $1,346 at February 28, 1997 and
1998, respectively..................................... 20,831 32,120
Prepaid expenses.......................................... 2,376 4,900
Income tax refunds receivable............................. 2,482 4,968
Other..................................................... 1,867 3,379
-------- --------
Total current assets................................. 28,747 51,152
-------- --------
PROPERTY AND EQUIPMENT:
Land and buildings........................................ 1,009 2,192
Leasehold improvements.................................... 5,509 8,188
Broadcasting equipment.................................... 14,356 18,800
Furniture and fixtures.................................... 7,154 12,144
Construction in progress.................................. 1,363 13,091
-------- --------
29,391 54,415
Less-Accumulated depreciation and amortization............ 16,400 20,969
-------- --------
Total property and equipment, net.................... 12,991 33,446
-------- --------
INTANGIBLE ASSETS:
Broadcast licenses........................................ 126,116 195,400
Trademarks and organization costs......................... 1,073 1,022
Excess of cost over fair value of net assets of purchased
businesses............................................. 20,371 53,297
Other intangibles......................................... 1,277 5,567
-------- --------
148,837 255,286
Less-Accumulated amortization............................. 17,094 20,728
-------- --------
Total intangible assets, net......................... 131,743 234,558
-------- --------
OTHER ASSETS:
Deferred debt issuance costs and cost of interest rate cap
agreements, net of accumulated amortization of $3,625
and $692 at February 28, 1997 and 1998, respectively... 1,541 3,806
Investments............................................... 5,470 5,114
Deposits and other........................................ 9,224 5,312
-------- --------
Total other assets, net.............................. 16,235 14,232
-------- --------
Total assets......................................... $189,716 $333,388
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE> 5
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------
1997 1998
---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 2,868 $ 51
Book cash overdraft....................................... 1,942 --
Accounts payable.......................................... 3,687 13,140
Accrued salaries and commissions.......................... 1,561 2,893
Accrued interest.......................................... 174 2,421
Deferred revenue.......................................... 1,593 7,985
Other..................................................... 1,459 1,579
-------- --------
Total current liabilities............................ 13,284 28,069
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 112,304 231,371
OTHER NONCURRENT LIABILITIES................................ 436 604
MINORITY INTEREST........................................... -- 1,875
DEFERRED INCOME TAXES....................................... 29,270 27,559
-------- --------
Total liabilities.................................... 155,294 289,478
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value; authorized
34,000,000 shares; issued and outstanding 8,410,956
shares and 8,430,660 shares at February 28, 1997 and
1998, respectively..................................... 84 84
Class B common stock, $.01 par value; authorized 6,000,000
shares; issued and outstanding 2,574,470 shares and
2,560,894 shares at February 28, 1997 and 1998,
respectively........................................... 26 26
Additional paid-in capital................................ 70,949 69,353
Accumulated deficit....................................... (36,637) (25,553)
-------- --------
Total shareholders' equity........................... 34,422 43,910
-------- --------
Total liabilities and shareholders' equity........... $189,716 $333,388
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED
FEBRUARY (29)28,
---------------------------------
1996 1997 1998
---- ---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
GROSS REVENUES.............................................. $127,708 $134,102 $165,324
LESS AGENCY COMMISSIONS..................................... 18,464 20,382 24,741
-------- -------- --------
NET REVENUES................................................ 109,244 113,720 140,583
Operating expenses........................................ 62,466 62,433 81,170
International business development expenses............... 1,264 1,164 999
Corporate expenses........................................ 4,419 5,929 6,846
Time brokerage fee........................................ -- -- 5,667
Depreciation and amortization............................. 5,677 5,481 7,536
Noncash compensation...................................... 3,667 3,465 1,482
-------- -------- --------
OPERATING INCOME............................................ 31,751 35,248 36,883
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (13,540) (9,633) (13,772)
Equity in loss of unconsolidated affiliate................ (3,111) -- --
Gain on sale of investment in Talk Radio U.K.............. 2,729 -- --
Loss on donation of radio station......................... -- -- (4,833)
Other income, net......................................... 79 325 6
-------- -------- --------
Total other income (expense)........................... (13,843) (9,308) (18,599)
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 17,908 25,940 18,824
PROVISION FOR INCOME TAXES.................................. 7,600 10,500 7,200
-------- -------- --------
NET INCOME.................................................. $ 10,308 $ 15,440 $ 11,084
======== ======== ========
Basic net income per share................................ $ .96 $ 1.41 $ 1.02
======== ======== ========
Diluted net income per share.............................. $ .93 $ 1.37 $ .98
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
-------------------- -------------------- ADDITIONAL CUMULATIVE TOTAL
SHARES SHARES PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL DEFICIT ADJUSTMENTS EQUITY
----------- ------ ----------- ------ ---------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 28,
1995................... 7,997,692 $80 2,655,122 $27 $59,552 $(62,385) $65 $(2,661)
Issuance of Class A
Common Stock in
exchange for Class B
Common Stock......... 48,790 1 (48,790) (1) -- -- -- --
Exercise of stock
options and related
income tax
benefits............. 198,850 2 -- -- 2,633 -- -- 2,635
Compensation related to
granting of stock and
stock options........ -- -- -- -- 2,917 -- -- 2,917
Issuance of Class A
Common Stock to
profit sharing
plan................. 19,608 -- -- -- 750 -- -- 750
Translation
adjustments.......... -- -- -- -- -- -- (65) (65)
Net income............. -- -- -- -- -- 10,308 -- 10,308
--------- --- --------- --- ------- -------- --- -------
BALANCE, FEBRUARY 29,
1996................... 8,264,940 83 2,606,332 26 65,852 (52,077) -- 13,884
--------- --- --------- --- ------- -------- --- -------
Issuance of Class A
Common Stock in
exchange for Class B
Common Stock......... 31,862 -- (31,862) -- -- -- -- --
Exercise of stock
options and related
income tax
benefits............. 92,415 1 -- -- 1,632 -- -- 1,633
Compensation related to
granting of stock and
stock options........ -- -- -- -- 2,715 -- -- 2,715
Issuance of Class A
Common Stock to
profit sharing
plan................. 21,739 -- -- -- 750 -- -- 750
Net income............. -- -- -- -- -- 15,440 -- 15,440
--------- --- --------- --- ------- -------- --- -------
BALANCE, FEBRUARY 28,
1997................... 8,410,956 84 2,574,470 26 70,949 (36,637) -- 34,422
--------- --- --------- --- ------- -------- --- -------
Issuance of Class A
Common Stock in
exchange for Class B
Common Stock......... 13,576 -- (13,576) -- -- -- -- --
Exercise of stock
options and related
income tax
benefits............. 106,305 1 -- -- 2,966 -- -- 2,967
Compensation related to
granting of stock and
stock options........ -- -- -- -- 732 -- -- 732
Issuance of Class A
Common Stock to
profit sharing
plan................. 15,152 -- -- -- 750 -- -- 750
Issuance of Class A
Common Stock to
employees and
officers and related
income tax
benefits............. 79,115 1 -- -- 954 -- -- 955
Purchase of Class A
Common Stock......... (194,444) (2) -- -- (6,998) -- -- (7,000)
Net income............. -- -- -- -- -- 11,084 -- 11,084
--------- --- --------- --- ------- -------- --- -------
BALANCE, FEBRUARY 28,
1998................... 8,430,660 $84 2,560,894 $26 $69,353 $(25,553) $-- $43,910
========= === ========= === ======= ======== === =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED
FEBRUARY (29)28,
-------------------------------------
1996 1997 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $10,308.. $ 15,440 $ 11,084
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization of property and
equipment........................................... 1,636 1,639 2,580
Amortization of debt issuance costs and cost of
interest rate cap agreements........................ 1,742 1,071 2,183
Amortization of intangible assets..................... 4,041 3,842 4,956
Provision for bad debts............................... 834 726 802
Provision (benefit) for deferred income taxes......... 4,870 1,590 (524)
Gain on sale of TalkRadio UK.......................... (2,729) -- --
Compensation related to stock and stock options
granted............................................. 2,917 2,715 732
Contribution to profit sharing plan paid with common
stock............................................... 750 750 750
Equity in loss of unconsolidated affiliate............ 3,111 -- --
Loss on donation of radio station..................... -- -- 4,833
Other................................................. -- (195) 357
(Increase) decrease in certain current assets (net of
dispositions and acquisitions)--
Accounts receivable................................. (3,175) (2,385) (8,389)
Prepaid expenses and other current assets........... (751) (3,041) (4,760)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions)--
Accounts payable and book cash overdraft............ (569) 2,757 5,560
Accrued salaries and commissions.................... 830 (1,999) 1,332
Accrued interest.................................... (1,272) (146) 2,247
Deferred revenue.................................... (349) 395 292
Other current liabilities........................... 390 26 116
(Increase) decrease in deposits and other assets...... (108) (898) (1,832)
Increase (decrease) in other noncurrent liabilities... 745 (925) 168
-------- -------- ---------
Net cash provided by operating activities........ 23,221 21,362 22,487
-------- -------- ---------
INVESTING ACTIVITIES:
Costs incurred for WRKS-FM Acquisition................... (131) -- --
Acquisition of WALC-FM, WKBQ-AM and WKKX-FM.............. -- (6,600) (36,964)
Acquisition of WTLC-FM and WTLC-AM....................... -- -- (15,336)
Acquisition of Texas Monthly............................. -- -- (37,389)
Acquisition of Cincinnati Magazine....................... -- -- (1,979)
Acquisition of Network Indiana and AgriAmerica........... -- -- (709)
Purchases of property and equipment...................... (1,396) (7,559) (16,991)
Initial payment for purchase of Hungarian broadcast
license............................................... -- -- (7,325)
Investment in and advances to TalkRadio UK............... (980) -- --
Net proceeds from disposition of investment in TalkRadio
UK.................................................... 2,729 -- --
Other.................................................... -- 240 --
-------- -------- ---------
Net cash provided (used) by investing
activities..................................... 222 (13,919) (116,693)
-------- -------- ---------
</TABLE>
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED
FEBRUARY (29)28,
-------------------------------------
1996 1997 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds of long-term debt............................... 29,518 19,000 288,378
Payments on long-term debt............................... (57,583) (28,102) (183,928)
Payment of loan fees..................................... -- -- (4,291)
Purchase of the Company's Class A Common Stock........... -- -- (7,000)
Proceeds from exercise of stock options and income tax
benefits of certain equity transactions............... 2,635 1,632 3,922
Other.................................................... -- -- 1,719
-------- -------- ---------
Net cash provided (used) by financing activities.... (25,430) (7,470) 98,800
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (1,987) (27) 4,594
CASH AND CASH EQUIVALENTS:
Beginning of year........................................ 3,205 1,218 1,191
-------- -------- ---------
End of year.............................................. $ 1,218 $ 1,191 $ 5,785
======== ======== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for--
Interest.............................................. $ 13,112 $ 8,708 $ 9,655
Income taxes.......................................... 2,931 9,180 8,419
Noncash investing and financing transactions --
Fair value of assets acquired by incurring debt....... 17 17 32
ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM:
Fair value of assets acquired......................... -- -- $ 44,564
Cash paid............................................. -- -- 43,564
---------
Liabilities assumed................................... $ 1,000
ACQUISITION OF TEXAS MONTHLY:
Fair value of assets acquired......................... -- -- $ 45,421
Cash paid............................................. -- -- 37,389
---------
Liabilities assumed................................... $ 8,032
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 10
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Emmis Broadcasting Corporation owns and operates FM radio stations in Los
Angeles, New York City (2 stations owned and operated, 1 station operated),
Chicago, St. Louis (3 stations) and Indianapolis (3 stations), two AM radio
stations in Indianapolis, and a radio station which broadcasts in Hungary
(Slager Radio). Emmis Broadcasting Corporation also publishes Indianapolis
Monthly, Texas Monthly, Cincinnati Magazine, and Atlanta magazines, and engages
in certain businesses ancillary to its radio businesses, such as advertising,
program consulting and broadcast tower leasing.
B. RESTATEMENT
The Company has restated its financial results for the year ended
February 28, 1998.
The restatement relates to a change in accounting for certain stock
options that ultimately were not granted to the CEO under his employment
contract for fiscal 1998. At February 28, 1998, Emmis had accrued for the
anticipated grant of these stock options. In fiscal 1999, Emmis had reversed the
accrual for the stock options since they were ultimately not granted. In this
circumstance, under generally accepted accounting principles, such options
should not be recorded until granted by the Board of Directors.
The restatement adjustment decreased non-cash compensation expense and
additional paid in capital by $3.4 million and increased net income and retained
earnings by $2.1 million for the three months and twelve months ended February
28, 1998. Additionally, the restatement adjustment decreased basic and diluted
loss per share by $0.19 for the three months ended February 28, 1998 and
increased the basic and diluted income per share by $0.20 and $0.19,
respectivly, for the year ended February 28, 1998.
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Emmis
Broadcasting Corporation and its majority owned Subsidiaries. Unless the content
otherwise requires, references to Emmis or the Company in these financial
statements mean Emmis Broadcasting Corporation and its Subsidiaries. All
significant intercompany balances and transactions have been eliminated.
D. REVENUE RECOGNITION
Broadcasting revenue is recognized as advertisements are aired. Publication
revenue is recognized in the month of issue.
E. INTERNATIONAL BUSINESS DEVELOPMENT EXPENSES
International business development expenses includes the cost of the
Company's efforts to identify, investigate and develop international broadcast
investments or other international business opportunities.
F. NONCASH COMPENSATION
Noncash compensation includes compensation expense associated with stock
options granted, restricted common stock issued under employment agreements and
common stock contributed to the Company's Profit Sharing Plan. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Pro forma
disclosure of net income and earnings per share under SFAS No. 123 is presented
in Note 7.
G. CASH AND CASH EQUIVALENTS
Emmis considers time deposits, money market fund shares, and all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
H. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are generally computed by the straight-line method over the estimated useful
lives of the related assets which are 31.5 years for buildings, not more than 32
years for leasehold improvements, 5 to 7 years for broadcasting equipment and 7
years for furniture and fixtures. Maintenance, repairs and minor renewals are
expensed; improvements are capitalized.
<PAGE> 11
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest is being capitalized in connection with the construction of the
Indianapolis office facility (Note 8). The capitalized interest is recorded as
part of the building cost, which is currently included in construction in
progress, and will be amortized over the building's estimated useful life. In
fiscal 1998 approximately $312,000 of interest was capitalized. No interest was
capitalized in fiscal 1997 and 1996. On a continuing basis, the Company reviews
the financial statement carrying value of property and equipment for impairment.
If events or changes in circumstances were to indicate that an asset carrying
value may not be recoverable, a write-down of the asset would be recorded
through a charge to operations.
I. INTANGIBLE ASSETS
Intangible assets are recorded at cost. Generally, broadcast licenses,
trademarks and the excess of cost over fair value of net assets of purchased
businesses are being amortized using the straight-line method over 40 years. The
cost of the broadcast license for Slager Radio (totaling approximately $20.8
million) is being amortized over the seven year initial term of the license. The
approximately $32.4 million of excess of cost over fair value of net assets
resulting from the purchase of Texas Monthly is being amortized over 15 years.
Other intangibles are amortized using the straight-line method over varying
periods, not in excess of 10 years.
Subsequent to the acquisition of an intangible asset, Emmis evaluates
whether later events and circumstances indicate the remaining estimated useful
life or that the remaining carrying value of such an asset may not be
recoverable. When factors indicate that an intangible asset should be evaluated
for possible impairment, Emmis uses an estimate of the related asset's
undiscounted cash flows over the remaining life of that asset in measuring
recoverability. If seperately identifiable cash flows are not available for an
intangible asset (as would generally be the case for the excess of cost over
fair value of purchased business). Emmis evaluates recoverability based on the
expected undiscounted cash flows of the specific business to which the asset
relates. If such an analysis indicates that impairment has in fact occurred,
Emmis writes down the remaining net book value of the intangible asset to its
fair value. For this purpose, fair value is determined using quoted market
prices (if available), appraisals or approporiate valuation techniques.
J. INVESTMENTS
Emmis has a 50% ownership interest in a partnership in which the sole asset
is land on which a transmission tower is located. The other owner has voting
control of the partnership. This investment is reflected at cost of $5,114,000,
which approximates the equity method of accounting.
On November 7, 1995, Emmis sold its 24.5% interest in TalkRadio UK Limited
(TRUK) for approximately $3.0 million and recorded a gain on sale of
approximately $2.7 million.
K. DEPOSITS AND OTHER ASSETS
Deposits and other assets includes amounts due from officers, including
accrued interest, of $1,570,000 and $1,654,000 at February 28, 1997 and 1998,
respectively. Officer loans bear interest at the Company's borrowing rate of
approximately 6.625% and 6.60% at February 28, 1997 and 1998, respectively.
L. DEFERRED REVENUE AND BARTER TRANSACTIONS
Deferred revenue includes deferred magazine subscription revenue and
deferred barter revenue. Barter transactions are recorded at the estimated fair
value of the product or service received. Broadcast revenue from barter
transactions is recognized when commercials are broadcast. The appropriate
expense or asset is recognized when merchandise or services are used or
received.
M. INCOME TAXES
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109),
"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 sheets and the expected tax impact of carryforwards for tax
purposes.
<PAGE> 12
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. FOREIGN CURRENCY TRANSLATION
The functional currency of Slager Radio is the Hungarian forint. Slager
Radio's balance sheet has been translated from forints to the U.S. dollar using
the current exchange rate in effect at the balance sheet date. Slager Radio's
results of operations have been translated using an average exchange rate for
the period. The translation adjustment resulting from the conversion of Slager
Radio's financial statements was not significant for the year ended February 28,
1998.
The functional currency of TRUK is the pound sterling. The Company's
investment in and advances to TRUK have been translated from the pound sterling
to the U.S. dollar using current exchange rates in effect at the balance sheet
date. The Company's equity in the loss of TRUK has been translated using an
average exchange rate for the period. The applicable gains or losses, net of
deferred income taxes, resulting from the translation of the Company's
investment in and advances to TRUK is shown as cumulative translation
adjustments in shareholders' equity. As indicated above, Emmis sold its
investment in TRUK on November 7, 1995.
O. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
In February 1997, Statement of Financial Accounting Standards (SFAS) 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 was adopted by the Company effective March 1, 1997
and all prior period earnings per share (EPS) data have been restated. SFAS No.
128 replaces the presentation of primary EPS 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 like 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 (10,942,996 and 10,903,333 shares for the years ended
February 28, 1997 and 1998, respectively). 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. Weighted average
common equivalent shares outstanding for the period, considering the effect of
employee stock options, are 11,291,225 and 11,361,881 for the years ended
February 28, 1997 and 1998, respectively.
P. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Q. ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
Under this statement, the Company will report in its financial statements, in
addition to net income, comprehensive income and its components which includes
foreign currency items. The statement must be adopted by the Company in fiscal
1999. Implementation of this disclosure standard will not affect the financial
position or results of operations. Management has not yet determined the manner
in which comprehensive income will be displayed.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. This statement, which must be adopted by the
Company for the year ended February 28, 1999, establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way management
organizes and evaluates
<PAGE> 13
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial information internally for making decisions and assessing performance.
It also requires related disclosures about the source of revenues for each
segment, geographic areas, and major customers. Implementation of this
disclosure standard will not affect the Company's financial position or results
of operations. Management has not yet determined the manner in which segment
information will be displayed.
R. RECLASSIFICATIONS
Certain reclassifications have been made to the February 28, 1997 financial
statements to be consistent with the February 28, 1998 presentation.
2. COMMON STOCK
Emmis has authorized 34,000,000 shares of Class A Common Stock, par value
$.01 per share, and 6,000,000 shares of Class B Common Stock, par value $.01 per
share. The rights of these two classes are essentially identical except that
each share of Class B Common Stock has 10 votes with respect to substantially
all matters. Class B Common Stock is owned by the principal shareholder (Jeffrey
H. Smulyan). All shares of Class B Common Stock convert to Class A Common Stock
upon sale or other transfer to a party unaffiliated with the principal
shareholder. The financial statements presented reflect the establishment of the
two classes of stock.
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 is reflected as a decrease to additional paid in capital
in the accompanying financial statements and was financed through additional
borrowings under the Company's existing Credit Facility.
3. PREFERRED STOCK
Emmis has authorized 10,000,000 shares of preferred stock which may be
issued with such designations, preferences, limitations and relative rights as
Emmis' Board of Directors may authorize. As of February 28, 1997 and 1998, no
shares of preferred stock are issued and outstanding.
4. LONG-TERM DEBT
Long-term debt was comprised of the following at February 28, 1997 and 1998
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Credit Facility:
Revolving Credit Facility................................. $ 6,000 $115,000
Term Note................................................. 40,000 100,000
Revolving Credit Facility/Term Note....................... 69,000 --
License Obligation -- Hungary............................... -- 11,800
Bonds Payable............................................... -- 2,996
Notes Payable............................................... -- 1,448
Other....................................................... 172 178
-------- --------
Total debt.................................................. 115,172 231,422
Less Current Maturities................................... 2,868 51
-------- --------
$112,304 $231,371
======== ========
</TABLE>
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, related to unamortized deferred
debt issuance costs, which is recorded as interest expense in the accompanying
consolidated statement of operations. The amended and restated Credit Facility
matures on February 28, 2005
<PAGE> 14
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and is comprised of (1) a $250 million revolving credit facility which is
subject to certain adjustments as defined in the credit facility and includes an
additional commitment for $100 million which may be requested by Emmis prior to
May 31, 1999, (2) a $100 million term note and (3) a $150 million revolving
credit facility/term note.
The amended and restated Credit Facility provides for Letters of Credit to
be made available to the Company not to exceed $50 million. The aggregate amount
of outstanding Letters of Credit and amounts borrowed under the Revolving Credit
Facility cannot exceed the Revolving Credit Facility commitment. At February 28,
1998, a $50 million Letter of Credit was outstanding.
All outstanding amounts under the Credit Facility bear interest, at the
option of Emmis, at a rate equal to the Eurodollar Rate (5.375% and 5.625% at
February 28, 1997 and 1998, respectively) 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. The interest rate on borrowings
outstanding under the Credit Facility at February 28, 1997 and 1998 was
approximately 6.625% and 6.60%, respectively. Interest is due on a calendar
quarter basis under the alternative base rate and at least every three months
under the Eurodollar Rate. 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 notional amount of the agreements required at
February 28, 1998 totaled $109 million. The agreements, which expire at various
dates ranging from April 2000 to February 2001, establish various ceilings
approximating 8% on the one-month LIBOR interest rate. The cost of these
agreements are being amortized over the lives of the agreements and the
amortization is included as a component of interest expense.
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 (29)28 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
<PAGE> 15
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 from 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.
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
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 Company was in compliance with these
covenants at February 28, 1997 and 1998. 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.
The License Obligation -- Hungary is payable, in Hungarian forints, by
Emmis' Hungarian subsidiary (see Note 5) to the Hungarian government in four
equal annual installments commencing November 2000. The license obligation of
$11.8 million, reflected net of unamortized discount of $1.7 million, is
non-interest bearing and thus has been discounted at an imputed rate of
approximately 3% to reflect the obligation at its fair value. In accordance with
the license purchase agreement, a Hungarian cost of living adjustment is
calculated annually and is payable, concurrent with the principal payments, on
the outstanding obligation. The cost of living adjustment is estimated each
reporting period and included in interest expense.
The Bonds and Notes Payable are payable by Emmis' Hungarian subsidiary to
the minority shareholders of the subsidiary. The Bonds are due on maturity at
November 2004 and bear interest at the Hungarian State Bill rate plus 3%
(approximately 23% at February 28, 1998). Interest is payable semiannually. The
Notes Payable and accrued interest are due on demand and bear interest at prime
plus 2% (approximately 10.5% at February 28, 1998).
5. ACQUISITIONS
On March 31, 1997, Emmis completed its acquisition of substantially all of
the assets of radio stations WALC-FM (formerly WKBQ-FM), WKBQ-AM and WKKX-FM in
St. Louis from Zimco, Inc. for approximately $43.6 million in cash, plus an
agreement to broadcast approximately $1.0 million in trade spots for Zimco,
Inc., over a period of years. In accordance with the asset purchase agreement,
Emmis made an escrow payment of $6.0 million and paid $600,000 in non-refundable
prepayments in December 1996. These payments are reflected in deposits and other
assets in the consolidated balance sheet as of February 28, 1997. Concurrent
with the signing of the asset purchase agreement, Emmis entered into a time
brokerage agreement which 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. The purchase price was financed through additional
bank borrowings. The acquisition was accounted for as a purchase. In February
1998, the Company donated WKBQ-AM to a church. The $4.8 million net book value
of the station at the time of donation was reflected as a loss on donation of
radio station in the accompanying consolidated statement of operations.
On May 15, 1997, the Company entered into an agreement to purchase radio
station WQCD-FM in New York City. The purchase price, after adjustments, is
expected to be approximately $141 million. As part of the transaction therewith,
the Company issued an irrevocable letter of credit, to the current owner,
totaling $50 million as security for the Company's obligations under this
agreement. The acquisition will be financed
<PAGE> 16
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through additional bank borrowings and will be accounted for as a purchase upon
closing. The acquisition is currently awaiting FCC approval.
In connection with the above agreement to acquire WQCD-FM, the Company
entered into a time brokerage agreement which permitted Emmis to begin operating
the station effective July 1, 1997. This agreement expires upon the closing of
the sale of the station to the Company. In consideration for the time brokerage
agreement, the Company pays a monthly fee of approximately $700,000. Operating
results of WQCD-FM are reflected in the consolidated statement of operations for
the period from July 1, 1997 through February 28, 1998.
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 bank borrowings. 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 $15.3 million in cash. Emmis financed the acquisition
through additional bank borrowings. The acquisition was accounted for as a
purchase.
On November 1, 1997, the Company acquired substantially all of the net
assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million
in cash. Emmis financed the acquisition through additional bank borrowings. The
acquisition was accounted for as a purchase.
Emmis owns a 54% interest in a Hungarian subsidiary (Radio Hungaria Rt.,
d/b/a Slager Radio) which was formed in August 1997. In November 1997, Slager
Radio acquired a radio broadcasting license from the Hungarian government at a
cost of approximately $19.2 million, of which a cash payment of $7.3 million had
been made as of February 28, 1998. The broadcast license has an initial term of
seven years and is subject to renewal for an additional five years. Slager Radio
began broadcasting on February 16, 1998. Slager Radio's operating results
included in Emmis' results of operations for the year ended February 28, 1998
were not material.
On February 1, 1998, the Company acquired all of the outstanding capital
stock of Mediatex Communications Corporation for approximately $37.4 million in
cash. Mediatex Communications Corporation owns and operates Texas Monthly, a
regional magazine. The acquisition was accounted for as a purchase and was
financed through additional bank borrowings.
6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
A pro forma condensed consolidated statement of operations is presented
below for the years ended February 28, 1997 and 1998, assuming the acquisitions
of WALC-FM, WKKX-FM, WTLC-FM and AM, and Texas Monthly and the operation of
WQCD-FM, under the Time Brokerage Agreement, all had occurred on the first day
of the year ended February 28, 1997. Pro forma results for the year ended
February 28, 1997, include pro forma adjustments for March through November,
actual revenues and operating expenses from December through February, operating
under the time brokerage agreement, and certain pro forma expense adjustments
for December through February for the acquisition of WALC-FM and WKKX-FM. In
addition, pro forma adjustments for March through February for the operation of
WQCD-FM under the time brokerage agreement, and the acquisition of WTLC-FM and
AM and Texas Monthly are included in pro forma results for fiscal 1997. Pro
forma results for the year ended February 28, 1998, include pro forma
adjustments for March and actual results for April through February for the
acquisition of WALC-FM and WKKX-FM, pro forma results for March through June and
actual results for July through February for the operation of WQCD-FM under the
time brokerage agreement, pro forma results for March through October and actual
results for November through February for the acquisition of WTLC- FM and AM,
and pro forma results for March through January and actual results for February
for the acquisition of Texas
<PAGE> 17
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Monthly. Pro forma results for Cincinnati Magazine, Network Indiana and
AgriAmerica have been excluded as they are not significant to the consolidated
operating results 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 (in thousands, except per
share data).
<TABLE>
<CAPTION>
PRO FORMA
----------------------
1997 1998
---- ----
<S> <C> <C>
NET REVENUES............................................ $153,161 $172,896
Operating expenses.................................... 92,204 107,163
International business development expenses........... 1,164 999
Corporate expenses.................................... 5,929 6,846
Depreciation and amortization......................... 11,164 11,267
Noncash compensation.................................. 3,465 1,482
Time brokerage agreement fees......................... 8,500 8,500
-------- --------
OPERATING INCOME........................................ 30,735 36,639
-------- --------
OTHER INCOME (EXPENSE):
Interest expense...................................... (16,713) (17,485)
Equity in loss of unconsolidated affiliates........... -- (357)
Loss on donation of radio station..................... -- (4,833)
Other income (expense), net........................... 333 459
-------- --------
Total other income (expense)..................... (16,380) (22,216)
-------- --------
INCOME BEFORE INCOME TAXES.............................. 14,355 14,423
PROVISION FOR INCOME TAXES.............................. 5,740 5,710
-------- --------
NET INCOME.............................................. $ 8,615 $ 8,713
======== ========
Basic net income per share............................ $0.79 $0.80
======== ========
Diluted net income per share.......................... $0.76 $0.77
======== ========
</TABLE>
The pro forma condensed consolidated statement of operations presented
above does 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 year presented, and is not intended to be a projection of future results
or trends.
7. EMPLOYEE BENEFIT PLANS
A. 1986 STOCK INCENTIVE PLAN AND 1992 NONQUALIFIED STOCK OPTION PLAN
These stock plans provide for incentive stock options, nonqualified stock
options and stock appreciation rights equivalent to 1,112,500 shares of common
stock. The options and stock appreciation rights are generally exercisable six
months after the date of grant and expire not more than 10 years from the date
the options or rights are granted. Stock appreciation rights provide for the
issuance of stock or the payment of cash equal to the appreciation in market
value of the allocated shares from the date of grant to the date of exercise.
When rights are issued with options, exercise of either the option or the right
results in the surrender of the other. As of February 28, 1997 and 1998, there
were no stock appreciation rights outstanding nor were there any stock
appreciation rights issued with options outstanding. Certain stock options
awarded remain outstanding as of February 28, 1997 and 1998.
<PAGE> 18
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. 1994 EQUITY INCENTIVE PLAN
Effective March 1, 1994, the shareholders of Emmis approved the 1994 Equity
Incentive Plan (the Plan). Under the Plan, awards equivalent to 1,000,000 shares
of common stock may be granted. The awards, which have certain restrictions, may
be for incentive stock options, nonqualified stock options, shares of restricted
stock, stock appreciation rights, performance units or limited stock
appreciation rights. Under this Plan, all awards are granted with an exercise
price equal to the fair market value of the stock except for shares of
restricted stock which may be granted with an exercise price at amounts greater
than or equal to the par value of the underlying stock. No more than 500,000
shares of Class B Common Stock are available for grant and issuance under the
Plan. As of February 28, 1997 and 1998, the only awards granted under this Plan
were for stock options and restricted shares of stock. Certain stock options
awarded remain outstanding as of February 28, 1997 and 1998. The stock options
under this Plan are generally exercisable one year after the date of grant and
expire not more than 10 years from the date of grant. The exercise price of
these options are at the fair market value of the stock on the grant date.
C. 1995 EQUITY INCENTIVE PLAN
Effective March 1, 1995, the shareholders of Emmis approved the 1995 Equity
Incentive Plan (the Plan). Under the Plan, awards equivalent to 650,000 shares
of common stock may be granted pursuant to employment agreements discussed in
Note 8.
D. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Effective June 29, 1995, Emmis implemented a Non-Employee Director Stock
Option Plan. Under this Plan, each non-employee director, as of January 24,
1995, was granted an option to acquire 5,000 shares of the Company's Class A
Common Stock. Thereafter, upon election or appointment of any non-employee
director or upon a continuing director becoming a non-employee director, such
individual will also become eligible to receive a comparable option. In
addition, an equivalent option will be automatically granted on an annual basis
to each non-employee director. All awards are granted with an exercise price
equal to the fair market value of the stock on the date of grant. Under this
Plan, awards equivalent to 85,000 shares of Class A Common Stock are available
for grant at February 28, 1998.
E. 1997 EQUITY INCENTIVE PLAN
Effective March 1, 1997, the shareholders of Emmis approved the 1997 Equity
Incentive Plan (the 1997 Plan). Under the 1997 Plan, awards equivalent to
1,000,000 shares of common stock may be granted. The awards, which have certain
restrictions, may be for incentive stock options, nonqualified stock options,
shares of restricted stock, stock appreciation rights or performance units.
Under the 1997 Plan, all awards are granted with an exercise price equal to the
fair market value of the stock except for shares of restricted stock which may
be granted with an exercise price at amounts greater than or equal to the par
value of the underlying stock. No more than 500,000 shares of Class B Common
Stock are available for grant and issuance under the 1997 Plan. As of February
28, 1998, there were no awards granted under this Plan. The stock options under
this Plan are generally exercisable one year after the date of grant and expire
not more than 10 years from the date of grant.
F. OTHER DISCLOSURES RELATED TO STOCK OPTION AND EQUITY INCENTIVE PLANS
The Company has historically accounted for its Stock Option Plans in
accordance with APB Opinion No. 25 ("APB 25"), under which compensation expense
is recognized only to the extent the exercise price of the option is less than
the fair market value of the share of stock at the date of grant. During 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS
123), which considers the stock options as compensation expense to the
<PAGE> 19
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company, based on their fair value at the date of grant. Under this standard,
the Company has the option of accounting for employee stock option plans as it
currently does or under the new method. The Company has elected to continue to
use the APB 25 method for accounting, but has adopted the disclosure
requirements of SFAS 123. Accordingly, compensation expense reflected in noncash
compensation in the consolidated statements of operations related to the plans
summarized above was $2,917,000, $2,715,000 and $732,000 for the years ended
February 1996, 1997 and 1998, respectively. Had compensation expense related to
these plans been determined based on fair value at date of grant, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY (29)28,
----------------------------------------
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Net Income:
As Reported............................ $10,308,000 $15,440,000 $11,084,000
Pro Forma.............................. $ 8,845,000 $11,545,000 $ 8,588,000
Basic EPS:
As Reported............................ $.96 $1.41 $1.02
Pro Forma.............................. $.83 $1.06 $ .79
Diluted EPS:
As Reported............................ $.93 $1.37 $ .98
Pro Forma.............................. $.80 $1.02 $ .76
</TABLE>
Because the fair value method of accounting has not been applied to options
granted prior to March 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value of
each option granted is estimated on the date of grant using the Black-Scholes
option pricing model utilizing the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY (29)28,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Risk Free Interest Rate............................... 6.47% 6.39% 5.78%
Expected Life (Years)................................. 6.8 7.1 7.5
Expected Volatility................................... 39.70% 41.56% 38.65%
</TABLE>
Expected dividend yields were zero for fiscal 1996, 1997 and 1998.
A summary of the status of options at February 1996, 1997 and 1998 and the
related activity for the year is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of
Year............................ 587,000 $ 9.37 893,888 $15.88 1,232,335 $23.42
Granted........................... 505,738 19.29 439,862 35.54 229,200 44.06
Exercised......................... (198,850) 6.63 (92,415) 10.01 (106,305) 21.09
Expired........................... -- -- (9,000) 33.96 (10,600) 42.47
Outstanding at End of Year........ 893,888 15.88 1,232,335 23.42 1,340,630 26.95
Exercisable at
End of Year....................... 517,900 11.99 737,223 16.71 1,055,430 22.14
Available for Grant............... 1,816,012 1,385,150 2,671,350
</TABLE>
<PAGE> 20
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the years ended February 1996, 1997 and 1998 options were granted
with an exercise price equal to or less than fair market value of the stock on
the date of grant. A summary of the weighted average fair value and exercise
price of options granted during 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE FAIR EXERCISE FAIR EXERCISE FAIR
PRICE VALUE PRICE VALUE PRICE VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPTIONS GRANTED WITH AN EXERCISE
PRICE:
Equal to Fair Market Value of the
Stock on the Date of Grant.......... $14.81 $26.03 $24.46 $42.66 $22.85 $41.20
Less Than Fair Market Value of the
Stock on the Date of Grant.......... $16.55 $15.50 $24.30 $15.50 $ -- $ --
</TABLE>
During fiscal 1996 and 1997, 90,000 and 14,800 shares of nonvested stock
were granted at a weighted average grant date fair value of $17.36 and $37.20,
respectively, under employment agreements discussed in Note 8. No nonvested
stock was granted during fiscal 1998.
The following information relates to options outstanding and exercisable at
February 28, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------- ------------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER OF EXERCISE REMAINING NUMBER OF EXERCISE
PRICES OPTIONS PRICE CONTRACT LIFE OPTIONS PRICE
-------- --------- -------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
$3.75 60,375 $ 3.75 4.2 years 60,375 $ 3.75
10.00-13.25 76,450 12.43 5.7 years 76,450 12.43
15.13-17.125 544,393 15.63 8.0 years 544,393 15.63
28.875-42.25 297,362 34.01 8.1 years 206,862 33.42
44.125-48.75 362,050 44.79 9.0 years 167,350 44.40
</TABLE>
In addition to the benefit plans noted above, Emmis has the following
employee benefit plans:
G. PROFIT SHARING PLAN
In December 1986, Emmis adopted a profit sharing plan that covers all
nonunion employees with one year of service. Contributions to the plan are at
the discretion of the Emmis Board of Directors. Contributions to the plan can be
made in the form of newly issued Emmis common stock or cash. Historically, all
contributions to the plan have been in the form of Emmis common stock.
Contributions reflected in noncash compensation in the consolidated statements
of operations were $750,000 for each of the years ended February 1996, 1997 and
1998.
H. 401(K) RETIREMENT SAVINGS PLAN
Emmis sponsors a Section 401(k) retirement savings plan which covers
substantially all nonunion employees age 18 years and older who have at least
one year of service. Employees may make pretax contributions to the plan up to
10% of their compensation, not to exceed the annual limit prescribed by the
Internal Revenue Service. Emmis may make discretionary matching contributions to
the plan in the form of shares of the Company's Class A Common Stock. Effective
March 1, 1996, Emmis began to match 50% of employee contributions up to $2,000.
Emmis' contributions to the plan totaled $129,000, $273,000 and $315,000 for the
years ended February 1996, 1997 and 1998, respectively.
<PAGE> 21
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. DEFINED CONTRIBUTION HEALTH AND RETIREMENT PLAN
Emmis contributes to a multi-employer defined contribution health and
retirement plan for employees who are members of a labor union. Amounts charged
to expense related to the multi-employer plan were approximately $276,000,
$297,000 and $342,000 for the years ended February 1996, 1997 and 1998,
respectively.
J. EMPLOYEE STOCK PURCHASE PLAN
Effective March 1, 1995, the Company implemented an employee stock purchase
plan which permits employees to purchase, via payroll deduction, shares of the
Company's Class A Common Stock, at fair market value, up to an amount not to
exceed 10% of an employee's annual gross pay.
8. COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASES
Emmis leases certain office space, tower space, equipment and automobiles
under operating leases expiring at various dates through March 2013. Some of the
lease agreements contain renewal options and annual rental escalation clauses
(generally tied to the Consumer Price Index or increases in the lessor's
operating costs), as well as provisions for payment of utilities and maintenance
costs.
The future minimum rental payments (exclusive of future escalation costs)
required by noncancelable operating leases which have remaining terms in excess
of one year as of February 28, 1998, are as follows:
<TABLE>
<CAPTION>
PAYABLE IN YEAR
ENDING FEBRUARY PAYMENTS
- --------------- --------
(IN THOUSANDS)
<S> <C>
1999.................................................. $ 3,139
2000.................................................. 2,710
2001.................................................. 2,085
2002.................................................. 1,961
2003.................................................. 2,024
Thereafter............................................ 11,618
-------
$23,537
=======
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of
approximately $740,000 due in the future under noncancelable subleases. As
further discussed in e. below, in 1999 Emmis intends to move its corporate
office and Indianapolis operations to an office building being constructed in
downtown Indianapolis. Included in future minimum rentals above is approximately
$752,000 to be paid through 2000 relating to office space currently being leased
in Indianapolis which will no longer be used after the move. At this time Emmis
management believes that sublease income will be adequate to offset any rental
expense associated with the existing lease.
Rent expense totaled $4,437,000, $3,025,000 and $4,512,000 for the years
ended February 1996, 1997 and 1998, respectively. Rent expense for the year
ended February 1996 includes a loss recognized in connection with a remaining
lease obligation related to leased property no longer used for operating
purposes. During the year ended February 1997, the Company settled the
aforementioned lease obligation which resulted in a reduction to rent expense.
Rent expense for the year ended February 1998 is net of sublease income of
approximately $86,000.
<PAGE> 22
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. BROADCAST AGREEMENTS
Emmis has entered into agreements to broadcast certain syndicated programs
and sporting events. Future payments related to these broadcast rights are
summarized as follows: Year ended February 1999 -- $1,584,000, 2000 --
$1,074,000, 2001 -- $1,100,000, 2002 -- $1,150,000, and 2003 -- $625,000.
Expense related to these broadcast rights totaled $1,260,000, $1,383,000 and
$1,400,000 for the years ended February 1996, 1997 and 1998.
C. LITIGATION
Emmis currently and from time to time is involved in litigation incidental
to the conduct of its business, but Emmis is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
Emmis.
D. EMPLOYMENT AGREEMENTS
Effective March 1, 1994, Emmis entered into an employment agreement with
its Chief Executive Officer that continues through February 28, 1999 and
provides for an annual base salary as specified in the agreement and an annual
bonus. In addition, for each year Emmis meets specified financial targets, the
Chief Executive Officer will be granted an option to acquire 100,000 shares of
Class B Common Stock. The options will have a five-year term and an exercise
price of $15.50 per share. The Chief Executive Officer was granted an option to
acquire 100,000 shares of Class B Common Stock in accordance with the terms of
this agreement for each of the years ended February 1996 and 1997. The Board of
Directors elected not to grant these options for fiscal 1998. Upon the
termination or disability of the Chief Executive Officer, specified levels of
compensation may continue for five years from the date of termination or
disability. Upon the death of the Chief Executive Officer, lump sum payments are
payable to his estate.
Effective March 1, 1995, Emmis entered into employment agreements with two
other executive officers of the Company that continued through February 28, 1998
and provided for an annual base salary and certain bonuses as specified in the
agreements. Each executive officer received 12,000 shares of the Company's Class
A Common Stock for each year of the employment agreements. The shares vested
upon completion of the agreements. In addition, each executive officer was
granted an option to acquire 25,000 shares of Class A Common Stock during each
year of the employment agreements. The options became exercisable at the end of
the term of the employment agreements and have an exercise price of $15.50 per
share.
Effective March 1, 1995 and 1996, Emmis entered into employment agreements
with two additional executives of the Company that continue through February 28,
1999 and provide for an annual base salary and certain other bonuses as
specified in the agreements. Subject to certain conditions, the executives will
receive, in total, 27,000 shares of the Company's Class A Common Stock. Of the
total shares to be received 2,000, were awarded as of February 28, 1997 with the
remaining 25,000 to be awarded upon completion of the term of the agreements. In
addition, subject to certain conditions, during the term of the agreements, the
executives will be granted options to acquire shares of Class A Common Stock,
with an exercise price equal to the fair market value at the date of grant. Each
option becomes exercisable one year from the date of grant. Options to purchase
up to 89,806 shares of Class A Common Stock may be granted over the term of the
agreements. Through February 28, 1998, options to purchase 65,806 shares have
been granted under the agreements.
Effective March 1, 1995, Emmis entered into employment agreements with
certain station managers that continued through February 28, 1997 and provided
for an annual base salary and certain bonuses as specified in the agreements.
Effective March 1, 1997 new employment agreements were entered into, with
similar provisions, which continue through February 28, 1999. Subject to certain
conditions, each station manager will receive a prescribed number of shares, not
to exceed 1,500 shares, of the Company's Class A Common Stock
<PAGE> 23
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
during each year of the employment agreements. Commencing with the initial
agreements through February 28, 1998, 10,050 shares have been granted under
these agreements.
E. CONSTRUCTION OF OFFICE BUILDING
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 $30
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, Network Indiana and AgriAmerica. 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.
9. INCOME TAXES
The provision for income taxes for the years ended February 1996, 1997 and
1998, consisted of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $2,081 $ 7,535 $ 6,474
State..................................................... 649 1,375 1,250
------ ------- -------
2,730 8,910 7,724
------ ------- -------
Deferred:
Federal................................................... 4,572 1,328 (759)
State..................................................... 298 262 235
------ ------- -------
4,870 1,590 (524)
------ ------- -------
Provision for income taxes.................................. $7,600 $10,500 $ 7,200
====== ======= =======
</TABLE>
The provision for income taxes for the years ended February 1996, 1997 and
1998, differs from that computed at the Federal statutory corporate tax rate as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income taxes at 35%.................... $6,268 $ 9,079 $6,399
State income tax................................ 616 1,064 965
Other........................................... 716 357 (164)
------ ------- ------
$7,600 $10,500 $7,200
====== ======= ======
</TABLE>
<PAGE> 24
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and deferred tax liabilities at
February 28, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capital loss carryforwards........................... $ 3,208 $ 2,914
Net operating loss carryforwards..................... -- 2,587
Compensation relating to stock options............... 2,435 2,243
Other................................................ 1,221 2,739
Valuation allowance.................................. (3,208) (2,914)
-------- --------
Total deferred tax assets......................... 3,656 7,569
-------- --------
Deferred tax liabilities:
Intangible assets.................................... (30,714) (33,166)
Other................................................ (2,212) (1,962)
-------- --------
Total deferred tax liabilities.................... (32,926) (35,128)
-------- --------
Net deferred tax liability........................ $(29,270) $(27,559)
======== ========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. A valuation allowance
has been provided for 100% of the capital loss carryforwards available as of
February 28, 1997 and 1998, since these loss carryforwards can only be utilized
to offset future capital gains with expiration of approximately $6,187,000 in
1999, $730,000 in 2001, and $368,000 in 2002. The expiration of net operating
loss carryforwards approximate $458,000 in 1999, $692,000 in 2000, $1,486,000 in
2003, $2,623,000 in 2004, $1,375,000 in 2005, and $758,000 in 2006.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments of Emmis is estimated below based
on the methods and assumptions discussed therein.
A. CASH AND CASH EQUIVALENTS
The carrying amounts approximate fair value because of the short maturity
of these instruments.
B. LONG-TERM DEBT
Based upon borrowing rates currently available to the Company for debt with
similar terms and the same remaining maturities, the fair value of long-term
debt approximated the carrying value at February 28, 1998.
C. INTEREST RATE CAP AGREEMENTS
The unamortized cost of interest rate cap agreements included in the
February 28, 1998 consolidated balance sheet totals $172,000. The carrying
amount of interest rate cap agreements approximate fair value given that the
majority of the interest rate caps were purchased in February 1998.
D. LETTER OF CREDIT
Fees paid for the Company's $50 million letter of credit approximate fair
value based on fees currently charged for similar arrangements.
<PAGE> 25
EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS
Two officers of Emmis are partners in a law firm which provides legal
services to Emmis. Legal fees billed by this law firm were approximately
$188,000, $296,000 and $512,000 for the years ended February 1996, 1997 and
1998, respectively.
Affiliates of Morgan Stanley, Dean Witter, Discover and Co. are
shareholders of Emmis. No fees were paid to Morgan Stanley, Dean Witter,
Discover & Co. and affiliates for the years ended February 1996, 1997 and 1998.
12. SUBSEQUENT EVENT -- ACQUISITION
Effective March 20, 1998, the Company entered into an agreement to purchase
the majority of the assets of Wabash Valley Broadcasting Corporation for
approximately $90 million in cash. The acquisition consists of WTHI-TV, a CBS
network affiliated television station, WTHI-FM and AM and WWVR-FM, radio
stations located in the Terre Haute, Indiana area, and WFTX-TV, a Fox network
affiliated television station in Ft. Myers, Florida.
Effective March 30, 1998, the Company entered into an agreement to purchase
substantially all of the assets of SF Broadcasting of Wisconsin, Inc. and SF
Multistations, Inc. and Subsidiaries (collectively "the SF Acquisition") for
approximately $307 million. The purchase price will be paid a portion in cash
($257 million), either issuance of shares of Emmis' Class A Common Stock or
cash, at Emmis' option ($25 million), and a promissory note ($25 million)
bearing interest at 8%, with principal and interest due on the first anniversary
of the closing date which, at Emmis' option, may be paid with an equivalent
amount of Emmis' Class A Common Stock. In accordance with the asset purchase
agreement, Emmis made a $25 million escrow payment. The SF Acquisition consists
of four Fox network affiliated television stations: WLUK-TV in Green Bay,
Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile, Alabama, and
KHON-TV in Honolulu, Hawaii (including McHale Videofilm and satellite stations
KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo, Hawaii).
These acquisitions are awaiting approval by the FCC. The Company will
account for these acquisitions under the purchase method of accounting.
<PAGE> 26
13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through subsidiaries.
The Senior Subordinated Notes are fully and unconditionally guaranteed, jointly
and severally, by certain direct and indirect subsidiaries (the Subsidiary
Guarantors). One of the Company's subsidiaries does not guarantee the Senior
Subordinated Notes (the Non-Guarantor Subsidiary). The claims of creditors of
the Non-Guarantor Subsidiary have priority over the rights of the Company to
receive dividends or distributions from such subsidiary.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiary as of
February 28, 1998 and 1997 and for each of the three years in the period ended
February 28, 1998.
The equity method has been used by the Company with respect to investments in
subsidiaries. Separate financial statements for Subsidiary Guarantors are not
presented based on management's determination that they do not provide
additional information that is material to investors.
<PAGE> 27
<TABLE>
<CAPTION>
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 1996
(IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 703 $ 108,541 $ - $ 109,244
Operating expenses 547 61,919 - 62,466
International business development expenses - 1,264 - 1,264
Corporate expenses 4,419 - - 4,419
Depreciation and amortization 192 5,485 - 5,677
Noncash compensation 3,023 644 - 3,667
-----------------------------------------------------------------
Operating Income (7,478) 39,229 - 31,751
-----------------------------------------------------------------
Other Income (Expense)
Interest expense (13,507) (33) - (13,540)
Equity in loss of unconsolidated affiliate (3,111) - - (3,111)
Gain on sale of investment in Talk Radio U.K. 2,729 - - 2,729
Other Income (expense), net 75 4 - 79
------------------------------------------------------------------
Total other income (expense) (13,814) (29) - (13,843)
-----------------------------------------------------------------
Income before income taxes (21,292) 39,200 - 17,908
Provision (benefit) for income taxes (8,517) 16,117 - 7,600
------------------------------------------------------------------
(12,775) 23,083 - 10,308
Equity in earnings of subsidiaries 23,083 - (23,083) -
------------------------------------------------------------------
Net Income (loss) $ 10,308 $ 23,083 $ (23,083) $ 10,308
==================================================================
</TABLE>
<PAGE> 28
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 29, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Income (Loss) $ 10,308 $ 23,083 $ (23,083) $ 10,308
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization of property and
equipment 163 1,473 - 1,636
Amortization of debt issuance costs and cost of
interest rate cap agreements 1,742 - - 1,742
Amortization of intangible assets 29 4,012 - 4,041
Provision for bad debts - 834 - 834
Equity in earnings of subsidiaries (23,083) - 23,083 -
Provision for deferred income taxes 4,870 - - 4,870
Gain on sale of TalkRadio UK (2,729) - - (2,729)
Non cash compensation 3,023 644 - 3,667
Equity in loss of unconsolidated affiliate 3,111 - - 3,111
Intercompany 26,328 (26,328) - -
(Increase) decrease in certain current assets (net of
dispositions and acquisitions) --
Accounts receivable (131) (3,044) - (3,175)
Prepaid expenses and other current assets (53) (698) - (751)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions)
Accounts payable and book cash overdraft 205 (774) - (569)
Accrued salaries and commissions (18) 848 - 830
Accrued interest (1,272) - - (1,272)
Deferred revenue - (349) - (349)
Other current liabilities (616) 1,006 - 390
(Increase) decrease in deposits and other assets (137) 29 - (108)
Increase in other noncurrent liabilities 37 708 - 745
----------------------------------------------------------
Net cash provided by operating activities 21,777 1,444 - 23,221
Investing Activities:
Costs incurred for WRKS-FM Acquisition - (131) - (131)
Purchases of property and equipment (119) (1,277) - (1,396)
Investment in and advances to TalkRadio UK (980) - - (980)
Net proceeds from disposition of investment in
TalkRadio UK 2,729 - - 2,729
----------------------------------------------------------
Net cash provided by (used in) investing
activities 1,630 (1,408) - 222
Financing Activities:
Proceeds of long-term debt 29,518 - - 29,518
Payments on long-term debt (57,583) - - (57,583)
Proceeds from exercise of stock options and income tax
benefits of certain equity transactions 2,635 - - 2,635
----------------------------------------------------------
Net cash used in financing activities (25,430) - - (25,430)
----------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (2,023) 36 - (1,987)
Cash and Cash Equivalents
Beginning of year 2,346 859 - 3,205
----------------------------------------------------------
End of year $ 323 $ 895 $ - $ 1,218
==========================================================
</TABLE>
<PAGE> 29
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 28, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 119 $ 1,072 $ - $ 1,191
Accounts receivable, net 1,162 19,669 - 20,831
Prepaid expenses 383 1,993 - 2,376
Income tax refunds receivable - 2,482 - 2,482
Other 346 1,521 - 1,867
----------- -------------- --------- -----------
Total current assets 2,010 26,737 - 28,747
Property and equipment, net 1,468 11,523 - 12,991
Intangible assets, net 545 131,198 - 131,743
Investment in affiliates 160,936 - (160,936) -
Other assets, net 15,191 1,044 16,235
----------- -------------- --------- ----------
Total assets $ 180,150 $ 170,502 $ (160,936) $ 189,716
=========== ============== ========== ===========
Current Liabilities
Current maturities of long-term debt $ 2,834 $ 34 $ - $ 2,868
Book cash overdraft 1,942 - - 1,942
Accounts payable 418 3,269 - 3,687
Accrued salaries and commissions 247 1,314 - 1,561
Accrued interest 174 - - 174
Deferred revenue - 1,593 - 1,593
Other current liabilities 105 1,354 - 1,459
----------- -------------- ---------- -----------
Total current liabilities 5,720 7,564 - 13,284
----------- -------------- ---------- -----------
Long-term debt, net of current maturities 112,291 13 - 112,304
Other noncurrent liabilities 37 399 - 436
Deferred income taxes 27,680 1,590 - 29,270
----------- -------------- ---------- -----------
Total liabilities 145,728 9,566 - 155,294
----------- -------------- ---------- -----------
Shareholders' Equity
Class A common stock 84 - - 84
Class B common stock 26 - - 26
Additional paid-in capital 70,949 - - 70,949
Subsidiary investment - (43,652) 43,652 -
Accumulated earnings (deficit) (36,637) 204,588 (204,588) (36,637)
----------- -------------- ---------- -----------
Total shareholders' equity 34,422 160,936 (160,936) 34,422
----------- -------------- ---------- -----------
Total liabilities and shareholders' equity $ 180,150 $ 170,502 $ (160,936) $ 189,716
=========== ============== ========== ===========
</TABLE>
<PAGE> 30
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 935 $ 112,785 $ - $ 113,720
Operating expenses 638 61,795 - 62,433
International business development expenses - 1,164 - 1,164
Corporate expenses 5,929 - - 5,929
Depreciation and amortization 179 5,302 - 5,481
Noncash compensation 2,702 763 - 3,465
------------ ----------- ----------- -----------
Operating Income (8,513) 43,761 - 35,248
------------ ----------- ----------- -----------
Other Income (Expense)
Interest expense (9,573) (60) - (9,633)
Other income (expense), net 351 (26) - 325
------------ ----------- ----------- ----------
Total other income (expense) (9,222) (86) - (9,308)
------------ ----------- ----------- -----------
Income before income taxes (17,735) 43,675 - 25,940
Provision (benefit) for income taxes (7,094) 17,594 - 10,500
------------ ------------ ------------ ----------
(10,641) 26,081 - 15,440
Equity in earnings of subsidiaries 26,081 - (26,081) -
------------ ------------ ------------ ----------
Net Income $ 15,440 $ 26,081 $ (26,081) $ 15,440
============ ============ ============ ==========
</TABLE>
<PAGE> 31
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 28, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 15,440 $ 26,081 $(26,081) $ 15,440
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization of property and equipment 161 1,478 - 1,639
Amortization of debt issuance costs and cost of interest
rate cap agreements 1,071 - - 1,071
Amortization of intangible assets 18 3,824 - 3,842
Provision for bad debts - 726 - 726
Equity in earnings of subsidiaries (26,081) - 26,081 -
Provision (benefit) for deferred income taxes - 1,590 - 1,590
Non cash compensation 2,702 763 - 3,465
Other (195) - - (195)
Intercompany 21,582 (21,582) - -
(Increase) decrease in certain current assets (net of
dispositions and acquisitions) --
Accounts receivable 615 (3,000) - (2,385)
Prepaid expenses and other current assets (517) (2,524) - (3,041)
Increase (decrease) in certain current liabilities (net of
dispositions and acquisitions) --
Accounts payable and book cash overdraft 2,020 737 - 2,757
Accrued salaries and commissions (532) (1,467) - (1,999)
Accrued interest (146) - - (146)
Deferred revenue - 395 - 395
Other current liabilities (57) 83 - 26
(Increase) decrease in deposits and other assets (1,353) 455 - (898)
Increase (decrease) in other noncurrent liabilities - (925) - (925)
--------- -------- -------- --------
Net cash provided by operating activities 14,728 6,634 - 21,362
--------- -------- -------- --------
Investing Activities:
Acquisition of WALC-FM, WKBQ-AM and WKKX-FM (6,600) - - (6,600)
Purchases of property and equipment (1,102) (6,457) - (7,559)
Other 240 - - 240
--------- -------- -------- --------
Net cash used in investing activities (7,462) (6,457) - (13,919)
--------- -------- -------- --------
Financing Activities:
Proceeds of long-term debt 19,000 - - 19,000
Payments on long-term debt (28,102) - - (28,102)
Proceeds from exercise of stock options and income tax benefits
of certain equity transactions 1,632 - - 1,632
--------- -------- -------- --------
Net cash used in financing activities (7,470) - - (7,470)
--------- -------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents (204) 177 - (27)
Cash and Cash Equivalents
Beginning of year 323 895 - 1,218
--------- -------- -------- --------
End of year $ 119 $ 1,072 $ - $ 1,191
========= ======== ======== ========
</TABLE>
<PAGE> 32
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 28, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY NON-GUARANTOR
ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 623 $ 243 $ 4,919 $ - $ 5,785
Accounts receivable, net 345 30,346 1,429 - 32,120
Prepaid expenses 528 4,372 - - 4,900
Income tax refunds receivable 4,968 - - - 4,968
Other 467 2,912 - - 3,379
-------------- ---------- ------------- ------------ ------------
Total current assets 6,931 37,873 6,348 - 51,152
Property and equipment, net 13,295 19,528 623 - 33,446
Intangible assets, net 529 214,797 19,232 - 234,558
Investment in affiliate 257,816 - - (257,816) -
Other assets, net 17,892 1,593 1,029 (6,282) 14,232
-------------- ---------- ------------- ------------ ------------
Total assets $ 296,463 $ 273,791 $ 27,232 $ (264,098) $ 333,388
============== ========== ============= ============ ============
Current Liabilities
Current liabilities of long-
term debt $ 34 $ 17 $ - $ - $ 51
Accounts payable 3,381 9,169 590 - 13,140
Account salaries and commissions 1,026 1,867 - - 2,893
Accrued interest 2,421 - - - 2,421
Deferred revenue - 7,985 - - 7,985
Other current liabilities 1,189 390 - - 1,579
-------------- ---------- ------------- ------------ ------------
Total current liabilities 8,051 19,428 590 - 28,069
Long-term debt, net of current
maturities 215,059 28 22,566 (6,282) 231,371
Other noncurrent liabilities 1,884 595 - (1,875) 604
Minority interest - - - 1,875 1,875
Deferred income taxes 27,559 - - - 27,559
-------------- ---------- ------------- ------------ ------------
Total liabilities 252,553 20,051 23,156 (6,282) 289,478
-------------- ---------- ------------- ------------ ------------
Shareholders' Equity
Class A common stock 84 - - 84
Class B common stock 26 - - 26
Additional paid-in capital 69,353 - 4,076 (4,076) 69,353
Subsidiary investment - 22,347 - (22,347) -
Accumulated earnings (deficit) (25,553) 231,393 - (231,393) (25,553)
-------------- ---------- ------------- ------------ ------------
Total shareholders' equity 43,910 253,740 4,076 (257,816) 43,910
-------------- ---------- ------------- ------------ ------------
Total liabilities and
shareholders' equity $ 296,463 $ 273,791 $ 27,232 $ (264,098) $ 333,388
============== ========== ============= ============ ============
</TABLE>
<PAGE> 33
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Parent Company Subsidiary
Only Guarantors Eliminations Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,142 $ 139,441 $ - $ 140,583
Operating expenses 924 80,246 - 81,170
International business development expenses - 999 - 999
Corporate expenses 6,846 - - 6,846
Depreciation and amortization 171 7,365 - 7,536
Noncash compensation 818 664 - 1,482
Time brokerage agreement fee - 5,667 - 5,667
-------------------------------------------------------------------
Operating Income (7,617) 44,500 - 36,883
-------------------------------------------------------------------
Other income (expense) -
Interest expense (13,766) (6) - (13,772)
Loss on donation of radio station (4,833) - - (4,833)
Other income (expense), net 15 (9) - 6
-------------------------------------------------------------------
Total other income (expense) (18,584) (15) - (18,599)
-------------------------------------------------------------------
Income before income taxes (26,201) 44,485 - 18,284
Provision (benefit) for income taxes (10,480) 17,680 - 7,200
-------------------------------------------------------------------
(15,721) 26,805 - 11,084
Equity in earnings of subsidiaries 26,805 - (26,805) -
-------------------------------------------------------------------
Net Income (loss) $ 11,084 $ 26,805 $ (26,805) $ 11,084
===================================================================
</TABLE>
<PAGE> 34
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 28, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT NON-
COMPANY SUBSIDIARY GUARANTOR
ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ 11,084 $ 26,805 $ -- (26,805) 11,084
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization of property and equipment 155 2,425 -- -- 2,580
Amortization of debt issuance costs and cost of interest
rate cap agreements 2,183 -- -- -- 2,183
Amortization of intangible assets 16 4,940 -- -- 4,956
Provision for bad debts 20 782 -- -- 802
Equity in earnings of subsidiaries (26,805) -- -- 26,805 --
Provision (benefit) for deferred income taxes (121) (403) -- -- (524)
Non cash compensation 818 664 -- -- 1,482
Loss on donation of radio station 4,833 -- -- -- 4,833
Other 357 -- -- -- 357
Intercompany (75,327) 68,642 8,560 (1,875) --
(Increase) decrease in certain current assets (net of
dispositions and acquisitions) --
Accounts receivable 797 (7,757) (1,429) -- (8,389)
Prepaid expenses and other current assets (5,234) 474 -- -- (4,760)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions) --
Accounts payable and book cash overdraft 1,021 4,058 481 -- 5,560
Accrued salaries and commissions 779 553 -- -- 1,332
Accrued interest 2,247 -- -- -- 2,247
Deferred revenue -- 292 -- -- 292
Other current liabilities 1,084 (968) -- -- 116
(Increase) decrease in deposits and other assets (951) (6,136) (1,027) 6,282 (1,832)
Increase (decrease) in other noncurrent liabilities (28) 196 -- -- 168
---------------------------------------------------------------
Net cash provided by (used in) operating activities (83,072) 94,567 6,585 4,407 22,487
---------------------------------------------------------------
Investing Activities:
Acquisition of WALC-FM, WKBQ-AM and WKKX-FM -- (36,964) -- -- (36,964)
Acquisition of WTLC-FM and WTLC-AM -- (15,336) -- -- (15,336)
Acquisition of Texas Monthly -- (37,389) -- -- (37,389)
Acquisition of Cincinnati Magazine -- (1,979) -- -- (1,979)
Acquisition of Network Indiana and AgriAmerica -- (709) -- -- (709)
Purchases of property and equipment (13,349) (3,019) (623) -- (16,991)
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
PARENT NON-
COMPANY SUBSIDIARY GUARANTOR
ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Initial payment for purchase of
Hungarian broadcast license -- -- (7,325) $ -- $ (7,325)
-------------------------------------------------------------------
Net cash used in investing activities (13,349) (95,396) (7,948) -- (116,693)
-------------------------------------------------------------------
Financial Activities:
Proceeds of long-term debt 288,378 -- 6,282 (6,282) 288,378
Payments on long-term debt (183,928) -- -- -- (183,928)
Payment of loan fees (4,291) -- -- -- (4,291)
Purchase of the Company's Class A common stock (7,000) -- -- -- (7,000)
Proceeds from exercise of stock options and income
tax benefits of certain equity transactions 3,922 -- -- -- 3,922
Other (156) -- -- 1,875 1,719
-------------------------------------------------------------------
Net cash provided by (used in) financing activities 96,925 -- 6,282 (4,407) 98,800
-------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 504 (829) 4,919 -- 4,594
Cash and Cash Equivalents
Beginning of year 119 1,072 -- -- 1,191
-------------------------------------------------------------------
End of year 623 243 4,919 $ -- $ 5,785
===================================================================
</TABLE>
<PAGE> 36
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------- FULL
MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28 YEAR
------ --------- ----------- ----------- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1997:
Net broadcasting revenues............... $27,865 $31,103 $30,016 $24,736 $113,720
Operating income........................ 8,286 12,342 10,080 4,540 35,248
Net income.............................. 3,505 6,040 4,655 1,240 15,440
Basic net income per share........... $ 0.32 $ 0.55 $ 0.43 $ 0.11 $ 1.41
Diluted net income per share......... $ 0.31 $ 0.53 $ 0.41 $ 0.11 $ 1.37
Year ended February 28, 1998:
Net broadcasting revenues............... $31,330 $37,008 $39,809 $32,436 $140,583
Operating income........................ 8,091 12,002 10,160 6,630 36,883
Net income (loss)....................... 3,368 4,672 4,079 (1,035) 11,084
Basic net income per share........... $ 0.31 $ 0.43 $ 0.38 $ (0.10) $ 1.02
Diluted net income per share......... $ 0.30 $ 0.41 $ 0.36 $ (0.10) $ 0.98
</TABLE>
<PAGE> 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Emmis Communications Corporation and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of Emmis
Communications Corporation (an Indiana corporation) and Subsidiaries as of
November 30, 1998 and the related condensed consolidated statements of
operations for the three-months and nine-months ended November 30, 1998 and 1997
and the condensed consolidated statements of cash flows for the nine-months
ended November 30, 1998 and 1997. 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 Communications Corporation as
of February 28, 1998 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 March 31, 1998 (except
with respect to the matter discussed in Note 1b as to which the date is April
30, 1999), 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, 1998 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 17, 1998 (except with
respect to the matter discussed
in Note 2 as to which the date
is April 30, 1999).
<PAGE> 38
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
February 28, November 30,
1998 1998
---- ----
(unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,785 $ 5,320
Accounts receivable, net 32,120 56,557
Current income tax receivable 4,968 -
Prepaid expenses and other 8,279 16,278
------- ----------
Total current assets 51,152 78,155
Property and equipment, net 33,446 101,896
Intangible assets, net 234,558 801,351
Other assets, net 14,232 28,436
-------- ----------
Total assets $333,388 $1,009,838
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of other long-term liabilities 2,051 2,050
Accounts payable 13,140 10,556
Accrued salaries and commissions 2,893 6,018
Accrued interest 2,421 10,044
Deferred revenue 7,985 6,994
Current portion of TV program rights payable - 5,307
Income taxes payable - 17,480
Note payable-SF Acquisition - 25,000
Other 1,579 15,043
-------- ----------
Total current liabilities 30,069 98,492
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C>
CREDIT FACILITY 215,000 539,000
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 25,606
OTHER LONG-TERM LIABILITIES, NET OF
CURRENT PORTION 14,975 20,957
MINORITY INTEREST 1,875 -
DEFERRED INCOME TAXES 27,559 87,128
-------- ----------
Total liabilities 289,478 771,183
-------- ----------
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value;
authorized 34,000,000 shares; issued
and outstanding 8,430,660 shares at
February 28, 1998 and 13,105,944 shares
at November 30, 1998 84 131
Class B common stock, $.01 par value;
authorized 6,000,000 shares; issued
and outstanding 2,560,894 shares at
February 28, 1998 and 2,560,610 at
November 30, 1998 26 26
Additional paid-in capital 69,353 257,341
Accumulated deficit (25,553) (18,190)
Cumulative translation adjustments - (653)
-------- ----------
Total shareholders' equity 43,910 238,655
-------- ----------
Total liabilities and shareholders'
equity $333,388 $1,009,838
======== ==========
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
<PAGE> 40
EMMIS COMMUNICATIONS 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)
----------------------- -----------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUES $ 46,820 $ 84,338 127,082 205,059
LESS: AGENCY COMMISSIONS 7,011 12,699 18,935 30,927
---------- ---------- ---------- ----------
NET REVENUES 39,809 71,639 108,147 174,132
Operating expenses 22,208 40,300 59,143 100,510
Amortization of TV
program rights - 1,363 - 2,011
International business
development expenses 327 413 932 974
Corporate expenses 1,966 2,453 5,338 6,379
Depreciation and
amortization 1,902 8,683 5,407 18,595
Noncash compensation 1,120 342 3,532 2,378
Time brokerage fee 2,126 - 3,542 2,220
---------- ---------- ---------- ----------
OPERATING INCOME 10,160 18,085 30,253 41,065
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (3,337) (12,313) (10,356) (24,942)
Minority interest - - - 1,875
Other income (expense), net 116 1,190 322 2,313
---------- ---------- ---------- ----------
Total Other
Income (Expense) (3,221) (11,123) (10,034) (20,754)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 6,939 6,962 20,219 20,311
PROVISION FOR INCOME TAXES 2,860 3,950 8,100 11,350
NET INCOME BEFORE
EXTRAORDINARY ITEM 4,079 3,012 12,119 8,961
---------- ---------- ---------- ----------
EXTRAORDINARY ITEM, NET
OF TAX - - - 1,597
---------- ---------- ---------- ----------
NET INCOME $ 4,079 $ 3,012 $ 12,119 $ 7,364
========== ========== ========== ==========
Basic net income per
share $ .38 $ .19 $ 1.10 $ .52
========== ========== ========== ==========
Diluted net income per
share $ .36 $ .19 $ 1.06 $ .51
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic 10,867,289 15,654,123 11,034,856 14,046,628
Diluted 11,348,632 15,965,611 11,450,283 14,447,764
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
<PAGE> 41
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended November 30,
(Unaudited)
-------------------
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 12,119 $ 7,364
Adjustments to reconcile net income to net
cash provided by operating activities-
Extraordinary item - 1,597
Depreciation and amortization of
property and equipment 1,866 6,306
Amortization of debt issuance costs
and cost of interest rate cap agreements 1,920 910
Amortization of intangible assets 3,541 12,289
Amortization of TV program rights - 2,011
Deferred income taxes (1,250) 4,247
Noncash compensation 3,532 2,378
Other 894 (2,377)
(Increase) decrease in certain current
assets (net of dispositions and
acquisitions)-
Accounts receivable (16,362) (24,437)
Prepaid expenses and other 1,338 (4,131)
Increase (decrease) in certain current
liabilities (net of dispositions and
acquisitions)-
Accounts payable 1,566 (3,211)
Accrued salaries and commissions 2,051 2,810
Accrued interest 646 7,623
Deferred revenue 29 (991)
Other 2,602 6,796
Increase (decrease) in other assets, net (958) 3,836
Increase in other liabilities - 7,345
--------- --------
Net cash provided by operating
activities 13,534 30,365
--------- --------
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C>
INVESTING ACTIVITIES:
Purchases of property and equipment (6,492) (26,224)
Proceeds from sale of equipment - 607
Acquisition of WQCD-FM - (128,449)
Acquisition of SF Broadcasting - (287,293)
Acquisition of Wabash Valley Broadcasting - (88,905)
Acquisition of WALC-FM, WKBQ-AM, and WKKX-FM (36,964) -
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 (61,480) (530,264)
--------- --------
FINANCING ACTIVITIES:
Payments on long-term debt (11,224) (410,157)
Proceeds from long-term debt 79,200 733,500
Proceeds (purchase) of Class A Common Stock,
net of transaction costs (7,000) 182,640
Purchase of interest rate cap agreements and
other debt related costs (4,230) (8,912)
Proceeds from exercise of stock options and
related income tax benefits 2,302 3,016
--------- --------
Net cash provided by
financing activities 59,048 500,087
--------- --------
EFFECT OF EXCHANGE RATES ON CASH - (653)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,102 (465)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,191 5,785
--------- --------
End of period $ 12,293 $ 5,320
========= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 7,789 $ 15,301
Income taxes 6,575 $ 1,460
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C>
ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM:
Fair value of assets acquired $ 44,642
Cash paid 43,642
---------
Liabilities assumed $ 1,000
=========
ACQUISITION OF WQCD-FM:
Fair value of assets acquired $203,813
Cash paid 128,449
--------
Liabilities assumed $ 75,364
========
ACQUISITION OF SF BROADCASTING:
Fair value of assets acquired $342,809
Cash paid 287,293
Note payable 25,000
--------
Liabilities assumed $ 30,516
========
ACQUISITION OF WABASH VALLEY BROADCASTING:
Fair value of assets acquired $100,276
Cash paid 88,905
--------
Liabilites assumed $ 11,371
========
</TABLE>
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
<PAGE> 44
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
(Unaudited)
NOVEMBER 30, 1998
---------------
NOTE 1. GENERAL
--------
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated interim financial statements included
herein have been prepared, without audit, by Emmis Communications Corporation,
and Subsidiaries ("Emmis" or the "Company"). 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, 1998.
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, 1998 and the results of its operations for the three and
nine months ended November 30, 1998 and 1997 and its cash flows for the nine
months ended November 30, 1998 and 1997.
NOTE 2. RESTATEMENT OF FINANCIAL RESULTS
--------------------------------
The company has restated its financial results for the year ended February
28, 1998 and its results for the three-months ended May 31, 1998 and August 31,
1998, and the six-months ended August 31, 1998 and the nine-months ended
November 30, 1998.
The restatement relates to a change in accounting for certain stock options
that ultimately were not granted to the CEO under his employment contract for
fiscal 1998. At February 28, 1998, Emmis had accrued for the anticipated grant
of these options. In fiscal 1999, Emmis had reversed the accrual since they
were ultimately not granted. Under generally accepted accounting principles,
such options should not be recorded until granted by the Board of Directors.
For the year ended February 28, 1998, the adjustment decreased non-cash
compensations expense and additional paid in capital by $3.4 million and
increased net income and retained earnings by $2.1 million. In fiscal 1999, the
restatement adjustment increased non-cash compensation expense by $0.5 million
and $2.9 million in the first and second quarters of fiscal 1999, respectively,
and decreased net income by $0.3 million and $1.8 million for the first and
second quarters of fiscal 1999 respectively. The restatement adjustment
increased non-cash compensation expense by $3.4 million and decreased net income
by $2.1 million for the six months ended August 31, 1998 and the nine months
ended November 30, 1998.
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------
On June 5, 1998, the Company completed its acquisition of radio station
WQCD-FM in New York City (the "WQCD Acquisition") for a cash purchase price of
$141 million (including transaction costs) less approximately $13 million for
cash purchase price adjustments relating to taxes. The total purchase price plus
$20,042 of net current tax liabilities and $55,322 of deferred tax liabilities
assumed, were allocated to property and equipment, broadcast license and
goodwill based upon a preliminary appraisal. Broadcast license and goodwill are
included in intangible assets in the accompanying balance sheet. The Company
financed the acquisition through additional bank borrowings under its Credit
Facility.
Effective July 1, 1997 through the date of closing, the Company operated
WQCD-FM under a time brokerage agreement.
In June 1998, Emmis completed the sale of 4.6 million shares of its Class A
Common Stock at $42.00 per share resulting in total proceeds of $193 million
(the "Offering"). Net proceeds of $182.6 million were used to repay outstanding
obligations under the Credit Facility.
On July 16, 1998, the Company entered into an amended and restated Credit
Facility (the "Credit Facility"). See Note 6.
On July 16, 1998, the Company completed its acquisition of substantially
all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations,
Inc. and Subsidiaries (collectively the "SF Acquisition"), the seller, for a
cash purchase price of $287 million (including transaction costs), a $25 million
promissory note due to the former owner, plus assumed program rights payable and
other liabilities of approximately $30.5 million. The Company financed the
acquisition through a $25 million advance payment, the $25 million promissory
note (due July 15, 1999, bearing interest at 8%) and borrowings under the Credit
Facility. Pledged as collateral for the promissory note is approximately $25
million of the Company's Class A Common Stock. At the option of the Company, the
promissory note may be paid in cash or an equivalent amount of the Company's
Class A Common Stock. The Company intends to pay this obligation in cash. The
total purchase price was allocated to property and equipment, television program
rights and broadcast licenses based on a preliminary appraisal. Broadcast
licenses are included in intangible assets in the accompanying balance sheet and
are being amortized over 40 years. Television program rights are included in
prepaid expenses and other, and other assets, net in the accompanying condensed
consolidated balance sheets. Amortization of television program rights is
computed under either straight-line over the contract period or run value, which
ever yields the greater amortization for each program on a monthly basis. The SF
Acquisition consists of four Fox network affiliated television stations: WLUK-TV
in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile,
Alabama, and KHON-TV in Honolulu, Hawaii (including
<PAGE> 45
McHale Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV,
Hilo, Hawaii).
Effective October 1, 1998, the Company completed its acquisition of
substantially all of the assets of Wabash Valley Broadcasting Corporation
(collectively the "Wabash Acquisition"), the seller, for a cash purchase price
of $88.9 million (including transaction costs), plus assumed program rights
payable and other liabilities of approximately $11.4 million. The Company
financed the acquisition through a $9 million advance payment and borrowings
under the Credit Facility. The total purchase price was allocated to property
and equipment, television program rights and broadcast licenses based on a
preliminary appraisal. Broadcast licenses are included in intangible assets in
the accompanying balance sheet and are being amortized over 40 years. Television
program rights are included in prepaid expenses and other, and other assets, net
in the accompanying condensed consolidated balance sheets. Amortization of
television program rights is computed under either straight-line over the
contract period or run value, which ever yields the greater amortization for
each program on a monthly basis. The Wabash Acquisition consists of WFTX-TV , a
Fox network affiliated television station in Ft. Myers, Florida, WTHI-TV a CBS
network affiliated television station, WTHI-FM and AM and WWVR-FM, radio
stations located in the Terre Haute, Indiana area.
The unaudited pro forma condensed consolidated statement of operations of
the Company for the three months ended November 30, 1997, reflects adjustments
to the condensed consolidated historical operating data of the Company to give
effect to (i) the acquisitions of WTLC-FM and AM, and Texas Monthly all of which
occurred during the year ended February 28, 1998, (ii) the WQCD Acquisition,
(iii) the Offering and Credit Facility, (iv) the SF Acquisition, and (v) the
Wabash Acquisition, as if such transactions had occurred as of September 1,
1997. The unaudited pro forma condensed consolidated statement of operations of
the Company for the nine months ended November 30, 1997, reflects adjustments to
the condensed consolidated historical operating data of the Company to give
effect to (i) the acquisitions of WALC-FM, WKKX-FM, WKBQ-AM, WTLC-FM and AM, and
Texas Monthly and the disposition of WKBQ-AM, all of which occurred during the
year ended February 28, 1998, (ii) the WQCD Acquisition, (iii) the Offering and
Credit Facility, (iv) the SF Acquisition, and (v) the Wabash Acquisition, as if
such transactions had occurred as of March 1, 1997. The unaudited pro forma
condensed consolidated statement of operations of the Company for the three
months ended November 30, 1998 reflects adjustments to the condensed
consolidated historical operating data of the Company to give effect to the
Wabash Acquisition, as if such transaction had occurred as of September 1, 1998.
The unaudited pro forma condensed consolidated statement of operations of the
Company for the nine months ended November 30, 1998 reflects adjustments to the
condensed consolidated historical operating data of the Company to give effect
to (i) the Offering and Credit Facility, (ii) the WQCD Acquisition, (iii) the SF
Acquisition, and (iv) the Wabash Acquisition, as if such transactions had
occurred as of March 1, 1998.
Preparation of the pro forma condensed consolidated financial information
was based on assumptions deemed appropriate by management. The assumptions give
effect to the acquisitions under the purchase method of accounting in accordance
with generally accepted accounting principles. The pro forma condensed
consolidated financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the financing
activities, the acquisitions and disposition had been consummated at the
beginning of the periods presented, nor does it purport to represent the future
financial position and results of operations for future periods.
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,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
Pro forma Pro forma Pro forma Pro forma
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 66,009 $ 73,301 $ 188,133 $ 205,419
Operating expenses 39,619 41,316 113,627 120,648
Amortization of TV program rights 1,386 1,570 3,908 4,662
International business development
expenses 327 413 932 974
Corporate expenses 2,216 2,453 6,088 6,779
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C> <C> <C>
Depreciation and amortization 7,963 8,964 23,879 26,360
Noncash compensation 1,120 342 3,532 2,378
---------- ---------- ---------- ----------
Operating income 13,378 18,243 36,167 43,618
Interest expense (11,633) (11,407) (34,898) (35,219)
Other income (expense), net 72 1,190 363 4,013
---------- ---------- ---------- ----------
Income before income taxes 1,817 8,026 1,632 12,412
Provision for income taxes 945 4,174 849 6,922
---------- ---------- ---------- ----------
Net income $ 872 $ 3,852 $ 783 $ 5,490
========== ========== ========== ==========
Basic net income per share $ .06 $ .25 $ .05 $ .35
========== ========== ========== ==========
Diluted net income per share $ .05 $ .24 $ .05 $ .34
========== ========== ========== ==========
Weighted average shares outstanding
Basic 15,467,289 15,654,123 15,634,856 15,635,719
Diluted 15,948,632 15,965,611 16,050,283 16,036,855
</TABLE>
NOTE 4. BASIC AND DILUTED NET INCOME PER SHARE
---------------------------------------
Basic net income per share 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 net income per share 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.
NOTE 5. ACCOUNTING PRONOUNCEMENTS
-------------------------
Effective March 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income is defined as net
income and all nonowner changes in shareholders' equity. Comprehensive income
was comprised of the following for the three and nine month periods ended
November 30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 4,079 $ 3,012 $12,119 $ 7,364
Translation adjustment - (7) - (653)
------- ------- ------- -------
Total comprehensive income $ 4,079 $ 3,005 $12,119 $ 6,711
======= ======= ======= =======
</TABLE>
NOTE 6. INCOME TAXES
------------
Under Statement of Financial Accounting Standards No. 109, the Company
recognizes income taxes under the liability method. 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.
Income tax expense is generally reported during interim periods on the
basis of the estimated annual effective tax rate for the taxable jurisdictions
in which the Company operates.
NOTE 7. OTHER SIGNIFICANT EVENTS
------------------------
A. Amended and Restated Credit Facility
------------------------------------
On July 16, 1998, the Company entered into an amended and restated Credit
Facility. As a result of the early payoff of the refinanced debt, the Company
recorded an extraordinary loss of approximately $ 1.6 million, net of taxes,
during the nine months
<PAGE> 47
ended November 30, 1998 related to unamortized deferred debt issuance costs. The
amended and restated Credit Facility matures on August 31, 2006, except for Term
Note B which matures on February 28, 2007, and consists of the following:
Credit Facility Amount
- --------------- ------
Revolving Credit Facility $150,000,000
Term Note A $250,000,000
Revolving Credit Facility/Term Note $100,000,000
Term Note B $250,000,000
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.
As of November 30, 1998, the Company had amounts outstanding under the
Credit Facility of $250 million under Term Note A, $250 million under Term Note
B and $39 million under the Revolving Credit Facility. 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.
The Credit Facility requires the Company to maintain interest rate protection
agreements through July 2001. The notional amount required varies based upon
Emmis' ratio of adjusted debt to EBITDA, as defined in the Credit Facility. The
notional amount of the agreements outstanding as of November 30, 1998 were $274
million. The agreements, which expire at various dates ranging from April 2000
to February 2001, establish ceilings of 6.5% to 8.0% on the LIBOR interest rate.
The cost of these agreements are being amortized over the lives of the
agreements and the amortization is included as a component of interest expense.
<PAGE> 48
The aggregate amount of the Revolving Credit Facility reduces quarterly
beginning August 31, 2001. Amortization of the outstanding principal amount
under the Term Notes and Revolving Credit Facility/Term Note is payable in
quarterly installments beginning August 31, 2001. The annual amortization and
reduction schedules as of November 30, 1998, assuming the entire $750 million
Credit Facility is outstanding prior to the scheduled amortization payments are
as follows:
SCHEDULED AMORTIZATION/REDUCTION OF
----------------------------------
CREDIT FACILITY AVAILABILITY
----------------------------
(In thousands)
<TABLE>
<CAPTION>
Revolving
Year Revolving Credit
Ended Credit Facility/
February Facility Term Note A Term Note Term Note B
28(29) Amortization Amortization Amortization Amortization Total
- -------- ------------- ------------ ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
2002 $ 15,000 $ 25,000 $ 10,000 $ 1,875 $ 51,875
2003 22,500 37,500 15,000 2,500 77,500
2004 30,000 50,000 20,000 2,500 102,500
2005 33,750 56,250 22,500 2,500 115,000
2006 26,250 43,750 17,500 2,500 90,000
2007 22,500 37,500 15,000 238,125 313,125
-------- -------- -------- -------- --------
Total $150,000 $250,000 $100,000 $250,000 $750,000
======== ======== ======== ======== ========
</TABLE>
Commencing with the fiscal year ending February 28, 2002, 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 4.5 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), and $5,000,000. 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.
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
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.
<PAGE> 49
Note 8. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through subsidiaries.
The Senior Subordinated Notes are fully and unconditionally guaranteed, jointly
and severally, by certain direct and indirect subsidiaries (the Subsidiary
Guarantors). One of the Company's subsidiaries does not guarantee the
Senior Subordinated Notes (the Non-Guarantor Subsidiary). The claims of
creditors of the Non-Guarantor Subsidiary have priority over the rights of
the Company to receive dividends or distributions from such subsidiary.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiary at and for
the nine months ended November 30, 1998 and 1997.
The equity method has been used by the Company with respect to investments in
subsidiaries. Separate financial statements for Subsidiary Guarantors are not
presented based on management's determination that they do not provide
additional information that is material to investors.
<PAGE> 50
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenues $ 1,033 $ 107,114 $ - $ 108,147
Operating expenses 872 58,271 - 59,143
International business development expenses - 932 - 932
Corporate expenses 5,338 - - 5,338
Depreciation and amortization 119 5,288 - 5,407
Noncash compensation 3,034 498 - 3,532
Time brokerage agreement fee - 3,542 - 3,542
----------- ---------- ------------ -----------
Operating Income (8,330) 38,583 - 30,253
----------- ---------- ------------ -----------
Other Income (expense)
Interest expense (10,351) (5) - (10,356)
Minority interest - - - -
Other income (expense), net 310 12 - 322
----------- ---------- ------------ -----------
Total other income (expense) (10,041) 7 - (10,034)
----------- ---------- ------------ -----------
Income before income taxes (18,371) 38,590 - 20,219
Provision (benefit) for income taxes (7,348) 15,448 - 8,100
----------- ---------- ------------ -----------
(11,023) 23,142 - 12,119
Equity in earnings of subsidiaries 23,142 - (23,142) -
----------- ---------- ------------ -----------
Net Income (loss) $ 12,119 $ 23,142 $ (23,142) $ 12,119
=========== ========== ============ ===========
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997
(IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY
ONLY GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 12,119 $ 23,142 $ (23,142) $ 12,119
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization of property and equipment 107 1,759 - 1,866
Amortization of debt issuance costs and cost of interest rate
cap agreements 1,920 - - 1,920
Amortization of intangible assets 10 3,531 - 3,541
Provision for bad debts - 894 - 894
Equity in earnings of subsidiaries (23,142) - 23,142 -
Provision (benefit) for deferred income taxes 340 (1,590) - (1,250)
Non cash compensation 3,034 498 - 3,532
Intercompany (53,524) 53,524 - -
(Increase) decrease in certain current assets (net of
dispositions and acquisitions) --
Accounts receivable 1,162 (17,524) - (16,362)
Prepaid expenses and other current assets (1,003) 2,341 - 1,338
Increase (decrease) in certain current liabilities (net of
dispositions and acquisitions) --
Accounts payable and book cash overdraft (1,716) 3,282 - 1,566
Accrued salaries and commissions 708 1,343 - 2,051
Accrued interest 646 - - 646
Deferred revenue - 29 - 29
Other current liabilities 287 2,315 - 2,602
(Increase) decrease in deposits and other assets 5,573 (6,531) - (958)
Increase (decrease) in other noncurrent liabilities (37) 37 - -
------------ --------- ---------- ---------
Net cash provided by (used in) operating activities (53,516) 67,050 - 13,534
------------ --------- ---------- ---------
Investing Activities:
Acquisition of WALC-FM, WKBQ-AM and WKKX-FM - (36,964) - (36,964)
Acquisition of WTLC-FM and WTLC-AM - (15,336) - (15,336)
Acquisition of Cincinnati Magazine - (1,979) - (1,979)
Acquisition of Network Indiana and AgriAmerica - (709) - (709)
Purchases of property and equipment (4,487) (2,005) - (6,492)
------------- --------- ---------- ---------
Net cash used in investing activities (4,487) (56,993) - (61,480)
------------ --------- ---------- ---------
Financing Activities:
Proceeds of long-term debt 79,200 - - 79,200
Payments on long-term debt (11,224) - - (11,224)
Purchase of the Company's Class A Common stock (7,000) - - (7,000)
Purchase of interest rate cap agreements and other debt related
costs (4,230) - - (4,230)
Proceeds from exercise of stock options and income tax benefits
of certain equity transactions 2,302 - - 2,302
------------ --------- ---------- ---------
Net cash provided by financing activities 59,048 - - 59,048
------------ --------- ---------- ---------
Increase in Cash and Cash Equivalents 1,045 10,057 - 11,102
Cash and Cash Equivalents
Beginning of year 119 1,072 - 1,191
------------ --------- ---------- ---------
End of year $ 1,164 $ 11,129 $ - $ 12,293
============ ========= ========== =========
</TABLE>
<PAGE> 52
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 30, 1998
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY NON-GUARANTOR
ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 2,757 $ 581 $ 1,982 $ -- $ 5,320
Accounts receivable, net -- 55,589 968 -- 56,557
Prepaid expenses 5,480 10,786 12 -- 16,278
Income tax refunds receivable -- -- --
Other -- -- -- --
------------ --------- ---------- --------- ----------
Total current assets 8,237 66,956 2,962 -- 78,155
--
Property and equipment, net 32,999 67,934 963 -- 101,896
Intangible assets, net 153 783,531 17,667 -- 801,351
Investment in affiliates 866,314 -- (866,314) --
Other assets, net 21,318 11,952 -- (4,834) 28,436
-- -- --
-- -- --
------------ --------- ---------- --------- ----------
Total assets $ 929,021 $ 930,373 $ 21,592 $(871,148) $1,009,838
============ ========= ========== ========= ==========
Current Liabilities
Current maturities of long-term debt $ 34 $ 2,016 $ $ -- $ 2,050
Accounts payable 10,734 (1,699) 2,975 (1,454) 10,556
Accrued salaries and commissions 414 5,604 -- 6,018
Accrued interest 10,043 1 -- 10,044
Deferred revenue -- 6,994 -- 6,994
Current portion of TV program rights -- 5,307 -- 5,307
Income taxes payable 17,248 232 -- 17,480
Note payable -- SF acquisition 25,000 -- -- 25,000
Intercompany -- -- --
Other current liabilities 123 14,920 -- 15,043
------------ --------- ---------- --------- ----------
Total current liabilities 63,596 33,375 2,975 (1,454) 98,492
--
Credit facility 539,000 -- -- 539,000
TV program rights payable, net of current
portion -- 25,606 -- 25,606
Other long-term liabilities, net of current
portion 47 3,916 20,374 (3,380) 20,957
Deferred income taxes 87,070 58 -- 87,128
------------ --------- ---------- --------- ----------
Total Liabilities 689,713 62,955 23,349 (4,834) 771,183
------------ --------- ---------- --------- ----------
Shareholders' Equity
Class A common stock 131 -- -- 131
Class B common stock 26 -- -- 26
Cumulative translation adjustments -- -- (653) -- (653)
Additional paid-in capital 257,341 -- 4,393 (4,393) 257,341
Subsidiary investment -- 616,486 (616,486) --
Accumulated earnings (deficit) (18,190) 250,932 (5,497) (245,435) (18,190)
------------ --------- ---------- --------- ----------
Total shareholders' equity 239,308 867,418 (1,757) (866,314) 238,655
--
------------ --------- ---------- --------- ----------
Total liabilities and shareholders'
equity $ 929,021 $ 930,373 $ 21,592 $(871,148) $1,009,838
============ ========= ========== ========= ==========
</TABLE>
<PAGE> 53
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT COMPANY SUBSIDIARY NON-GUARANTOR
ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,069 $ 171,484 $ 1,579 $ - $ 174,132
Operating expenses 497 97,162 2,851 - 100,510
International business development expenses - 974 - - 974
Corporate expenses 6,379 - - - 6,379
Amortization of television program rights - 2,011 - - 2,011
Depreciation and amortization 117 16,434 2,044 - 18,595
Noncash compensation 1,876 502 - - 2,378
Time brokerage agreement fee - 2,220 - - 2,220
------------ ---------- ------------ ----------- -----------
Operating Income (7,800) 52,181 (3,316) - 41,065
------------ ---------- ------------ ----------- -----------
Other Income (Expense) -
Interest expense (23,120) (486) (2,476) 1,140 (24,942)
Minority interest - - - 1,875 1,875
Other income (expense), net 19,395 (16,196) 254 (1,140) 2,313
------------ ---------- ------------ ----------- -----------
Total other income (expense) (3,725) (16,682) (2,222) 1,875 (20,754)
------------ ---------- ------------ ----------- -----------
Income before income taxes (11,525) 35,499 (5,538) 1,875 20,311
Provision (benefit) for income taxes (4,610) 15,960 - - 11,350
------------ ---------- ------------ ----------- -----------
(6,915) 19,539 (5,538) 1,875 8,961
Extraordinary item, net of tax (1,597) - - - (1,597)
Equity in earnings of subsidiaries 15,876 - - (15,876) -
------------ ---------- ------------- ----------- -----------
Net Income (loss) $ 7,364 $ 19,539 $ (5,538) $ (14,001) $ 7,364
============ ========== ============ =========== ===========
</TABLE>
<PAGE> 54
EMMIS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE-MONTHS ENDED NOVEMBER 30, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PARENT NON-
COMPANY SUBSIDIARY GUARANTOR
ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 7,364 $ 19,539 $ (5,538) $ (14,001) $ 7,364
Adjustments to reconcile net income to net cash provided
by operating activities --
Extraordinary item 1,597 -- -- -- 1,597
Depreciation and amortization of property and equipment 107 6,199 -- -- 6,306
Amortization of debt issuance costs and cost of interest
rate cap agreements 910 -- -- -- 910
Amortization of intangible assets 10 10,025 2,254 -- 12,289
Provision (benefit) for deferred income taxes 4,247 -- -- -- 4,247
Amortization of television program rights -- 2,011 -- -- 2,011
Non cash compensation 1,876 502 -- -- 2,378
Equity in earnings of subsidiaries (15,876) -- -- 15,876 --
Intercompany (511,498) 513,373 -- (1,875) --
Other (543) -- (1,834) -- (2,377)
(Increase) decrease in certain current assets (net of
dispositions and acquisitions) --
Accounts receivable 345 (25,243) 461 -- (24,437)
Prepaid expenses and other current assets (4,485) 366 (12) -- (4,131)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions) --
Accounts payable and book cash overdraft 7,353 (11,495) 2,385 (1,454) (3,211)
Accrued salaries and commissions (612) 3,422 -- -- 2,810
Accrued interest 7,622 1 -- -- 7,623
Deferred revenue -- (991) -- -- (991)
Other current liabilities 11,437 (4,641) -- -- 6,796
(Increase) decrease in deposits and other assets 1,783 599 -- 1,454 3,836
Increase (decrease) in other noncurrent liabilities 10,224 (2,879) -- -- 7,345
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities (478,139) 510,788 (2,284) -- 30,365
--------- --------- --------- --------- ---------
Investing Activities:
Acquisition of WQCD-FM -- (128,449) -- -- (128,449)
Acquisition of SF Broadcasting -- (287,293) -- -- (287,293)
Acquisition of Wabash Valley -- (88,905) -- -- (88,905)
Purchases of property and equipment (19,814) (6,410) -- -- (26,224)
Proceeds from sale of equipment -- 607 -- -- 607
--------- --------- --------- --------- ---------
Net cash used in investing activities (19,814) (510,450) -- -- (530,264)
--------- --------- --------- --------- ---------
Financing Activities:
Payments on long-term debt (410,157) -- -- -- (410,157)
Proceeds of long-term debt 733,500 -- -- -- 733,500
Equiry offering 182,640 -- -- -- 182,640
Purchase of interest rate cap agreements and
other debt related costs (8,912) -- -- -- (8,912)
Proceeds from exercise of stock options and
income tax benefits 3,016 -- -- -- 3,016
--------- --------- --------- --------- ---------
Net cash provided by financing activities 500,087 -- -- -- 500,087
--------- --------- --------- --------- ---------
Effect of exchange rates on cash -- -- (653) -- (653)
Increase(Decrease) in Cash and Cash Equivalents 2,134 338 (2,937) -- (465)
Cash and Cash Equivalents
Beginning of year 623 243 4,919 -- 5,785
--------- --------- --------- --------- ---------
End of year 2,757 581 1,982 -- 5,320
========= ========= ========= ========= =========
</TABLE>
<PAGE> 55
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 hereunto duly authorized.
EMMIS COMMUNICATIONS CORPORATION
Date: May 5, 1999 By: /s/ Walter Z. Berger
----------------------------
Walter Z. Berger
Vice President, Chief
Financial Officer and
Treasurer
