<PAGE> 1
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 May 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 July 10, 2000, was:
41,653,388 Shares of Class A Common Stock, $.01 Par Value
5,230,396 Shares of Class B Common Stock, $.01 Par Value
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<PAGE> 2
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 months
ended May 31, 1999 and 2000.................................4
Condensed Consolidated Balance Sheets
as of February 29, 2000 and May 31, 2000....................5
Condensed Consolidated Statements of Cash
Flows for the three months ended
May 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.............................................23
Item 3. Quantitative and Qualitative Disclosures
about Market Risk.........................................27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................27
Item 6. Exhibits and Reports on Form 8-K.............................27
Signatures............................................................28
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<PAGE> 3
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 May 31, 2000, and the related condensed consolidated statements of operations
for the three-month periods ended May 31, 1999 and 2000 and the condensed
consolidated statements of cash flows for the three-month periods ended May 31,
2000 and 1999. 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 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 March 29, 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,
June 22, 2000.
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<PAGE> 4
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)
Three Months
Ended May 31,
1999 2000
------------ ------------
GROSS REVENUES $ 84,921 $ 118,247
LESS: AGENCY COMMISSIONS 12,569 17,728
------------ ------------
NET REVENUES 72,352 100,519
Operating expenses 45,463 61,856
International business
development expenses 380 404
Corporate expenses 3,206 3,720
Depreciation and amortization 9,709 14,272
Non-cash compensation 645 1,664
------------ ------------
OPERATING INCOME 12,949 18,603
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (13,229) (8,412)
Minority interest 1,059 524
Other income (expense), net (238) (214)
------------ ------------
Total other income (expense) (12,408) (8,102)
------------ ------------
INCOME BEFORE INCOME TAXES 541 10,501
PROVISION FOR INCOME TAXES 300 4,590
------------ ------------
NET INCOME 241 5,911
------------ ------------
PREFERRED STOCK DIVIDENDS -- 2,246
------------ ------------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 241 $ 3,665
============ ============
Basic net income per common share $ .01 $ .08
============ ============
Diluted net income per common share $ .01 $ .08
============ ============
Weighted average common shares outstanding:
Basic 31,608,128 46,268,750
Diluted 32,287,712 48,012,311
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
-4-
<PAGE> 5
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
February 29, May 31,
2000 2000
----------- -----------
(Note 1) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,370 $ 19,751
Accounts receivable, net 66,471 81,494
Prepaid expenses 10,053 14,474
Other 18,822 17,160
---------- ----------
Total current assets 112,716 132,879
Property and equipment, net 128,904 127,953
Intangible assets, net 1,033,970 1,058,167
Other assets, net 51,716 51,117
---------- ----------
Total assets $1,327,306 $1,370,116
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,957 $ 25,992
Current portion of other
long-term debt 5,379 3,475
Current portion of TV program
rights payable 16,816 16,712
Accrued salaries and commissions 8,162 8,500
Accrued interest 11,077 4,969
Deferred revenue 15,912 18,704
Other 4,139 4,561
---------- ----------
Total current liabilities 84,442 82,913
Credit facility and senior
subordinated notes 300,000 332,000
TV program rights payable, net of
current portion 58,585 54,257
Other long-term debt, net of
current portion 14,607 14,551
Other noncurrent liabilities 5,408 4,907
Deferred income taxes 87,139 90,341
Minority interest 758 557
---------- ----------
Total liabilities 550,939 579,526
---------- ----------
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<PAGE> 6
February 29, May 31,
2000 2000
----------- -----------
(Note 1) (Unaudited)
COMMITMENTS AND CONTINGENCIES
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 May 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 41,607,211
shares at May 31, 2000 412 416
Class B common stock, $.01
par value; authorized 30,000,000
shares; issued and outstanding
4,738,582 shares at
February 29, 2000 and 4,938,582
shares at May 31, 2000 47 49
Additional paid-in capital 804,820 815,048
Accumulated deficit (27,482) (23,817)
Accumulated other comprehensive loss (1,459) (1,135)
----------- -----------
Total shareholders' equity 776,367 790,590
----------- -----------
Total liabilities and
shareholders' equity $ 1,327,306 $ 1,370,116
=========== ===========
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
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<PAGE> 7
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
Three Months
Ended May 31,
1999 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 241 $ 5,911
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities -
Depreciation and amortization 11,524 17,586
Provision for bad debts 501 1,545
Provision for deferred income taxes 961 1,988
Non-cash compensation 645 1,664
Other (1,003) 432
Changes in assets and liabilities -
Accounts receivable (4,535) (14,497)
Prepaid expenses and other current assets (5,348) (1,641)
Other assets 2,540 (1,118)
Accounts payable and accrued liabilities 8,535 (1,957)
Deferred revenue (328) 1,855
Other liabilities (18,985) (3,872)
-------- --------
Net cash provided by (used in)
operating activities (5,252) 7,896
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,954) (2,958)
Acquisition of Country Sampler (18,454) --
Acquisition of Los Angeles Magazine -- (36,662)
-------- --------
Net cash used in investing activities (28,408) (39,620)
-------- --------
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Three Months
Ended May 31,
1999 2000
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (4,000) (23,788)
Proceeds from long-term debt 32,000 54,388
Proceeds from exercise of stock options 962 5,751
Preferred stock dividends paid -- (2,246)
-------- --------
Net cash provided by financing activities 28,962 34,105
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,698) 2,381
CASH AND CASH EQUIVALENTS:
Beginning of period 6,117 17,370
End of period $ 1,419 $ 19,751
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 6,111 $ 12,968
Income taxes 4,516 234
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 $ -- $ 39,355
Cash paid -- 36,662
-------- --------
Liabilities recorded $ -- $ 2,693
======== ========
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
-8-
<PAGE> 9
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 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 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 filed on Form 10-K 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 May 31, 2000 and the results of
its operations and cash flows for the three months ended May 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, the Company acquired all of the outstanding capital
stock of Los Angeles Magazines Holding Company, Inc. for approximately $36.7
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 the Company's credit facility
(the "Credit Facility"). The excess of the purchase price over the estimated
fair value of identifiable assets was $35.8 million, which is included in
intangible assets in the accompanying condensed consolidated balance sheets and
is being amortized over 15 years.
On May 7, 2000, Emmis entered into an agreement to purchase eight
network-affiliated and seven satellite television stations from Lee
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<PAGE> 10
Enterprises, Inc. for $562.5 million (the "Lee Acquisition"). The Lee
Acquisition consists 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
- KSNT-TV (NBC) in Topeka, Kansas
The Lee Acquisition will be accounted for as a purchase and is subject to
obtaining various regulatory, network and other approvals prior to closing. In
connection with the Lee Acquisition, management intends to separate the
Company's radio operations from its television and publishing operations.
Management is evaluating structural and financing alternatives to effect this
separation of operations.
Note 3. Pro Forma Acquisitions
Unaudited pro forma summary information is presented below for the
three months ended May 31, 1999, assuming the April 1999 Country Sampler
Acquisition, the October 1999 WKCF-TV Acquisition, the November 1999 Argentina
Acquisition, the March 2000 Los Angeles Magazine Acquisition, and the use of
proceeds from the October 1999 Common and Preferred Stock Offerings and the
November 1999 Liberty Investment all had occurred on the first day of the pro
forma period presented below.
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<PAGE> 11
Preparation of the pro forma summary information was based upon
assumptions deemed appropriate by the Company. 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.
Three Months
Ended May 31,
(Pro Forma) (Historical)
1999 2000
----------- -----------
(Dollars in thousands,
except per share data)
Net revenues $ 88,653 $ 100,519
=========== ===========
Broadcast/publishing
cash flow $ 32,667 $ 38,663
=========== ===========
Net Income $ 3,445 $ 5,911
=========== ===========
Net income available to
common shareholders $ 1,199 $ 3,665
=========== ===========
Basic net income per
common share $ .03 $ .08
=========== ===========
Diluted net income per
common share $ .03 $ .08
=========== ===========
Weighted average shares outstanding:
Basic 44,992,128 46,268,750
Diluted 45,671,712 48,012,311
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<PAGE> 12
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 May
31, 1999 consisted solely of stock options. Potentially dilutive securities at
May 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 months ended May 31, 2000 as the effect of its conversion to
common stock would be antidilutive. Thus, for the three months ended May 31,
1999 and 2000, the difference between the weighted-average shares outstanding
used to compute basic and diluted EPS is attributable 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 months ended May 31, 2000.
Note 5. Comprehensive Income
Comprehensive income was comprised of the following for the three
months ended May 31, 1999 and 2000 (dollars in thousands):
Three Months
Ended May 31,
1999 2000
------ ------
Net income $ 241 $5,911
Translation adjustment (975) 324
----- ------
Total comprehensive
income $(734) $6,235
===== ======
Note 6. Segment Information
The Company's operations are aligned into four business segments:
Radio, Television, Publishing and Other 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 for the three months ended May
31, 1999 and 2000 were $1.1 million and $1.3 million, respectively. Total assets
of this radio station as of May 31, 1999 and 2000 were $18.1 million and $14.6
million, respectively. Emmis acquired
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<PAGE> 13
two radio stations in Buenos Aires, Argentina in November 1999. Total revenues
of these stations for the three months ended May 31, 2000 were $1.4 million and
total assets as of May 31, 2000 were $32.3 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 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 generally accepted accounting principles, and should be viewed
as a supplement to, and not a substitute for, our results of operations
presented on the basis of generally accepted accounting principles. 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
for the year ended February 29, 2000, are applied consistently across segments.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED PUBLISHING
MAY 31, 2000 RADIO TELEVISION AND OTHER INTERACTIVE CORPORATE CONSOLIDATED
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 54,463 $ 28,142 $ 17,914 $ - $ - $ 100,519
Operating Expense 28,825 16,808 16,103 120 - 61,856
----------- ----------- ---------- ---------- ----------- --------------
Broadcast/publishing
cash flow 25,638 11,334 1,811 (120) - 38,663
International business
development expenses - - - - 404 404
Corporate expenses - - - - 3,720 3,720
Depreciation and
amortization 3,637 5,942 3,768 - 925 14,272
Non-cash compensation - - - - 1,664 1,664
----------- ----------- ---------- ---------- ----------- --------------
Operating income $ 22,001 $ 5,392 $ (1,957) $ (120) (6,713) $ 18,603
=========== =========== ========== ========== =========== ==============
Total assets $ 481,544 $ 698,480 $ 104,500 $ - $ 85,592 $ 1,370,116
=========== =========== ========== ========== =========== ==============
<CAPTION>
THREE MONTHS ENDED PUBLISHING
MAY 31, 1999 RADIO TELEVISION AND OTHER INTERACTIVE CORPORATE CONSOLIDATED
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 41,965 $ 18,054 $ 12,333 $ - $ - $ 72,352
Operating Expense 23,035 12,006 10,422 - - 45,463
----------- ----------- ---------- ---------- ----------- --------------
Broadcast/publishing
cash flow 18,930 6,048 1,911 - - 26,889
International business
development expenses - - - - 380 380
Corporate expenses - - - - 3,206 3,206
Depreciation and
amortization 4,011 3,380 1,514 - 804 9,709
Non-cash compensation - - - - 645 645
----------- ----------- ---------- ---------- ----------- --------------
Operating income $ 14,919 $ 2,668 $ 397 $ - (5,035) $ 12,949
=========== =========== ========== ========== =========== ==============
Total assets $ 461,165 $ 447,490 $ 69,982 $ - $ 70,103 $ 1,048,740
=========== =========== ========== ========== =========== ==============
</TABLE>
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<PAGE> 15
Note 7. Financial Information for Subsidiary Guarantors and Subsidiary
Non-Guarantors
Emmis 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"). As of February 29, 2000 and May 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"). The claims of creditors of Emmis subsidiaries have priority
over the rights of Emmis to receive dividends or distributions from such
subsidiaries.
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 May 31, 2000 and for the three months
ended May 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.
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<PAGE> 16
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of May 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>
CURRENT ASSETS:
Cash and cash equivalents $ 4,771 $ 2,654 $ 12,326 $ - $ 19,751
Accounts receivable, net - 78,503 2,991 - 81,494
Prepaid expenses 1,197 13,080 197 - 14,474
Other 4,552 12,553 55 - 17,160
------------- ------------ ----------- ------------- --------------
Total current assets 10,520 106,790 15,569 - 132,879
Property and equipment, net 38,445 84,936 4,572 - 127,953
Intangible assets, net 164 1,033,543 24,460 - 1,058,167
Investment in affiliates 1,138,175 - - (1,138,175) -
Other assets, net 36,505 15,325 2,268 (2,981) 51,117
------------- ------------ ----------- ------------- --------------
Total assets $ 1,223,809 $ 1,240,594 $ 46,869 $ (1,141,156) $ 1,370,116
============= ============ =========== ============= ==============
CURRENT LIABILITIES:
Accounts payable $ 3,397 $ 17,860 $ 4,735 $ - $ 25,992
Current portion of other
long-term debt 34 17 3,424 - 3,475
Current portion of TV
program rights payable - 16,712 - - 16,712
Accrued salaries and
commissions 519 7,453 528 - 8,500
Accrued interest 4,920 - 49 - 4,969
Deferred revenue - 18,704 - - 18,704
Other 836 3,725 - - 4,561
------------- ------------ ----------- ------------- --------------
Total current liabilities 9,706 64,471 8,736 - 82,913
Credit facility and senior
subordinated notes 332,000 - - - 332,000
TV program rights payable,
net of current portion - 54,257 - - 54,257
Other long-term debt, net of
current portion 37 (2,189) 19,684 (2,981) 14,551
Other noncurrent liabilities - 4,907 - - 4,907
Deferred income taxes 90,341 - - - 90,341
Minority interest - - 557 - 557
------------- ------------ ----------- ------------- --------------
Total liabilities 432,084 121,446 28,977 (2,981) 579,526
Shareholders' equity
Series A preferred stock 29 - - - 29
Class A common stock 416 - - - 416
Class B common stock 49 - - - 49
Additional paid-in capital 815,048 - 4,393 (4,393) 815,048
Subsidiary investment - 831,429 28,078 (859,507) -
Retained earnings/
(accumulated deficit) (23,817) 287,719 (13,444) (274,275) (23,817)
Accumulated other
comprehensive loss - - (1,135) - (1,135)
------------- ------------ ----------- ------------- --------------
Total shareholders' equity 791,725 1,119,148 17,892 (1,138,175) 790,590
------------- ------------ ----------- ------------- --------------
Total liabilities and
shareholders' equity $ 1,223,809 $ 1,240,594 $ 46,869 $ (1,141,156) $ 1,370,116
============= ============ =========== ============= ==============
</TABLE>
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<PAGE> 17
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
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
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> 18
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended May 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 $ 392 $ 97,441 $ 2,686 $ - $ 100,519
Operating expenses 328 58,531 2,997 - 61,856
International business
development expenses - 404 - - 404
Corporate expenses 3,720 - - - 3,720
Depreciation and amortization 925 12,445 902 - 14,272
Non-cash compensation 1,248 416 - - 1,664
------------- ----------- ----------- ----------- -----------
Operating income (5,829) 25,645 (1,213) - 18,603
------------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (7,546) (57) (969) 160 (8,412)
Minority interest - - - 524 524
Other income (expense), net 165 (64) (155) (160) (214)
------------- ----------- ----------- ----------- -----------
Total other income (expense) (7,381) (121) (1,124) 524 (8,102)
------------- ----------- ------------ ----------- -----------
Income (loss) before income taxes (13,210) 25,524 (2,337) 524 10,501
Provision (benefit) for income
taxes (4,854) 9,444 - - 4,590
------------- ----------- ----------- ----------- -----------
(8,356) 16,080 (2,337) 524 5,911
Equity in earnings (loss) of
subsidiaries 14,267 - - (14,267) -
------------- ----------- ----------- ----------- -----------
Net income (loss) 5,911 16,080 (2,337) (13,743) 5,911
Less: Preferred stock dividends 2,246 - - - 2,246
------------- ----------- ----------- ----------- -----------
Net income available to common
shareholders $ 3,665 $ 16,080 $ (2,337) $ (13,743) $ 3,665
============= =========== =========== =========== ===========
</TABLE>
-18-
<PAGE> 19
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended May 31, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT SUBSIDIARY AND
COMPANY SUBSIDIARY NON- CONSOLIDATING
ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 416 $ 70,843 $ 1,093 $ - $ 72,352
Operating expenses 320 43,959 1,184 - 45,463
International business
development expenses - 380 - - 380
Corporate expenses 3,206 - - - 3,206
Depreciation and amortization 804 8,155 750 - 9,709
Non-cash compensation 484 161 - - 645
------------- ----------- ----------- ----------- -----------
Operating income (4,398) 18,188 (841) - 12,949
------------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (12,380) 141 (1,180) 190 (13,229)
Minority interest - - - 1,059 1,059
Other income (expense), net 17 216 (281) (190) (238)
------------- ----------- ----------- ----------- -----------
Total other income (expense) (12,363) 357 (1,461) 1,059 (12,408)
------------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (16,761) 18,545 (2,302) 1,059 541
Provision (benefit) for income
taxes (6,509) 6,862 (53) - 300
-------------- ----------- ----------- ----------- -----------
(10,252) 11,683 (2,249) 1,059 241
Equity in earnings (loss) of
subsidiaries 10,493 - - (10,493) -
------------- ----------- ----------- ----------- -----------
Net income (loss) 241 11,683 (2,249) (9,434) 241
Less: Preferred stock dividends - - - - -
------------- ----------- ----------- ----------- -----------
Net income available to common
stockholders $ 241 $ 11,683 $ (2,249) $ (9,434) $ 241
============= =========== =========== =========== ===========
</TABLE>
-19-
<PAGE> 20
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 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>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 5,911 $ 16,080 $ (2,337) $ (13,743) $ 5,911
Adjustments to reconcile net
income to net cash provided
(used) by operating
activities -
Depreciation and amortization 1,395 15,289 902 - 17,586
Provision for bad debts - 1,545 - - 1,545
Provision for deferred income
taxes 1,988 - - - 1,988
Non-cash compensation 1,248 416 - - 1,664
Equity in earnings of
subsidiaries (14,267) - - 14,267 -
Other 633 - 323 (524) 432
Changes in assets and
liabilities -
Accounts receivable - (14,831) 334 - (14,497)
Prepaid expenses and other
current assets 1,229 (3,337) 467 - (1,641)
Other assets 598 (1,778) 62 - (1,118)
Accounts payable and accrued
liabilities (5,784) 3,788 39 - (1,957)
Deferred revenue - 1,855 - - 1,855
Other liabilities 1,323 (4,493) (702) - (3,872)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
operating activities (5,726) 14,534 (912) - 7,896
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (833) (2,114) (11) - (2,958)
Acquisition of L.A. Magazine - (36,662) - - (36,662)
----------- ----------- ----------- ----------- -----------
Net cash used by investing
activities (833) (38,776) (11) - (39,620)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (23,788) - - - (23,788)
Proceeds from long-term debt 54,388 - - - 54,388
Proceeds from exercise of stock
options 5,751 - - - 5,751
Intercompany (23,223) 24,332 (1,109) - -
Preferred stock dividends paid (2,246) - - - (2,246)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
financing activities 10,882 24,332 (1,109) - 34,105
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: 4,323 90 (2,032) - 2,381
Beginning of period 448 2,564 14,358 - 17,370
----------- ----------- ----------- ----------- -----------
End of period $ 4,771 $ 2,654 $ 12,326 $ - $ 19,751
=========== =========== =========== =========== ===========
</TABLE>
-20-
<PAGE> 21
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 31, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT SUBSIDIARY AND
COMPANY SUBSIDIARY NON- CONSOLIDATING
ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 241 $ 11,683 $ (2,249) $ (9,434) $ 241
Adjustments to reconcile net
income to net cash provided
(used) by operating
activities -
Depreciation and amortization 1,368 9,406 750 - 11,524
Provision for bad debts - 501 - - 501
Provision for deferred income
taxes 961 - - - 961
Non-cash compensation 484 161 - - 645
Equity in earnings of
subsidiaries (10,493) - - 10,493 -
Other 56 - - (1,059) (1,003)
Changes in assets and
liabilities -
Accounts receivable - (4,703) 168 - (4,535)
Prepaid expenses and other
current assets 3,428 (8,627) (149) - (5,348)
Other assets 646 1,192 702 - 2,540
Accounts payable and accrued
liabilities 7,381 1,873 (719) - 8,535
Deferred revenue - (328) - - (328)
Other liabilities (4,001) (16,719) 1,735 - (18,985)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
operating activities 71 (5,561) 238 - (5,252)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (7,872) (1,425) (657) - (9,954)
Acquisition of Country Sampler - (18,454) - - (18,454)
----------- ----------- ----------- ----------- -----------
Net cash used by investing
activities (7,872) (19,879) (657) - (28,408)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (4,000) - - - (4,000)
Proceeds from long-term debt 32,000 - - - 32,000
Proceeds from exercise of stock
options 962 - - - 962
Intercompany (23,447) 22,294 1,153 - -
Preferred stock dividends paid - - - - -
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities 5,515 22,294 1,153 - 28,962
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (2,286) (3,146) 734 - (4,698)
Beginning of period 2,286 3,146 685 - 6,117
----------- ----------- ----------- ----------- -----------
End of period $ - $ - $ 1,419 $ - $ 1,419
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE> 22
Note 8. Subsequent Events
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
Heart-Argyle Television, Inc. ("Hearst") for $160.0 million. 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
operate the radio stations under a Local Management Agreement (LMA). If Hearst
is unable to locate a suitable television property by the end of the three year
timeframe, Emmis has the option to purchase the radio stations for $160.0
million. Emmis expects to begin managing the radio stations by August 1, 2000.
In connection with the signing of the option agreement, the Company made an
escrow payment of $20.0 million with borrowings under the Credit Facility.
On June 19, 2000, Emmis entered into an agreement with Clear Channel
Communications/AMFM to acquire the assets of radio stations KKFR-FM in Phoenix,
Arizona and KXPK-FM in Denver, Colorado for a cash purchase price of $108.0
million. This acquisition is awaiting approval by the FCC and Department of
Justice and will be accounted for under the purchase method of accounting. In
connection with the signing of the purchase agreement, the Company made an
escrow payment of $10.8 million with borrowings under the Credit Facility.
On June 21, 2000, Emmis entered into an agreement with Sinclair
Broadcast Group, Inc. ("Sinclair") to acquire the assets of radio stations
WIL-FM, WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri
for a cash purchase price of $220.0 million. The agreement also included the
settlement of outstanding lawsuits by and between Emmis and Sinclair. This
acquisition is awaiting approval by the FCC and Department of Justice and will
be accounted for under the purchase method of accounting. In connection with the
signing of the purchase agreement, the Company made an escrow payment of $22.0
million with borrowings under the Credit Facility.
On June 21, 2000, Emmis signed a letter of intent to swap radio
stations WIL-FM, WRTH-AM and WVRV-FM that Emmis is acquiring from Sinclair, as
well as radio station WKKX-FM that is currently owned by Emmis (all in St.
Louis, Missouri), to Bonneville International Corporation ("Bonneville") in
exchange for radio station KZLA-FM located in Los Angeles, California. The
Company is in the process of negotiating a definitive asset purchase agreement
with Bonneville.
In May, 2000, the Company 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. holds a right of first refusal to purchase
WALR-FM, Emmis' offer was made on the condition that Emmis would receive a $17
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. The Company expects to receive
the break-up fee upon the closing of the sale of WALR-FM under the right of
first refusal.
Note 9. Reclassifications
Certain reclassifications have been made to the May 31, 1999 and
February 29, 2000 financial statements to be consistent with the May 31, 2000
presentation. The reclassifications have no impact on net income or retained
earnings previously reported.
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<PAGE> 23
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.
GENERAL
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 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 generally accepted accounting principles, and should be viewed
as a supplement to, and not a substitute for, our results of operations
presented on the basis of generally accepted accounting principles. 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
-23-
<PAGE> 24
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 Company's results are subject to seasonal fluctuations. Therefore,
results shown on a quarterly basis are not necessarily indicative of results for
a full year.
RESULTS OF OPERATIONS THREE MONTHS ENDED MAY 31, 2000 COMPARED TO MAY 31, 1999
Net revenues for the three months ended May 31, 2000 were $100.5
million compared to $72.4 million for the same period of the prior year, an
increase of $28.1 million or 38.9%. Approximately $15.1 million of the increase
in net revenues for the three month period ended May 31, 2000 is the result of
the April 1999 Country Sampler Acquisition, the October 1999 WKCF-TV
Acquisition, the November 1999 Argentina Acquisition and the March 2000 Los
Angeles Magazine Acquisition (collectively, the "Recent Acquisitions").
Excluding the Recent Acquisitions, net revenues for the three months ended May
31, 2000 would have increased $13.0 million or 18.7%. This increase in net
revenues is principally due to the ability to realize higher advertising rates
at certain broadcasting properties, resulting from higher ratings at certain
broadcasting properties, and increases in general radio spending in the markets
in which the Company operates.
Operating expenses for the three months ended May 31, 2000 were $61.9
million compared to $45.5 million for the same period of the prior year, an
increase of $16.4 million or 36.1%. Approximately $10.2 million of the increase
in operating expenses for the three month period ended May 31, 2000 is the
result of the Recent Acquisitions. Excluding the Recent Acquisitions, operating
expenses for the three months ended May 31, 2000 would have increased $6.2
million or 14.3%. This increase is due to higher advertising and promotional
spending at certain of the Company's properties as well as an increase in sales
related costs.
Broadcast/publishing cash flow for the three months ended May 31, 2000
was $38.7 million compared to $26.9 million for the same period of the prior
year, an increase of $11.8 million or 43.8%. Approximately $4.9 million of the
increase in broadcast/publishing cash flow for the three month period ended May
31, 2000 is the result of the Recent Acquisitions. Excluding the Recent
Acquisitions, broadcast/publishing cash flow for the three months ended May 31,
2000 would have increased $6.9 million or 26.0%. This increase is principally
due to increased net revenues partially offset by increased operating expenses
as discussed above.
International business development expenses for the three months ended
May 31, 2000 were $0.4 million compared to $0.4 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.
-24-
<PAGE> 25
Corporate expenses for the three months ended May 31, 2000 were $3.7
million compared to $3.2 million for the same period of the prior year, an
increase of $0.5 million or 16.0%. This increase is due to an increase in the
number of corporate employees in all departments as a result of the growth of
the Company and the timing of certain expenses.
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 May 31, 2000 was $34.5 million
compared to $23.3 million for the same period of the prior year, an increase of
$11.2 million or 48.2%. This increase is due to the increase in
broadcast/publishing cash flow partially offset by the increase in corporate
expenses.
Depreciation and amortization expense for the three months ended May
31, 2000 was $14.3 million compared to $9.7 million for the same period of the
prior year, an increase of $4.6 million or 47.0%. Approximately $4.2 million of
the increase in depreciation and amortization expense for the three month period
ended May 31, 2000 is the result of the Recent Acquisitions. Excluding the
Recent Acquisitions, depreciation and amortization expense for the three months
ended May 31, 2000 would have increased $0.4 million or 4.3%.
Non-cash compensation expense for the three months ended May 31, 2000
was $1.7 million compared to $0.6 million for the same period of the prior year,
an increase of $1.1 million or 158.0%. 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. This increase was due to higher anticipated
Profit Sharing Plan contributions and performance based compensation under
employment agreements.
Interest expense for the three months ended May 31, 2000 was $8.4
million compared to $13.2 million for the same period of the prior year, a
decrease of $4.8 million or 36.4%. This decrease reflects lower outstanding debt
due to the paydown of debt with the proceeds from the October 1999 Common and
Preferred Stock Offerings and the November 1999 Liberty Investment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by
operations and availability under the Credit Facility. At May 31, 2000, the
Company had cash and cash equivalents of $19.8 million, net working capital of
$50.0 million and $368.0 million available under the Credit Facility. Capital
expenditures incurred for the three months ended May 31, 2000 were approximately
$3.0 million. The Company expects that cash flow from operating activities will
be sufficient to fund all debt service for debt existing at May 31, 2000,
working capital and capital expenditure requirements. In addition, the Company
also has access to public equity and debt markets.
On May 7, 2000, Emmis entered into an agreement to purchase eight
network-affiliated and seven satellite television stations from Lee Enterprises,
Inc. for $562.5 million. The Lee Acquisition will be
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<PAGE> 26
accounted for as a purchase and is subject to obtaining various regulatory,
network and other approvals prior to closing. In connection with the Lee
Acquisition, management intends to separate the Company's radio operations from
its television and publishing operations. Management is evaluating structural
and financing alternatives to effect this separation of operations.
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
Heart-Argyle Television, Inc. for $160.0 million. 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 operate the
radio stations under a Local Management Agreement (LMA). If Hearst is unable to
locate a suitable television property by the end of the three year timeframe,
Emmis has the option to purchase the radio stations for $160.0 million. Emmis
expects to begin managing the radio stations by August 1, 2000. In connection
with the signing of the option agreement, the Company made an escrow payment of
$20.0 million with borrowings under the Credit Facility.
On June 19, 2000, Emmis entered into an agreement with Clear Channel
Communications/AMFM to acquire the assets of radio stations KKFR-FM in Phoenix,
Arizona and KXPK-FM in Denver, Colorado for a cash purchase price of $108.0
million. This acquisition is awaiting approval by the FCC and Department of
Justice and will be accounted for under the purchase method of accounting. In
connection with the signing of the purchase agreement, the Company made an
escrow payment of $10.8 million with borrowings under the Credit Facility.
On June 21, 2000, Emmis entered into an agreement with Sinclair
Broadcast Group, Inc. to acquire the assets of radio stations WIL-FM, WRTH-AM,
WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri for a cash purchase
price of $220.0 million. The agreement also included the settlement of
outstanding lawsuits by and between Emmis and Sinclair. This acquisition is
awaiting approval by the FCC and Department of Justice and will be accounted for
under the purchase method of accounting. In connection with the signing of the
purchase agreement, the Company made an escrow payment of $22.0 million with
borrowings under the Credit Facility.
On June 21, 2000, Emmis signed a letter of intent to swap radio
stations WIL-FM, WRTH-AM and WVRV-FM that Emmis is acquiring from Sinclair, as
well as radio station WKKX-FM that is currently owned by Emmis (all in St.
Louis, Missouri), to Bonneville International Corporation in exchange for radio
station KZLA-FM located in Los Angeles, California. The Company is in the
process of negotiating a definitive asset purchase agreement with Bonneville.
In May, 2000, the Company 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. holds a right of first refusal to purchase
WALR-FM, Emmis' offer was made on the condition that Emmis would receive a $17
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. The Company expects to receive
the break-up fee upon the closing of the sale of WALR-FM under the right of
first refusal.
As part of its business strategy, the Company continually evaluates
potential acquisitions of radio and television stations as well as publishing
properties. In connection with the acquisitions discussed above and future
acquisition opportunities, the Company may incur additional debt and issue
additional equity or debt securities depending on market conditions and other
factors.
-26-
<PAGE> 27
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 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.
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. *
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 May 31, 2000.
-27-
<PAGE> 28
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: July 14, 2000 By: /s/ WALTER Z. BERGER
Walter Z. Berger
Executive Vice President
(Authorized Corporate Officer),
Chief Financial Officer and
Treasurer
-28-
