SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission file number: 0-23264
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1542018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE
SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Zip Code)
(317) 266-0100
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No____________
------------
The number of shares outstanding of each of the Registrant's classes of
common stock, as of October 10, 2000, was:
41,702,821 Shares of Class A Common Stock, $.01 Par Value
5,230,396 Shares of Class B Common Stock, $.01 Par Value
1
<PAGE>
INDEX
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS......................................3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................4
Condensed Consolidated Statements of
Operations for the three and six months
ended August 31, 1999 and 2000................................4
Condensed Consolidated Balance Sheets
as of February 29, 2000 and August 31, 2000...................5
Condensed Consolidated Statements of Cash
Flows for the six months ended
August 31, 1999 and 2000......................................7
Notes to Condensed Consolidated
Financial Statements..........................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations..........................................25
Item 3. Quantitative and Qualitative Disclosures
about Market Risk......................................32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................32
Item 6. Exhibits and Reports on Form 8-K...............................33
Signatures..............................................................34
2
<PAGE>
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 August 31, 2000, and the related condensed consolidated statements of
operations for the three-month and six-month periods ended August 31, 1999 and
2000 and the condensed consolidated statements of cash flows for the six-month
periods ended August 31, 1999 and 2000. 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 auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of Emmis
Communications Corporation and Subsidiaries as of February 29, 2000 (not
presented separately herein), and, in our report dated May 7, 2000, we expressed
an unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of February
29, 2000 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,
October 6, 2000.
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended August 31, Ended August 31,
1999 2000 1999 2000
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
GROSS REVENUES $ 95,233 $ 127,697 $ 180,154 $ 245,944
LESS: AGENCY COMMISSIONS 13,704 18,628 26,273 36,356
--------------- ------------ ------------ -------------
NET REVENUES 81,529 109,069 153,881 209,588
Operating expenses 47,659 61,714 93,122 123,570
International business
development expenses 367 427 747 831
Corporate expenses 3,478 3,967 6,684 7,687
Depreciation and amortization 10,336 14,721 20,045 28,993
Time brokerage agreement fees - 1,114 - 1,114
Non-cash compensation 1,648 1,903 2,293 3,567
--------------- ------------ ------------ -------------
OPERATING INCOME 18,041 25,223 30,990 43,826
--------------- ------------ ------------ -------------
OTHER INCOME (EXPENSE):
Interest expense (13,936) (9,180) (27,165) (17,592)
Minority interest 466 69 1,525 593
Other income (expense), net (55) 14,086 (293) 13,872
--------------- ------------ ------------ -------------
Total other income (expense) (13,525) 4,975 (25,933) (3,127)
--------------- ------------ ------------ -------------
INCOME BEFORE INCOME TAXES 4,516 30,198 5,057 40,699
PROVISION FOR INCOME TAXES 3,300 13,560 3,600 18,150
--------------- ------------ ------------ -------------
NET INCOME 1,216 16,638 1,457 22,549
--------------- ------------ ------------ -------------
PREFERRED STOCK DIVIDENDS - 2,246 - 4,492
--------------- ------------ ------------ -------------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 1,216 $ 14,392 $ 1,457 $ 18,057
=============== ============ ============ =============
Basic net income per common share $ .04 $ .31 $ .05 $ .39
=============== ============ ============ =============
Diluted net income per common share $ .04 $ .30 $ .04 $ .38
=============== ============ ============ =============
Weighted average common shares outstanding:
Basic 31,859 46,911 31,713 46,615
Diluted 32,876 48,172 32,612 48,039
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
<PAGE>
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
February 29, August 31,
2000 2000
----------- ----------------
(Note 1) (Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 17,370 $ 10,755
Accounts receivable, net 66,471 86,810
Prepaid expenses 10,053 14,982
Other 18,822 17,292
----------------- -----------------
Total current assets 112,716 129,839
Property and equipment, net 128,904 139,955
Intangible assets, net 1,033,970 1,150,836
Other assets, net 51,716 92,573
----------------- -----------------
Total assets $ 1,327,306 $ 1,513,203
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,957 $ 27,864
Current portion of other
long-term debt 5,379 5,509
Current portion of TV program
rights payable 16,816 16,636
Accrued salaries and commissions 8,162 8,051
Accrued interest 11,077 11,505
Deferred revenue 15,912 18,486
Income taxes payable - 417
Other 4,139 4,935
---------- ------------
Total current liabilities 84,442 93,403
Credit facility and senior
subordinated notes 300,000 442,000
TV program rights payable, net of
current portion 58,585 50,158
Other long-term debt, net of
current portion 14,607 14,377
Other noncurrent liabilities 5,408 4,906
Deferred income taxes 87,139 91,550
Minority interest 758 487
----------------- -----------------
Total liabilities 550,939 696,881
----------------- -----------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
February 29, August 31,
2000 2000
----------- -------------
(Note 1) (Unaudited)
COMMITMENTS AND CONTINGENCIES
<S> <C> <C>
SHAREHOLDERS' EQUITY:
Series A cumulative convertible
preferred stock, $.01 par value; authorized 10,000,000
shares; 2,875,000 shares issued and outstanding at
February 29, 2000 and August 31, 2000 29 29
Class A common stock, $.01
par value; authorized 170,000,000
shares; issued and outstanding
41,232,811 shares at
February 29, 2000 and 41,683,855
shares at August 31, 2000 412 417
Class B common stock, $.01
par value; authorized 30,000,000
shares; issued and outstanding
4,738,582 shares at
February 29, 2000 and 5,230,396
shares at August 31, 2000 47 52
Additional paid-in capital 804,820 825,959
Accumulated deficit (27,482) (9,425)
Accumulated other comprehensive loss (1,459) (710)
------------------- -----------------
Total shareholders' equity 776,367 816,322
------------------- -----------------
Total liabilities and
shareholders' equity $ 1,327,306 $ 1,513,203
=================== =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
6
<PAGE>
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended August 31,
1999 2000
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,457 $ 22,549
Adjustments to reconcile net income
to net cash provided by
operating activities -
Depreciation and amortization 23,730 35,498
Provision for bad debts 955 2,398
Provision for deferred income taxes 5,570 3,197
Non-cash compensation 2,293 3,567
Other (876) 866
Changes in assets and liabilities -
Accounts receivable (10,247) (20,666)
Prepaid expenses and other current assets (9,780) (2,281)
Other assets (141) (1,262)
Accounts payable and accrued liabilities 15,331 4,794
Deferred revenue 3,507 1,637
Other liabilities (25,667) 1,235
--------------- --------------
Net cash provided by
operating activities 6,132 51,532
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,831) (10,773)
Cash paid for acquisitions (18,454) (144,283)
Deposits on acquisitions and other (17,500) (47,000)
--------------- --------------
Net cash used in investing activities (56,785) (202,056)
--------------- --------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended August 31,
1999 2000
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on long-term debt (48,500) (93,388)
Proceeds from long-term debt 90,500 235,388
Proceeds from exercise of stock options 5,597 6,401
Preferred stock dividends paid - (4,492)
---------------- ---------------
Net cash provided by financing activities 47,597 143,909
---------------- ---------------
DECREASE IN CASH AND CASH
EQUIVALENTS (3,056) (6,615)
CASH AND CASH EQUIVALENTS:
Beginning of period 6,117 17,370
---------------- ---------------
End of period $ 3,061 $ 10,755
================ ===============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 12,642 $ 14,411
Income taxes 5,181 251
ACQUISITION OF COUNTRY SAMPLER:
Fair value of assets acquired $ 25,608 $ -
Cash paid 18,454 -
--------------- ---------------
Liabilities recorded $ 7,154 $ -
================ ===============
ACQUISITION OF LOS ANGELES MAGAZINE:
Fair value of assets acquired $ - $ 39,456
Cash paid - 36,763
---------------- ---------------
Liabilities recorded $ - $ 2,693
================ ================
ACQUISITION OF KKFR and KXPK:
Fair value of assets acquired $ - $ 108,728
Cash paid - 107,520
---------------- ---------------
Liabilities recorded $ - $ 1,208
================ ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
8
<PAGE>
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
(Unaudited)
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 its subsidiaries (collectively, "Emmis" or the "Company"). As permitted
under the applicable rules and regulations of the Securities and Exchange
Commission, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States 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 filed on Form 10-K/A for the year ended February 29,
2000. On an interim basis, the Company defers major advertising campaigns for
which future benefits can be demonstrated. These costs are amortized over the
shorter of the estimated period benefited or the remainder of the fiscal year.
In the opinion of the registrant, the accompanying condensed
consolidated interim financial statements contain all material adjustments
(consisting only of normal recurring adjustments), necessary to present fairly
the consolidated financial position of Emmis at August 31, 2000 and the results
of its operations for the three and six months ended August 31, 1999 and 2000
and its cash flows for the six months ended August 31, 1999 and 2000.
The Company's results are subject to seasonal fluctuations. Therefore,
results shown on an interim basis are not necessarily indicative of results for
a full year.
Note 2. Significant Events
On March 3, 2000, Emmis acquired all of the outstanding capital stock
of Los Angeles Magazines Holding Company, Inc. for approximately $36.8 million
in cash plus liabilities recorded of $2.7 million. Los Angeles Magazine Holding
Company, Inc., through a wholly-owned subsidiary, owns and operates Los Angeles,
a city magazine. The acquisition was accounted for as a purchase and was
financed through additional borrowings under Emmis' credit facility. The excess
of the purchase price over the estimated fair value of identifiable assets was
$35.9 million, which is included in intangible assets in the accompanying
condensed consolidated balance sheet and is being amortized over 15 years.
9
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In May, 2000, Emmis made an offer to purchase the stock of a company
that owns and operates WALR-FM in Atlanta, Georgia. Because an affiliate of Cox
Radio, Inc. held a right of first refusal to purchase WALR-FM, Emmis' offer was
made on the condition that Emmis would receive a $17.0 million break-up fee if
WALR-FM was sold pursuant to the right of first refusal. In June, 2000, the Cox
affiliate submitted an offer to purchase WALR-FM under the right of first
refusal and an application to transfer the station's FCC licenses was filed with
the FCC. Emmis received the break-up fee upon the closing of the sale of WALR-FM
under the right of first refusal on August 31, 2000.
On June 5, 2000, Emmis entered into an option agreement to acquire the
assets of radio stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona from
Hearst-Argyle Television, Inc. ("Hearst") for $160.0 million in cash. Under the
terms of the option agreement, Hearst has up to three years to identify a
suitable television property, which Emmis will then purchase and immediately
exchange with Hearst for the radio stations. During this three year period,
Emmis will program and sell advertising time on the radio stations under a time
brokerage agreement. If Hearst is unable to locate a suitable television
property by the end of the three years, Emmis will have the option to purchase
the radio stations for $160.0 million. To the extent that the identified station
is acquired for a price in excess of our option price, Hearst will provide the
necessary funds to complete the transaction. Recently, Hearst announced that it
had selected WMUR-TV in Manchester, New Hampshire. Emmis began programming and
selling advertising on the radio stations on August 1, 2000. When Emmis signed
the option agreement, Emmis made an escrow payment of $20.0 million, paid for
with borrowings under its credit facility. This escrow payment will be used to
offset the option price. Management expects to complete the transaction by March
2001.
On August 24, 2000, Emmis acquired the assets of radio stations KKFR-FM
in Phoenix, Arizona and KXPK-FM in Denver, Colorado from AMFM, Inc. for a cash
purchase price of $108.0 million. Emmis financed the acquisition through
borrowings under its credit facility. The acquisition was accounted for as a
purchase.
Note 3. Pro Forma Acquisitions
Unaudited pro forma summary information is presented below for the
three and six months ended August 31, 1999 and 2000, assuming the acquisition of
(i) KKFR-FM and KXPK-FM in August 2000, (ii) Los Angeles Magazine in March 2000,
(iii) two radio stations in Argentina in November 1999, (iv) WKCF-TV in October
1999 and (v) Country Sampler Magazine in April 1999 and the operation of radio
stations KZLA-FM, KKLT-FM, KTAR-AM and KMVP-AM under time brokerage agreements
and the use of proceeds from the Company's common and preferred stock offerings
in October 1999 and the investment from an affiliate of Liberty Media
Corporation in November 1999 to reduce outstanding borrowings all had occurred
on the first day of the pro forma periods presented below.
10
<PAGE>
Preparation of the pro forma summary information was based upon
assumptions deemed appropriate by the Company's management. The pro forma
summary information presented below is not necessarily indicative of the results
that actually would have occurred if the transactions indicated above had been
consummated at the beginning of the periods presented, and is not intended to be
a projection of future results.
<TABLE>
<CAPTION>
Three Months Six Months
Ended August 31, Ended August 31,
(Pro Forma) (Pro Forma)
---------------------------------- -----------------------------
(Dollars in thousands, except per share data)
1999 2000 1999 2000
-------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 107,394 $ 116,981 $ 206,730 $ 229,556
============== ================ =========== ===========
Broadcast/publishing
cash flow $ 43,745 $ 49,766 $ 78,751 $ 92,162
============== ================ =========== ===========
Net income $ 4,784 $ 14,884 $ 6,172 $ 19,437
============== ================ =========== ===========
Net income available
to common
shareholders $ 2,538 $ 12,638 $ 1,680 $ 14,945
============== ================ =========== ===========
Basic net income
per common share $ 0.06 $ 0.27 $ 0.04 $ 0.32
============== ================ =========== ===========
Diluted net income
per common share $ 0.05 $ 0.26 $ 0.04 $ 0.31
============== ================ =========== ===========
Weighted average shares outstanding:
Basic 45,243 46,911 45,097 46,615
============== ================ =========== ===========
Diluted 46,260 48,172 45,996 48,039
============== ================ =========== ===========
</TABLE>
Note 4. Basic and Diluted Net Income Per Share
Basic net income per common share 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 common share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted. Potentially dilutive securities at
August 31, 1999 consisted solely of stock options. Potentially dilutive
securities at August 31, 2000 consisted of stock options and the 6.25% Series A
cumulative convertible preferred stock. The 6.25% Series A cumulative
convertible preferred stock is not included in the calculation of diluted net
income per common share for the three and six months ended August 31, 2000 as
the effect of its conversion to common stock would be antidilutive. Thus, for
the three and six months ended August 31, 1999 and 2000, the difference between
the weighted-average shares outstanding used to compute basic and diluted EPS is
attributable
11
<PAGE>
to dilution caused by stock options. Weighted average shares
excluded from the calculation of diluted net income per share that would result
from the conversion of the 6.25% Series A cumulative convertible preferred stock
amounted to approximately 3.7 million for the three and six months ended August
31, 2000.
Note 5. Comprehensive Income
Comprehensive income was comprised of the following for the three and
six months ended August 31, 1999 and 2000 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended August 31, Ended August 31,
1999 2000 1999 2000
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 1,216 $ 16,638 $ 1,457 $ 22,549
Translation adjustment 119 425 (856) 749
------------ ------------- ------------ ------------
Total comprehensive
income $ 1,335 $ 17,063 $ 601 $ 23,298
============ ============= ============ ============
</TABLE>
Note 6. Segment Information
The Company's operations are aligned into four business segments:
Radio, Television, Publishing and Interactive. These business segments are
consistent with the Company's management of these businesses and its financial
reporting structure. Corporate represents expense not allocated to reportable
segments.
The Company's segments operate primarily in the United States with one
radio station located in Hungary and two radio stations located in Argentina.
Total revenues of the radio station in Hungary during the three and six months
ended August 31, 1999 were $2.1 million and $3.2 million, respectively. Total
revenues of the radio station in Hungary for the three and six months ended
August 31, 2000 were $1.8 million and $3.2 million, respectively. Total assets
of this radio station as of August 31, 1999 and 2000 were $19.5 million and
$14.8 million, respectively. Emmis acquired a 75% interest in two radio stations
in Buenos Aires, Argentina in November 1999. Total revenues of these stations
for the three and six months ended August 31, 2000 were $1.8 million and $3.1
million, respectively. Total assets of these stations as of August 31, 2000
were $22.4 million.
The Company evaluates performance of its operating entities based on
broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes
that BCF and PCF are useful because they provide a meaningful comparison of
operating performance between companies in the industry and serve as an
indicator of the market value of a group of stations or publishing entities. BCF
and PCF are generally recognized by the broadcast and publishing industries as a
measure of performance and are used by
12
<PAGE>
analysts who report on the performance of broadcasting and publishing groups.
BCF and PCF do not take into account Emmis' debt service requirements and other
commitments and, accordingly, BCF and PCF are not necessarily indicative of
amounts that may be available for dividends, reinvestment in Emmis' business or
other discretionary uses.
BCF and PCF are not measures of liquidity or of performance in
accordance with accounting principles generally accepted in the Unites States,
and should be viewed as a supplement to, and not a substitute for, our results
of operations presented on the basis of accounting principles generally accepted
in the United States. Moreover, BCF and PCF are not standardized measures and
may be calculated in a number of ways. Emmis defines BCF and PCF as revenues net
of agency commissions and operating expenses. The primary source of broadcast
advertising revenues is the sale of advertising time to local and national
advertisers. Publishing entities derive revenue from subscriptions and sale of
print advertising inventory. Interactive derives revenue from the sale of
advertisements on the websites of the Company's stations. The most significant
broadcast operating expenses are employee salaries and commissions, costs
associated with programming, advertising and promotion, and station general and
administrative costs. Significant publishing operating expenses are employee
salaries and commissions, costs associated with producing a magazine, and
general and administrative costs. Significant interactive operating expenses are
employee salaries and general and administrative costs.
The accounting policies as described in the summary of significant
accounting policies included in the Company's Annual Report filed on Form 10-K/A
for the year ended February 29, 2000, are applied consistently across segments.
<TABLE>
<CAPTION>
Three Months Ended
August 31, 2000 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 62,654 $ 26,419 $ 19,963 $ 33 $ - $ 109,069
Operating expenses 28,933 15,444 17,189 148 - 61,714
----------- ----------- ---------- ---------- ----------- --------------
Broadcast/publishing
cash flow 33,721 10,975 2,774 (115) - 47,355
International business
development expenses - - - - 427 427
Corporate expenses - - - - 3,967 3,967
Depreciation and
amortization 4,225 5,745 3,788 2 961 14,721
Time brokerage
agreement fees 1,114 - - - - 1,114
Non-cash compensation - - - - 1,903 1,903
----------- ----------- ---------- ---------- ----------- --------------
Operating income (loss) $ 28,382 $ 5,230 $ (1,014) $ (117) (7,258) $ 25,223
=========== =========== ========== ========== =========== ==============
Total assets $ 587,946 $ 694,097 $ 102,202 $ - $ 128,958 $ 1,513,203
=========== =========== ========== ========== =========== ==============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
August 31, 2000 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 117,509 $ 54,561 $ 37,485 $ 33 $ - $ 209,588
Operating expenses 58,086 32,252 32,964 268 - 123,570
----------- ----------- ---------- ---------- ----------- --------------
Broadcast/publishing
cash flow 59,423 22,309 4,521 (235) - 86,018
International business
development expenses - - - - 831 831
Corporate expenses - - - - 7,687 7,687
Depreciation and
amortization 7,862 11,687 7,556 2 1,886 28,993
Time brokerage
agreement fees 1,114 - - - - 1,114
Non-cash compensation - - - - 3,567 3,567
----------- ----------- ---------- ---------- ----------- --------------
Operating income (loss) $ 50,447 $ 10,622 $ (3,035) $ (237) (13,971) $ 43,826
=========== =========== ========== ========== =========== ==============
Total assets $ 587,946 $ 694,097 $ 102,202 $ - $ 128,958 $ 1,513,203
=========== =========== ========== ========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
August 31, 1999 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 51,244 $ 16,992 $ 13,293 $ - $ - $ 81,529
Operating expenses 24,057 11,731 11,871 - - 47,659
----------- ----------- ---------- ---------- ----------- --------------
Broadcast/publishing
cash flow 27,187 5,261 1,422 - - 33,870
International business
development expenses - - - - 367 367
Corporate expenses - - - - 3,478 3,478
Depreciation and
amortization 4,118 3,605 1,749 - 864 10,336
Time brokerage
agreement fees - - - - - -
Non-cash compensation - - - - 1,648 1,648
----------- ----------- ---------- ---------- ----------- --------------
Operating income (loss) $ 23,069 $ 1,656 $ (327) $ - (6,357) $ 18,041
=========== =========== ========== ========== =========== ==============
Total assets $ 468,079 $ 454,088 $ 68,327 $ - $ 89,207 $ 1,079,701
=========== =========== ========== ========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1999 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 93,625 $ 35,046 $ 25,210 $ - $ - $ 153,881
Operating expenses 47,412 23,737 21,973 - - 93,122
----------- ----------- ---------- ---------- ----------- --------------
Broadcast/publishing
cash flow 46,213 11,309 3,237 - - 60,759
International business
development expenses - - - - 747 747
Corporate expenses - - - - 6,684 6,684
Depreciation and
amortization 8,129 6,985 3,263 - 1,668 20,045
Time brokerage
agreement fees - - - - - -
Non-cash compensation - - - - 2,293 2,293
----------- ----------- ---------- ---------- ----------- --------------
Operating income (loss) $ 38,084 $ 4,324 $ (26) $ - $ (11,392) $ 30,990
=========== =========== ========== ========== =========== ==============
Total assets $ 468,079 $ 454,088 $ 68,327 $ - $ 89,207 $ 1,079,701
=========== =========== ========== ========== =========== ==============
</TABLE>
14
<PAGE>
Note 7. Financial Information for Subsidiary Guarantors
and Subsidiary Non-Guarantors
Emmis conducts a significant portion of its business through
subsidiaries. The Company's senior subordinated notes are fully and
unconditionally guaranteed, jointly and severally, by certain direct and
indirect subsidiaries (the "Subsidiary Guarantors"). As of February 29, 2000 and
August 31, 2000, subsidiaries holding Emmis' interest in its radio stations in
Hungary and Argentina, as well as certain other subsidiaries conducting joint
ventures with third parties, did not guarantee the senior subordinated notes
(the "Subsidiary Non-Guarantors").
Presented below is condensed consolidating financial information for
the parent company only, the Subsidiary Guarantors and the Subsidiary
Non-Guarantors as of February 29, 2000 and August 31, 2000 and for the three and
six months ended August 31, 1999 and 2000.
Emmis uses the equity method 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.
15
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of August 31, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 4,988 $ 3,454 $ 2,313 $ - $ 10,755
Accounts receivable, net - 82,790 4,020 - 86,810
Current portion of TV
program rights - 5,286 - - 5,286
Prepaid expenses 1,160 13,583 239 - 14,982
Other 2,060 9,933 13 - 12,006
------------- ------------ ----------- ------------- --------------
Total current assets 8,208 115,046 6,585 - 129,839
Property and equipment, net 38,635 96,863 4,457 - 139,955
Intangible assets, net 133 1,127,178 23,525 - 1,150,836
Investment in affiliates 1,236,044 - - (1,236,044) -
Other assets, net 84,937 10,740 2,625 (5,729) 92,573
------------- ------------ ----------- ------------- --------------
Total assets $ 1,367,957 $ 1,349,827 $ 37,192 $ (1,241,773) $ 1,513,203
============= ============ =========== ============= ==============
CURRENT LIABILITIES:
Accounts payable $ 4,000 $ 19,581 $ 4,283 $ - $ 27,864
Current portion of other
long-term debt 34 159 5,316 - 5,509
Current portion of TV
program rights payable - 16,636 - - 16,636
Accrued salaries and
commissions 660 6,908 483 - 8,051
Accrued interest 11,363 - 142 - 11,505
Deferred revenue - 18,486 - - 18,486
Income taxes payable 50 367 - - 417
Other 1,231 3,704 - - 4,935
------------- ------------ ----------- ------------- --------------
Total current liabilities 17,338 65,841 10,224 - 93,403
Credit facility and senior
subordinated notes 442,000 - - - 442,000
TV program rights payable,
net of current portion - 50,158 - - 50,158
Other long-term debt, net of
current portion 37 409 19,660 (5,729) 14,377
Other noncurrent liabilities - 4,906 - - 4,906
Deferred income taxes 91,550 - - - 91,550
Minority interest - - 487 - 487
------------- ------------ ----------- ------------- --------------
Total liabilities 550,925 121,314 30,371 (5,729) 696,881
Shareholders' equity
Series A preferred stock 29 - - - 29
Class A common stock 417 - - - 417
Class B common stock 52 - - - 52
Additional paid-in capital 825,959 - 4,393 (4,393) 825,959
Subsidiary investment - 923,291 17,628 (940,919) -
Retained earnings/
(accumulated deficit) (9,425) 305,222 (14,490) (290,732) (9,425)
Accumulated other
comprehensive loss - - (710) - (710)
------------- ------------ ----------- ------------- --------------
Total shareholders' equity 817,032 1,228,513 6,821 (1,236,044) 816,322
------------- ------------ ----------- ------------- --------------
Total liabilities and
shareholders' equity $ 1,367,957 $1,349,827 $ 37,192 $ (1,241,773) $ 1,513,203
============= ============ =========== ============= ==============
</TABLE>
16
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 29, 2000
(Note 1, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 448 $ 2,564 $ 14,358 $ - $ 17,370
Accounts receivable, net - 63,146 3,325 - 66,471
Prepaid expenses 1,197 8,434 422 - 10,053
Other 5,781 12,744 297 - 18,822
------------- ------------ ----------- ------------- --------------
Total current assets 7,426 86,888 18,402 - 112,716
Property and equipment, net 38,611 85,587 4,706 - 128,904
Intangible assets, net 196 1,007,860 25,914 - 1,033,970
Investment in affiliates 1,098,183 - - (1,098,183) -
Other assets, net 37,573 16,194 2,330 (4,381) 51,716
------------- ------------ ----------- -------------- --------------
Total assets $ 1,181,989 $ 1,196,529 51,352 $ (1,102,564) $ 1,327,306
============= ============ =========== ============ =============
CURRENT LIABILITIES:
Accounts payable $ 2,973 $ 15,202 $ 4,782 $ - $ 22,957
Current portion of other
long-term debt 34 17 5,328 - 5,379
Current portion of TV
program rights payable - 16,816 - - 16,816
Accrued salaries and
commissions 1,952 5,801 409 - 8,162
Accrued interest 10,995 - 82 - 11,077
Deferred revenue - 15,912 - - 15,912
Other 1,034 3,105 - - 4,139
------------- ------------ ----------- ------------- --------------
Total current liabilities 16,988 56,853 10,601 - 84,442
Credit facility and senior
subordinated notes 300,000 - - - 300,000
TV program rights payable,
net of current portion - 58,585 - - 58,585
Other long-term debt, net of
current portion 36 671 18,281 (4,381) 14,607
Other noncurrent liabilities - 5,408 - - 5,408
Deferred income taxes 87,139 - - - 87,139
Minority interest - - 758 - 758
------------- ------------ ----------- ------------- --------------
Total liabilities 404,163 121,517 29,640 (4,381) 550,939
Shareholders' equity
Series A preferred stock 29 - - - 29
Class A common stock 412 - - - 412
Class B common stock 47 - - - 47
Additional paid-in capital 804,820 - 4,393 (4,393) 804,820
Subsidiary investment - 803,373 29,885 (833,258) -
Retained earnings /
(accumulated deficit) (27,482) 271,639 (11,107) (260,532) (27,482)
Accumulated other
comprehensive loss - - (1,459) - (1,459)
------------- ------------ ----------- ------------- --------------
Total shareholders' equity 777,826 1,075,012 21,712 (1,098,183) 776,367
------------- ------------ ----------- ------------- --------------
Total liabilities and
shareholders' equity $ 1,181,989 $ 1,196,529 $ 51,352 $ (1,102,564) $ 1,327,306
============= ============ =========== ============= ==============
</TABLE>
17
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended August 31, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 656 $ 104,828 $ 3,585 $ - $ 109,069
Operating expenses 332 58,365 3,017 - 61,714
International business
development expenses - 427 - - 427
Corporate expenses 3,967 - - - 3,967
Depreciation and amortization 1,024 12,825 872 - 14,721
Non-cash compensation 1,427 476 - - 1,903
Time brokerage agreement fees - 1,114 - - 1,114
------------- ----------- ----------- ----------- -----------
Operating income (loss) (6,094) 31,621 (304) - 25,223
------------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (8,586) (65) (694) 165 (9,180)
Minority interest - - - 69 69
Other income (expense), net 17,213 (2,914) (48) (165) 14,086
------------- ----------- ----------- ----------- -----------
Total other income (expense) 8,627 (2,979) (742) 69 4,975
------------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 2,533 28,642 (1,046) 69 30,198
Provision for income taxes 2,421 11,139 - - 13,560
------------- ----------- ----------- ----------- -----------
112 17,503 (1,046) 69 16,638
Equity in earnings of
subsidiaries 16,526 - - (16,526) -
------------- ----------- ----------- ----------- -----------
Net income (loss) 16,638 17,503 (1,046) (16,457) 16,638
Less: Preferred stock dividends 2,246 - - - 2,246
------------- ----------- ----------- ----------- -----------
Net income/(loss) available to common
shareholders $ 14,392 $ 17,503 $ (1,046) $ (16,457) $ 14,392
============= =========== =========== =========== ===========
</TABLE>
18
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Six Months Ended August 31, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,048 $ 202,269 $ 6,271 $ - $ 209,588
Operating expenses 660 116,896 6,014 - 123,570
International business
development expenses - 831 - - 831
Corporate expenses 7,687 - - - 7,687
Depreciation and amortization 1,949 25,270 1,774 - 28,993
Non-cash compensation 2,675 892 - - 3,567
Time brokerage agreement fees - 1,114 - - 1,114
------------- ----------- ----------- ----------- -----------
Operating income (loss) (11,923) 57,266 (1,517) - 43,826
------------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (16,132) (122) (1,663) 325 (17,592)
Minority interest - - - 593 593
Other income (expense), net 17,378 (2,978) (203) (325) 13,872
------------- ----------- ------------ ----------- -----------
Total other income (expense) 1,246 (3,100) (1,866) 593 (3,127)
------------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (10,677) 54,166 (3,383) 593 40,699
Provision (benefit) for income
taxes (2,433) 20,583 - - 18,150
------------- ----------- ----------- ----------- -----------
(8,244) 33,583 (3,383) 593 22,549
Equity in earnings of
subsidiaries 30,793 - - (30,793) -
------------- ----------- ----------- ----------- -----------
Net income (loss) 22,549 33,583 (3,383) (30,200) 22,549
Less: Preferred stock dividends 4,492 - - - 4,492
------------- ----------- ----------- ----------- -----------
Net income/(loss) available to common
shareholders $ 18,057 $ 33,583 $ (3,383) $ (30,200) $ 18,057
============= =========== =========== =========== ===========
</TABLE>
19
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended August 31, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 467 $ 78,981 $ 2,081 $ - $ 81,529
Operating expenses 326 45,824 1,509 - 47,659
International business
development expenses - 367 - - 367
Corporate expenses 3,478 - - - 3,478
Depreciation and amortization 864 8,772 700 - 10,336
Non-cash compensation 1,236 412 - - 1,648
------------- ----------- ----------- ----------- -----------
Operating income (loss) (5,437) 23,606 (128) - 18,041
------------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (13,627) 124 (626) 193 (13,936)
Minority interest - - - - -
Other income (expense), net (1) 208 (69) 273 411
------------- ----------- ----------- ----------- -----------
Total other income (expense) (13,628) 332 (695) 466 (13,525)
------------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (19,065) 23,938 (823) 466 4,516
Provision (benefit) for income
taxes (5,610) 8,857 53 - 3,300
------------- ----------- ----------- ----------- -----------
(13,455) 15,081 (876) 466 1,216
Equity in earnings of
subsidiaries 14,671 - - (14,671) -
------------- ----------- ----------- ----------- -----------
Net income (loss) 1,216 15,081 (876) (14,205) 1,216
Less: Preferred stock dividends - - - - -
------------- ----------- ----------- ----------- -----------
Net income/(loss) available to common
shareholders $ 1,216 $ 15,081 $ (876) $ (14,205) $ 1,216
============= =========== =========== =========== ===========
</TABLE>
20
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Six Months Ended August 31, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 883 $ 149,824 $ 3,174 $ - $ 153,881
Operating expenses 646 89,783 2,693 - 93,122
International business
development expenses - 747 - - 747
Corporate expenses 6,684 - - - 6,684
Depreciation and amortization 1,668 16,927 1,450 - 20,045
Non-cash compensation 1,720 573 - - 2,293
------------- ----------- ----------- ----------- -----------
Operating income (loss) (9,835) 41,794 (969) - 30,990
------------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (26,007) 265 (1,806) 383 (27,165)
Minority interest - - - - -
Other income (expense), net 16 424 (350) 1,142 1,232
------------- ----------- ----------- ----------- -----------
Total other income (expense) (25,991) 689 (2,156) 1,525 (25,933)
------------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (35,826) 42,483 (3,125) 1,525 5,057
Provision (benefit) for income
taxes (12,119) 15,719 - - 3,600
------------- ----------- ----------- ----------- -----------
(23,707) 26,764 (3,125) 1,525 1,457
Equity in earnings of
subsidiaries 25,164 - - (25,164) -
------------- ----------- ----------- ----------- -----------
Net income (loss) 1,457 26,764 (3,125) (23,639) 1,457
Less: Preferred stock dividends - - - - -
------------- ----------- ----------- ----------- -----------
Net income/(loss) available to common
shareholders $ 1,457 $ 26,764 $ (3,125) $ (23,639) $ 1,457
============= =========== =========== =========== ===========
</TABLE>
21
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended August 31, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 22,549 $ 33,583 $ (3,383) $ (30,200) $ 22,549
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating
activities -
Depreciation and amortization 2,891 30,833 1,774 - 35,498
Provision for bad debts - 2,398 - - 2,398
Provision for deferred income
taxes 3,197 - - - 3,197
Non-cash compensation 2,675 892 - - 3,567
Equity in earnings of
subsidiaries (30,793) - - 30,793 -
Other 710 - 749 (593) 866
Changes in assets and
liabilities -
Accounts receivable - (19,971) (695) - (20,666)
Prepaid expenses and other
current assets 3,758 (6,506) 467 - (2,281)
Other assets (1,306) 339 (295) - (1,262)
Accounts payable and accrued
liabilities 1,403 3,756 (365) - 4,794
Deferred revenue - 1,637 - - 1,637
Other liabilities 10,128 (9,989) 1,096 - 1,235
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 15,212 36,972 (652) - 51,532
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (2,026) (8,705) (42) - (10,773)
Cash paid for acquisitions - (144,283) - - (144,283)
Deposits on acquisitions and other (47,000) - - - (47,000)
----------- ----------- ----------- ----------- ------------
Net cash used in investing
activities (49,026) (152,988) (42) - (202,056)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (93,388) - - - (93,388)
Proceeds from long-term debt 235,388 - - - 235,388
Proceeds from exercise of stock
options 6,401 - - - 6,401
Intercompany (105,555) 116,906 (11,351) - -
Preferred stock dividends paid (4,492) - - - (4,492)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 38,354 116,906 (11,351) - 143,909
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: 4,540 890 (12,045) - (6,615)
Beginning of period 448 2,564 14,358 - 17,370
----------- ----------- ----------- ----------- -----------
End of period $ 4,988 $ 3,454 $ 2,313 $ - $ 10,755
=========== =========== =========== =========== ===========
</TABLE>
22
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended August 31, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 1,457 $ 26,764 $ (3,125) $ (23,639) $ 1,457
Adjustments to reconcile net
income (loss)to net cash provided
by (used in) operating
activities -
Depreciation and amortization 2,845 19,435 1,450 - 23,730
Provision for bad debts - 955 - - 955
Provision for deferred income
taxes 5,570 - - - 5,570
Non-cash compensation 1,720 573 - - 2,293
Equity in earnings of
subsidiaries (25,164) - - 25,164 -
Other 1,505 - (856) (1,525) (876)
Changes in assets and
liabilities -
Accounts receivable - (10,089) (158) - (10,247)
Deferred barter costs - (3,734) - - (3,734)
Prepaid expenses and other
current assets 2,300 (6,185) (2,161) - (6,046)
Other assets (1,649) 2,011 (503) - (141)
Accounts payable and accrued
liabilities 9,854 5,959 (482) - 15,331
Deferred revenue - 3,507 - - 3,507
Other liabilities (4,659) (22,055) 1,047 - (25,667)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (6,221) 17,141 (4,788) - 6,132
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (7,007) (13,167) (657) - (20,831)
Deposits on acquisitions
and other (17,500) - - - (17,500)
Acquisition of Country Sampler - (18,454) - - (18,454)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities (24,507) (31,621) (657) - (56,785)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (48,500) - - - (48,500)
Proceeds from long-term debt 90,500 - - - 90,500
Proceeds from exercise of stock
options 5,597 - - - 5,597
Intercompany (19,155) 13,850 5,305 - -
Preferred stock dividends paid - - - - -
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities 28,442 13,850 5,305 - 47,597
----------- ----------- ----------- ----------- -----------
DECREASE IN CASH AND
CASH EQUIVALENTS: (2,286) (630) (140) - (3,056)
Beginning of period 2,286 3,146 685 - 6,117
----------- ----------- ----------- ----------- -----------
End of period $ - $ 2,516 $ 545 $ - $ 3,061
=========== =========== =========== =========== ===========
</TABLE>
23
<PAGE>
Note 8. Subsequent Events
On September 18, 2000, Emmis entered into an agreement with Salem
Communications Corporation to acquire the assets of radio station KALC-FM in
Denver, Colorado for a cash purchase price of $98.8 million. This acquisition is
subject to approval by the FCC. Emmis has paid $1.2 million as a commitment fee
and will begin operating the station under a time brokerage agreement in October
2000. Emmis expects to complete the purchase in the last quarter of its current
fiscal year, and will account for it as a purchase.
On October 1, 2000, Emmis purchased eight network-affiliated and seven
satellite television stations from Lee Enterprises, Inc. for $559.5 million and
the payment of $21.5 million for working capital (the "Lee Acquisition"). This
transaction was financed through borrowings under Emmis' amended credit facility
(described below) and was accounted for as a purchase. The Lee Acquisition
consisted of the following stations:
- KOIN-TV (CBS) in Portland, Oregon
- KRQE-TV (CBS) in Albuquerque, New Mexico (including satellite stations
KBIM-TV, Roswell, New Mexico and KREZ-TV, Durango, Colorado-Farmington, New
Mexico)
- WSAZ-TV (NBC) in Charleston-Huntington, West Virginia
- KSNW-TV (NBC) in Wichita, Kansas (including satellite stations KSNG-TV,
Garden City, Kansas, KSNC-TV, Great Bend, Kansas and KSNK-TV, Oberlin,
Kansas-McCook, Nebraska)
- KGMB-TV (CBS) in Honolulu, Hawaii (including satellite stations
KGMD-TV, Hilo, Hawaii and KGMV-TV, Wailuku, Hawaii)
- KGUN-TV (ABC) in Tucson, Arizona
- KMTV-TV (CBS) in Omaha, Nebraska and
- KSNT-TV (NBC) in Topeka, Kansas.
As a result of the Lee Acquisition, Emmis will own more television
stations in the Hawaiian market than is currently permitted by FCC regulations.
Emmis may be required to sell one of its Hawaiian television stations to be in
compliance with this regulatory requirement. Emmis has been granted a temporary
waiver of this requirement and will assess alternatives during this time.
On October 2, 2000, Emmis amended its existing credit facility. The
amendment increased the borrowing capacity under the credit facility to $1.0
billion. Emmis has borrowed $921.0 million under the amended credit facility to
fund its recent acquisitions of radio and television stations. In connection
with the closing of pending acquisitions of radio stations from Hearst-Argyle
Television, Inc. and Salem Communications Corporation, Emmis currently plans to
refinance its credit facility with a new facility and increase borrowing
capacity before the end of its current fiscal year. Emmis' management is
currently evaluating proposals to permanently refinance the amended credit
facility.
24
<PAGE>
On October 6, 2000, Emmis acquired certain assets of radio stations
WIL-FM, WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri
from Sinclair Broadcast Group, Inc. ("Sinclair") for a cash purchase price of
$220.0 million. The agreement also included the settlement of outstanding
lawsuits by and between Emmis and Sinclair. The settlement resulted in no gain
or loss by either party. This acquistion was financed through borrowings under
Emmis' amended credit facility and was accounted for as a purchase.
On October 6, 2000, Emmis acquired certain assets of KZLA-FM in Los
Angeles, California from Bonneville International Corporation in exchange for
radio stations WIL-FM, WRTH-AM and WVRV-FM, which Emmis acquired from Sinclair,
as well as radio station WKKX-FM which Emmis already owned (all in the St.
Louis, Missouri market). From August 1, 2000 through the date of acquisition,
Emmis operated KZLA-FM under a time brokerage agreement.
Note 9. Reclassifications
Certain reclassifications have been made to the August 31, 1999 and
February 29, 2000 financial statements to be consistent with the August 31, 2000
presentation. The reclassifications have no impact on net income or retained
earnings previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note: Certain statements included in this report which are not statements of
historical fact, including but not limited to those identified with the words
"expect," "will" or "look" are intended to be, and are, identified as
"forward-looking statements," as defined in the Securities and Exchange Act of
1934, as amended, and involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future result, performance or
achievement expressed or implied by such forward-looking statement. Such factors
include, among others, general economic and business conditions; fluctuations in
the demand for advertising; increased competition in the broadcasting industry;
inability to obtain necessary approvals for purchases or sale transactions or to
complete the transactions; changes in the costs of programming; inability to
grow through suitable acquisitions, including the desired radio; tax and other
regulatory or practical limitations on the Company's ability to effectively
separate the Company's radio and television businesses; and other factors
mentioned in other documents filed by the Company with the Securities and
Exchange Commission.
25
<PAGE>
GENERAL
As of August 31, 2000, we owned and operated seventeen radio stations,
seven television stations and seven magazine publishing operations in the United
States. We also operated three radio stations in Phoenix and one radio station
in Los Angeles under time brokerage agreements. Our radio stations consisted of
seventeen FM and four AM stations serving New York City, Los Angeles, Chicago,
Denver, Phoenix, St. Louis, Indianapolis and Terre Haute, Indiana. Our
television stations consisted of five Fox affiliated stations serving New
Orleans, Louisiana, Mobile, Alabama, Green Bay, Wisconsin, Honolulu, Hawaii and
Fort Myers, Florida; one WB affiliated station serving Orlando, Florida; and one
CBS affiliated station serving Terre Haute, Indiana. Our publishing operations
consisted primarily of five city or regional monthly magazines and two special
interest magazines, including Indianapolis Monthly, Atlanta, Cincinnati, LA
Magazine, Texas Monthly, Country Sampler and Country Marketplace. In addition,
we have a 59.5% interest in a national radio station in Hungary and a 75%
interest in a company owning two radio stations in Buenos Aires, Argentina.
Since August 31, 2000, we have added six radio stations in St. Louis,
acquired the radio station in Los Angeles we had previously operated under a
time brokerage agreement, acquired eight network-affiliated television stations
and agreed to begin operating a radio station in Denver under a time brokerage
agreement. In connection with the acquisition of the radio station in Los
Angeles, we exchanged three of the radio stations we acquired in St. Louis and
one radio station we already owned in St. Louis for the new station in Los
Angeles. We are in the process of acquiring the remaining radio stations we
currently operate under time brokerage agreements. In connection with the
acquisition of the eight network-affiliated television stations, we may be
required to sell one television station in Hawaii due to federal regulations.
Once we have consummated our pending transactions, we will own and operate
twenty-four radio stations, fifteen television stations and seven magazine
publishing operations in the United States.
We continue to evaluate the separation of our radio and television
businesses. Through August 31, 2000, we had deferred $0.4 million of costs
related to this separation plan and we estimate our costs to date to be
approximately $3 million. To the extent we do not complete a separation plan
that includes the issuance of equity, these costs will be an operating charge.
Our broadcasting revenue is derived principally from the sale of
advertising time on our radio and television stations. The sale of advertising
time is affected primarily by the demand for advertising time by local, regional
and national advertisers and the advertising rates charged by our radio and
television stations. We derive a small portion of our broadcasting revenue from
fees paid by the networks and program syndicators for the broadcast of
programming. Our broadcast revenue is generally highest in our second and third
fiscal quarters.
Radio station advertising rates are based in part on a station's
ability to attract audiences in the demographic groups that advertisers wish to
reach and the number of stations competing in the market area, as well as local,
regional and national economic conditions. A station's
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audience is reflected in rating service surveys, which demonstrate the size
and demographics of the audience tuned to the station and the time the audience
spends listening to the station.
Television station advertising is sold for placement in proximity to
specific local or network programming and is priced primarily on the basis of a
program's popularity with the audience advertisers seek to reach, as measured
principally by quarterly audience surveys. In addition, the number of
advertisers competing for the available time, the size and demographic makeup of
the market areas served, and local, regional and national economic conditions
are all factors in determining advertising rates.
Our publishing revenue is derived principally from the sale of local,
regional and national advertising pages in our magazines. Advertising sales and
our advertising rates are determined in part by a publication's ability to
attract audiences in the geographic and demographic groups which advertisers
wish to reach and the number of magazines competing in the market area, as well
as local, regional and national economic conditions. Our publications also
derive revenue from the sale of subscriptions to our magazines and the sales of
our magazines at retail locations such as newsstands, bookstores and shops.
The primary operating expenses involved in owning and operating radio
stations are employee salaries and commissions, programming, advertising and
promotion. These are the same expenses involved with owning and operating
television stations and magazines with the addition of syndicated program rights
fees and news gathering costs for television stations and printing costs for
magazines. Our net earnings also are impacted by depreciation, amortization and
interest expenses associated with our acquisition of broadcasting and publishing
operations.
We evaluate the performance of our operating entities based on
broadcast cash flow, which we refer to as BCF, and publishing cash flow, which
we refer to as PCF. We believe that BCF and PCF are useful because they provide
a meaningful comparison of operating performance between companies in the
industry and serve as an indicator of the market value of a group of stations or
publishing entities. BCF and PCF are generally recognized by the broadcast and
publishing industries as a measure of performance and are used by analysts who
report on the performance of broadcasting and publishing groups. BCF and PCF do
not take into account our debt service requirements and other commitments and,
accordingly, BCF and PCF are not necessarily indicative of amounts that may be
available for dividends, reinvestment in our business or other discretionary
uses. BCF and PCF are not measures of liquidity or of performance in accordance
with accounting principles generally accepted in the United States, and should
be viewed as a supplement to, and not a substitute for, our results of
operations presented on the basis of accounting principles generally accepted in
the United States. Moreover, BCF and PCF are not standardized measures and may
be calculated in a number of ways. We define BCF and PCF as revenue net of
agency commissions and operating expenses.
Our results are subject to seasonal fluctuations. Therefore, results
shown on a quarterly basis are not necessarily indicative of results for a full
year.
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Results of Operations For the Three and Six Months Ended August 31, 2000
Compared to August 31, 1999
Net revenues for the three months ended August 31, 2000 were $109.1
million compared to $81.5 million for the same period of the prior year, an
increase of $27.6 million or 33.8%. Net revenues for the six months ended August
31, 2000 were $209.6 million compared to $153.9 million for the same period of
the prior year, an increase of $55.7 million or 36.2%. Approximately $18.6
million and $33.7 million of the increase in net revenues for the three and six
month periods ended August 31, 2000 were the result of our acquisition of
KKFR-FM and KXPK-FM in August 2000, Los Angeles Magazine in March 2000,
interests in two radio stations in Argentina in November 1999, WKCF-TV in
October 1999 and Country Sampler Magazine in April 1999 and our operation of
radio stations KZLA-FM, KKLT-FM, KTAR-AM and KMVP-AM under time brokerage
agreements effective August 1, 2000, which we refer to as our "Recent
Transactions". Excluding the Recent Transactions, net revenues for the three and
six months ended August 31, 2000 would have increased $8.9 million and $22.0
million, or 11.4% and 14.8%, respectively. These increases in net revenues are
principally due to our ability to realize higher advertising rates at certain of
our broadcasting properties, resulting from higher ratings at certain of our
broadcasting properties, and increases in general radio spending in the markets
in which we operate.
Operating expenses for the three months ended August 31, 2000 were
$61.7 million compared to $47.7 million for the same period of the prior year,
an increase of $14.0 million or 29.5%. Operating expenses for the six months
ended August 31, 2000 were $123.6 million compared to $93.1 million for the same
period of the prior year, an increase of $30.5 million or 32.7%. Approximately
$11.1 million and $21.3 million of the increase in operating expenses for the
three and six month periods ended August 31, 2000 were the result of our Recent
Transactions. Excluding the Recent Transactions, operating expenses for the
three and six months ended August 31, 2000 would have increased $2.9 million and
$9.2 million, or 6.6% and 10.4%, respectively. These increases were due to
higher advertising and promotional spending at certain of our properties as well
as an increase in programming and sales related costs.
Broadcast/publishing cash flow for the three months ended August 31,
2000 was $47.4 million compared to $33.9 million for the same period of the
prior year, an increase of $13.5 million or 39.8%. Broadcast/publishing cash
flow for the six months ended August 31, 2000 was $86.0 million compared to
$60.8 million for the same period of the prior year, an increase of $25.2
million or 41.6%. Approximately $7.5 million and $12.4 million of the increase
in broadcast/publishing cash flow for the three and six month periods ended
August 31, 2000 were the result of our Recent Transactions. Excluding the Recent
Transactions, broadcast/publishing cash flow for the three and six months ended
August 31, 2000 would have increased $6.0 million and $12.8 million, or 17.8%
and 21.4%, respectively. These increases were principally due to increased net
revenues partially offset by increased operating expenses as discussed above.
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International business development expenses for the three months ended
August 31, 1999 and 2000 were $0.4 million. International business development
expenses for the six months ended August 31, 2000 were $0.8 million compared to
$0.7 million for the same period of the prior year. These expenses reflect costs
associated with Emmis International Corporation. The purpose of this wholly
owned subsidiary is to identify, investigate and develop international broadcast
investments or other international business opportunities. Expenses consist
primarily of salaries, travel and various administrative costs.
Corporate expenses for the three months ended August 31, 2000 were $4.0
million compared to $3.5 million for the same period of the prior year, an
increase of $0.5 million or 14.1%. Corporate expenses for the six months ended
August 31, 2000 were $7.7 million compared to $6.7 million for the same period
of the prior year, an increase of $1.0 million or 15.0%. These increases were
due to an increase in the number of corporate employees in all departments as a
result of our growth.
EBITDA before certain charges is defined as broadcast/publishing cash
flow less corporate and international business development expenses. EBITDA
before certain charges for the three months ended August 31, 2000 was $43.0
million compared to $30.0 million for the same period of the prior year, an
increase of $13.0 million or 43.1%. EBITDA before certain charges for the six
months ended August 31, 2000 was $77.5 million compared to $53.3 million for the
same period of the prior year, an increase of $24.2 million or 45.3%. These
increases were due to the increases in broadcast/publishing cash flow partially
offset by the increases in corporate expenses.
Depreciation and amortization expense for the three months ended August
31, 2000 was $14.7 million compared to $10.3 million for the same period of the
prior year, an increase of $4.4 million or 42.4%. Depreciation and amortization
expense for the six months ended August 31, 2000 was $29.0 million compared to
$20.0 million for the same period of the prior year, an increase of $9.0 million
or 44.6%. Approximately $4.0 million and $8.2 million of the increase in
depreciation and amortization expense for the three and six month periods ended
August 31, 2000 were the result of our Recent Transactions. Excluding the Recent
Transactions, depreciation and amortization expense for the three and six months
ended August 31, 2000 would have increased $0.4 million and $0.8 million, or
4.0% and 4.1%, respectively, due to capital expenditures.
Non-cash compensation expense for the three months ended August 31, 2000
was $1.9 million compared to $1.6 million for the same period of the prior year,
an increase of $0.3 million or 15.5%. Non-cash compensation expense for the six
months ended August 31, 2000 was $3.6 million compared to $2.3 million for the
same period of the prior year, an increase of $1.3 million or 55.6%. Non-cash
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. These increases were due
to higher accruals for anticipated Profit Sharing Plan contributions due to
additional employees and higher accruals for performance based compensation
under employment agreements as the Company is on pace to meet or exceed various
specified performance targets.
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Interest expense for the three months ended August 31, 2000 was $9.2
million compared to $13.9 million for the same period of the prior year, a
decrease of $4.7 million or 34.1%. Interest expense for the six months ended
August 31, 2000 was $17.6 million compared to $27.2 million for the same period
of the prior year, a decrease of $9.6 million or 35.2%. These decreases reflect
lower outstanding debt due to the paydown of debt with the proceeds from our
common and preferred stock offerings in October 1999 and our investment from an
affiliate of Liberty Media Corporation in November 1999.
Other income for the three months ended August 31, 2000 was $14.1 million
compared to other expense of $0.1 million for the same period of the prior year.
Other income for the six months ended August 31, 2000 was $13.9 million compared
to other expense of $0.3 million for the same period of the prior year. Other
income for the three and six months ended August 31, 2000 includes a $17.0
million break-up fee received in connection with the sale of WALR-FM in Atlanta,
Georgia to Cox Radio, Inc., net of related expenses and an asset valuation
adjustment.
Liquidity and Capital Resources
Capital Requirements
Our primary uses of capital have been historically, and are expected to
continue to be, funding acquisitions, capital expenditures, working capital and
debt and preferred stock service requirements.
Acquisitions
On August 24, 2000, we acquired the assets of radio stations KKFR-FM in
Phoenix, Arizona and KXPK-FM in Denver, Colorado from AMFM, Inc. for $108.0
million as adjusted in accordance with the purchase agreement. Since August 31,
2000, we have completed three acquisitions. On October 2, 2000, we purchased
eight network-affiliated and seven satellite television stations from Lee
Enterprises, Inc. for $559.5 million in cash and paid $21.5 million for working
capital. On October 6, 2000, we acquired the assets of radio stations WIL-FM,
WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri from
Sinclair Broadcast Group, Inc. for a cash purchase price of $220.0 million. We
also settled outstanding lawsuits by and between Sinclair and us pursuant to the
terms of the transaction agreement. On October 6, 2000, we also exchanged radio
stations WIL-FM, WRTH-AM and WVRV-FM, which we acquired from Sinclair, as well
as radio station WKKX-FM which we already owned (all in the St. Louis, Missouri
market), for Bonneville International Corporation's radio station KZLA-FM
located in Los Angeles, California. We accounted for each of these acquisitions
using the purchase method of accounting. We financed each of these acquisitions
through borrowings under our credit facility.
We also have two pending acquisitions. On September 18, 2000, we
entered into an agreement with Salem Communications Corporation to acquire the
assets of radio station KALC-FM in Denver, Colorado for a cash purchase price of
$98.8 million. When we signed the acquisition agreement, we paid an additional
$1.2 million as a commitment fee and entered into a time brokerage agreement. We
expect to begin operating KALC-FM under a time brokerage agreement in October
2000. On June 5, 2000, we entered into an
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option agreement to acquire the assets of radio stations KTAR-AM, KMVP-AM
and KKLT-FM in Phoenix, Arizona from Hearst-Argyle Television, Inc. for $160.0
million in cash. When we signed the option agreement, we made an escrow payment
of $20.0 million, which was financed through borrowings under our credit
facility. This escrow payment will be used to offset the option price. We began
operating these stations on August 1, 2000.
Under the terms of the option agreement, Hearst-Argyle has up to three
years to identify a suitable television property, which we will then purchase
and immediately exchange with Hearst-Argyle for the radio stations. If Hearst is
unable to locate a suitable television property by the end of the three years,
we have the option to purchase the radio station for $160.0 million in cash. To
the extent that the identified station is acquired for a price in excess of our
purchase price, Hearst-Argyle will provide the necessary funds to complete the
transaction. Recently, Hearst-Argyle publicly announced that it has selected
WMUR-TV in Manchester, New Hampshire as the station to be exchanged.
Each of these pending acquisitions is subject to customary closing
conditions, including approval by the FCC. We expect to complete these
transactions by March 2001, and will account for each of them as a purchase. As
described below, we plan to obtain additional bank financing to complete these
acquisitions.
Capital Expenditures
Capital expenditures incurred for the six months ended August 31, 2000
were approximately $10.8 million. These capital expenditures primarily related
to office and studio construction at certain of our broadcasting properties.
Debt Service and Preferred Stock Dividend Requirements
As of August 31, 2000, we had $442.0 million of corporate indebtedness
outstanding, consisting of our credit facility and our senior subordinated
notes, and $19.9 million of other indebtedness. We also had $143.8 million of
our preferred stock outstanding. In connection with our recently completed
acquisitions of eight network-affiliated and seven satellite television stations
from Lee Enterprises, Inc. and six radio stations from Sinclair Broadcast Group,
Inc., we increased the borrowing capability under our credit facility to $1.0
billion and borrowed an additional $779.0 million to fund the acquisitions. All
outstanding amounts under our credit facility bear interest, at our option, at a
rate equal to the Eurodollar rate or an alternative base rate plus a margin (the
margin varies based on our ratio of debt to EBITDA). As of August 31, 2000, our
weighted average borrowing rate under our credit facility was approximately
7.3%.
Based on amounts currently outstanding under our senior subordinated
notes and convertible preferred stock, the debt service and preferred stock
dividend requirements for a twelve month period is $24.4 million and $9.0
million, respectively.
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Sources of Liquidity
Our primary sources of liquidity are cash provided by operations and
funds available under our credit facility. At August 31, 2000, we had cash and
cash equivalents of $10.8 million and net working capital of $36.4 million.
After giving effect to our recently completed acquisitions of eight
network-affiliated and seven satellite television stations from Lee Enterprises,
Inc. and six radio stations from Sinclair Broadcast Group, Inc., we have $73.5
million available under our amended credit facility. In connection with the
closing of our pending acquisitions, we currently plan to refinance our credit
facility with a new facility and increase our borrowing capacity before the end
of our current fiscal year. We expect that cash flow from operating activities
will be sufficient to fund all working capital, capital expenditures, debt
service (including any indebtedness that may be incurred to fund our pending
acquisitions), and preferred stock dividend requirements for at least the next
twelve months.
As part of our business strategy, we continually evaluate potential
acquisitions of radio and television stations as well as publishing properties.
If we elect to take advantage of future acquisition opportunities, we may incur
additional debt or issue additional equity or debt securities, depending on
market conditions and other factors.
Quantitative and Qualitative Disclosures About Market Risk
Management monitors and evaluates changes in market conditions on a
regular basis. Based upon the most recent review, management has determined that
there have been no material developments affecting market risk since the filing
of the Company's Annual Report on Form 10-K/A for the year ended February 29,
2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Discussion regarding these items is included in management's discussion
and analysis of financial condition and results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal proceedings arising in the
ordinary course of business. In the opinion of management of the Company,
however, there are no legal proceedings pending against the Company likely to
have a material adverse effect on the Company.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed or incorporated by reference
as a part of this report:
3.1 Amended and Restated Articles of Incorporation of
Emmis Communications Corporation, incorporated by
reference from Exhibit 3.1 to the Company's Form
10-K/A for the year ended February 29, 2000. *
3.2 Amended and Restated Bylaws of Emmis Communications
Corporation, incorporated by reference from Exhibit
3.2 to the Company's Form 10-K/A for the year ended
February 29, 2000. *
10.1 Asset Purchase Agreement dated June 19, 2000 between
Emmis Communications Corporation and AMFM Houston, Inc.,
AMFM Ohio, Inc. and AMFM Radio Licenses, LLC,
incorporated by reference from Exhibit 10.2 to Form
8-K filed on October 16, 2000. *
15 Letter re: unaudited interim financial information
27 Financial data schedule (Edgar version only)
* Previously submitted
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three
months ended August 31, 2000.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMMIS COMMUNICATIONS CORPORATION
Date: October 16, 2000 By: /s/ WALTER Z. BERGER
Walter Z. Berger
Executive Vice President
(Authorized Corporate Officer),
Chief Financial Officer and
Treasurer
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Exhibit 15
October 16, 2000
Mr. Walter Z. Berger
Chief Financial Officer
Emmis Communications Corporation
One Emmis Plaza
40 Monument Circle Suite 700
Indianapolis, Indiana 46204
Dear Mr. Berger:
We are aware that Emmis Communications Corporation has incorporated by reference
in its Registration Statements Nos. 33-83890, 333-14657, and 333-42878 its Form
10-Q for the six months ended August 31, 2000, which includes our report dated
October 6, 2000 covering the unaudited interim financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933, that report is
not considered a part of the registration statements prepared or certified by
our firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
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