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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[ X ] Amendment to Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934 for the Fiscal Year Ended February 29,
2000
[ ] 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.)
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A common
stock, $.01 par value; 6.25% Series A Cumulative Convertible Preferred Stock,
$.01 par value.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's Knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all documents
and 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 aggregate market value of the voting stock held by non-affiliates of
the registrant, as of April 30, 2000, was approximately $1,965,683,000.
The number of shares outstanding of each of the registrant's classes of
common stock, as of April 30, 2000, was:
41,312,781 Class A Common Shares, $.01 par value
4,938,582 Class B Common Shares, $.01 par value
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE
--------- -------------------
None N/A
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EMMIS COMMUNICATIONS CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PART I .................................................................................. 3
Item 1. Business................................................................ 3
Item 2. Properties.............................................................. 19
Item 3. Legal Proceedings....................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders..................... 21
PART II .................................................................................. 22
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters..................................................... 22
Item 6. Selected Financial Data................................................. 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................................... 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............. 31
Item 8. Financial Statements and Supplementary Data............................. 33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................................. 70
PART III .................................................................................. 71
Item 10. Directors and Executive Officers of the Registrant..................... 71
Item 11. Executive Compensation................................................. 73
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................................... 75
Item 13. Certain Relationships and Related Transactions......................... 77
PART IV .................................................................................. 77
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K............................................................ 77
Signatures .................................................................................. 80
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
We are a diversified media company with radio broadcasting, television
broadcasting and magazine publishing operations. We are the eleventh largest
radio broadcaster in the United States based on total revenues. The thirteen FM
radio stations and two AM radio stations we own in the United States serve the
nation's three largest radio markets of New York City, Los Angeles and Chicago,
as well as St. Louis, Indianapolis and Terre Haute, Indiana. Our seven
television stations are located in Orlando, Florida, New Orleans, Louisiana,
Mobile, Alabama, Green Bay, Wisconsin, Honolulu, Hawaii, Fort Myers, Florida and
Terre Haute, Indiana.
Our strategy is to selectively acquire underdeveloped media properties in
desirable markets and then to create value by developing those properties to
increase their cash flow. We find such underdeveloped properties attractive
because they offer greater potential for revenue and cash flow growth than
mature properties. We have been successful in acquiring these types of radio
stations and improving their ratings, revenues and cash flow with our marketing
focus and innovative programming expertise. We have created top-performing radio
stations which rank, in terms of primary demographic target audience share,
among the top ten stations in the New York City, Los Angeles and Chicago radio
markets according to the Winter 1999 Arbitron Survey. We believe that our strong
large-market radio presence and diversity of station formats makes us attractive
to a diverse base of radio advertisers and reduces our dependence on any one
economic sector or specific advertiser.
More recently, we began applying our advertising sales and programming
expertise to our television stations. We view our entry into television as a
logical outgrowth of our radio business and as a platform for diversification.
Like the radio stations we previously acquired, our television stations are
underdeveloped properties located in desirable markets, which can benefit from
innovative, research-based programming and our experienced management team. We
believe we can further improve the ratings, revenues and broadcast cash flow of
our television stations with a more market-focused, research-based programming
approach and other related strategies, which have proven successful with our
radio properties.
In addition to our domestic broadcasting properties, we operate news and
agriculture information radio networks in Indiana, publish Indianapolis Monthly,
Atlanta, Cincinnati, Texas Monthly, L.A. Magazine, Country Sampler, Country
Marketplace and related magazines, have a 54% interest in a national radio
station in Hungary and own 75% of one FM and one AM radio station in Buenos
Aires, Argentina. We also engage in various businesses ancillary to our
broadcasting business, such as consulting and broadcast tower leasing.
BUSINESS STRATEGY
We are committed to maintaining our leadership position in broadcasting,
enhancing the performance of our broadcast and publishing properties, and
distinguishing ourselves through the quality of our operations. Our strategy has
the following principal components:
DEVELOP INNOVATIVE PROGRAMMING. We believe that knowledge of local markets
and innovative programming developed to target specific demographic groups are
the most important determinants of individual radio and television station
success. We conduct extensive market research to identify underserved segments
of the markets we serve or to assure that we are meeting the needs of our target
audience. Utilizing the research results, we concentrate on providing a focused
programming format carefully tailored to the demographics of our markets and our
audiences' preferences.
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EMPHASIZE FOCUSED SALES AND MARKETING STRATEGY. We design our local and
national sales efforts based on advertiser demand and our programming compared
to the competitive formats within each market. We provide our sales force with
extensive training and the technology for sophisticated inventory management
techniques which provide frequent price adjustments based on regional and market
conditions. We seek to maximize sources of non-traditional, non-spot revenue and
have led the industry in developing "vendor co-op" advertising revenue. Although
this source of advertising revenue is common in the newspaper and magazine
industry, we were among the first radio broadcasters to recognize and take
advantage of the potential of vendor co-op advertising.
PURSUE STRATEGIC ACQUISITIONS AND CREATE CASH FLOW GROWTH BY ENHANCING
STATION PERFORMANCE. We have built our portfolio by selectively acquiring
underdeveloped media properties in desirable markets at reasonable purchase
prices where our experienced management team has been able to enhance value. We
intend to pursue acquisitions of radio stations in those of our current markets
where we believe we can increase broadcast cash flow. We will also consider
acquisitions of individual radio stations or groups of radio stations in new
markets where we expect we can achieve a leadership position. We believe that
continued consolidation in the radio broadcasting industry will create
attractive acquisition opportunities as the number of potential buyers for radio
assets declines due to government regulations on the number of stations a
company can own in one market. We believe that attractive acquisition
opportunities are also increasingly available in the television broadcasting
industry. We intend to evaluate acquisitions of international broadcasting
stations (typically in conjunction with strong local minority-interest partners)
and magazine publishing properties that present opportunities to capitalize on
our management expertise to enhance cash flow at attractive purchase price
multiples with minimal capital requirements.
ENCOURAGE AN ENTREPRENEURIAL MANAGEMENT APPROACH. We believe that
broadcasting is primarily a local business and that much of its success is the
result of the efforts of regional and local management and staff. We have
attracted and retained an experienced team of broadcast professionals who
understand the viewing and listening preferences, demographics and competitive
opportunities of their particular market. Our decentralized approach to station
management gives local management oversight of station spending, long-range
planning and resource allocation at their individual stations, and rewards all
employees based on those stations' performance. In addition, we encourage our
managers and employees to own a stake in the company, and over 95% of all
full-time employees have an equity ownership position in Emmis. We believe that
our entrepreneurial management approach has created a distinctive corporate
culture, making Emmis a highly desirable employer in the broadcasting industry
and significantly enhancing our ability to attract and retain experienced and
highly motivated employees and management.
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RADIO AND TELEVISION STATIONS
The following tables set forth certain information regarding our radio and
television stations and their broadcast markets.
RADIO STATIONS
In the following table, "Market Rank by Revenue" is the ranking of the
market revenue size of the principal radio market served by the station among
all radio markets in the United States. Market revenue and ranking figures are
from Duncan's Radio Market Guide (1999 ed.). We own a 40% equity interest in the
publisher of Duncan's Radio Market Guide. "Ranking in Primary Demographic
Target" is the ranking of the station among all radio stations in its market
based on the Fall 1999 Arbitron Survey. A "t" indicates the station tied with
another station for the stated ranking. "Station Audience Share" represents a
percentage generally computed by dividing the average number of persons over age
12 listening to a particular station during specified time periods by the
average number of such persons for all stations in the market area as determined
by Arbitron.
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RANKING IN
STATION MARKET PRIMARY PRIMARY STATION
AND RANK BY DEMOGRAPHIC DEMOGRAPHIC AUDIENCE
MARKET REVENUE FORMAT TARGET AGES TARGET SHARE
--------------- -------- ---------------------- ----------- ------------ --------
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LOS ANGELES, CA 1
KPWR-FM Dance/Contemporary Hit 12-24 2 3.8
NEW YORK, NY 2
WQHT-FM Dance/Contemporary Hit 12-24 1 5.2
WRKS-FM Classic Soul/Smooth R&B 25-54 3 4.0
WQCD-FM Contemporary Jazz 25-54 8t 3.0
Chicago, IL 3
WKQX-FM New Rock 18-34 4 3.4
St. Louis, MO 18
KSHE-FM Album Oriented Rock 25-54 9 2.9
WKKX-FM Country 25-54 6 4.6
WXTM-FM Extreme Rock 18-34 6 3.0
Indianapolis, IN 30
WENS-FM Adult Contemporary 25-54 7 5.0
WIBC-AM News/Talk 35-64 3 8.4
WNAP-FM* Classic Rock 18-34 8 2.9
WTLC-FM Urban Contemporary 25-54 5 6.0
WTLC-AM Solid Gold Soul, Gospel 25-54 24 0.8
and Talk
Terre Haute, IN 171
WTHI-FM Country 25-54 1 17.2
WWVR-FM Classic Rock 25-54 3 7.9
</TABLE>
*On March 28, 2000, Emmis changed the call letters of WNAP-FM to WNOU-FM
and changed the format to Top 40.
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TELEVISION STATIONS
In the following table, "DMA Rank" is estimated by the A.C. Nielsen Company
("Nielsen") as of January 2000. Rankings are based on the relative size of a
station's market among the 210 generally recognized Designated Market Areas
("DMAs"), as defined by Nielsen. "Number of Stations in Market" represents the
number of television stations ("Reportable Stations") designated by Nielsen as
"local" to the DMA, excluding public television stations and stations which do
not meet minimum Nielsen reporting standards (i.e., a weekly cumulative audience
of less than 2.5%) for reporting in the Sunday through Saturday, 6:00 a.m. to
2:00 a.m. time period. "Station Rank" reflects the station's rank relative to
other Reportable Stations based upon the DMA rating as reported by Nielsen from
6:00 a.m. to 2:00 a.m., Sunday through Saturday during November 1999. "Station
Audience Share" reflects an estimate of the share of DMA households viewing
television received by a local commercial station in comparison to other local
commercial stations in the market as measured from 6:00 a.m. to 2:00 a.m.,
Sunday through Saturday.
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NUMBER OF STATION
TELEVISION METROPOLITAN DMA AFFILIATION/ STATIONS STATION AUDIENCE
STATION AREA SERVED RANK CHANNEL IN MARKET RANK SHARE
-------------- ---------------------- ------- --------------- ------------- ---------- ---------
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WKCF-TV Orlando, FL 22 WB/18 7 4t 7
WVUE-TV New Orleans, LA 41 Fox/8 8 3 9
WALA-TV Mobile, AL-Pensacola, 62 Fox/10 6 3 10
FL
WLUK-TV Green Bay, WI 69 Fox/11 6 3 13
KHON-TV Honolulu, HI 71 Fox/2 7 1 16
WFTX-TV Fort Myers, FL 81 Fox/36 5 4 7
WTHI-TV Terre Haute, IN 139 CBS/10 3 1 21
</TABLE>
Emmis also owns KAII-TV and KHAW-TV, which operate as satellite stations of
KHON-TV and primarily re-broadcast the signal of KHON-TV. The stations are
considered one station for FCC multiple ownership purposes. Low power television
translators W40AN and K55D2 retransmit stations WLUK-TV and KHON-TV,
respectively.
RADIO NETWORKS
In addition to our other radio broadcasting operations, we own and operate
two radio networks. Network Indiana provides news and other programming to
nearly 70 affiliated radio stations in Indiana. AgriAmerica Network provides
farm news, weather information and market analysis to radio stations across
Indiana.
PUBLISHING OPERATIONS
We publish the following magazines through our publishing division:
Indianapolis Monthly. We have published Indianapolis Monthly magazine since
September 1988. Indianapolis Monthly covers local personalities, homes and
lifestyles and currently has a paid monthly circulation of approximately 45,000.
With a large advertising base and a popular editorial focus, Indianapolis
Monthly is the market's leading general interest magazine focusing on the
Indianapolis area.
Atlanta. We acquired and began publishing Atlanta magazine in August 1993.
Atlanta covers area personalities, issues and style and currently has a paid
monthly circulation of approximately 65,000. The magazine was unprofitable for
several years before we acquired it for a nominal investment. Certain
initiatives, including downsizing staff, increasing sales efforts and
repositioning the editorial focus, have contributed to improving profitability.
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Cincinnati. We acquired Cincinnati magazine in October 1997. Cincinnati
magazine was founded by the Greater Cincinnati Chamber of Commerce in 1967 and,
under its prior owners, the magazine grew to a paid monthly circulation of
approximately 22,000. We repositioned the editorial product to an up-to-date
city/regional magazine covering people and entertainment in Cincinnati, doubled
the existing sales staff and marketed the newly designed magazine to the
Cincinnati area. The magazine currently has a paid monthly circulation of
approximately 28,000.
Texas Monthly. We acquired Texas Monthly magazine in February 1998. The
critically acclaimed magazine, which has received eight National Magazine
Awards, has a paid monthly circulation of approximately 300,000, and we believe
it is read by more than 2,436,000 people. Since acquiring the magazine, we have
worked to increase Texas Monthly's operating efficiencies while leaving the
highly regarded editorial product intact.
Country Sampler. We acquired Country Sampler magazine in April 1999.
Country Sampler focuses on country craft and home decorating ideas and products,
and we believe it is read by more than two million people. In connection with
the acquisition of Country Sampler, we also acquired other related magazines
focusing on particular segments of the country craft and home decorating market.
To complement Country Sampler, we acquired Country Marketplace in December 1999.
Country Marketplace serves the general craft market, providing projects to
crafters of all skill levels. Like Country Sampler magazine, Country Marketplace
carries a substantial amount of crafter advertising, allowing for great
efficiencies in the sales arena.
L.A. Magazine. We acquired L.A. Magazine in March 2000. This high-profile
city magazine in the nation's second-largest metropolis maintains a circulation
base of approximately 180,000. With the acquisition of L.A. Magazine, Emmis
secured a franchise, brand-name product in the country's trend-setting capital.
We intend to enhance and upgrade the editorial product, currently a mix of
star-coverage, Hollywood insider information and regional service, by including
renown columnists, improving lifestyle and service coverage, and exploring
hard-hitting stories that make a difference to Angelenos. In addition, we intend
to increase the sales force with a renewed emphasis on local retailers.
INTERNET
We believe that the development and explosive growth of the Internet
present not only a challenge, but an opportunity for broadcasters and
publishers. The challenge is, primarily, increased competition for the time and
attention of our listeners, viewers and readers. The opportunity is to further
enhance the relationships we already have with our listeners, viewers and
readers by expanding products and services offered by our stations and
magazines. For that reason, we have been working with other broadcasters and
publishers to put together a local media internet venture (LMIV). The LMIV is
premised on the idea that each station's or magazine's website would be the
entry way into a backbone of internet content provided by a national, or even
international, aggregation of broadcasters and publishers. The LMIV would
capitalize on the individual relationships between each station or magazine and
its listeners, viewers or readers by allowing each station's or magazine's
website to reflect the character of the station or magazine. The LMIV would also
capitalize on the potentially tremendous economies of scale provided by the
stations' and magazines' aggregated websites. Bringing a group of broadcasters
and publishers together is almost always a difficult proposition. However, we
remain optimistic that the LMIV will be formalized.
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COMMUNITY INVOLVEMENT
We believe that to be successful, we must be integrally involved in the
communities we serve. To that end, each of our stations participates in many
community programs, fundraisers and activities that benefit a wide variety of
organizations. Charitable organizations that have been the beneficiaries of our
marathons, walkathons, dance-a-thons, concerts, fairs and festivals include,
among others, The March of Dimes, American Cancer Society, Riley Children's
Hospital and research foundations seeking cures for cystic fibrosis, leukemia
and AIDS and helping to fight drug abuse. In addition to our planned activities,
our stations and magazines take leadership roles in community responses to
natural disasters.
INDUSTRY INVOLVEMENT
We have an active leadership role in a wide range of industry
organizations. Our senior managers have served in various capacities with
industry associations, including as directors of the National Association of
Broadcasters, the Radio Advertising Bureau, the Radio Futures Committee, the
Arbitron Advisory Council, the Fox and CBS Affiliates Boards, and as founding
members of the Radio Operators Caucus. In addition, our managers have been voted
Radio President of the Year and General Manager of the Year, and at various
times we have been voted Most Respected Broadcaster in polls of radio industry
chief executive officers and managers.
FEDERAL REGULATION
Television and radio broadcasting are subject to the jurisdiction of the
Federal Communications Commission (the "FCC") under the Communications Act of
1934, as amended (and, as amended by the Telecommunications Act of 1996 (the
"1996 Act"), the "Communications Act"). Television or radio broadcasting is
prohibited except in accordance with a license issued by the FCC upon a finding
that the public interest, convenience and necessity would be served by the grant
of such license. The FCC has the power to revoke licenses for, among other
things, false statements made in applications or willful or repeated violations
of the Communications Act or of FCC rules. In general, the Communications Act
provides that the FCC shall allocate television and radio licenses in such
manner as will provide a fair, efficient and equitable distribution of service
throughout the United States. The FCC determines the location of stations,
regulates the apparatus used by stations, and regulates numerous other areas of
television and radio broadcasting pursuant to rules, regulations and policies
adopted under authority of the Communications Act. The Communications Act, among
other things, prohibits the assignment of a broadcast license or the transfer of
control of a corporation holding a license without the prior approval of the
FCC. Under the Communications Act, the FCC also regulates certain aspects of the
operation of cable television systems and other electronic media that compete
with broadcast stations.
The 1996 Act represented the most comprehensive overhaul of the country's
telecommunications laws in more than 60 years. The 1996 Act significantly
changed both the process for renewal of broadcast station licenses and the
broadcast ownership rules. The following is a brief summary of certain
provisions of the Communications Act and of specific FCC regulations and
policies. Reference should be made to the Communications Act, FCC rules and the
public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of radio and television stations.
The 1996 Act established a "two-step" renewal process that limits the FCC's
discretion to consider applications filed in competition with an incumbent's
renewal application. The 1996 Act also substantially liberalized the national
broadcast ownership rules, eliminating the national radio limits and easing the
national restrictions on TV ownership; it also relaxed local radio ownership
restrictions.
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This new regulatory flexibility has engendered aggressive local, regional,
and/or national acquisition campaigns. Removal of previous station ownership
limitations on leading incumbents (i.e., existing networks and major station
groups) has sharply increased the competition for and the prices of attractive
stations.
Other legislation has been introduced from time to time which would amend
the Communications Act in various respects and the FCC from time to time
considers new regulations or amendments to its existing regulations. We cannot
predict whether any such legislation will be enacted or new or amended FCC
regulations adopted or what their effect would be on Emmis.
LICENSE RENEWAL. Radio and television stations operate pursuant to
broadcasting licenses that are ordinarily granted by the FCC for maximum terms
of eight years and are subject to renewal upon application to the FCC. Our
licenses currently have the following expiration dates, until renewed:
WENS-FM (Indianapolis) August 1, 2004
WKQX-FM (Chicago) December 1, 2004
KSHE-FM (St. Louis) February 1, 2005
KPWR-FM (Los Angeles) December 1, 2005
WQHT-FM (New York) June 1, 2006
WQCD-FM (New York) June 1, 2006
WIBC-AM (Indianapolis) August 1, 2004
WNOU-FM (Indianapolis) August 1, 2004
WRKS-FM (New York) June 1, 2006
WKKX-FM (St. Louis) December 1, 2004
WXTM-FM (St. Louis) December 1, 2004
WTLC-AM (Indianapolis) August 1, 2004
WTLC-FM (Indianapolis) August 1, 2004
WTHI-FM (Terre Haute) August 1, 2004
WWVR-FM (Terre Haute) August 1, 2004
WTHI-TV (Terre Haute) August 1, 2005
WFTX-TV (Fort Myers) February 1, 2005
WALA-TV (Mobile) April 1, 2005
WVUE-TV (New Orleans) June 1, 2005
WLUK-TV (Green Bay) December 1, 2005
KHON-TV (Honolulu) February 1, 2007
KAII-TV (Maui) February 1, 2007
KHAW-TV (Hawaii) February 1, 2007
WKCF-TV (Orlando) February 1, 2005
Under the 1996 Act, at the time an application is filed for renewal for a
station license, parties in interest, as well as members of the public, may
apprise the FCC of the service the station has provided during the preceding
license term and urge the denial of the application. If such a petition to deny
presents information from which the FCC concludes (or if the FCC concludes on
its own) that there is a "substantial and material" question whether grant of
the renewal application would be in the public interest under applicable rules
and policy, the FCC may conduct a hearing on specified issues to determine
whether renewal should be granted. The 1996 Act modified the license renewal
process to provide for the grant of a renewal application upon a finding by the
FCC that the licensee:
- has served the public interest, convenience and necessity;
- has committed no serious violations of the Communications Act or the
FCC's rules; and
- has committed no other violations of the Communications Act or the
FCC's rules which would constitute a pattern of abuse.
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If the FCC cannot make such a finding, it may deny a renewal application,
and only then may the FCC accept other applications to operate the station of
the former licensee. In a vast majority of cases, the FCC renews broadcast
licenses even when petitions to deny applications are filed against broadcast
license renewal applications.
OWNERSHIP RESTRICTIONS. The 1996 Act eliminated restrictions on the number
of radio stations that may be owned by one entity nationwide. Under the 1996
Act, with limited exceptions, the number of radio stations that may be owned by
one entity in a given radio market is dependent on the number of commercial
stations in that market:
- if the market has 45 or more stations, one entity may own not more
than eight stations, of which not more than five may be in one service
(AM or FM);
- if the market has between 30 and 44 stations, one entity may own not
more than seven stations, of which not more than four may be in one
service;
- if the market has between 15 and 29 stations, a single entity may own
not more than six stations, of which not more than four may be in one
service; and
- if the market has fourteen or fewer stations, one entity may own not
more than five stations, of which not more than three may be in one
service, except that in such a market one entity may not own more than
fifty percent of the stations in the market.
Each of the six markets in which our radio stations are located has at
least 15 commercial radio stations.
In August 1999, the FCC substantially revised its ownership rules
concerning the common ownership of radio and television stations in the same
market. Previously, the FCC had generally prohibited common ownership of a
television station and one or more radio stations in the same market, though
waivers of the rule were granted frequently; one such waiver was granted to
permit our common ownership of WTHI-TV, WTHI-FM and WWVR-FM in Terre Haute,
Indiana. The FCC also generally prohibited common ownership of two or more
television stations in the same market. Under the new rules, the Commission will
permit the common ownership of one television station, along with:
- up to six radio stations in any market where at least 20 independent
voices remain post-merger;
- up to four radio stations in any market where at least 10 independent
voices remain post-merger; and
- one radio station regardless of the number of independent voices
remaining post-merger.
Additionally, the new rules provide that an entity may own two television
stations in the same Designated Market Area (DMA) if:
- the coverage areas of the stations do not overlap, or
- there will remain eight, independently-owned and-operated full-power
noncommercial and commercial operating stations, and one of the two
commonly-owned stations is not a top 4-ranked station in the market
(based on audience).
Furthermore, the Commission will consider waiving these restrictions, if:
- one of the stations is a "failed station," i.e., off-air for more than
four months, or involved in an involuntary bankruptcy proceeding;
- one of the stations is a "failing station," i.e., having a low
audience share and financially struggling; or
- one of the stations is an unbuilt facility, where the permittee has
made substantial progress towards constructing the facility.
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The 1996 Act and the FCC's subsequently issued rules restrict the ownership
of television stations on a nationwide basis to no more than 35% of the national
audience; the FCC is considering raising that limit.
Current FCC rules prohibit common ownership of a daily newspaper and a
radio or television station in the same market; the FCC is considering possible
liberalization or elimination of that prohibition. There is also a prohibition
on common ownership of a television station and a cable television system in the
same market; however, the FCC is considering possible elimination of that ban.
ATTRIBUTION OF OWNERSHIP INTERESTS. In applying its ownership rules, the
FCC requires the "attribution" of broadcast licenses between a broadcasting
company and certain of its stockholders, officers or directors, such that there
would be a violation of FCC regulations where such a stockholder, officer or
director and the broadcasting company together held more than the permitted
number of stations or a prohibited combination of media outlets in the same
market. Under FCC rules, with certain exceptions, attribution of broadcast
licenses occurs where any five percent voting stockholder or officer or director
of a broadcasting company directly or indirectly owns, operates, controls or has
a five percent voting interest in or is an officer or director of any other
broadcasting company; for passive investments by mutual funds, insurance
companies and bank trust departments, voting interests of twenty per cent or
more are attributable. Attribution also occurs in the case of all general
partnership interests and in the case of limited partnership interests and
interests in limited liability companies where a limited partner or member is
"materially involved" in the media-related activities of the partnership or LLC.
To assess whether a voting stock interest in a direct or indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a "multiplier"
analysis in which non-controlling voting stock interests are deemed
proportionally reduced at each non-controlling link in a multi-corporation
ownership chain. Emmis' Amended and Restated Articles of Incorporation and
By-Laws authorize the Board of Directors to prohibit any ownership, voting or
transfer of its capital stock which would cause Emmis to violate the
Communications Act or FCC regulations.
In cases where one person or entity (such as Jeffrey H. Smulyan in the case
of Emmis) holds more than 50% of the combined voting power of the common stock
of a broadcasting company, a minority shareholder of the company generally would
not be deemed to hold an "attributable" interest in the company. However, any
attributable interest by any such shareholder in another broadcast station or
other media in a market where such company owns, or seeks to acquire, a station
would still be subject to review by the FCC under its "equity/debt plus policy"
(described below), and could result in the company's being unable to obtain from
the FCC one or more authorizations needed to conduct its broadcast business or
being unable to obtain FCC consents for future acquisitions. Further, in the
event that a majority shareholder of a company (such as Mr. Smulyan in the case
of Emmis) were no longer to hold more than 50% of the combined voting power of
the common stock of the company, the interests of minority shareholders which
had theretofore been considered nonattributable could become attributable, with
the result that any other media interests held by such shareholders would be
combined with the media interests of such company for purposes of determining
compliance with FCC ownership rules. In the case of Emmis, Mr. Smulyan's level
of voting control could decrease to or below 50% as a result of transfers of
common stock pursuant to agreement or conversion of the Class B Common Stock
into Class A Common Stock. In the event of any noncompliance, steps required to
achieve compliance could include divestitures by either the shareholder or the
affected company. Further, other media interests of shareholders having or
acquiring an attributable interest in such a company could result in the company
being unable to obtain from the FCC one or more authorizations needed to conduct
its broadcast business or being unable to obtain FCC consents for future
acquisitions. Conversely, a company's media interests could operate to restrict
other media investments by shareholders having or acquiring an interest in
Emmis.
11
<PAGE> 12
The FCC will also find that a person or entity has an attributable interest
in a broadcast (radio or television) station if the person or entity (i) owns a
broadcast station, cable television system or newspaper in the same market and
(ii) is party to a time brokerage agreement (also known as a local marketing
agreement) whereby it programs more than 15% of the programming of another
station in the market. In such cases, the brokering person or entity would be
considered to "own" such other station for purposes of the FCC's ownership
rules.
Under a recent change in the FCC's ownership attribution rules, an investor
in a television or radio station will also be considered to have an attributable
interest in another station where his or her interest in the other station,
including both debt and equity holdings, exceeds 33% or the total asset value of
the entity owning the other station, and either:
- the investor is a "major program supplier," including all programming
entities such as networks and time brokers which supply more than 15% of
the station's total weekly broadcast time; or
- the investor is a same-market media owner subject to the FCC's ownership
rules, i.e., a broadcaster, cable operator or newspaper owner.
TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. In determining whether to grant such approval, the
FCC considers a number of factors, including compliance with the various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership as well as compliance
with other FCC policies. When passing on an assignment or transfer application,
the FCC is prohibited from considering whether the public interest might be
served by an assignment or transfer of the broadcast license to any party other
than the assignee or transferee specified in the application.
A transfer of control of a corporation controlling a broadcast license may
occur in various ways. For example, a transfer of control occurs if an
individual stockholder gains or loses "affirmative" or "negative" control of
such corporation through issuance, redemption or conversion of stock.
"Affirmative" control would consist of control of more than 50% of such
corporation's outstanding voting power and "negative" control would consist of
control of exactly 50% of such voting power. To obtain the FCC's prior consent
to assign or transfer control of a broadcast license, appropriate applications
must be filed with the FCC. If the application involves a "substantial change"
in ownership or control, the application must be placed on public notice for a
period of 30 days during which petitions to deny the application may be filed by
interested parties, including members of the public. If the application does not
involve a "substantial change" in ownership or control, it is a "pro forma"
application. The "pro forma" application is nevertheless subject to having
informal objections filed against it. If the FCC grants an assignment or
transfer application, interested parties have 30 days from public notice of the
grant to seek reconsideration of that grant. Generally, parties that do not file
initial petitions to deny or informal objections against the application face a
high hurdle in seeking reconsideration of the grant. The FCC normally has an
additional ten days to set aside such grant on its own motion. (FCC rules for
computation of time may cause more variation in the actual time for action and
response.)
Under the 1996 Act, the FCC is required to review all of its broadcast
ownership rules every two years to determine whether the public interest
dictates that such rules be repealed or modified. We cannot predict the outcome
of any such reviews or the impact they may have on our business.
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<PAGE> 13
ALIEN OWNERSHIP RESTRICTIONS. Under the Communications Act, no FCC license
may be held by a corporation if more than one-fifth of its capital stock is
owned of record or voted by aliens or their representatives or by a foreign
government or representative thereof, or by any corporation organized under the
laws of a foreign country (collectively, "Non-U.S. Persons"). Furthermore, the
Communications Act provides that no FCC license may be granted to any
corporation directly or indirectly controlled by any other corporation of which
more than one-fourth of its capital stock is owned of record or voted by
Non-U.S. Persons if the FCC finds the public interest will be served by the
refusal of such license. The FCC staff has interpreted this provision to require
an affirmative public interest finding to permit the grant or holding of a
license, and such a finding has been made only in limited circumstances. The
foregoing restrictions on alien ownership apply in modified form to other forms
of business organizations, including partnerships and limited liability
companies. Our Amended and Restated Articles of Incorporation and Code of
By-Laws authorize the Board of Directors to prohibit such ownership, voting or
transfer of its capital stock as would cause Emmis to violate the Communications
Act or FCC regulations.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Broadcast of obscene
or indecent material is regulated by the FCC as well as by state and federal
law. Complaints from listeners concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although such complaints may be filed and considered by the FCC at any time.
Stations also must pay regulatory and application fees and follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, and technical operations, including limits on radio
frequency radiation.
In February 2000, the FCC adopted new rules requiring licensees to develop
and implement affirmative action programs designed to promote equal employment
opportunities. The new rules require all broadcasters to implement broad
outreach programs that will lead to the widest possible dissemination of job
vacancies. In addition, the rules require additional measures for stations
employing five or more full-time employees which extend beyond the recruitment
efforts for a particular job vacancy. The new rules also require most
broadcasters to file periodic reports with the Commission regarding their
recruitment efforts.
The FCC has adopted rules to implement the Children's Television Act of
1990, which, among other provisions, limits the permissible amount of commercial
matter in children's programs and requires each television station to present
"educational and informational" children's programming. The FCC also has adopted
renewal processing guidelines effectively requiring television stations to
broadcast an average of at least three hours per week of children's educational
programming. In addition, the FCC has adopted rules that require television
stations to broadcast, over an 8 to 10 year transition period which commenced on
January 1, 1998, increasing and set percentages of closed captioned programming
for the hearing-impaired.
Over the past few years, a number of radio and television stations,
including certain Emmis stations, have entered into what commonly are referred
to as "local marketing agreements" or "time brokerage agreements" (together,
"LMAs"). These agreements take various forms. Separately-owned and licensed
stations may agree to function cooperatively in terms of programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each station maintain independent control over the programming and
other operations of its own station. As already noted, a station that brokers
more than 15% of the broadcast time of another station in the same market will
be deemed to have an
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<PAGE> 14
attributable interest in that station. Further, FCC rules prohibit a radio
station from "simulcasting" more than 25% of its programming from another
station in the same market in the same broadcast service (i.e., AM-AM or FM-FM)
where the two stations serve substantially the same geographic area, and where
the stations are commonly owned or the owner of one station programs the other
through an LMA.
Another example of a cooperative agreement between differently owned
broadcast stations in the same market is a joint sales agreement ("JSA"),
whereby one station sells advertising time in combination, both on itself and on
a station under separate ownership. The FCC has determined that JSA's should
generally be left to antitrust enforcement, though it has reserved the right to
examine JSA's on a case-by-case basis. Generally, JSA's are not deemed by the
FCC to be attributable for purposes of its ownership rules.
In 1992, Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"). Certain provisions of this law,
such as signal carriage and retransmission consent, have a direct effect on
television broadcasting. The signal carriage, or "must carry," provisions
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with 12 or fewer usable activated channels and more than 300 subscribers
must carry the signals of at least three local commercial television stations. A
cable system with more than 12 usable activated channels, regardless of the
number of subscribers, must carry the signals of all local commercial television
stations, up to one-third of the aggregate number of usable activated channels
of such a system. The 1992 Cable Act also includes a retransmission consent
provision that prohibits cable operators and other multi-channel video
programming distributors ("MVPDs") from carrying broadcast signals without
obtaining the station's consent in certain circumstances. The "must carry" and
retransmission consent provisions are related in that a local television
broadcaster, on a cable system-by-cable system basis, must make a choice once
every three years whether to proceed under the "must carry" rules or to waive
the right to mandatory but uncompensated carriage and negotiate a grant of
retransmission consent to permit the cable system to carry the station's signal,
in most cases in exchange for some form of consideration from the cable
operator. Cable systems and other MVPDs must obtain retransmission consent to
carry all distant commercial stations other than "super stations" delivered via
satellite.
In April 1997, the FCC adopted rules that require television broadcasters
to provide digital television ("DTV") to consumers. The FCC also adopted a table
of allotments for DTV, which provides eligible existing broadcasters with a
second channel on which to provide DTV service. The FCC's DTV allotment plan is
based on the use of a "core" DTV spectrum between channels 2-51. The
Communications Act mandates that unless certain benchmarks are not satisfied, by
the end of 2006 the FCC must recover one of the two channels from each
television station. Television broadcasters will be allowed to use their
channels according to their best business judgment. Such uses can include
multiple standard definition program channels, data transfer, subscription
video, interactive materials, and audio signals (so-called "ancillary"
services), although broadcasters will be required to provide a free digital
video programming service that is at least comparable to today's analog service.
The FCC has imposed a fee of 5% of the annual gross revenues for television
broadcasters' use of the DTV spectrum to offer ancillary services (i.e.,
services other than free, over-the-air, advertiser-supported television). The
form and amount of these fees may have a significant effect on the profitability
of such services. Broadcasters will not be required to air "high definition"
programming or, initially, to simulcast their analog programming on the digital
channel. Affiliates of ABC, CBS, NBC and Fox in the top 10 television markets
were required to be on the air with a digital signal by May 1, 1999, and
affiliates of those networks in markets 11-30 were required to be on the air
with digital signals by November 1, 1999. The remaining commercial stations,
including those owned by Emmis, were required to file DTV construction permit
applications by November 1, 1999 and to be on the air with digital signals by
May 1, 2002. Emmis timely filed DTV construction permit applications for all
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<PAGE> 15
its television stations. The FCC also has released a Notice of Inquiry to
determine the extent of broadcasters' future public interest obligations.
Whether and to what extent the cable "must-carry" rights discussed earlier
will extend to the new DTV signals is still a matter to be determined by a rule
making proceeding initiated by the FCC in July 1998. The rule making proceeding
also seeks comment on related issues, including how to resolve technical
compatibility problems, whether the FCC should modify its signal quality
requirement during the transition, how to regulate channel placement of digital
television signals and whether such signals must be carried on the basic cable
tier. We cannot predict at this time whether the FCC will adopt "must carry"
requirements for digital television signals or the effect of an FCC decision on
our television stations.
The FCC has authorized the provision of video programming directly to home
subscribers through high-powered direct broadcast satellites ("DBS"). DBS
systems currently are capable of broadcasting as many as 175 channels of digital
television service directly to subscribers' equipment with 18-inch receiving
dishes and decoders. Currently, several entities provide DBS service to
consumers throughout the country. Other DBS operators hold licenses, but have
not yet commenced service. DBS operators may not import distant network signals
into local television markets unless the individual household that would receive
the distant network signal is not capable of receiving a sufficiently strong
"over-the-air" signal of the local affiliate of the given network. In November
1999, Congress enacted the Satellite Home Viewer Improvement Act ("SHVIA") which
authorizes DBS companies to provide local television signals to their
subscribers. During the first six months following enactment of the law, the
signal could be provided without the consent of the station. Upon the expiration
of that period, the signal may now be provided only pursuant to a retransmission
consent agreement with the station. In addition, effective January 1, 2002, a
local television station will be entitled to "must-carry" rights on a DBS system
if the system is providing any local television stations to its subscribers. The
legislation also requires broadcasters to negotiate nonexclusive retransmission
consent agreements in good faith until January 1, 2006; however, the law
explicitly provides that broadcasters may enter into agreements with competing
DBS carriers on different terms. SHVIA also "grandfathered" delivery of the
signals of television stations via DBS to certain subscribers who may have been
receiving such signals in violation of prior law.
SHVIA also created a new category of television stations, Class A stations,
which are afforded a measure of protection from new full-service and low-power
television stations. Only certain low-power stations qualify for the new Class A
status, i.e., those low power television stations certifying that, from
September 1, 1999 to November 29, 1999, they (1) operated a minimum of 18 hours
per day; (2) produced an average of at least 3 hours per week of programming
within the service market; and (3) complied with all applicable low power
television (Part 74) rules. Furthermore, the licensee of a Class A station will
be required to comply with all applicable full power television station rules as
of the date of application for Class A status, including all political
advertising restrictions, local public inspection file rules, and the location
of the main studio. Finally, SHVIA permitted full-service stations to file
applications to "maximize" (expand the coverage of) their DTV facilities by (i)
filing a notice of intent to maximize with the FCC on or before December 31,
1999, and (ii) file a bona fide application to maximize on or before May 1,
2000. Stations meeting those requirements will have their "maximized" DTV
facilities protected from interference by Class A stations. Emmis timely filed a
Notice of Intent and a "maximization application" for each of its television
stations.
There are FCC rules and policies, and rules and policies of other federal
agencies, that regulate matters such as network-affiliate relations, the ability
of stations to obtain exclusive rights to air syndicated programming, cable
systems' carriage of syndicated and network programming on distant stations,
political advertising practices, application procedures and other areas
affecting the business or operations of broadcast stations.
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<PAGE> 16
Failure to observe FCC rules and policies can result in the imposition of
various sanctions, including monetary fines, the grant of "short" (less than the
maximum term) license renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
Recent Developments and Proposed Changes. In February 2000, the Commission
adopted rules implementing a Low Power ("Microradio") FM service. The new
service is comprised of two classes of stations. First, "LP-100" Class stations
will be authorized to operate with 50 - 100 watts effective radiated power
("ERP"), at a maximum height above average terrain ("HAAT") of 30 meters.
Second, "LP-10" Class stations will be authorized to operate with one to ten
watts ERP, at a maximum of 30 meters HAAT. The LP-100 stations are expected to
have a service radius of up to 3 1/2 miles, and the LP-10 stations will have a
service radius of up to two miles. Both classes of stations will be restricted
to non-commercial operation. We cannot predict whether any such stations will
interfere with the coverage of any of our radio stations. Currently, Congress is
considering legislation with a view to ensuring interference protection for
existing radio stations.
In April 1997, the FCC adopted rules authorizing delivery of digital audio
radio service on a nationwide basis by satellite ("SDARS"). At the same time,
the FCC put out for comment a proposal to permit SDARS to be supplemented by
terrestrial transmitters designed to fill "gaps" in satellite coverage. The FCC
has awarded two nationwide licenses for SDARS. It is anticipated that SDARS,
when implemented, will be capable of delivering multiple channels of
compact-disc quality sound which will be receivable through the use of special
receiving antennas.
In November 1999, the Commission released proposed rules regarding the
adoption of rules for terrestrial digital audio broadcasting ("DAB"). The
proposed rules would permit existing AM and FM stations to operate on their
current frequencies in either full analog mode, full digital mode, or (at
reduced power) a combination of both. DAB technology is still evolving, and it
is not yet certain whether DAB transmission as proposed will be feasible.
In August 1998, the FCC adopted rules to govern the use of auctions to
resolve competing applications for initial licenses and construction permits and
competing applications for major modifications to existing commercial broadcast
facilities. The rules apply to full power commercial radio and analog television
stations, as well as to all secondary commercial broadcast services (e.g., low
power television, FM translator and television translator services). In
September 1999, the Commission conducted the first of its auctions for
long-frozen applications. Any future applications we may file for major
modifications to our facilities may become subject to auction proceedings if
they are found to be mutually exclusive with major modification applications
filed by other radio or television licensees or applications for new stations.
On March 13, 1998, the FCC approved a television programming rating system
developed by the television industry which will allow parents to "black-out"
programs that contain material they consider inappropriate for children. On
March 13, 1998, the FCC also adopted technical requirements for the
implementation of so-called "v-chip technology" which will enable parents to
program television sets so that certain programming will be inaccessible to
children.
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<PAGE> 17
The Congress and the FCC have under consideration, and may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of our broadcast stations, result in the loss of audience
share and advertising revenues for our broadcast stations and affect our ability
to acquire additional broadcast stations or finance such acquisitions. Such
matters include:
- proposals to impose spectrum use or other fees on FCC licensees;
- proposals to repeal or modify some or all of the FCC's multiple ownership
rules and/or policies;
- proposals to change rules relating to political broadcasting, including the
reinstatement of the so-called "fairness doctrine";
- technical and frequency allocation matters;
- AM stereo broadcasting;
- proposals to permit expanded use of FM translator stations;
- proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages on radio;
- proposals permitting FM stations to accept formerly impermissible
interference;
- proposals to reimpose holding periods for licenses;
- changes to broadcast technical requirements, including those relative to
the implementation of digital audio broadcasting and satellite digital
audio radio service;
- proposals to tighten safety guidelines relating to radio frequency
radiation exposure; and
- proposals to limit the tax deductibility of advertising expenses by
advertisers.
We cannot predict whether any proposed changes will be adopted, what other
matters might be considered in the future, or what impact, if any, the
implementation of any of these proposals or changes might have on our business.
The foregoing is only a brief summary of certain provisions of the
Communications Act and of specific FCC regulations. Reference is made to the
Communications Act, FCC regulations and the public notices and rulings of the
FCC for further information concerning the nature and extent of federal
regulation of broadcast stations.
ADVERTISING SALES
Our stations derive their advertising revenue from local and regional
advertising in the marketplaces in which they operate, as well as from the sale
of national advertising. Local and most regional sales are made by a station's
sales staff. National sales are made by firms specializing in such sales which
are compensated on a commission-only basis. We believe that the volume of
national advertising revenue tends to adjust to shifts in a station's audience
share position more rapidly than does the volume of local and regional
advertising revenue.
We have led the industry in developing "vendor co-op" advertising revenue
(i.e., revenue from a manufacturer or distributor which is used to promote its
particular goods together with local retail outlets for those goods). Although
this source of advertising revenue is common in the newspaper and magazine
industry, we were among the first radio broadcasters to recognize, and take
advantage of, the potential of vendor co-op advertising. Our Revenue Development
Systems division has established a network of radio stations which share
information about sources of vendor co-op revenue. In addition, each of our
stations has a salesperson devoted exclusively to the development of cooperative
advertising. We also use this approach at our television stations. In March
1999, we acquired substantially all of the assets of the Co-Opportunities
division of Jefferson-Pilot Communications. We believe that the business of
Co-Opportunities (which focuses more on co-op advertising for television
stations and cable systems) provides an excellent complement to Revenue
Development Systems.
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COMPETITION
Radio and television broadcasting stations compete with the other
broadcasting stations in their respective market areas, as well as with other
advertising media such as newspapers, magazines, outdoor advertising, transit
advertising, the Internet and direct mail marketing. Competition within the
broadcasting industry occurs primarily in individual market areas, so that a
station in one market does not generally compete with stations in other market
areas. In each of our markets, our stations face competition from other stations
with substantial financial resources, including stations targeting the same
demographic groups. In addition to management experience, factors which are
material to competitive position include the station's rank in its market,
authorized power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other stations in the market
area. We attempt to improve our competitive position with programming and
promotional campaigns aimed at the demographic groups targeted by our stations,
and through sales efforts designed to attract advertisers that have done little
or no broadcast advertising by emphasizing the effectiveness of radio and
television advertising in increasing the advertisers' revenues. Changes in the
policies and rules of the FCC permit increased joint ownership and joint
operation of local stations. Those stations taking advantage of these joint
arrangements (including our New York, St. Louis, Indianapolis and Terre Haute
clusters) may in certain circumstances have lower operating costs and may be
able to offer advertisers more attractive rates and services. Although we
believe that each of our stations can compete effectively in its market, there
can be no assurance that any of our stations will be able to maintain or
increase its current audience ratings or advertising revenue market share.
Although the broadcasting industry is highly competitive, some barriers to
entry exist. The operation of a broadcasting station in the United States
requires a license from the FCC, and the number of stations that can operate in
a given market is limited by the availability of the frequencies that the FCC
will license in that market, as well as by the FCC's multiple ownership rules
regulating the number of stations that may be owned and controlled by a single
entity. The FCC's multiple ownership rules have changed significantly as a
result of the Telecommunications Act of 1996.
The broadcasting industry historically has grown in terms of total revenues
despite the introduction of new technology for the delivery of entertainment and
information, such as cable television, The Internet, satellite television, audio
tapes and compact discs. We believe that radio's portability in particular makes
it less vulnerable than other media to competition from new methods of
distribution or other technological advances. There can be no assurance,
however, that the development or introduction in the future of any new media
technology will not have an adverse effect on the radio or television
broadcasting industry.
EMPLOYEES
As of February 29, 2000 Emmis had approximately 1,440 full-time employees
and approximately 270 part-time employees. We have approximately 214 employees
at various radio and television stations represented by unions. We consider
relations with our employees to be good.
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GEOGRAPHIC FINANCIAL INFORMATION
The Company's segments operate primarily in the United States with one
radio station located in Hungary and two radio stations located in Argentina.
The following tables summarize relevant financial information by geographic
area:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28 (29),
----------------------------------------------------
1998 1999 2000
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Revenues:
Domestic $ 140,583 $ 229,582 $ 316,454
International - 3,254 8,811
----------- ----------- -------------
Total 140,583 232,836 325,265
=========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 28 (29),
----------------------------------------------------
1998 1999 2000
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Noncurrent Assets:
Domestic $ 261,352 $ 925,161 $ 1,181,640
International 20,884 18,588 32,950
--------- ---------- -------------
Total 282,236 943,749 1,214,590
========= ========== =============
</TABLE>
ITEM 2. PROPERTIES.
The following table sets forth information as of February 29, 2000 with
respect to Emmis' offices and studios and its broadcast tower locations.
Management believes that the properties are in good condition and are suitable
for Emmis' operations.
<TABLE>
<CAPTION>
EXPIRATION
YEAR PLACED OWNED OR DATE
PROPERTY IN SERVICE LEASED OF LEASE
-------- ---------- -------- ----------
<S> <C> <C> <C>
Corporate and Publishing Headquarters/ 1998 Owned --
WENS-FM/ WIBC-AM/WNOU-FM/
WTLC-AM & FM/ Indianapolis Monthly
One Emmis Plaza
40 Monument Circle
Indianapolis, Indiana
WENS-FM Tower 1985 Owned --
WNOU-FM Tower 1979 Owned --
WIBC-AM Tower 1966 Owned --
WTLC-AM Tower 1968 Leased December 2021
WTLC-FM Tower 1965 Leased December 2000
KSHE-FM 1986 Leased September 2007
700 St. Louis Union Station
St. Louis, Missouri
KSHE-FM Tower 1985 Leased April 2009
WXTM-FM/WKKX-FM 1998 Leased December 2007
800 St. Louis Union Station
St. Louis, Missouri
WXTM-FM Tower 1984 Owned --
WKKX-FM Tower 1989 Leased September 2009
KPWR-FM 1988 Leased February 2003(1)
2600 West Olive
Burbank, California
KPWR-FM Tower 1993 Leased October 2002
WQHT-FM/WRKS-FM/WQCD-FM 1996 Leased January 2013
395 Hudson Street, 7th Floor
New York, New York
WQHT-FM Tower 1988 Leased January 2010
WRKS-FM Tower 1984 Leased November 2005
WQCD-FM Tower 1984 Leased February 2007
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C> <C> <C>
WKQX-FM 1979 Leased August 2015(2)
Merchandise Mart Plaza
Chicago, Illinois
WKQX-FM Tower 1975 Leased September 2009
Atlanta Magazine Office 1997 Leased July 2003
1360 Peachtree Street
Atlanta, Georgia
Cincinnati Magazine 1996 Leased December 2001
One Centennial Plaza
Cincinnati, OH
Texas Monthly 1989 Leased August 2009
701 Brazos, Suite 1600
Austin, TX
KHON-TV 1999 Owned --
88 Piikoi Street
Honolulu, HI
KHON-TV Tower 1978 Leased December 2008
WALA-TV 1952 Leased May 2001
210 Government Street
Mobile, AL
WALA-TV Tower 1962 Owned --
WFTX-TV 1987 Owned --
621 Pine Island Road
Cape Coral, FL
WFTX-TV Tower 1987 Owned --
WLUK-TV 1966 Owned --
787 Lombardi Avenue
Green Bay, WI
WLUK-TV Tower 1961 Owned --
WTHI-TV/FM/WWVR-FM 1954 Owned --
918 Ohio Street
Terre Haute, IN
WTHI-TV Tower 1965 Owned --
WTHI-FM Tower 1954 Owned --
WWVR-FM Tower 1954 Owned --
WVUE-TV 1972 Owned --
1025 South Jefferson Davis Highway
New Orleans, LA
WVUE-TV Tower 1963 Owned --
WKCF-TV Offices 1998 Owned --
31 Skyine Drive
Lake Mary, FL
WKCF-TV Tower 1991 Leased September 2006
Los Angeles Magazine Offices 1995 Leased November 2000
11100 Santa Monica Blvd.
7th Floor
Los Angeles, CA
Country Sampler 1988 Owned --
707 Kautz Road
St. Charles, IL 60174
RDS/Co-Opportunities 1989 Leased December 2000
324 Campus Lane, Suite B
Suisun, CA 94585
Emmis West (Corporate) 1999 Leased January 2004
15821 Ventura Blvd., #685
Encino, CA 91436
Slager Radio 1998 Leased December 2004
Szabadsag Ut 117 (Atronyx Bldg. B)
H-2040 Budaors, Hungary
Slager Tower 1998 Leased December 2000(3)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Argentina 1996 Owned --
Uriarte 1899 (1414) Capital Federal
Buenos Aires, Argentina
Argentina Tower 1996 Owned --
</TABLE>
--------------
(1) The lease provides for one renewal option of ten years following the
expiration date. Emmis also owns a tower site which it placed in
service in 1984 and currently uses as a back-up facility and on which
it leases space to other broadcasters.
(2) The Company is in the process of building out a studio and office space
in the Merchandise Mart. The lease is for this new space, but gives the
Company the right to stay in its current space during construction.
(3) The lease provides for annual renewal options.
ITEM 3. LEGAL PROCEEDINGS.
Emmis currently and from time to time is involved in litigation incidental
to the conduct of its business, but Emmis is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
Emmis. See Note 7 in Item 8, "Financial Statements and Supplementary Data" for
discussion of litigation with Sinclair Broadcast Group, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special meeting of shareholders of the Company held on February
21, 2000, the following matters received the following votes:
<TABLE>
<CAPTION>
MATTER DESCRIPTION VOTES FOR VOTES AGAINST ABSTAINING
------------------ --------- ------------- ----------
<S> <C> <C> <C>
Increase authorized shares
of Class A and Class B
common stock
Class A 8,626,729 6,313,588 3,747
Class B 23,692,910 - -
Creation of non-voting class
of common stock
Class A 12,744,500 2,183,060 16,504
Class B 23,692,910 - -
Creation of classified board
of directors and other
matters
(Class A and B voted as one group) 29,378,911 8,254,898 1,003,165
</TABLE>
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Emmis' Class A common stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market System under the symbol EMMS.
The following table sets forth the high and low sale prices of the Class A
common stock for the periods indicated. No dividends were paid during any such
periods.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH* LOW*
<S> <C> <C>
May 1998 28.56 20.75
August 1998 24.56 18.25
November 1998 19.75 11.06
February 1999 25.94 16.94
May 1999 25.13 19.50
August 1999 29.56 22.00
November 1999 42.38 27.25
February 2000 62.34 35.63
</TABLE>
*All prices adjusted for the two-for-one stock split on February 24,2000.
At April 30, 2000, there were approximately 2,122 record holders of the
Class A common stock, and there were two record holders, but only one beneficial
owner, of the Class B common stock.
Emmis intends to retain future earnings for use in its business and does not
anticipate paying any dividends on shares of its common stock in the foreseeable
future.
On October 25, 1999 Emmis sold 2,700,000 shares of its Class A Common Stock
(5,400,000 shares after the subsequent stock split) to Liberty EMMS, Inc., a
wholly owned subsidiary of Liberty Media Corporation, in a transaction not
registered under the Securities Act of 1933. The cash purchase price of the
stock was $148,500,000.
The sale was exempt from registration under Section 4(2) of the Securities
Act. Liberty Media Group holds interests in a broad range of video programming,
communications, technology and internet businesses in the United States, Europe,
South America and Asia. Its common stock is traded on the New York Stock
Exchange.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
-----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1997 1998 1999 2000
------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues $ 109,244 $ 113,720 $ 140,583 $ 232,836 $ 325,265
Operating expenses 62,466 62,433 81,170 143,348 199,818
International business development
Expenses 1,264 1,164 999 1,477 1,558
Corporate expenses 4,419 5,929 6,846 10,427 13,872
Time brokerage fee - - 5,667 2,220 -
Depreciation and amortization 5,677 5,481 7,536 28,314 44,161
Non-cash compensation 3,667 3,465 1,482 4,269 7,357
Programming restructuring cost - - - - 896
Operating income 31,751 35,248 36,883 42,781 57,603
Interest expense 13,540 9,633 13,772 35,650 51,986
Loss on donation of radio station - - 4,833 - 956
Other income (expense), net (303) 325 6 1,914 4,203
Income before income taxes
and extraordinary item 17,908 25,940 18,284 9,045 8,864
Income before extraordinary item 10,308 15,440 11,084 2,845 1,989
Net income (loss) 10,308 15,440 11,084 1,248 (33)
Net income (loss) available to common
shareholders 10,308 15,440 11,084 1,248 (3,177)
Net income (loss) per share
available to common shareholders:
Basic $ 0.48 $ 0.71 $ 0.51 $ 0.04 $ (0.09)
Diluted $ 0.46 $ 0.68 $ 0.49 $ 0.04 $ (0.09)
Weighted average common shares
outstanding (1):
Basic 21,382 21,886 21,806 28,906 36,156
Diluted 22,168 22,582 22,724 29,696 36,156
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28 (29),
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash $ 1,218 $ 1,191 $ 5,785 $ 6,117 $ 17,370
Working capital 14,761 15,463 21,635 1,249 28,274
Net intangible assets 135,830 131,743 234,558 802,307 1,033,970
Total assets 176,566 189,716 333,388 1,014,831 1,327,306
Credit facility and senior
subordinated debt 124,000 115,000 215,000 577,000 300,000
Shareholders' equity 13,884 34,422 43,910 235,549 776,367
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Broadcast/publishing cash flow (2) $ 46,778 $ 51,287 $ 59,413 $ 89,488 $ 125,447
EBITDA before certain charges (2) 41,095 44,194 51,568 77,584 110,017
Cash flows from (used in):
Operating activities 23,221 21,362 22,487 35,121 26,360
Investing activities 222 (13,919) (116,693) (541,470) (271,946)
Financing activities (25,430) (7,470) 98,800 506,681 256,839
Capital expenditures 1,396 7,559 16,991 37,383 29,316
</TABLE>
(1) In February 2000, Emmis effected a 2 for 1 stock split of the
outstanding shares of common stock. Accordingly, all data shown has
been retroactively adjusted to reflect the stock split.
(2) Broadcast/publishing cash flow and EBITDA before certain charges 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 Emmis' results of operations
presented on the basis of generally accepted accounting principles.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Emmis ("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. 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 the magazine, and
general and administrative costs.
The Company's revenues are affected primarily by the advertising rates its
entities charge. These rates are in large part based on the entities' ability to
attract audiences/subscribers in demographic groups targeted by their
advertisers. Broadcast entities' ratings are measured principally four times a
year by Arbitron Radio Market Reports for radio stations and by A.C. Nielsen
Company for television stations. Because audience ratings in a station's local
market are critical to the station's financial success, the Company's strategy
is to use market research and advertising and promotion to attract and retain
audiences in each station's chosen demographic target group.
In addition to the sale of advertising time for cash, stations typically
exchange advertising time for goods or services which can be used by the station
in its business operations. The Company generally confines the use of such trade
transactions to promotional items or services for which the Company would
otherwise have paid cash. In addition, it is the Company's general policy not to
pre-empt advertising spots paid for in cash with advertising spots paid for in
trade.
ACQUISITIONS, DONATIONS AND INVESTMENTS
On May 7, 2000, the Company 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"). 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, and
24
<PAGE> 25
KSNT-TV (NBC) in Topeka, Kansas. The 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 television and radio businesses. Management is
evaluating structural and financing alternatives to effect this separation of
businesses.
On March 3, 2000, the Company acquired all of the outstanding capital stock
of Los Angeles Magazine Holding Company, Inc. for approximately $36.0 million in
cash plus liabilities recorded of $1.4 million. Los Angeles Magazine Holding
Company, Inc. owns and operates Los Angeles Magazine, a city magazine. The
acquisition will be accounted for as a purchase and was financed through
borrowings under the Company's credit facility (the "Credit Facility").
On December 14, 1999, the Company completed its acquisition of
substantially all of the assets of Country Marketplace and related publications
from H&S Media, Inc. for approximately $1.8 million in cash plus liabilities
recorded of approximately $.6 million. The acquisition was accounted for as a
purchase and was financed through borrowings under the Credit Facility. The
excess of the purchase price over the estimated fair value of identifiable
assets was $2.3 million, which is included in intangible assets in the
accompanying consolidated balance sheets and is being amortized over 15 years.
On November 16, 1999 Emmis purchased one million shares of BuyItNow.com
L.L.C. for $5 million in cash, which represented an original investment of 2.49%
of the outstanding equity of BuyItNow.com L.L.C. This investment is accounted
for using the cost method of accounting and is reflected in other assets in the
accompanying consolidated balance sheets. In a separate transaction,
BuyItNow.com L.L.C. agreed to a cash purchase of $2.5 million of advertisements
from Emmis through February 2001.
On November 9, 1999, the Company completed its acquisition of 75% of the
outstanding common stock of Votionis, S.A. ("Votionis") for $13.3 million in
cash plus liabilities recorded of $5.6 million. Additional consideration of up
to $2.2 million will be paid if certain conditions are met. Votionis consists of
one FM and one AM radio station located in Buenos Aires, Argentina (the
"Votionis Acquisition"). The acquisition was accounted for as a purchase and was
financed with proceeds from the Company's October 1999 Common and Preferred
Equity Offerings. Broadcast licenses are included in intangible assets in the
accompanying consolidated balance sheets. This broadcast license is being
amortized over 23 years.
On October 29, 1999, the Company completed its acquisition of substantially
all of the assets of television station WKCF in Orlando, Florida ( the "WKCF
Acquisition") from Press Communications, L.L.C. for approximately $197.1 million
in cash. The purchase price included the purchase of land and a building for
$2.2 million. The Company financed the acquisition through a $12.5 million
advance payment borrowed under the Credit Facility and proceeds from the
Company's October 1999 Common and Preferred Equity Offerings. In connection with
the acquisition, the Company recorded $49.3 million in contract liabilities. The
acquisition was accounted for as a purchase. The total purchase price was
allocated to property and equipment, television program rights and broadcast
licenses based on a preliminary appraisal. Broadcast licenses are included in
intangible assets in the accompanying consolidated balance sheet and are being
amortized over 40 years. WKCF is an affiliate of the WB Television Network. As
part of the WKCF Acquisition, the Company entered into an agreement with the WB
Television Network which, among other things, extends the existing network
affiliation agreement through December 2009.
In June 1999, the Company entered into an agreement with a former executive
of Sinclair Broadcast Group, Inc. ("Sinclair") to purchase the executive's right
to acquire the assets of certain broadcast properties in St. Louis, Missouri
under an option agreement (the "St. Louis Acquisition"). The right was exercised
and allows the Company to purchase, at fair market value, six radio stations
(five FM and one AM) and one ABC-affiliated television station from Sinclair.
25
<PAGE> 26
In November 1999, through completion of an appraisal process, the purchase
price of the St. Louis Acquisition was determined to be $366.5 million. Sinclair
has since filed a lawsuit in which it alleges, among other things, that the
option agreement is not enforceable and that Emmis is not a proper designee of
the executive's rights. The Company has denied the allegations made by Sinclair
and believes that it has meritorious defenses to Sinclair's allegations. In
addition, the Company has filed counterclaims against Sinclair, seeking, among
other things, that the court order Sinclair to complete the sale of its St.
Louis broadcast properties to the Company.
The St. Louis Acquisition will be subject to approval by both the Federal
Communications Commission and the Department of Justice; it will be accounted
for as a purchase and will be financed through available cash, additional debt
or equity securities, depending on market conditions and other factors.
Under FCC regulations, Emmis can own no more than five FM and three AM
stations in the St. Louis market. Since Emmis already owns three FM stations in
the St. Louis market, concurrently with the consummation of the St. Louis
Acquisition, Emmis must divest three FM stations. Management intends to divest
the stations in the St. Louis market with the three weakest transmitting
signals.
On April 1, 1999, the Company completed its acquisition of substantially
all of the assets of Country Sampler, Inc. (the "Country Sampler Acquisition")
for approximately $20.9 million plus liabilities recorded of approximately $4.7
million. The purchase price was payable with $18.5 million in cash at closing,
which was financed through additional borrowings under the Credit Facility, $2.0
million payable under a contract with the principal shareholder through April
2003, and $.5 million paid in October 1999. The acquisition was accounted for as
a purchase. The excess of the purchase price over the estimated fair value of
identifiable assets was $17.7 million, which is included in intangible assets in
the accompanying consolidated balance sheets and is being amortized over 15
years.
Effective October 1, 1998, the Company completed its acquisition of
substantially all of the assets of Wabash Valley Broadcasting Corporation (the
"Wabash Acquisition") for a cash purchase price of $88.9 million (including
transaction costs), plus liabilities recorded of approximately $12.2 million.
The Company financed the acquisition through borrowings under the Credit
Facility. The Wabash Acquisition consists of WFTX-TV, a Fox network affiliated
television station in Ft. Myers, Florida, WTHI-TV a CBS network affiliated
television station in Terre Haute, Indiana, WTHI-FM and AM and WWVR-FM, radio
stations located in the Terre Haute, Indiana area. In December 1999, the Company
donated radio station WTHI-AM to a not-for-profit corporation. The $1.0 million
net book value of the station at the time of donation was recognized as a loss
on donation of radio station.
On July 16, 1998, the Company completed its acquisition of substantially all
of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc.
and Subsidiaries (collectively the "SF Acquisition") for a cash purchase price
of $287.3 million (including transaction costs), a $25 million promissory note
due to the former owner, plus liabilities recorded of approximately $34.7
million. The Company financed the acquisition through a $25 million promissory
note and borrowings under the Credit Facility. The promissory note was paid in
full in February 1999. The SF Acquisition consists of four Fox network
affiliated television stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New
Orleans, Louisiana, WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii
(including satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo,
Hawaii).
On June 5, 1998, the Company completed its acquisition of radio station
WQCD-FM in New York City (the "WQCD Acquisition") from Tribune New York Radio,
Inc. for a cash purchase price of $141.6 million (including transaction costs)
less approximately $13.0 million for cash purchase price adjustments relating to
taxes, plus $20.0 million of net current tax liabilities, $52.5 million of
deferred tax liabilities and $0.3 million of liabilities associated with the
acquisition. The acquisition was accounted for as a purchase and was financed
through borrowings under the Credit Facility. Effective July 1, 1997 through the
26
<PAGE> 27
date of closing, the Company operated WQCD-FM under a time brokerage agreement.
On February 1, 1998, the Company acquired all of the outstanding capital
stock of Mediatex Communications Corporation for approximately $37.4 million in
cash plus liabilities recorded of $8.0 million (the "Mediatex Acquisition").
Mediatex Communications Corporation owns and operates Texas Monthly, a regional
magazine. The acquisition was accounted for as a purchase and was financed
through borrowings under the Credit Facility.
On November 1, 1997, the Company acquired substantially all of the net
assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million
in cash (the "Cincinnati Acquisition"). Emmis financed the acquisition through
borrowings under the Credit Facility. The acquisition was accounted for as a
purchase.
On November 1, 1997, the Company completed its acquisition of substantially
all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting,
L.P. for approximately $15.3 million in cash (the "Indianapolis Acquisition").
Emmis financed the acquisition through borrowings under the Credit Facility. The
acquisition was accounted for as a purchase.
Emmis owns a 54% interest in a Hungarian subsidiary (Slager Radio Rt.) which
was formed in August 1997. In November 1997, Slager Radio acquired a radio
broadcasting license from the Hungarian government at a cost of approximately
$19.2 million. The broadcast license has an initial term of seven years and may
be renewed, subject to governmental approval, for an additional five years.
Slager Radio began broadcasting on February 16, 1998.
On October 1, 1997, the Company acquired the assets of Network Indiana and
AgriAmerica from Wabash Valley Broadcasting Corporation for $.7 million in cash
(the "Network Acquisition"). Emmis financed the acquisition through borrowings
under the Credit Facility. The acquisition was accounted for as a purchase.
On March 31, 1997, Emmis completed its acquisition of substantially all of
the assets of radio stations WXTM-FM (formerly WKBQ-FM and WALC-FM), WALC-AM
(formerly WKBQ-AM) and WKKX-FM in St. Louis (the "St. Louis Acquisition") from
Zimco, Inc. for approximately $43.6 million in cash, plus an agreement to
broadcast approximately $1 million in trade spots, for Zimco, Inc., over a
period of years. The purchase price was financed through borrowings under the
Credit Facility and the acquisition was accounted for as a purchase. In February
1998, the Company donated radio station WALC-AM to a church. The $4.8 million
net book value of the station at the time of donation was recognized as a loss
on donation of radio station. Effective December 1, 1996 through the date of
closing, the Company operated the acquired stations under a time brokerage
agreement.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 29, 2000 COMPARED TO YEAR ENDED FEBRUARY 28, 1999. Net
revenues for the year ended February 29, 2000 were $325.3 million compared to
$232.8 million for the same period of the prior year, an increase of $92.5
million or 39.7%. The increase in net revenues for the year ended February 29,
2000 is primarily the result of the SF, Wabash and WKCF Acquisitions (the "TV
Acquisitions")($36.5 million) and Country Sampler Acquisition ($13.4 million).
Excluding these transactions, net revenues for the year ended February 29, 2000
would have increased $42.6 million or 21.8%. Included in this increase is a
decrease in political advertising revenue at our television stations as our
fiscal year ended February 29, 2000 was not a significant year for political
campaigns. The remaining increase in net revenues is due to the ability to
realize higher advertising rates resulting from higher ratings at certain
broadcasting properties, increases in general radio spending in the markets in
which the Company operates, the ability to sell more advertising in our
publications and an increase in single copy newsstand sales.
27
<PAGE> 28
Operating expenses for the year ended February 29, 2000 were $199.8 million
compared to $143.3 million for the same period of the prior year, an increase of
$56.5 million or 39.4%. The increase in operating expenses for the year ended
February 29, 2000 is primarily the result of the TV Acquisitions ($25.0 million)
and Country Sampler Acquisition ($11.2 million). Excluding these transactions,
operating expenses for the year ended February 29, 2000 would have increased
$20.3 million or 17.0%. This increase is principally 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 year ended February 29, 2000 was
$125.4 million compared to $89.5 million for the same period of the prior year,
an increase of $35.9 million or 40.2%. The increase in broadcast/publishing cash
flow for the year ended February 29, 2000 is primarily the result of the TV
Acquisitions ($11.5 million) and Country Sampler Acquisition ($2.2 million).
Excluding these transactions, broadcast/publishing cash flow for the year ended
February 29, 2000 would have increased $22.2 million or 29.3%. This increase is
principally due to increased net revenues partially offset by increased
operating expenses as discussed above.
International business development expenses for the year ended February 29,
2000 were $1.6 million compared to $1.5 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 year ended February 29, 2000 were $13.9 million
compared to $10.4 million for the same period of the prior year, an increase of
$3.5 million or 33.0%. These increases are due to costs associated with year
2000 compliance, analysis of potential acquisitions and an increase in the
number of corporate employees in all departments as a result of the growth of
the Company.
EBITDA before certain charges is defined as broadcast/publishing cash flow
less corporate and international development expenses. EBITDA before certain
charges for the year ended February 29, 2000 was $110.0 million compared to
$77.6 million for the same period of the prior year, an increase of $32.4
million or 41.8%. This increase was principally due to the increase in
broadcast/publishing cash flow partially offset by an increase in corporate
expenses.
Interest expense was $52.0 million for the year ended February 29, 2000
compared to $35.7 million for the same period of the prior year, an increase of
$16.3 million or 45.8%. This increase reflected higher outstanding debt due to
the TV Acquisitions, WQCD Acquisition, which was previously operated under a
time brokerage agreement, and Country Sampler Acquisition and a higher rate of
interest paid by the Company on outstanding debt.
Depreciation and amortization expense for the year ended February 29, 2000
was $44.2 million compared to $28.3 million for the same period of the prior
year, an increase of $15.9 million or 56.0%. The increase in depreciation and
amortization expense for the year ended February 29, 2000 is primarily the
result of the TV Acquisitions ($8.0 million), WQCD Acquisition ($2.2 million)
and Country Sampler Acquisition ($2.3 million). The remaining increase relates
to depreciation of capital additions in recent years.
Non-cash compensation expense for the year ended February 29, 2000 was $7.4
million compared to $4.3 million for the same period of the prior year, an
increase of $3.1 million or 72.3%. 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 shares granted to certain executives
under employment agreements for which the fair market value of the shares at the
date of grant was higher than the fair market value of shares granted under
previous employment agreements due to the appreciation in the Company's stock
price.
28
<PAGE> 29
YEAR ENDED FEBRUARY 28, 1999 COMPARED TO YEAR ENDED FEBRUARY 28, 1998. Net
revenues for the year ended February 28, 1999 were $232.8 million compared to
$140.6 million for the same period of the prior year, an increase of $92.2
million or 65.6%. This increase was principally due to the Indianapolis,
Cincinnati and Mediatex Acquisitions that occurred toward the end of fiscal 1998
and the SF and Wabash Acquisitions that occurred in fiscal 1999 (collectively
the "98/99 Acquisitions"). Additionally, Emmis realized higher advertising rates
at its broadcasting properties, resulting from higher ratings at certain
broadcasting properties, as well as increases in general radio spending in the
markets in which the Company operates.
Operating expenses for the year ended February 28, 1999 were $143.3 million
compared to $81.2 million for the same period of the prior year, an increase of
$62.1 million or 76.6%. This increase was principally attributable to the 98/99
Acquisitions and increased promotional spending at the Company's broadcasting
properties.
Broadcast/publishing cash flow for the year ended February 28, 1999 was
$89.5 million compared to $59.4 million for the same period of the prior year,
an increase of $30.1 million or 50.6%. This increase was due to increased net
revenues partially offset by increased operating expenses as discussed above.
International business development expenses for the year ended February 28,
1999 were $1.5 million compared to $1.0 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 year ended February 28, 1999 were $10.4 million
compared to $6.8 million for the same period of the prior year, an increase of
$3.6 million or 52.3%. This increase was primarily due to an increase in the
number of corporate employees as a result of the growth of the Company and
increased travel and other expenses related to potential acquisitions that were
not finalized.
EBITDA before certain charges is defined as broadcast/publishing cash flow
less corporate and international development expenses. EBITDA before certain
charges for the year ended February 28, 1999 was $77.6 million compared to $51.6
million for the same period of the prior year, an increase of $26.0 million or
50.4%. This increase was principally due to the increase in broadcast/publishing
cash flow partially offset by an increase in corporate expenses.
Interest expense was $35.7 million for the year ended February 28, 1999
compared to $13.8 million for the same period of the prior year, an increase of
$21.9 million or 158.9%. This increase reflected higher outstanding debt due to
the 98/99 Acquisitions and the WQCD Acquisition.
Depreciation and amortization expense for the year ended February 28, 1999
was $28.3 million compared to $7.5 million for the same period of the prior
year, an increase of $20.8 million or 275.7%. This increase was primarily due to
the 98/99 Acquisitions and the WQCD Acquisition.
Non-cash compensation expense for the year ended February 28, 1999 was $4.3
million compared to $1.5 million for the same period of the prior year, an
increase of $2.8 million or 188.1%. 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. The increase in non-cash compensation relates primarily to options
awarded the CEO in fiscal 1999 under his employment contract while similar
options were not awarded in fiscal 1998.
29
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operations
and availability under its Credit Facility. At February 29, 2000, the Company
had cash and cash equivalents of $17.4 million, net working capital of $28.3
million and $398.9 million available under the Credit Facility, after
considering an outstanding letter of credit of $1.1 million. The Company expects
that cash flow from operating activities will be sufficient to fund all debt
service requirements for debt existing at February 29, 2000, and working capital
and capital expenditure requirements for the next year. In addition, the Company
also has access to public equity and debt markets.
On January 14, 2000, Emmis repaid the $250 million term note outstanding
under its Credit Facility. The repayment resulted in cancellation of the term
note portion of the Credit Facility.
On October 29, 1999, Emmis completed the sale of 7.984 million shares of
its Class A common stock at $31.25 per share resulting in total proceeds of
$249.5 million. Net proceeds of $238.3 million were used to fund the acquisition
of WKCF-TV in Orlando, Florida, two radio stations in Buenos Aires, Argentina,
and to repay certain outstanding obligations under the Credit Facility.
At the same time as its public sale of 7.984 million shares of Class A
common stock, Emmis entered into a stock purchase agreement with Liberty Media
Corporation (Liberty) and sold 5.4 million shares of the Company's Class A
common stock to Liberty for $148.5 million on November 18, 1999. Net proceeds of
$145.3 million were used to fund the acquisition of WKCF-TV in Orlando, Florida,
two radio stations in Buenos Aires, Argentina, and to repay certain outstanding
obligations under the Credit Facility.
Also on October 29, 1999, the Company completed the sale of 2.875 million
shares of 6.25% Series A cumulative convertible preferred stock at $50 per share
resulting in total proceeds of $143.8 million. Net proceeds of $138.4 million
were used to fund the acquisition of WKCF-TV in Orlando, Florida, two radio
stations in Buenos Aires, Argentina, and to repay certain outstanding
obligations under the Credit Facility.
Emmis has exercised its right, acquired in June 1999 from a former
executive of Sinclair, to purchase certain broadcast properties in St. Louis,
Missouri under an option agreement. The purchase price has been determined to be
$366.5 million. The St. Louis Acquisition will be accounted for as a purchase
and will be financed through available cash, additional debt or equity
securities, depending on market conditions and other factors. For further
discussion of this item, see Acquisitions, Donations and Investments.
The Company has signed an agreement to purchase the outstanding common
stock of one FM radio station and one AM radio station in Buenos Aires,
Argentina. This will bring the Company's total radio holdings in Buenos Aires to
four radio stations (two FM stations and two AM stations). Emmis expects that
this acquisition will have an aggregate purchase price of approximately $10
million and will be financed through borrowings under the Credit Facility.
On March 3, 2000, the Company acquired all of the outstanding capital stock
of Los Angeles Magazine Holding Company, Inc. for approximately $36.0 million in
cash plus liabilities recorded of $1.4 million. The acquisition was financed
through borrowings under the Credit Facility.
On May 7, 2000, the Company 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"). The 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 television and radio
businesses. Management is evaluating structural and financing
30
<PAGE> 31
alternatives to effect this separation of businesses.
In the fiscal years ended February 1998, 1999 and 2000, the Company had
capital expenditures of $17.0 million, $37.4 million and $29.3 million,
respectively. These capital expenditures primarily related to the Indianapolis
office facility project, the KHON operating facilities project, leasehold
improvements to office and studio facilities in connection with the
consolidation of the New York broadcast properties to a single location, and
broadcast equipment purchases and tower upgrades.
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 future acquisition opportunities, the Company may
incur additional debt or issue additional equity or debt securities depending on
market conditions and other factors.
SEASONALITY
The Company's results of operations are usually subject to seasonal
fluctuations, which result in higher second and third quarter revenues and
broadcast cash flow. This seasonality is due to the younger demographic
composition of many of the Company's stations. Advertisers increase spending
during the summer months to target these listeners. In addition, advertisers
generally increase spending during the months of October and November, which are
part of the Company's third quarter, in anticipation of the holiday season.
Finally, revenues from political advertising tend to be higher in even numbered
calendar years.
YEAR 2000
Emmis has not experienced significant problems related to systems properly
recognizing date sensitive information as a result of the year 2000. However, if
Emmis were to experience such problems in the future, Emmis could implement
temporary solutions or processes not involving the malfunctioning equipment.
Contingency plans have been documented in the event Emmis must implement such
temporary solutions. Emmis completed its assessment of year 2000 compliance for
information technology, other equipment, including broadcast equipment, and
embedded technology in October 1999. Emmis began tracking costs relating to year
2000 compliance in May 1999. Emmis estimates that the total cost of year 2000
remediation efforts were less than $1.0 million, which was funded from
operations.
INFLATION
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in the
future would not have an adverse effect on the Company's operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of Emmis due to adverse changes in
financial and commodity market prices and rates. Emmis is exposed to market risk
from changes in domestic and international interest rates (i.e. prime and LIBOR)
and foreign currency exchange rates. To manage this exposure Emmis periodically
enters into interest rate derivative agreements. Emmis does not use financial
instruments for trading and is not a party to any leveraged derivatives.
31
<PAGE> 32
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued, which establishes accounting and reporting
standards for derivative financial instruments and hedging activities. SFAS No.
133 is amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133",
and is effective for years beginning after June 15, 2000. This pronouncement,
which Emmis plans to adopt in its fiscal year ending February 28, 2002, will
require, among other things, the Company to recognize all derivatives as either
assets or liabilities on the balance sheet at fair value. Derivatives not
qualifying as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in its fair
value will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through income or recognized in other
comprehensive income. Hedge ineffectiveness, the amount by which the change in
the value of a hedge does not exactly offset the change in the value of the
hedged item, will be immediately recognized in earnings. Management believes
adoption of this statement will not materially impact the Company's financial
position or results of operations.
INTEREST RATES
Although no balance existed as of February 29, 2000, future outstanding
balances under the Company's Credit Facility will bear interest at variable
rates. The Credit Facility requires Emmis to maintain interest rate protection
agreements through July 2001. The notional amount required varies based upon
Emmis' ratio of adjusted debt to EBITDA, as defined in the Credit Facility.
FOREIGN CURRENCY
Emmis owns a 54% interest in a Hungarian subsidiary which is consolidated in
the accompanying financial statements. This subsidiary's operations are measured
in its local currency. Emmis has a natural hedge since some of the subsidiary's
long-term obligations are denominated in Hungarian forints. Emmis maintains no
other derivative instruments to mitigate the exposure to translation and/or
transaction risk. However, this does not preclude the adoption of specific
hedging strategies in the future. It is estimated that a 10% change in the value
of the U.S. dollar to the Hungarian forint would not be material.
Emmis owns a 75% interest in an Argentinean subsidiary which is consolidated
in the accompanying financial statements. This subsidiary's operations are
measured in its local currency (peso), which is tied to the U.S. dollar through
the Argentine government's Convertibility Plan. Emmis maintains no derivative
instruments to mitigate the exposure to translation and/or transaction risk.
However, this does not preclude the adoption of specific hedging strategies in
the future.
32
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28 (29),
------------------------------------------------------------
1998 1999 2000
------------------------------------------------------------
<S> <C> <C> <C>
GROSS REVENUES $ 165,324 $ 274,056 $ 380,995
LESS AGENCY COMMISSIONS 24,741 41,220 55,730
---------- -------- --------
NET REVENUES 140,583 232,836 325,265
Operating expenses 81,170 143,348 199,818
International business
development expenses 999 1,477 1,558
Corporate expenses 6,846 10,427 13,872
Time brokerage fee 5,667 2,220 -
Depreciation and amortization 7,536 28,314 44,161
Non-cash compensation 1,482 4,269 7,357
Programming restructuring cost - - 896
---------- -------- --------
OPERATING INCOME 36,883 42,781 57,603
---------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (13,772) (35,650) (51,986)
Loss on donation of radio station (4,833) - (956)
Other income, net 6 1,914 4,203
---------- -------- --------
Total other income (expense) (18,599) (33,736) (48,739)
---------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM 18,284 9,045 8,864
PROVISION FOR INCOME TAXES 7,200 6,200 6,875
---------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 11,084 2,845 1,989
EXTRAORDINARY ITEM, NET OF TAX - 1,597 2,022
---------- -------- --------
NET INCOME (LOSS) 11,084 1,248 (33)
PREFERRED STOCK DIVIDENDS - - 3,144
---------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ 11,084 $ 1,248 $ (3,177)
========== ======== ========
BASIC EARNINGS PER COMMON SHARE:
Before extraordinary item $ 0.51 $ 0.10 $ (0.03)
Extraordinary item, net of tax - (0.06) (0.06)
---------- -------- --------
Net income (loss) available to common
shareholders $ 0.51 $ 0.04 $ (0.09)
========== ======== =========
DILUTED EARNINGS PER COMMON SHARE:
Before extraordinary item $ 0.49 $ 0.10 $ (0.03)
Extraordinary item, net of tax - (0.06) (0.06)
---------- -------- --------
Net income (loss) available to common
shareholders $ 0.49 $ 0.04 $ (0.09)
========== ======== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
33
<PAGE> 34
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28 (29),
---------------------------------
1999 2000
------------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,117 $ 17,370
Accounts receivable, net of allowance for doubtful
accounts of $1,698 and $1,924, respectively 51,479 66,471
Current portion of TV program rights 3,646 5,452
Income tax refunds receivable - 4,685
Prepaid expenses 6,833 10,053
Other 3,007 8,685
------------- -------------
Total current assets 71,082 112,716
------------- -------------
PROPERTY AND EQUIPMENT:
Land and buildings 35,411 52,789
Leasehold improvements 8,351 9,006
Broadcasting equipment 63,943 74,975
Office equipment and automobiles 21,199 30,270
Construction in progress 3,418 1,210
------------- -------------
132,322 168,250
Less- Accumulated depreciation and amortization 26,262 39,346
------------- -------------
Total property and equipment, net 106,060 128,904
------------- -------------
INTANGIBLE ASSETS:
Broadcast licenses 711,928 959,454
Excess of cost over fair value of net
assets of purchased businesses 123,614 131,013
Other intangibles 6,388 14,558
------------- -------------
841,930 1,105,025
Less- Accumulated amortization 39,623 71,055
------------- -------------
Total intangible assets, net 802,307 1,033,970
------------- -------------
OTHER ASSETS:
Deferred debt issuance costs and cost of interest
rate cap agreements, net of accumulated
amortization of $839 and $2,535, respectively 18,907 14,082
TV program rights, net of current portion 7,836 15,851
Investments 5,664 10,664
Deposits and other 2,975 11,119
------------- -------------
Total other assets, net 35,382 51,716
------------- -------------
Total assets $ 1,014,831 $ 1,327,306
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
34
<PAGE> 35
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28 (29),
-------------------------------------
1999 2000
--------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,635 $ 22,957
Current maturities of other long-term debt 835 5,379
Current portion of TV program rights payable 9,471 16,816
Collection of accounts receivable on behalf of
SF Broadcasting and Wabash Valley Broadcasting 9,016 -
Accrued salaries and commissions 4,545 8,162
Accrued interest 6,223 11,077
Income tax payable 12,057 -
Deferred revenue 7,238 15,912
Other 4,813 4,139
------------- -------------
Total current liabilities 69,833 84,442
CREDIT FACILITY AND SENIOR SUBORDINATED DEBT 577,000 300,000
OTHER LONG-TERM DEBT, NET OF CURRENT PORTION 18,805 14,607
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION 25,161 58,585
OTHER NONCURRENT LIABILITIES 3,466 5,408
MINORITY INTEREST - 758
DEFERRED INCOME TAXES 85,017 87,139
------------- -------------
Total liabilities 779,282 550,939
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY:
Series A cumulative convertible preferred stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding 0 shares
and 2,875,000 shares, respectively - 29
Class A common stock, $.01 par value; authorized 68,000,000 shares;
issued and outstanding 26,380,414 shares and 41,232,811 shares,
respectively 264 412
Class B common stock, $.01 par value; authorized 12,000,0000 shares;
issued and outstanding 5,164,530 shares and 4,738,582 shares,
respectively 52 47
Additional paid-in capital 260,186 804,820
Accumulated deficit (24,305) (27,482)
Accumulated other comprehensive income (648) (1,459)
------------- -------------
Total shareholders' equity 235,549 776,367
------------- -------------
Total liabilities and shareholders' equity $ 1,014,831 $ 1,327,306
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
35
<PAGE> 36
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES A
COMMON STOCK COMMON STOCK PREFERRED STOCK
---------------------- ----------------------- -------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
----------- ------ ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1997 16,821,912 $ 168 5,148,940 $ 52 - $ -
Issuance of Class A common stock in
exchange for Class B common stock 27,152 - (27,152) - - -
Exercise of stock options and
related income tax benefits 212,610 2 - - - -
Compensation related to granting
of stock and stock options - - - - - -
Issuance of Class A common
stock to profit sharing plan 30,304 - - - - -
Issuance of Class A common stock
to employees and officers and related
income tax benefits 158,230 2 - - - -
Purchase of Class A common
stock (388,888) (4) - - - -
Comprehensive Income:
Net income - - - - - -
------------- ---- ------------- ---- ------------ ----
BALANCE, FEBRUARY 28, 1998 16,861,320 168 5,121,788 52 - -
------------- ---- ------------- ---- ------------ ----
Issuance of Class A common stock in
exchange for Class B common stock 15,258 - (15,258) - - -
Exercise of stock options and
related income tax benefits 249,356 3 58,000 - - -
Compensation related to granting
of stock and stock options - - - - - -
Issuance of Class A Common
Stock to profit sharing plan 43,184 1 - - - -
Issuance of Class A common stock
to employees and officers and related
income tax benefits 11,296 - - - - -
Sale of Class A common stock, net
of costs incurred of $10,560 9,200,000 92 - - - -
Comprehensive Income:
Net income - - - - - -
Cumulative translation adjustment - - - - - -
Total comprehensive income - - - - - -
------------- ----- ------------- ---- ------------ ----
BALANCE, FEBRUARY 28, 1999 26,380,414 264 5,164,530 52 - -
-------------- ----- ------------- ---- ------------ ----
Issuance of Class A common stock in
exchange for Class B common stock 505,668 5 (505,668) (5) - -
Exercise of stock options and
related income tax benefits 886,496 9 79,720 - - -
Compensation related to granting
of stock and stock options - - - - - -
Issuance of Class A common
stock to profit sharing plan 34,246 - - - - -
Issuance of Class A common stock
to employees and officers and related
income tax benefits 41,987 - - - - -
Sale of Class A common stock, net
of costs incurred of $14,430 13,384,000 134 - - - -
Sale of Series A cumulative
convertible preferred stock, net
of costs incurred of $5,341 - - - - 2,875,000 29
Preferred stock dividends paid - - - - - -
Comprehensive Income:
Net income - - - - - -
Cumulative translation adjustment - - - - - -
Total comprehensive income - - - - - -
------------- ----- ------------- ---- ------------ ----
BALANCE, FEBRUARY 29, 2000 41,232,811 $ 412 4,738,582 $ 47 2,875,000 $ 29
============== ===== ============= ==== ============ ====
</TABLE>
36
<PAGE> 37
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - (CONTINUED)
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID-IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
CAPITAL DEFICIT INCOME EQUITY
------- ------- ------ ------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1997 70,839 (36,637) - 34,422
Issuance of Class A common stock in
exchange for Class B common stock - - - -
Exercise of stock options and
related income tax benefits 2,965 - - 2,967
Compensation related to granting
of stock and stock options 732 - - 732
Issuance of Class A common
stock to profit sharing plan 750 - - 750
Issuance of Class A common stock
to employees and officers and related
income tax benefits 953 - - 955
Purchase of Class A common
stock (6,996) - - (7,000)
Comprehensive Income:
Net income - 11,084 - 11,084
------------- ------------ ----------- ------------
BALANCE, FEBRUARY 28, 1998 69,243 (25,553) - 43,910
------------- ------------ ----------- ------------
Issuance of Class A common stock in
exchange for Class B common stock - - - -
Exercise of stock options and
related income tax benefits 4,127 - - 4,130
Compensation related to granting
of stock and stock options 3,269 - - 3,269
Issuance of Class A common
stock to profit sharing plan 999 - - 1,000
Issuance of Class A common stock
to employees and officers and related
income tax benefits - - - -
Sale of Class A common stock, net
of costs incurred of $10,560 182,548 - - 182,640
Comprehensive Income:
Net income - 1,248 - -
Cumulative translation adjustment - - (648)
Total comprehensive income - - - 600
------------- ------------ ----------- ------------
BALANCE, FEBRUARY 28, 1999 260,186 (24,305) (648) 235,549
------------- ------------- ------------ ------------
Issuance of Class A common stock in
exchange for Class B common stock - - - -
Exercise of stock options and
related income tax benefits 16,761 - - 16,770
Compensation related to granting
of stock and stock options 4,807 - - 4,807
Issuance of Class A common
stock to profit sharing plan 1,250 - - 1,250
Issuance of Class A common stock
to employees and officers and related
income tax benefits - - - -
Sale of Class A common stock, net
of costs incurred of $14,430 383,436 - - 383,570
Sale of Series A cumulative
convertible preferred stock, net
of costs incurred of $5,341 138,380 - - 138,409
Preferred stock dividends paid - (3,144) - (3,144)
Comprehensive Income:
Net income (loss) - (33) -
Cumulative translation adjustment - - (811)
Total comprehensive income - - - (844)
------------- ------------ ----------- ------------
BALANCE, FEBRUARY 29, 2000 $ 804,820 $ (27,482) $ (1,459) $ 776,367
============= ============ =========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
37
<PAGE> 38
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28 (29),
--------------------------------------------------------
1998 1999 2000
-------------------- -------------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 11,084 $ 1,248 $ (33)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Extraordinary item - 1,597 2,022
Depreciation and amortization 9,719 32,158 53,818
Provision for bad debts 802 1,745 2,550
Provision (benefit) for deferred income taxes (524) 4,953 6,670
Non-cash compensation 1,482 4,269 7,357
Loss on donation of radio station 4,833 - 956
Other 357 (1,143) (783)
Changes in assets and liabilities -
Accounts receivable (8,389) (21,104) (13,319)
Prepaid expenses and other current assets (4,760) (727) (14,546)
Other assets (1,832) 3,435 (2,507)
Accounts payable and accrued liabilities 9,139 7,007 10,165
Deferred revenue 292 (747) 4,332
Other liabilities 284 2,430 (30,322)
---------- ------------ ------------
Net cash provided by operating activities 22,487 35,121 26,360
---------- ------------ ------------
INVESTING ACTIVITIES:
Cash paid for acquisitions (92,377) (504,748) (231,130)
Purchases of property and equipment (16,991) (37,383) (29,316)
Deposits on acquisitions and other (7,325) 661 (11,500)
----------- ------------ ------------
Net cash used by investing activities (116,693) (541,470) (271,946)
---------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 288,378 1,063,000 149,668
Payments on long-term debt (183,928) (723,500) (426,668)
Proceeds (purchase) of the Company's Class A common
stock, net of transaction costs (7,000) 182,640 383,570
Proceeds of the Company's Series A cumulative
convertible preferred stock, net of
transaction costs - - 138,409
Proceeds from exercise of stock options 3,922 4,130 13,881
Purchases of interest rate cap agreements and other
debt related costs (4,291) (19,589) -
Preferred stock dividends paid - - (2,021)
Other 1,719 - -
---------- ------------ -------------
Net cash provided by financing activities 98,800 506,681 256,839
---------- ------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS 4,594 332 11,253
CASH AND CASH EQUIVALENTS:
Beginning of year 1,191 5,785 6,117
---------- ------------ -------------
End of year $ 5,785 $ 6,117 $ 17,370
========== ============ =============
</TABLE>
38
<PAGE> 39
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28 (29),
------------------------------------------------------
1998 1999 2000
--------------- ---------------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 9,655 $ 33,439 $ 41,735
Income taxes 8,419 1,580 9,589
Non-cash investing and financing transactions-
Fair value of assets acquired by incurring debt 32 - -
Preferred stock dividends accrued - - 1,123
ACQUISITION OF WXTM-FM, WALC-AM AND WKKX-FM:
Fair value of assets acquired $ 44,564 - -
Cash paid 43,564 - -
----------
Liabilities recorded $ 1,000 - -
ACQUISITION OF TEXAS MONTHLY:
Fair value of assets acquired $ 45,421 - -
Cash paid 37,389 - -
----------
Liabilities recorded $ 8,032 - -
ACQUISITION OF WQCD-FM:
Fair value of assets acquired - $ 201,347 -
Cash paid - 128,550 -
------------
Liabilities recorded - $ 72,797 -
ACQUISITION OF SF BROADCASTING:
Fair value of assets acquired - $ 346,952 -
Cash paid - 287,293 -
------------
Liabilities recorded - $ 59,659 -
ACQUISITION OF WABASH VALLEY BROADCASTING:
Fair value of assets acquired - $ 101,055 -
Cash paid - 88,905 -
------------
Liabilities recorded - $ 12,150 -
ACQUISITION OF COUNTRY SAMPLER:
Fair value of assets acquired - - $ 25,608
Cash paid - - 18,954
------------
Liabilities recorded - - $ 6,654
ACQUISITION OF WKCF-TV:
Fair value of assets acquired - - $ 246,495
Cash paid - - 197,105
------------
Liabilities recorded - - $ 49,390
ACQUISITION OF VOTIONIS, S.A.:
Fair value of assets acquired - - $ 18,936
Cash paid - - 13,302
------------
Liabilities recorded - - $ 5,634
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
39
<PAGE> 40
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Emmis Communications Corporation is a diversified media company with
radio broadcasting, television broadcasting and magazine publishing operations.
The thirteen FM radio stations and two AM radio stations Emmis Communications
Corporation owns in the United States serve the nation's three largest radio
markets of New York City, Los Angeles and Chicago, as well as St. Louis,
Indianapolis and Terre Haute, Indiana. The seven television stations are located
in Orlando, Florida, New Orleans, Louisiana, Mobile, Alabama, Green Bay,
Wisconsin, Honolulu, Hawaii, Fort Myers, Florida and Terre Haute, Indiana. Emmis
Communications Corporation also publishes Indianapolis Monthly, Texas Monthly,
Country Sampler, Cincinnati and Atlanta magazines, has a 54% interest in a
national radio station in Hungary (Slager Radio), a 75% interest in one FM and
one AM radio station in Buenos Aires, Argentina, and engages in certain
businesses ancillary to its business, such as broadcast tower leasing and
advertising and program consulting.
b. Principles of Consolidation
The consolidated financial statements include the accounts of Emmis
Communications Corporation and its majority owned Subsidiaries. Unless the
content otherwise requires, references to Emmis or the Company in these
financial statements mean Emmis Communications Corporation and its Subsidiaries.
Emmis' foreign subsidiaries report on a fiscal year ending December 31, which
Emmis consolidates into its fiscal year ending February 28 (29). All significant
intercompany balances and transactions have been eliminated.
c. Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired.
Publication revenue is recognized in the month of delivery.
d. Television Programming
Emmis has agreements with distributors for the rights to television
programming over contract periods which generally run from one to five years.
Each contract is recorded as an asset and a liability at an amount equal to its
gross contractual commitment when the license period begins and the program is
available for its first showing. The portion of program contracts which become
payable within one year is reflected as a current liability in the accompanying
consolidated balance sheet.
The rights to program materials are reflected in the accompanying
consolidated balance sheet at the lower of unamortized cost or estimated net
realizable value. Estimated net realizable values are based upon management's
expectation of future advertising revenues, net of sales commissions, to be
generated by the program material. Amortization of program contract costs is
computed under either the straight-line method over the contract period or based
on usage, whichever yields the greater amortization for each program on a
monthly basis. Program contract costs that management expects to be amortized in
the succeeding year are classified as current assets. Program contract
liabilities are typically paid on a scheduled basis and are not affected by
adjustments for amortization or estimated net realizable value. Certain program
contracts provide for the exchange of advertising air time in lieu of cash
payments for the rights to such programming. These contracts are recorded as the
programs are aired at the estimated fair value of the advertising air time given
in exchange for the program rights.
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<PAGE> 41
e. International Business Development Expenses
International business development expenses include the cost of the
Company's efforts to identify, investigate and develop international broadcast
investments or other international business opportunities.
f. Non-cash Compensation
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. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Pro forma
disclosure of net income and earnings per share under SFAS No.
123 is presented in Note 9.
g. Cash and Cash Equivalents
Emmis considers time deposits, money market fund shares, and all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
h. Property and Equipment
Property and equipment are recorded at cost. Depreciation is generally
computed by the straight-line method over the estimated useful lives of the
related assets which are 31.5 years for buildings, not more than 32 years for
leasehold improvements, and 5 to 7 years for broadcasting equipment, office
equipment and automobiles. Maintenance, repairs and minor renewals are expensed;
improvements are capitalized. Interest was capitalized in connection with the
construction of the Indianapolis office facility and the KHON operating
facility. The capitalized interest was recorded as part of the buildings. In
fiscal 1998, 1999 and 2000 approximately $312,000, $1,591,000 and $420,000 of
interest was capitalized, respectively. On a continuing basis, the Company
reviews the financial statement carrying value of property and equipment for
impairment. If events or changes in circumstances were to indicate that an asset
carrying value may not be recoverable, a write-down of the asset would be
recorded through a charge to operations.
i. Intangible Assets
Intangible assets are recorded at cost. Generally, broadcast licenses,
trademarks and the excess of cost over fair value of net assets of purchased
businesses are being amortized using the straight-line method over 40 years. The
cost of the broadcast license for Slager Radio is being amortized over the seven
year initial term of the license. The cost of the broadcast license for the two
stations in Buenos Aires, Argentina is being amortized over the twenty-three
year remaining term of the license. The excess of cost over fair value of net
assets resulting from the purchase of publications is being amortized over 15
years. Other intangibles are amortized using the straight-line method over
varying periods, not in excess of 10 years.
Subsequent to the acquisition of an intangible asset, Emmis evaluates
whether later events and circumstances indicate the remaining estimated useful
life of that asset may warrant revision or that the remaining carrying value of
such an asset may not be recoverable. When factors indicate that an intangible
asset should be evaluated for possible impairment, Emmis uses an estimate of the
related asset's undiscounted future cash flows over the remaining life of that
asset in measuring recoverability. If separately identifiable cash flows are not
available for an intangible asset (as would generally be the case for the excess
of cost over fair value of purchased businesses), Emmis evaluates recoverability
based on the expected undiscounted cash flows of the specific business to which
the asset relates. If such an analysis indicates that impairment has in fact
occurred, Emmis writes down the remaining net book value of the intangible asset
to its fair value. For this purpose, fair value is determined using quoted
market prices (if available), appraisals or appropriate valuation techniques.
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<PAGE> 42
j. Investments
Emmis has a 50% ownership interest in a partnership in which the sole
asset is land on which a transmission tower is located. The other owner has
voting control of the partnership. This investment of $5,114,000 is accounted
for on the equity method of accounting. Emmis has a $5,000,000 investment, which
represents an original 2.49% ownership interest, in BuyItNow.com L.L.C., which
is being accounted for on the cost method of accounting.
k. Deferred Revenue and Barter Transactions
Deferred revenue includes deferred magazine subscription revenue and
deferred barter revenue. Barter transactions are recorded at the estimated fair
value of the product or service received. Broadcast revenue from barter
transactions is recognized when commercials are broadcast. The appropriate
expense or asset is recognized when merchandise or services are used or
received.
l. Foreign Currency Translation
The functional currency of Slager Radio is the Hungarian forint. Slager
Radio's balance sheet has been translated from forints to the U.S. dollar using
the current exchange rate in effect at the balance sheet date. Slager Radio's
results of operations have been translated using an average exchange rate for
the period. The translation adjustment resulting from the conversion of Slager
Radio's financial statements was $648,000 and $811,000 for the years ended
February 28 (29), 1999 and 2000, respectively. This adjustment is reflected in
shareholders' equity in the accompanying consolidated balance sheet.
The functional currency of the two stations in Argentina is the
Argentinean peso. The peso is tied to the U.S. dollar through the Argentine
government's Convertibility Plan. Thus, translation adjustments resulting from
the conversion of these stations' financial statements were immaterial for the
year ended February 29, 2000.
m. Earnings Per Share
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", requires dual presentation of basic and diluted earnings per share
("EPS") on the face of the income statement for all entities with complex
capital structures. Basic EPS is computed by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding
for the period (21,806,666, 28,905,640 and 36,155,982 shares for the years ended
February 28 (29), 1998, 1999 and 2000, respectively). Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted. Potentially dilutive securities at
February 28, 1998 and 1999 consisted solely of stock options. Potentially
dilutive securities at February 29, 2000 consisted of stock options and the
6.25% Series A cumulative convertible preferred stock. Neither the conversion of
the stock options nor the conversion of the preferred stock is included in the
calculation of diluted net income per common share for the year ended February
29, 2000 as the effect of these conversions would be antidilutive. Weighted
average common equivalent shares outstanding for the period for purposes of
computing diluted EPS are 22,723,762, 29,696,342 and 36,155,982 for the years
ended February 28 (29), 1998, 1999 and 2000, respectively. Excluded from the
calculation of diluted net income per share are 2.7 million weighted average
shares that would result from the conversion of the stock options and preferred
shares for the year ended February 29, 2000.
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<PAGE> 43
n. Stock Splits
In February 2000, the Company effected a 2 for 1 stock split of the
outstanding shares of common stock. Accordingly, all data shown in the
accompanying consolidated financial statements and notes has been retroactively
adjusted to reflect the stock split.
o. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
p. Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, and accounts payable
approximate fair value because of the short maturity of these financial
instruments. Except for the Senior Subordinated Notes, the carrying amounts of
long-term debt approximate fair value due to the variable interest rate on such
debt. The fair value of the Senior Subordinated Notes on February 29, 2000 was
approximately $281.3 million, based on current market information. Fair value
estimates are made at a specific point in time, based on relevant market
information about the financial instrument.
q. Accounting Pronouncement
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued, which establishes accounting and reporting
standards for derivative financial instruments and hedging activities. SFAS No.
133 is amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133",
and is effective for years beginning after June 15, 2000. This pronouncement,
which Emmis plans to adopt in its fiscal year ending February 28, 2002, will
require, among other things, the Company to recognize all derivatives as either
assets or liabilities on the balance sheet at fair value. Derivatives not
qualifying as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in its fair
value will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through income or recognized in other
comprehensive income. Hedge ineffectiveness, the amount by which the change in
the value of a hedge does not exactly offset the change in the value of the
hedged item, will be immediately recognized in earnings. Management believes
adoption of this statement will not materially impact the Company's financial
position or results of operations.
r. Reclassifications
Certain reclassifications have been made to the February 28, 1998 and
1999 financial statements to be consistent with the February 29, 2000
presentation.
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<PAGE> 44
2. COMMON STOCK
Emmis has authorized 170,000,000 shares of Class A common stock, par value
$.01 per share, 30,000,000 shares of Class B common stock, par value $.01 per
share, and 30,000,000 shares of Class C common stock, par value $.01 per share.
The rights of these three classes are essentially identical except that each
share of Class A common stock has one vote with respect to substantially all
matters, each share of Class B common stock has 10 votes with respect to
substantially all matters, and each share of Class C common stock has no voting
rights with respect to substantially all matters. Class B common stock is owned
by the principal shareholder (Jeffrey H. Smulyan). All shares of Class B common
stock convert to Class A common stock upon sale or other transfer to a party
unaffiliated with the principal shareholder. At February 28 (29), 1999 and 2000,
no shares of Class C common stock were issued or outstanding. The financial
statements presented reflect the issuance of Class A and Class B common stock.
In June 1997, Emmis acquired 388,888 shares of its Class A common stock from
Morgan Stanley, Dean Witter, Discover and Co. at $18.00 per share. The aggregate
purchase price of $7.0 million is reflected as a decrease to paid in capital in
the accompanying financial statements and was financed through additional
borrowings under the Company's Credit Facility.
In June 1998, Emmis completed the sale of 9.2 million shares of its Class A
common stock at $21.00 per share resulting in total proceeds of $193.2 million.
Net proceeds from the offering were used to repay outstanding obligations under
the Credit Facility.
On October 29, 1999, Emmis completed the sale of 7.984 million shares of
its Class A common stock at $31.25 per share resulting in total proceeds of
$249.5 million. Net proceeds of $238.3 million were used to fund the acquisition
of WKCF-TV in Orlando, Florida, two radio stations in Buenos Aires, Argentina,
and to repay certain outstanding obligations under the Credit Facility.
At the same time as its public sale of 7.984 million shares of Class A
common stock, Emmis entered into a stock purchase agreement with Liberty Media
Corporation (Liberty) and sold 5.4 million shares of the Company's Class A
common stock to Liberty for $148.5 million on November 18, 1999. Net proceeds of
$145.3 million were used to fund the acquisition of WKCF-TV in Orlando, Florida,
two radio stations in Buenos Aires, Argentina, and to repay certain outstanding
obligations under the Credit Facility.
3. PREFERRED STOCK
Emmis has authorized 10,000,000 shares of preferred stock which may be
issued with such designations, preferences, limitations and relative rights as
Emmis' Board of Directors may authorize.
On October 29, 1999, the Company completed the sale of 2.875 million shares
of 6.25% Series A cumulative convertible preferred stock at $50 per share
resulting in total proceeds of $143.8 million. Net proceeds of $138.4 million
were used to fund the acquisition of WKCF-TV in Orlando, Florida, two radio
stations in Buenos Aires, Argentina, and to repay certain outstanding
obligations under the Credit Facility.
The 6.25% Series A cumulative convertible preferred stock has a liquidation
preference of $50 per share and a par value of $.01 per share. Each preferred
share is convertible at the option of the holder into 1.28 shares of Class A
common stock, subject to certain events. Dividends are cumulative and payable
quarterly in arrears on January 15, April 15, July 15, and October 15 of each
year at an annual rate of $3.125 per preferred share.
The Company may not redeem the preferred stock prior to April 15, 2001.
From April 15, 2001 to October 15, 2002, the Company may redeem the preferred
stock at a redemption premium equal to 104.911% of the stated liquidation
preference (plus accumulated and unpaid dividends, if any) if certain conditions
are met. Beginning on October 15, 2002,
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<PAGE> 45
and each October 15 thereafter, the Company may redeem the preferred stock for
cash at the following redemption premiums (which are expressed as a percentage
of the liquidation preference per share), plus in each case accumulated and
unpaid dividends, if any, whether or not declared to the redemption date:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
2002 103.571%
2003 102.679%
2004 101.786%
2005 100.893%
2006 and thereafter 100.000%
</TABLE>
4. CREDIT FACILITY AND SENIOR SUBORDINATED DEBT
The Credit Facility and Senior Subordinated Debt was comprised of the
following at February 28 (29), 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit Facility:
Revolving Credit Facility $ 27,000 $ -
Term Note 250,000 -
8 1/8% Senior Subordinated Notes Due 2009 300,000 300,000
----------- ------------
Total debt $ 577,000 $ 300,000
=========== ============
</TABLE>
Credit Facility
On July 16, 1998 the Company entered into an amended and restated Credit
Facility for $750 million, which could have originally been increased up to $1.0
billion. As a result of the early payoff of the refinanced debt, the Company
recorded an extraordinary loss of approximately $1.6 million, net of taxes,
related to unamortized deferred debt issuance costs in the year ended February
28, 1999. On July 17, 1999, in accordance with a provision in the Credit
Facility, total borrowing capacity under the Credit Facility decreased by $100.0
million. On January 14, 2000, Emmis repaid its $250 million term note
outstanding under its Credit Facility. As provided in the Credit Facility, the
repayment resulted in the cancellation of the term note and the Company recorded
an extraordinary loss of approximately $2.0 million, net of taxes, related to
unamortized deferred debt issuance costs, in the year ended February 29, 2000.
The amended and restated Credit Facility expires on August 31, 2006 and is now
comprised of a $400 million revolving credit facility, which may be increased up
to $650 million.
The amended and restated Credit Facility provides for letters of credit to
be made available to the Company not to exceed $50 million. The aggregate amount
of outstanding letters of credit and amounts borrowed under the revolving credit
facility cannot exceed the revolving credit facility commitment. At February 29,
2000, a $1.1 million letter of credit was outstanding.
All outstanding amounts under the Credit Facility bear interest, at the
option of Emmis, at a rate equal to the Eurodollar Rate or an alternative base
rate (as defined in the Credit Facility) plus a margin. The margin over the
Eurodollar Rate or the alternative base rate varies, depending on Emmis' ratio
of debt to earnings before interest, taxes, depreciation and amortization
(EBITDA), as defined in the agreement. The weighted-average interest rate on
borrowings outstanding under the Credit Facility at February 28, 1999 was
approximately 7.69% and there were no borrowings outstanding as of February 29,
2000. Interest is due on a calendar quarter basis under the alternative base
rate and at least every three months under the Eurodollar Rate. The Credit
Facility requires the Company to maintain interest rate protection agreements
through July 2001. The notional amount required varies based upon Emmis' ratio
of adjusted debt to EBITDA, as defined in the Credit Facility. The notional
amount of the agreements at February 29, 2000 totaled $274 million. The
agreements, which expire at various dates ranging from April 2000 to February
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<PAGE> 46
2001, establish various ceilings on the Credit Facility's underlying base rate
approximating a weighted average rate of 7.1% on the three-month LIBOR interest
rate. The cost of these agreements is being amortized over the lives of the
agreements and the amortization is included as a component of interest expense.
The aggregate amount of the revolving credit facility reduces quarterly
beginning August 31, 2001. The annual amortization and reduction schedules as of
February 29, 2000, assuming the entire $400 million Credit Facility was
outstanding prior to the scheduled amortization payments are as follows:
SCHEDULED AMORTIZATION/REDUCTION OF CREDIT FACILITY AVAILABILITY
(In thousands)
<TABLE>
<CAPTION>
REVOLVING
YEAR ENDED CREDIT FACILITY
FEBRUARY 28 (29), AMORTIZATION
---------------------- ----------------
<S> <C>
2002 $ 40,000
2003 60,000
2004 80,000
2005 90,000
2006 70,000
2007 60,000
-----------
Total $ 400,000
===========
</TABLE>
Commencing with the fiscal year ending February 28, 2002, in addition to
the scheduled amortization/reduction of the Credit Facility, within 60 days
after the end of each fiscal year, the Credit Facility is permanently reduced by
50% of the Company's excess cash flow if the ratio of adjusted debt (as defined
in the Credit Facility) to EBITDA exceeds 4.5 to 1. Excess cash flow is
generally defined as EBITDA reduced by cash taxes, capital expenditures,
required debt service, increases in working capital (net of cash or cash
equivalents), and $5,000,000. The net proceeds from any sale of certain assets
must also be used to permanently reduce borrowings under the Credit Facility. If
the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and certain other
conditions are met, the Company will be permitted in certain circumstances to
reborrow the amount of the net proceeds within nine months solely for the
purpose of funding an acquisition.
The Credit Facility contains various financial and operating covenants and
other restrictions with which Emmis must comply, including, among others,
restrictions on additional indebtedness, engaging in businesses other than
broadcasting and publishing, paying cash dividends, redeeming or repurchasing
capital stock of Emmis and use of borrowings, as well as requirements to
maintain certain financial ratios. The Company was in compliance with these
covenants at February 29, 2000. The Credit Facility also prohibits Emmis, under
certain circumstances, from making acquisitions and disposing of certain assets
without the prior consent of the lenders, and provides that an event of default
will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant equity
investment in Emmis (as specified in the Credit Facility), (ii) the ability to
elect a majority of Emmis' directors or (iii) control of a majority of
shareholder voting power. Substantially all of Emmis' assets, including the
stock of Emmis' wholly-owned subsidiaries, are pledged to secure the Credit
Facility.
SENIOR SUBORDINATED NOTES
On February 12, 1999, the Company issued $300 million of 8 1/8% Senior
Subordinated Notes. The Senior Subordinated Notes were sold at 100% of the face
amount. The proceeds were used to retire a $25 million promissory note and the
related $1.1 million accrued interest due to SF Broadcasting in connection with
the purchase of four television stations. The remainder of the proceeds was used
to reduce outstanding borrowings under the Credit Facility. In March 1999, the
Company filed an Exchange Offer Registration Statement with the SEC to exchange
the Senior Subordinated Notes for new Series B Notes ("the Notes") registered
under the Securities Act. The terms of the new Series B Notes are identical to
the terms of the Senior Subordinated Notes.
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<PAGE> 47
Prior to March 15, 2002, the Company may, at its option, use the net cash
proceeds of one or more Public Equity Offerings (as defined), to redeem up to
35% of the aggregate principal amount of the Notes at a redemption price equal
to 108.125% plus accrued and unpaid interest, provided that at least $195.0
million of the aggregate principal amount of the Notes originally issued remains
outstanding after such redemption. On or after March 15, 2004 and until March
14, 2007, the Notes will be redeemable at the option of the Company in whole or
in part at prices ranging from 104.063% to 101.354% plus accrued and unpaid
interest. On or after March 15, 2007, the Notes may be redeemable at 100% plus
accrued and unpaid interest. Upon a Change of Control (as defined), the Company
is required to make an offer to purchase the Notes then outstanding at a
purchase price equal to 101% plus accrued and unpaid interest. Interest on the
Notes is payable semi-annually. The Notes have no sinking fund requirements and
are due in full on March 15, 2009.
The Notes are guaranteed by certain subsidiaries of the Company and
expressly subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of the Company. The Notes will rank pari passu with
any future Senior Subordinated Indebtedness (as defined) and senior to all
Subordinated Indebtedness (as defined) of the Company.
The indenture relating to the Notes contains covenants with respect to the
Company which include limitations of indebtedness, restricted payments,
transactions with affiliates, issuance and sale of capital stock of restricted
subsidiaries, sale/leaseback transactions and mergers, consolidations or sales
of substantially all of the Company's assets. The Company was in compliance with
these covenants at February 29, 2000.
5. OTHER LONG-TERM DEBT.
Other long-term debt was comprised of the following at February 28 (29),
1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Hungary:
License Obligation $ 13,428 $ 14,147
Bonds Payable 2,877 2,497
Notes Payable 784 784
Other 2,551 2,558
----------- -----------
Total Other Long-Term Debt 19,640 19,986
Less: Current Maturities 835 5,379
----------- -----------
Other Long Term Debt, Net of Current Maturities $ 18,805 $ 14,607
=========== ===========
</TABLE>
The License Obligation is payable to the Hungarian government in Hungarian
forints, by Emmis' Hungarian subsidiary in four equal annual installments
commencing November 2000. The License Obligation of $14.1 million as of February
29, 2000, is reflected net of an unamortized discount of $0.9 million. The
obligation is non-interest bearing, however, in accordance with the license
purchase agreement, a Hungarian cost of living adjustment is calculated annually
and is payable, concurrent with the principal payments, on the outstanding
obligation. The cost of living adjustment is estimated each reporting period and
is included in interest expense. Prevailing market interest rates in Hungary
exceed inflation by approximately 3%. Accordingly, the License Obligation has
been discounted at an imputed interest rate of approximately 3% to reflect the
obligation at its fair value.
The Hungarian Bonds and Notes Payable are payable by Emmis' Hungarian
subsidiary to the minority shareholders of the subsidiary. The Bonds, payable in
Hungarian forints, are due on maturity at November 2004 and bear interest at the
Hungarian State Bill rate plus 3% (approximately 20.2% and 17.5% at February 28
(29), 1999 and 2000, respectively). Interest is payable semi-annually. The Notes
Payable and accrued interest, payable in U.S. dollars, are due December 31, 2002
and bear interest at 10.25%.
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<PAGE> 48
6. TV PROGRAM RIGHTS PAYABLE.
Future payments required under TV program rights payable as of February 29,
2000, are as follows (in thousands):
<TABLE>
<S> <C>
2001 $ 16,816
2002 14,680
2003 12,534
2004 9,827
2005 8,180
2006 and thereafter 13,364
----------
75,401
Less: Current Portion of TV Program Rights Payable 16,816
----------
TV Program Rights Payable, Net of Current Portion $ 58,585
==========
</TABLE>
7. ACQUISITIONS, DONATIONS AND INVESTMENTS
On December 14, 1999, the Company completed its acquisition of
substantially all of the assets of Country Marketplace and related publications
from H&S Media, Inc. for approximately $1.8 million in cash plus liabilities
recorded of approximately $.6 million. The acquisition was accounted for as a
purchase and was financed through borrowings under the Credit Facility. The
excess of the purchase price over the estimated fair value of identifiable
assets was $2.3 million, which is included in intangible assets in the
accompanying consolidated balance sheets and is being amortized over 15 years.
On November 16, 1999 Emmis purchased one million shares of BuyItNow.com
L.L.C. for $5 million in cash, which represented an original investment of 2.49%
of the outstanding equity of BuyItNow.com L.L.C. This investment is accounted
for using the cost method of accounting and is reflected in other assets in the
accompanying consolidated balance sheets. In a separate transaction,
BuyItNow.com L.L.C. agreed to a cash purchase of $2.5 million of advertisements
from Emmis through February 2001.
On November 9, 1999, the Company completed its acquisition of 75% of the
outstanding common stock of Votionis, S.A. ("Votionis") for $13.3 million in
cash plus liabilities recorded of $5.6 million. Additional consideration of up
to $2.2 million will be paid if certain conditions are met. Votionis consists of
one FM and one AM radio station located in Buenos Aires, Argentina (the
"Votionis Acquisition"). The acquisition was accounted for as a purchase and was
financed with proceeds from the Company's October 1999 Common and Preferred
Equity Offerings. Broadcast licenses are included in intangible assets in the
accompanying consolidated balance sheets. This broadcast license is being
amortized over 23 years.
On October 29, 1999, the Company completed its acquisition of substantially
all of the assets of television station WKCF in Orlando, Florida ( the "WKCF
Acquisition") from Press Communications, L.L.C. for approximately $197.1 million
in cash. The purchase price included the purchase of land and a building for
$2.2 million. The Company financed the acquisition through a $12.5 million
advance payment borrowed under the Credit Facility and proceeds from the
Company's October 1999 Common and Preferred Equity Offerings. In connection with
the acquisition, the Company recorded $49.3 million in contract liabilities. The
acquisition was accounted for as a purchase. The total purchase price was
allocated to property and equipment, television program rights and broadcast
licenses based on a preliminary appraisal. Broadcast licenses are included in
intangible assets in the accompanying consolidated balance sheet and are being
amortized over 40 years. WKCF is an affiliate of the WB Television Network. As
part of the WKCF Acquisition, the Company entered into an agreement with the WB
Television Network which, among other things, extends the existing network
affiliation agreement through December 2009.
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<PAGE> 49
In June 1999, the Company entered into an agreement with a former executive
of Sinclair Broadcasting Group, Inc. ("Sinclair") to purchase the executive's
right to acquire the assets of certain broadcast properties in St. Louis,
Missouri under an option agreement (the "St. Louis Acquisition"). The right was
exercised and allows the Company to purchase, at fair market value, six radio
stations (five FM and one AM) and one ABC-affiliated television station from
Sinclair.
In November 1999, through completion of an appraisal process, the purchase
price of the St. Louis Acquisition was determined to be $366.5 million. Sinclair
has since filed a lawsuit in which it alleges, among other things, that the
option agreement is not enforceable and that Emmis is not a proper designee of
the executive's rights. The Company has denied the allegations made by Sinclair
and believes that it has meritorious defenses to Sinclair's allegations. In
addition, the Company has filed counterclaims against Sinclair, seeking, among
other things, that the court order Sinclair to complete the sale of its St.
Louis broadcast properties to the Company.
The St. Louis Acquisition will be subject to approval by both the Federal
Communications Commission and the Department of Justice; it will be accounted
for as a purchase and will be financed through available cash, additional debt
or equity securities, depending on market conditions and other factors.
Under FCC regulations, Emmis can own no more than five FM and three AM
stations in the St. Louis market. Since Emmis already owns three FM stations in
the St. Louis market, concurrently with the consummation of the St. Louis
Acquisition, Emmis must divest three FM stations. Management intends to divest
the stations in the St. Louis market with the three weakest transmitting
signals.
On April 1, 1999, the Company completed its acquisition of substantially
all of the assets of Country Sampler, Inc. (the "Country Sampler Acquisition")
for approximately $20.9 million plus liabilities recorded of approximately $4.7
million. The purchase price was payable with $18.5 million in cash at closing,
which was financed through additional borrowings under the Credit Facility, $2.0
million payable under a contract with the principal shareholder through April
2003, and $.5 million paid in October 1999. The acquisition was accounted for as
a purchase. The excess of the purchase price over the estimated fair value of
identifiable assets was $17.7 million, which is included in intangible assets in
the accompanying consolidated balance sheets and is being amortized over 15
years.
Effective October 1, 1998, the Company completed its acquisition of
substantially all of the assets of Wabash Valley Broadcasting Corporation (the
"Wabash Acquisition") for a cash purchase price of $88.9 million (including
transaction costs), plus liabilities recorded of approximately $12.2 million.
The Company financed the acquisition through borrowings under the Credit
Facility. The Wabash Acquisition consists of WFTX-TV, a Fox network affiliated
television station in Ft. Myers, Florida, WTHI-TV a CBS network affiliated
television station in Terre Haute, Indiana, WTHI-FM and AM and WWVR-FM, radio
stations located in the Terre Haute, Indiana area. In December 1999, the Company
donated radio station WTHI-AM to a not-for-profit corporation. The $1.0 million
net book value of the station at the time of donation was recognized as a loss
on donation of radio station.
On July 16, 1998, the Company completed its acquisition of substantially all
of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc.
and Subsidiaries (collectively the "SF Acquisition") for a cash purchase price
of $287.3 million (including transaction costs), a $25 million promissory note
due to the former owner, plus liabilities recorded of approximately $34.7
million. The Company financed the acquisition through a $25 million promissory
note and borrowings under the Credit Facility. The promissory note was paid in
full in February 1999. The SF Acquisition consists of four Fox network
affiliated television stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New
Orleans, Louisiana, WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii
(including satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo,
Hawaii).
49
<PAGE> 50
On June 5, 1998, the Company completed its acquisition of radio station
WQCD-FM in New York City (the "WQCD Acquisition") from Tribune New York Radio,
Inc. for a cash purchase price of $141.6 million (including transaction costs)
less approximately $13.0 million for cash purchase price adjustments relating to
taxes, plus $20.0 million of net current tax liabilities, $52.5 million of
deferred tax liabilities and $0.3 million of liabilities associated with the
acquisition. The acquisition was accounted for as a purchase and was financed
through borrowings under the Credit Facility. Effective July 1, 1997 through the
date of closing, the Company operated WQCD-FM under a time brokerage agreement.
On February 1, 1998, the Company acquired all of the outstanding capital
stock of Mediatex Communications Corporation for approximately $37.4 million in
cash plus liabilities recorded of $8.0 million (the "Mediatex Acquisition").
Mediatex Communications Corporation owns and operates Texas Monthly, a regional
magazine. The acquisition was accounted for as a purchase and was financed
through borrowings under the Credit Facility.
On November 1, 1997, the Company acquired substantially all of the net
assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million
in cash (the "Cincinnati Acquisition"). Emmis financed the acquisition through
borrowings under the Credit Facility. The acquisition was accounted for as a
purchase.
On November 1, 1997, the Company completed its acquisition of substantially
all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting,
L.P. for approximately $15.3 million in cash (the "Indianapolis Acquisition").
Emmis financed the acquisition through borrowings under the Credit Facility. The
acquisition was accounted for as a purchase.
Emmis owns a 54% interest in a Hungarian subsidiary (Slager Radio Rt.)
which was formed in August 1997. In November 1997, Slager Radio acquired a radio
broadcasting license from the Hungarian government at a cost of approximately
$19.2 million. The broadcast license has an initial term of seven years and may
be renewed, subject to governmental approval, for an additional five years.
Slager Radio began broadcasting on February 16, 1998.
On October 1, 1997, the Company acquired the assets of Network Indiana and
AgriAmerica from Wabash Valley Broadcasting Corporation for $.7 million in cash
(the "Network Acquisition"). Emmis financed the acquisition through borrowings
under the Credit Facility. The acquisition was accounted for as a purchase.
On March 31, 1997, Emmis completed its acquisition of substantially all of
the assets of radio stations WXTM-FM (formerly WKBQ-FM and WALC-FM), WALC-AM
(formerly WKBQ-AM) and WKKX-FM in St. Louis (the "St. Louis Acquisition") from
Zimco, Inc. for approximately $43.6 million in cash, plus an agreement to
broadcast approximately $1 million in trade spots, for Zimco, Inc., over a
period of years. The purchase price was financed through borrowings under the
Credit Facility and the acquisition was accounted for as a purchase. In February
1998, the Company donated radio station WALC-AM to a church. The $4.8 million
net book value of the station at the time of donation was recognized as a loss
on donation of radio station. Effective December 1, 1996 through the date of
closing, the Company operated the acquired stations under a time brokerage
agreement.
8. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Unaudited pro forma summary information is presented below for the years
ended February 28 (29), 1999 and 2000, assuming the June 1998 WQCD Acquisition,
the July 1998 SF Acquisition, the October 1998 Wabash Acquisition, the April
1999 Country Sampler Acquisition, the October 1999 WKCF-TV Acquisition, the
November 1999 Votionis Acquisition, the December 1999 Country Marketplace
Acquisition and the use of proceeds from the June 1998 Equity Offering, the July
1998 Credit Facility, the February 1999 Senior Subordinated Notes Offering, the
October 1999 Common and Preferred Equity Offerings and the November 1999 Liberty
Investment all had occurred on the first day of the pro forma periods presented
below.
50
<PAGE> 51
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.
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 2000
--------------- ---------------
<S> <C> <C>
Net revenues $ 316,966 $ 359,909
=========== ===========
Broadcast/publishing cash flow $ 112,917 $ 139,875
=========== ===========
Income before extraordinary item $ 11,123 $ 22,482
=========== ===========
Net income $ 11,123 $ 20,460
=========== ===========
Net income available to common
shareholders $ 2,139 $ 11,476
=========== ===========
Basic and diluted net income available
to common shareholders $ .05 $ .25
=========== ===========
Weighted average shares outstanding:
Basic 44,684,160 45,337,162
Diluted 45,474,862 46,817,943
</TABLE>
9. EMPLOYEE BENEFIT PLANS
a. Non-Employee Director Stock Option Plan
At the 1995 annual meeting, the shareholders of Emmis approved a
Non-Employee Director Stock Option Plan. Under this Plan, each non-employee
director, as of January 24, 1995, was granted an option to acquire 10,000 shares
of the Company's Class A common stock. Thereafter, upon election or appointment
of any non-employee director or upon a continuing director becoming a
non-employee director, such individual will also become eligible to receive a
comparable option. In addition, an equivalent option will be automatically
granted on an annual basis to each non-employee director. All awards are granted
with an exercise price equal to the fair market value of the stock on the date
of grant. Under this Plan, awards equivalent to 100,000 shares of Class A common
stock are available for grant at February 29, 2000. Certain stock options and
restricted stock awarded remain outstanding as of February 28 (29), 1999 and
2000.
b. 1997 Equity Incentive Plan
At the 1997 annual meeting, the shareholders of Emmis approved the 1997
Equity Incentive Plan. Under this plan, awards equivalent to 2,000,000 shares of
common stock may be granted. The awards, which have certain restrictions, may be
for incentive stock options, nonqualified stock options, shares of restricted
stock, stock appreciation rights or performance units. Under this Plan, all
awards are granted with an exercise price equal to the fair market value of the
stock except for shares of restricted stock which may be granted with an
exercise price at amounts greater than or equal to the par value of the
underlying stock. No more than 1,000,000 shares of Class B common stock are
available for grant and issuance under this Plan. The stock options under this
Plan are generally not exercisable for one year after the date of grant and
expire not more than 10 years from the date of grant. Under this Plan, awards
equivalent to 75,000 shares of common stock are available for grant at February
29, 2000. Certain stock options and restricted stock awarded remain outstanding
as of February 28 (29), 1999 and 2000.
51
<PAGE> 52
c. 1999 Equity Incentive Plan
At the 1999 annual meeting, the shareholders of Emmis approved the 1999
Equity Incentive Plan. Under this plan, awards equivalent to 3,000,000 shares of
common stock may be granted. The awards, which have certain restrictions, may be
for incentive stock options, nonqualified stock options, shares of restricted
stock, stock appreciation rights or performance units. Under this Plan, all
awards are granted with an exercise price equal to the fair market value of the
stock except for shares of restricted stock which may be granted with an
exercise price at amounts greater than or equal to the par value of the
underlying stock. No more than 1,000,000 shares of Class B common stock are
available for grant and issuance under this Plan. The stock options under this
Plan are generally not exercisable for one year after the date of grant and
expire not more than 10 years from the date of grant. Under this Plan, awards
equivalent to 2,000,000 shares of common stock are available for grant at
February 29, 2000. Certain stock options and restricted stock awarded remain
outstanding as of February 29, 2000.
d. Other Disclosures Related to Stock Option and Equity Incentive Plans
The Company has historically accounted for its Stock Option Plans in
accordance with APB Opinion No. 25 ("APB 25"), under which compensation expense
is recognized only to the extent the exercise price of the option is less than
the fair market value of the share of stock at the date of grant. During 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS
123), which considers the stock options as compensation expense to the Company,
based on their fair value at the date of grant. Under this standard, the Company
has the option of accounting for employee stock option plans as it currently
does or under the new method. The Company has elected to continue to use the APB
25 method for accounting, but has adopted the disclosure requirements of SFAS
123. Accordingly, compensation expense reflected in non-cash compensation in the
consolidated statements of operations related to the plans summarized above was
$732,000, $3,269,000 and $6,107,000 for the years ended February 1998, 1999 and
2000, respectively. Had compensation expense related to these plans been
determined based on fair value at date of grant, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
-----------------------------------------------------
1998 1999 2000
---------------- --------------- ----------------
<S> <C> <C> <C>
Net Income Available to Common:
As Reported $ 11,084,000 $ 1,248,000 $ (3,177,000)
Pro Forma $ 8,588,000 $ (2,056,000) $ (8,741,000)
Basic EPS:
As Reported $ .51 $ .04 $ (.09)
Pro Forma $ .39 $ (.07) $ (.24)
Diluted EPS:
As Reported $ .49 $ .04 $ (.09)
Pro Forma $ .38 $ (.07) $ (.24)
</TABLE>
Because the fair value method of accounting has not been applied to options
granted prior to March 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value of
each option granted is estimated on the date of grant using the Black-Scholes
option pricing model utilizing the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
---------------------------------------
1998 1999 2000
---------- ---------- --------
<S> <C> <C> <C>
Risk-Free Interest Rate: 5.78% 5.21% 6.12%
Expected Life (Years): 7.5 8.0 5.2
Expected Volatility: 8.65% 42.12% 44.31%
</TABLE>
Expected dividend yields were zero for fiscal 1998, 1999 and 2000.
52
<PAGE> 53
A summary of the status of options and restricted stock at February 1998,
1999 and 2000 and the related activity for the year, including the adoption of
the 1999 Equity Incentive Plan, is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
----------------------------- --------------------------- ------------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED
OPTIONS/ AVERAGE OPTIONS/ AVERAGE OPTIONS/ AVERAGE
RESTRICTED EXERCISE RESTRICTED EXERCISE RESTRICTED EXERCISE
STOCK PRICE STOCK PRICE STOCK PRICE
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 2,590,520 11.71 2,663,110 13.57 3,485,386 14.63
Granted 450,400 22.03 1,183,000 16.43 2,012,000 23.39
Exercised (212,610) 10.55 (290,724) 10.95 (922,298) 16.20
Lapsing of restricted stock (144,000) - (50,000) - - -
Expired and other (21,200) 21.24 (20,000) 8.00 (15,920) 18.57
Outstanding at
End of Year 2,663,110 13.57 3,485,386 14.87 4,559,168 18.07
Exercisable at
End of Year 2,110,860 11.38 2,570,536 13.32 2,537,168 13.92
Total Available for Grant 2,334,080 1,171,080 2,175,000
</TABLE>
During the years ended February 1998, 1999 and 2000 options were granted
with an exercise price equal to or less than fair market value of the stock on
the date of grant. A summary of the weighted average fair value and exercise
price of options granted during 1998, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------------------------------- ------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
VALUE PRICE VALUE PRICE VALUE PRICE
---------- ----------- ------------ -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
OPTIONS GRANTED WITH
AN EXERCISE PRICE:
Equal to Fair Market Value
of the Stock on the Date
of Grant $11.43 $ 20.60 $ 10.37 $ 18.39 $ 12.95 $ 26.59
Less Than Fair Market
Value of the Stock on
the Date of Grant $ - $ - $ 18.62 $ 7.75 $ 11.92 $ 20.00
</TABLE>
During fiscal 1999 and 2000, 10,000 and 135,600 shares of nonvested stock
were granted at a weighted average grant date fair value of $22.38 and $22.70,
respectively, under employment agreements. No nonvested stock was granted during
fiscal 1998.
The following information relates to options outstanding and exercisable at
February 29, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ---------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER OF EXERCISE REMAINING NUMBER OF EXERCISE
PRICES OPTIONS PRICE CONTRACT LIFE OPTIONS PRICE
---------------- ---------- -------- -------------- --------- --------
<S> <C> <C> <C> <C> <C>
$5.65-$8.48 1,126,800 $ 7.69 6.5 years 1,126,800 $ 7.69
8.48-11.30 30,280 8.56 5.0 years 30,280 8.56
11.30-16.95 667,010 16.25 8.3 years 667,010 16.25
16.95-19.78 179,098 18.37 6.4 years 179,098 18.37
19.78-22.60 813,020 21.08 6.8 years 383,020 22.29
22.60-25.43 597,360 23.33 8.0 years 150,960 24.65
25.43-28.25 1,000,000 28.25 9.7 years - -
</TABLE>
53
<PAGE> 54
In addition to the benefit plans noted above, Emmis has the following
employee benefit plans:
e. Profit Sharing Plan
In December 1986, Emmis adopted a profit sharing plan that covers all
nonunion employees with one year of service. Contributions to the plan are at
the discretion of the Emmis Board of Directors and can be made in the form of
newly issued Emmis common stock or cash. Historically, all contributions to the
plan have been in the form of Emmis common stock. Contributions reflected in
non-cash compensation in the consolidated statements of operations for the years
ended February 1998, 1999 and 2000 were $750,000, $1,000,000 and $1,250,000,
respectively.
f. 401(k) Retirement Savings Plan
Emmis sponsors two Section 401(k) retirement savings plans. One covers
substantially all nonunion employees age 18 years and older who have at least
six months of service and the other covers substantially all union employees
that meet the same qualifications. The union plan became effective August 1,
1998. Employees may make pretax contributions to the plans up to 15% of their
compensation, not to exceed the annual limit prescribed by the Internal Revenue
Service. Emmis may make discretionary matching contributions to the plans in the
form of shares of the Company's Class A common stock. Effective March 1, 1996,
Emmis began to match 50% of employee contributions up to $2,000. Emmis'
contributions to the plans totaled $315,000, $599,000 and $807,000 for the years
ended February 1998, 1999 and 2000, respectively.
g. Defined Contribution Health and Retirement Plan
Emmis contributes to a multi-employer defined contribution health and
retirement plan for employees who are members of a certain labor union. Amounts
charged to expense related to the multi-employer plan were approximately
$342,000, $344,000 and $345,000 for the years ended February 1998, 1999 and
2000, respectively.
h. Employee Stock Purchase Plan
Effective March 1, 1995, the Company implemented an employee stock purchase
plan which permits employees to purchase, via payroll deduction, shares of the
Company's Class A common stock, at fair market value, up to an amount not to
exceed 10% of an employee's annual gross pay.
Effective March 1, 2000, the Company replaced its previous employee stock
purchase plan with a new plan that allows employees to purchase shares of the
Company's Class A common stock at the lesser of 90% of the fair value of such
shares at the beginning or end of each semi-annual offering period. Purchases
are subject to a maximum limitation of $22,500 annually per employee. The
Company will not record compensation expense pursuant to this plan as management
expects it to meet the requirements of Section 423(b) of the Internal Revenue
Code. This plan will be submitted for approval at the annual shareholders'
meeting.
10. COMMITMENTS AND CONTINGENCIES
a. Operating Leases
Emmis leases certain office space, tower space, equipment and automobiles
under operating leases expiring at various dates through December 2021. Some of
the lease agreements contain renewal options and annual rental escalation
clauses (generally tied to the Consumer Price Index or increases in the lessor's
operating costs), as well as provisions for payment of utilities and maintenance
costs.
54
<PAGE> 55
The future minimum rental payments (exclusive of future escalation costs)
required by noncancelable operating leases which have remaining terms in excess
of one year as of February 29, 2000, are as follows:
<TABLE>
<CAPTION>
PAYABLE IN YEAR
ENDING FEBRUARY PAYMENTS
--------------- --------
(IN THOUSANDS)
<S> <C>
2001 $ 4,721
2002 4,574
2003 4,231
2004 3,241
2005 2,818
Thereafter 15,340
----------
$ 34,925
==========
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of
approximately $444,000 due in the future under noncancelable subleases.
Rent expense totaled $4,512,000, $5,945,000 and $4,404,000 for the years
ended February 1998, 1999 and 2000, respectively. Rent expense for the year
ended February 1998, 1999 and 2000 is net of sublease income of approximately
$86,000, $148,000 and $148,000, respectively.
b. Radio Broadcast Agreements
Emmis has entered into agreements to broadcast certain syndicated programs
and sporting events. Future payments related to these radio broadcast rights are
summarized as follows: Year ended February 2001 - $1,899,000, 2002 - $1,650,000,
2003 - $781,000, 2004 - $196,000, 2005 - $48,000 and thereafter - $0. Expense
related to these broadcast rights totaled $1,400,000, $1,492,000 and $1,780,000
for the years ended February 1998, 1999 and 2000, respectively.
In connection with reformatting one of its radio stations, the Company
terminated a syndicated program agreement. The contract required continued
payments in the event of termination, and these payments are included in the
future payments disclosed above. The discounted present value of these payments
of $896,000 is reflected in the accompanying consolidated statements of
operations as Programming Restructuring Costs.
c. Litigation
Emmis currently and from time to time is involved in litigation incidental
to the conduct of its business, but Emmis is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
Emmis. See Note 7 for discussion of litigation with Sinclair.
d. Employment Agreements
The Company enters into employment agreements with certain officers and
employees. These agreements generally specify base salary, along with bonuses
and grants of stock and/or stock options based on certain criteria. The Company
finalized negotiations on several new employment contracts with key executives,
including the Chief Executive Officer, during the year ended February 29, 2000.
At February 29, 2000, 9,383 shares of stock and 1,596,000 options to purchase
stock have been granted in connection with current employment agreements.
Additionally, up to 168,600 shares and options to purchase up to 272,250 shares
of the Company's Class A common stock may be granted (or have been granted
subject to forfeiture) under the contracts in the next two years.
55
<PAGE> 56
11. INCOME TAXES
The provision for income taxes for the years ended February 1998, 1999 and
2000, consisted of the following:
<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 6,474 $ 1,247 $ 105
State 1,250 - 100
-------- -------- --------
7,724 1,247 205
-------- -------- --------
Deferred:
Federal (759) 3,953 6,010
State 235 1,000 660
-------- -------- --------
(524) 4,953 6,670
-------- -------- --------
Provision for
income taxes 7,200 6,200 6,875
Tax benefit of extraordinary
item - 1,750 1,250
-------- -------- --------
Net provision for income taxes $ 7,200 $ 4,450 $ 5,625
======== ======== ========
</TABLE>
The provision for income taxes for the years ended February 1998, 1999 and
2000, differs from that computed at the Federal statutory corporate tax rate as
follows:
<TABLE>
<CAPTION>
1998 1999 2000
----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income taxes at 35% $ 6,399 $ 3,166 $ 3,102
State income tax 965 650 494
Valuation allowance on foreign
losses - 1,334 893
Nondeductible goodwill - 1,324 1,394
Nondeductible donations - - 363
Other (164) (274) 629
-------- -------- --------
Provision for income taxes $ 7,200 $ 6,200 $ 6,875
======== ======== ========
</TABLE>
The components of deferred tax assets and deferred tax liabilities at February
1999 and 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capital loss carryforwards $ 439 $ 147
Net operating loss carryforwards 2,142 1,394
Compensation relating to stock options 3,336 2,356
Other 2,219 2,847
Valuation allowance (1,056) (858)
--------- ---------
Total deferred tax assets 7,080 5,886
--------- ---------
Deferred tax liabilities:
Intangible assets (88,071) (87,756)
Other (4,026) (5,269)
--------- ---------
Total deferred tax liabilities (92,097) (93,025)
--------- ---------
Net deferred tax liability $ (85,017) $ (87,139)
========= =========
</TABLE>
In connection with the acquisition of WQCD-FM, the deferred tax liability
was increased (decreased) by $52,505 and ($4,548) in 1999 and 2000,
respectively.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. A valuation allowance
has been provided for 100% of the capital loss carryforwards available as of
February 1999 and 2000 since these loss carryforwards can only be utilized to
offset future capital gains. Additionally, a valuation allowance has been
provided for the net operating loss carryforwards related to the Company's
foreign subsidiaries since these subsidiaries have not yet generated taxable
income against which the net operating losses could be utilized. The expiration
of net operating loss carryforwards, excluding those at the Company's Hungarian
subsidiary, which do not expire, approximate $1,194,000 in 2005, and $758,000
thereafter.
56
<PAGE> 57
12. SEGMENT INFORMATION
The Company's operations are aligned into three business segments: Radio,
Television and Publishing. These business segments are consistent with the
Company's management of these businesses and its financial reporting structure.
The Radio and Television segments derive revenue from the sale of
commercial broadcast inventory. The Publishing segment derives revenue from
subscriptions and the sale of print advertising inventory.
Corporate and Other represents the results of insignificant operations and
income and 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 years ended February 1999
and 2000 were $3.3 million and $7.4 million, respectively. Total revenues for
this station were not material for the year ended February 1998. This station's
total assets as of February 28 (29), 1999 and 2000 were $20.4 million and $16.2
million, respectively. Total revenues of the radio stations in Argentina
acquired on November 1, 1999 were not significant for the year ended February
29, 2000 and total assets as of February 29, 2000 were $35.2 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. 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.
57
<PAGE> 58
<TABLE>
<CAPTION>
CORPORATE
YEAR ENDED FEBRUARY 29, 2000 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED
-------------------------------- --------------- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 187,190 $ 82,160 $ 54,105 $ 1,810 $ 325,265
Operating expenses 98,932 53,178 46,456 1,252 199,818
----------- ----------- ----------- ----------- -------------
Broadcast/publishing cash flow 88,258 28,982 7,649 558 125,447
International business
development expenses - - - 1,558 1,558
Corporate expenses - - - 13,872 13,872
Program restructuring cost 896 - - - 896
Depreciation and amortization 16,694 17,138 6,934 3,395 44,161
Non-cash compensation - - - 7,357 7,357
----------- ----------- ----------- ----------- -------------
Operating income $ 70,668 $ 11,844 $ 715 $ (25,624) $ 57,603
=========== =========== =========== =========== =============
Total assets $ 474,403 $ 701,672 $ 68,927 $ 82,304 $ 1,327,306
=========== =========== =========== =========== =============
<CAPTION>
CORPORATE
YEAR ENDED FEBRUARY 28, 1999 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED
-------------------------------- --------------- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 155,028 $ 39,623 $ 36,476 $ 1,709 $ 232,836
Operating expenses 84,907 26,130 31,491 820 143,348
----------- ----------- ----------- ----------- -------------
Broadcast/publishing cash flow 70,121 13,493 4,985 889 89,488
International business
development expenses - - - 1,477 1,477
Corporate expenses - - - 10,427 10,427
Time brokerage fee 2,220 - - - 2,220
Depreciation and amortization 13,990 8,352 4,813 1,159 28,314
Non-cash compensation - - - 4,269 4,269
----------- ----------- ----------- ----------- -------------
Operating income $ 53,911 $ 5,141 $ 172 $ (16,443) $ 42,781
=========== =========== =========== =========== =============
Total assets $ 460,065 $ 439,279 $ 44,171 $ 71,316 $ 1,014,831
=========== =========== =========== =========== =============
<CAPTION>
CORPORATE
YEAR ENDED FEBRUARY 28, 1998 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED
-------------------------------- --------------- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 125,855 $ - $ 13,586 $ 1,142 $ 140,583
Operating expenses 67,646 - 12,600 924 81,170
----------- ----------- ----------- ----------- -------------
Broadcast/publishing cash flow 58,209 - 986 218 59,413
International business
development expenses - - - 999 999
Corporate expenses - - - 6,846 6,846
Time brokerage fee 5,667 - - - 5,667
Depreciation and amortization 7,034 - 294 208 7,536
Non-cash compensation - - - 1,482 1,482
----------- ----------- ----------- ----------- -------------
Operating income $ 45,508 $ - $ 692 $ (9,317) $ 36,883
=========== =========== =========== =========== =============
Total assets $ 255,541 $ - $ 50,086 $ 27,761 $ 333,388
=========== =========== =========== =========== =============
</TABLE>
13. RELATED PARTY TRANSACTIONS
Two officers of Emmis are partners in a law firm which provides legal
services to Emmis. Legal fees paid to this law firm were approximately $512,000,
$868,000 and $756,000 for the years ended February 1998, 1999 and 2000,
respectively.
Emmis has periodically made interest-bearing loans to various officers and
employees. The approximate amount of such indebtedness outstanding at February
28 (29), 1999 and 2000, was $1,741,000 and $1,834,000, respectively. These loans
bear interest at the Company's average borrowing rate of approximately 7.09% and
7.50% for the years ended February 1999 and 2000.
During the year ended February 29, 2000, the Company purchased
approximately $157,000 in corporate gifts and specialty items from a company
owned by the spouse of Norman H. Gurwitz. Also during the last fiscal year,
Emmis made payments of approximately $364,000 to a company owned by Mr. Smulyan
for use of an airplane to transport employees to various trade shows and
meetings. Furthermore, Emmis made payments of $506,000 to a management company
for an allocation of operating and maintenance costs of the airplane.
58
<PAGE> 59
14. 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, 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 28 (29), 1999 and 2000 and for each of the three years in the
period ended February 29, 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.
59
<PAGE> 60
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 29, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT AND
COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING
ONLY GUARANTORS NON-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
Current portion of TV program rights - 5,452 - - 5,452
Income tax refunds receivable 4,685 - - - 4,685
Prepaid expenses 1,197 8,434 422 - 10,053
Other 1,096 7,292 297 - 8,685
----------- ----------- --------- ----------- -------------
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 maturities of other long-
term debt $ 34 $ 17 $ 5,328 $ - $ 5,379
Current portion of TV program
rights payable - 16,816 - - 16,816
Collection of accounts receivable on
behalf of SF Broadcasting and
Wabash Valley Broadcasting - - - - -
Accrued salaries and commissions 1,952 5,801 409 - 8,162
Accrued interest 10,995 - 82 - 11,077
Income taxes payable - - - - -
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 Debt 300,000 - - - 300,000
Other long-term debt, net of
current portion 36 671 18,281 (4,381) 14,607
TV program rights payable, net
of current portion - 58,585 - - 58,585
Other noncurrent liabilities - 5,408 - - 5,408
Minority interest - - 758 - 758
Deferred income taxes 87,139 - - - 87,139
----------- ----------- --------- ----------- -------------
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
income - - (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>
60
<PAGE> 61
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 29, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT AND
COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING
ONLY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
--------- ------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,810 $ 314,644 $ 8,811 $ - $ 325,265
Operating expenses 1,252 191,666 6,900 - 199,818
International business development
expenses - 1,558 - - 1,558
Corporate expenses 13,872 - - - 13,872
Depreciation and amortization 3,395 37,733 3,033 - 44,161
Non-cash compensation 5,518 1,839 - - 7,357
Programming restructuring cost - 896 - - 896
--------- ----------- ----------- ----------- -----------
Operating income (22,227) 80,952 (1,122) - 57,603
--------- ----------- ----------- ----------- -----------
Other income (Expense)
Interest expense (49,257) (107) (3,363) 741 (51,986)
Loss on donation of station - (956) - - (956)
Other income (expense), net 3,428 13 (502) 1,264 4,203
--------- ----------- ----------- ----------- -----------
Total other income (expense) (45,829) (1,050) (3,865) 2,005 (48,739)
--------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (68,056) 79,902 (4,987) 2,005 8,864
Provision (benefit) for income taxes (22,689) 29,564 - - 6,875
--------- ----------- ----------- ----------- -----------
(45,367) 50,338 (4,987) 2,005 1,989
Extraordinary item, net of tax (2,022) - - - (2,022)
Equity in earnings (loss) of
subsidiaries 47,356 - - (47,356) -
--------- ----------- ----------- ----------- -----------
Net income (loss) (33) 50,338 (4,987) (45,351) (33)
Less: Preferred stock dividends 3,144 - - - 3,144
--------- ----------- ----------- ----------- -----------
Net income (loss) available to
common shareholders $ (3,177) $ 50,338 $ (4,987) $ (45,351) $ (3,177)
========= =========== =========== =========== ===========
</TABLE>
61
<PAGE> 62
Emmis Communications Corporation
Consolidating Statement of Cash Flows
For the Year Ended February 29, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
PARENT
COMPANY SUBSIDIARY SUBSIDIARY
ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ (33) $ 50,338 $ (4,987) $ (45,351) $ (33)
Adjustments to reconcile net
income to net cash provided
(used) by operating activities -
Extraordinary item 2,022 - - - 2,022
Depreciation and amortization 5,805 44,980 3,033 - 53,818
Provision for bad debts - 2,550 - - 2,550
Provision (benefit) for deferred
income taxes 6,670 - - - 6,670
Noncash compensation 5,518 1,839 - - 7,357
Equity in earnings of subsidiaries (47,356) - - 47,356 -
Loss on donation of radio station - 956 - - 956
Other 2,033 - (811) (2,005) (783)
Changes in assets and liabilities -
Accounts receivable - (13,029) (290) - (13,319)
Prepaid expenses and other
current assets (1,258) (13,101) (187) - (14,546)
Other assets (8,393) 7,382 (1,496) - (2,507)
Accounts payable and
accrued liabilities (391) 9,255 1,301 - 10,165
Deferred revenue - 4,332 - - 4,332
Other liabilities (10,389) (19,933) - - (30,322)
--------- ----------- ---------- ----------- --------------
Net cash provided (used) by
operating activities (45,772) 75,569 (3,437) - 26,360
--------- ----------- ---------- ----------- --------------
Investing Activities:
Cash paid for acquisitions - (217,828) (13,302) - (231,130)
Purchases of property and equipment (8,124) (21,170) (22) - (29,316)
Deposits on acquisitions and other (5,000) (6,500) - - (11,500)
--------- ----------- ---------- ----------- --------------
Net cash used in investing activities (13,124) (245,498) (13,324) - (271,946)
--------- ----------- ---------- ----------- --------------
Financing Activities:
Proceeds from long term debt 149,668 - - - 149,668
Payments on long term debt (426,668) - - - (426,668)
Proceeds of the Company's Class A
common stock, net of transaction
costs 383,570 - - - 383,570
Proceeds of the Company's Series A
cumulative convertible preferred
stock, net of transaction costs 138,409 - - - 138,409
Proceeds from exercise of stock
options 13,881 - - - 13,881
Purchase of interest rate cap
agreements and other debt related
costs - - - - -
Intercompany (199,781) 169,347 30,434 - -
Preferred stock dividends paid (2,021) - - - (2,021)
Other - - - - -
--------- ----------- ---------- ----------- --------------
Net cash provided by financing
Activities 57,058 169,347 30,434 - 256,839
--------- ----------- ---------- ----------- --------------
Increase (decrease) in cash and cash
Equivalents (1,838) (582) 13,673 - 11,253
Cash and cash equivalents:
Beginning of year 2,286 3,146 685 - 6,117
--------- ----------- ---------- ----------- --------------
End of year $ 448 $ 2,564 $ 14,358 $ $ 17,370
========= =========== ========== =========== ==============
</TABLE>
62
<PAGE> 63
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 28, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT AND
COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING
ONLY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
----------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 2,286 $ 3,146 $ 685 $ - $ 6,117
Accounts receivable, net - 50,436 1,043 - 51,479
Current portion of TV program rights - 3,646 - - 3,646
Income tax refunds receivable - - - - -
Prepaid expenses 2,745 4,016 72 - 6,833
Other 2,975 32 - - 3,007
----------- ----------- --------- ---------- -------------
Total current assets 8,006 61,276 1,800 - 71,082
Property and equipment, net 33,769 71,342 949 - 106,060
Intangible assets, net 151 785,219 16,937 - 802,307
Investment in affiliates 856,701 - - (856,701) -
Other assets, net 31,866 7,648 702 (4,834) 35,382
----------- ----------- --------- ---------- -------------
Total assets $ 930,493 $ 925,485 $ 20,388 $ (861,535) $ 1,014,831
=========== =========== ========= ========== =============
Current Liabilities
Accounts payable 7,527 7,739 369 - 15,635
Current maturities of other long-
term debt $ 34 $ 16 $ 2,239 $ (1,454) $ 835
Current portion of TV program
rights payable - 9,471 - - 9,471
Collection of accounts receivable on
behalf of SF Broadcasting and
Wabash Valley Broadcasting - 9,016 - - 9,016
Accrued salaries and commissions 1,262 2,719 564 - 4,545
Accrued interest 6,222 1 - - 6,223
Income taxes payable 11,790 267 - - 12,057
Deferred revenue - 7,238 - - 7,238
Other 146 4,667 - - 4,813
----------- ----------- --------- ---------- -------------
Total current liabilities 26,981 41,134 3,172 (1,454) 69,833
Credit Facility and Senior
Subordinated Debt 577,000 - - - 577,000
Other long-term debt, net of
current portion 2,543 (45) 19,687 (3,380) 18,805
TV program rights payable, net
of current portion - 25,161 - - 25,161
Other noncurrent liabilities (4) 3,470 - - 3,466
Minority interest - - - - -
Deferred income taxes 87,776 (2,759) - - 85,017
----------- ----------- --------- ---------- -------------
Total liabilities 694,296 66,961 22,859 (4,834) 779,282
Shareholders' Equity
Series A preferred stock - - - - -
Class A common stock 264 - - - 264
Class B common stock 52 - - - 52
Additional paid-in capital 260,186 - 4,297 (4,297) 260,186
Subsidiary investment - 637,223 - (637,223) -
Retained earnings (accumulated
deficit) (24,305) 221,301 (6,120) (215,181) (24,305)
Accumulated other comprehensive
income - - (648) - (648)
----------- ----------- --------- ----------- -------------
Total shareholders' equity 236,197 858,524 (2,471) (856,701) 235,549
----------- ----------- --------- ----------- -------------
Total liabilities and
shareholders' equity $ 930,493 $ 925,485 $ 20,388 $ (861,535) $ 1,014,831
=========== =========== ========= =========== =============
</TABLE>
63
<PAGE> 64
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 28, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT AND
COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING
ONLY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
--------- ----------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,709 $ 227,873 $ 3,254 $ - $ 232,836
Operating expenses 820 138,581 3,947 - 143,348
International business development
expenses - 1,477 - - 1,477
Corporate expenses 10,427 - - - 10,427
Time brokerage agreement fee - 2,220 - - 2,220
Depreciation and amortization 1,159 24,336 2,819 - 28,314
Non-cash compensation 3,600 669 - - 4,269
--------- ----------- ----------- ----------- -------------
Operating income (14,297) 60,590 (3,512) - 42,781
--------- ----------- ----------- ----------- -------------
Other income (Expense)
Interest expense (33,667) (102) (3,171) 1,290 (35,650)
Other income (expense), net 74,865 (73,957) 421 585 1,914
--------- ----------- ----------- ----------- -------------
Total other income (expense) 41,198 (74,059) (2,750) 1,875 (33,736)
--------- ----------- ----------- ----------- -------------
Income (loss) before income taxes 26,901 (13,469) (6,262) 1,875 9,045
Provision (benefit) for income taxes 9,719 (3,377) (142) - 6,200
--------- ----------- ----------- ----------- -------------
17,182 (10,092) (6,120) 1,875 2,845
Extraordinary item, net of tax (1,597) - - - (1,597)
Equity in earnings (loss) of
subsidiaries (14,337) - - 14,337 -
--------- ----------- ----------- ----------- -------------
Net income (loss) $ 1,248 $ (10,092) $ (6,120) $ 16,212 $ 1,248
========= =========== =========== =========== =============
</TABLE>
64
<PAGE> 65
Emmis Communications Corporation
Consolidating Statement of Cash Flows
For the Year Ended February 28, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
PARENT
COMPANY SUBSIDIARY SUBSIDIARY
ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 1,248 $ (10,092) $ (6,120) $ 16,212 $ 1,248
Adjustments to reconcile net
income to net cash provided
(used) by operating activities -
Extraordinary item 1,597 - - - 1,597
Depreciation and amortization 1,998 27,341 2,819 - 32,158
Provision for bad debts - 1,745 - - 1,745
Provision (benefit) for deferred
income taxes 4,953 - - - 4,953
Noncash compensation 3,600 669 - - 4,269
Equity in earnings of subsidiaries 14,337 - - (14,337) -
Other 103 629 - (1,875) (1,143)
Changes in assets and liabilities -
Accounts receivable 345 (21,835) 386 - (21,104)
Prepaid expenses and other
current assets (4,725) 4,070 (72) - (727)
Other assets 9,516 (6,408) 327 - 3,435
Accounts payable and
accrued liabilities 8,183 (1,519) (1,111) 1,454 7,007
Deferred revenue - (747) - - (747)
Other liabilities (2,029) 5,099 (640) - 2,430
--------- ----------- ---------- ----------- --------------
Net cash provided (used) by
operating activities 39,126 (1,048) (4,411) 1,454 35,121
--------- ----------- ---------- ----------- --------------
Investing Activities:
Cash paid for acquisitions - (504,748) - - (504,748)
Purchases of property and equipment (21,363) (13,654) (2,366) - (37,383)
Deposits on acquisitions and other 7 654 - - 661
--------- ----------- ---------- ----------- --------------
Net cash used in investing activities (21,356) (517,748) (2,366) - (541,470)
--------- ----------- ---------- ----------- --------------
Financing Activities:
Proceeds from long term debt 1,063,000 - - - 1,063,000
Payments on long term debt (723,500) - - - (723,500)
Proceeds of the Company's Class A
common stock, net of transaction
costs 182,640 - - - 182,640
Proceeds from exercise of stock
options 4,130 - - - 4,130
Purchase of interest rate cap
agreements and other debt related
costs (19,589) - - - (19,589)
Intercompany (522,788) 521,699 2,543 (1,454) -
Other - - - - -
--------- ----------- ---------- ----------- --------------
Net cash provided (used) by financing
activities (16,107) 521,699 2,543 (1,454) 506,681
--------- ----------- ---------- ----------- --------------
Increase (decrease) in cash and cash
equivalents 1,663 2,903 (4,234) - 332
Cash and cash equivalents:
Beginning of year 623 243 4,919 - 5,785
--------- ----------- ---------- ----------- --------------
End of year $ 2,286 $ 3,146 $ 685 $ $ 6,117
========= =========== ========== =========== ==============
</TABLE>
65
<PAGE> 66
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 28, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
ELIMINATIONS
PARENT AND
COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING
ONLY GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,142 $ 139,441 $ - $ - $ 140,583
Operating expenses 924 80,246 - - 81,170
International business development
expenses - 999 - - 999
Corporate expenses 6,846 - - - 6,846
Time brokerage agreement fee - 5,667 - - 5,667
Depreciation and amortization 171 7,365 - - 7,536
Non-cash compensation 818 664 - - 1,482
----------- ----------- ----------- ----------- -------------
Operating income (7,617) 44,500 - - 36,883
----------- ----------- ----------- ----------- -------------
Other income (Expense)
Interest expense (13,766) (6) - - (13,772)
Loss on donation of radio station (4,833) - - - (4,833)
Other income (expense), net 15 (9) - - 6
----------- ----------- ----------- ----------- -------------
Total other income (expense) (18,584) (15) - - (18,599)
----------- ----------- ----------- ----------- -------------
Income (loss) before income taxes (26,201) 44,485 - - 18,284
Provision (benefit) for income taxes (10,480) 17,680 - - 7,200
----------- ----------- ----------- ----------- -------------
(15,721) 26,805 - - 11,084
Equity in earnings (loss) of
subsidiaries 26,805 - - (26,805) -
----------- ----------- ----------- ----------- -------------
Net income (loss) $ 11,084 $ 26,805 $ - $ (26,805) $ 11,084
=========== =========== =========== =========== =============
</TABLE>
66
<PAGE> 67
Emmis Communications Corporation
Consolidating Statement of Cash Flows
For the Year Ended February 28, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
PARENT
COMPANY SUBSIDIARY SUBSIDIARY
ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 11,084 $ 26,805 $ - $ (26,805) $ 11,084
Adjustments to reconcile net
income (loss) to net cash provided
(used) by operating activities -
Extraordinary item - - - - -
Depreciation and amortization
Depreciation and amortization 2,354 7,365 - - 9,719
Provision for bad debts 20 782 - - 802
Provision (benefit) for deferred
income taxes (121) (403) - - (524)
Noncash compensation 818 664 - - 1,482
Equity in earnings of subsidiaries (26,805) - - (26,805) -
Loss on donation of radio station 4,833 - - - 4,833
Other 357 - - - 357
Changes in assets and liabilities -
Accounts receivable 797 (7,757) (1,429) - (8,389)
Prepaid expenses and other
current assets (5,234) 474 - - (4,760)
Other assets (951) (6,136) (1,027) 6,282 (1,832)
Accounts payable and
accrued liabilities 4,047 4,611 481 - 9,139
Deferred revenue - 292 - - 292
Other liabilities 1,056 (772) - - 284
--------- ----------- ---------- ----------- --------------
Net cash provided (used) by
operating activities (7,745) 25,925 (1,975) 6,282 22,487
--------- ----------- ---------- ----------- --------------
Investing Activities:
Cash paid for acquisitions - (92,377) - - (92,377)
Purchases of property and equipment (13,349) (3,019) (623) - (16,991)
Deposits on acquisitions and other - - (7,325) - (7,325)
--------- ----------- ---------- ----------- --------------
Net cash used in investing activities (13,349) (95,396) (7,948) - (116,693)
--------- ----------- ---------- ----------- --------------
Financing Activities:
Proceeds from long-term debt 288,378 - 6,282 (6,282) 288,378
Payments on long-term debt (183,928) - - - (183,928)
Purchase of Company's Class A
common stock (7,000) - - - (7,000)
Proceeds from exercise of stock
options 3,922 - - - 3,922
Purchase of interest rate cap
agreements and other debt related
costs (4,291) - - - (4,291)
Intercompany (75,327) 68,642 8,560 (1,875) -
Other (156) - - 1,875 1,719
--------- ----------- ---------- ----------- --------------
Net cash provided (used) by financing
activities 21,598 68,642 14,842 (6,282) 98,800
--------- ----------- ---------- ----------- --------------
Increase (decrease) in cash and cash
equivalents 504 (829) 4,919 - 4,594
Cash and cash equivalents:
Beginning of year 119 1,072 - - 1,191
--------- ----------- ---------- ----------- --------------
End of year $ 623 $ 243 $ 4,919 $ - $ 5,785
========= =========== ========== =========== ==============
</TABLE>
67
<PAGE> 68
15. SUBSEQUENT EVENTS - ACQUISITIONS
On March 3, 2000, the Company acquired all of the outstanding capital stock
of Los Angeles Magazine Holding Company, Inc. for approximately $36.0 million in
cash plus liabilities recorded of $1.4 million. Los Angeles Magazine Holding
Company, Inc. owns and operates Los Angeles Magazine, a city magazine. The
acquisition will be accounted for as a purchase and was financed through
borrowings under the Credit Facility.
On May 7, 2000, the Company 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"). 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, and KSNT-TV (NBC) in Topeka, Kansas. The 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 all or part of the Company's
television and radio businesses. Management is evaluating structural and
financing alternatives to effect this separation of businesses.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------- FULL
MAY 31 AUG. 31 NOV. 30 FEB. 28 (29) YEAR
----------- ----------- ----------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1999:
Net revenues $ 44,619 $ 57,874 $ 71,639 $ 58,704 $ 232,836
Operating income 8,173 14,807 18,085 1,716 42,781
Income (loss) before extraordinary item 1,788 4,161 3,012 (6,116) 2,845
Net income (loss) available to common
shareholders 1,788 2,564 3,012 (6,116) 1,248
Basic earnings per common share:
Before extraordinary item $ 0.08 $ 0.13 $ 0.10 $ (0.19) $ 0.10
Net income (loss) available to common
shareholders $ 0.08 $ 0.08 $ 0.10 $ (0.19) $ 0.10
Diluted earnings per common share:
Before extraordinary item $ 0.08 $ 0.13 $ 0.09 $ (0.19) $ 0.10
Net income (loss) available to common
shareholders $ 0.08 $ 0.08 $ 0.09 $ (0.19) $ 0.04
Year ended February 29, 2000:
Net revenues $ 72,352 $ 81,529 $ 91,257 $ 80,127 $ 325,265
Operating income 12,949 18,041 20,929 5,684 57,603
Income (loss) before extraordinary item 241 1,216 2,456 (1,924) 1,989
Net income (loss) available to common
shareholders 241 1,216 1,657 (6,291) (3,177)
Basic earnings per common share:
Before extraordinary item $ 0.01 $ 0.04 $ 0.05 $ (0.09) $ (0.03)
Net income (loss) available to common
shareholders $ 0.01 $ 0.04 $ 0.05 $ (0.14) $ (0.09)
Diluted earnings per common share:
Before extraordinary item $ 0.01 $ 0.04 $ 0.04 $ (0.09) $ (0.03)
Net income (loss) available to common
shareholders $ 0.01 $ 0.04 $ 0.04 $ (0.14) $ (0.09)
</TABLE>
68
<PAGE> 69
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF EMMIS COMMUNICATIONS CORPORATION
AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of EMMIS
COMMUNICATIONS CORPORATION (an Indiana corporation) and Subsidiaries as of
February 28 (29), 2000 and 1999, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended February 29, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Emmis Communications
Corporation and Subsidiaries as of February 28 (29), 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended February 29, 2000 in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
------------------------------------------
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
May 7, 2000.
69
<PAGE> 70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
70
<PAGE> 71
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION(S) AND DIRECTOR
BUSINESS EXPERIENCE DURING PAST 5 YEARS SINCE
--------------------------------------- ---------
<S> <C>
Jeffrey H. Smulyan, Age 53 1979
Chairman of the Board of Directors, Founder and President of Emmis; formerly
also owner and CEO of the Seattle Mariners major league baseball team; Chairman
of the Radio Advertising Bureau; Director of The Finish Line; Trustee of Ball
State University.
Susan B. Bayh, Age 40* 1994
Commissioner of the International Joint Commission of the United States and
Canada; Also, Distinguished Visiting Professor at Butler University; formerly
Attorney with Eli Lilly & Company; Director of Anthem, Inc. and Golden State
Foods.
Gary L. Kaseff, Age 52 1994
Employed as Executive Vice President and General Counsel to Emmis since 1998;
also counsel to Emmis in Southern California; formerly President of the Seattle
Mariners major league baseball team and partner with the law firm of Epport &
Kaseff.
Richard A. Leventhal, Age 53* 1992
Owns and operates Top Value Fabrics, Inc., a wholesale fabric and textile
company in Carmel, Indiana. Mr. Leventhal is the brother-in-law of Norman H.
Gurwitz, an executive officer of Emmis.
Greg A. Nathanson, Age 54 1998
Television Division President of Emmis; formerly President of Programming and
Development for Twentieth Television from 1996 to 1998, General Manager of
KTLA-TV in Los Angeles, California from 1992 to 1996 and President of Fox
Television Stations from 1990 to 1992.
Doyle L. Rose, Age 55 1984
Radio Division President of Emmis; formerly Executive Vice President-Operations.
Frank V. Sica, Age 56 1998
Managing director of Soros Fund Management LLC and Managing Partner of Soros
Private Equity Partners; director of CSG Systems International, Inc., a computer
software company, Global TeleSystems Group, Inc., a telecommunications company,
Kohl's Department Stores, a retail company, and Outboard Marine Corporation, a
manufacturer of marine engines and boats; formerly a Managing Director of Morgan
Stanley Dean Witter & Co., Incorporated from 1988 to 1998.
Lawrence B. Sorrel, Age 41 1993
General partner of Welsh, Carson, Anderson & Stowe, a private investment firm;
formerly a Managing Director of Morgan Stanley Dean Witter & Co. Incorporated
from 1986 to 1998.
-------------
* Independent directors elected by the holders of the Class A Common Stock
voting as a single class.
</TABLE>
71
<PAGE> 72
Listed below is certain information about the executive officers of Emmis or
its affiliates who are not directors.
<TABLE>
<CAPTION>
AGE AT YEAR FIRST
FEBRUARY 28, ELECTED
NAME POSITION 1999 OFFICER
-------------------- ------------------------------ --------------- -----------
<S> <C> <C> <C>
Richard F. Cummings Executive Vice 47 1984
President-Programming
Norman H. Gurwitz Executive Vice President-Human 51 1987
Resources and Secretary
Walter Z. Berger Executive Vice President, 43 1999
Treasurer
and Chief Financial Officer
</TABLE>
Set forth below is the principal occupation for the last five years of each
executive officer of the Company or its affiliates who is not also a director.
Richard F. Cummings was the Program Director of WENS from 1981 to March
1984, when he became the National Program Director and a Vice President of
Emmis. He became Executive Vice President--Programming in 1988.
Norman H. Gurwitz currently serves as Executive Vice President -- Human
Resources, a position he assumed in 1998. Previously he served as Corporate
Counsel for Emmis from 1987 to 1998 and as a Vice President from 1988 to 1995.
He became Secretary of Emmis in 1989 and became an Executive Vice President in
1995. Prior to 1987, he was a partner in the Indianapolis law firm of Scott &
Gurwitz. Mr. Gurwitz is the brother-in-law of Richard A. Leventhal, a director
of the Company.
Walter Z. Berger became Executive Vice President, Treasurer and Chief
Financial Officer of Emmis on March 1, 1999. Most recently, Mr. Berger served as
Group President of the Energy Marketing Division of LG&E Energy Corporation.
Prior to that appointment, he served as Executive Vice President and Chief
Financial Officer of LG&E Energy Corporation. From 1992 to 1996, he held several
senior financial and operating management positions at Enron Corporation and its
affiliates. Mr. Berger also spent seven years in various financial management
roles at Baker Hughes Incorporated after working for eight years at Arthur
Andersen & Co.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Emmis officers and directors, and persons who own more than 10% of Emmis common
stock, to file with the Securities and Exchange Commission reports detailing
their ownership of Emmis common stock and changes in such ownership. Officers,
directors and greater than 10% shareholders are required by Securities and
Exchange Commission regulations to furnish Emmis with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to Emmis, Emmis believes that during the last fiscal year all
officers, directors and greater than 10% shareholders complied with the filing
requirements of Section 16(a), except that Susan Bayh, Richard Leventhal, Frank
Sica and Lawrence Sorrel each failed to timely file one report in connection
with one transaction, and Randall Bongarten failed to timely file a Form 3
report and one Form 4 report in connection with a single transaction.
72
<PAGE> 73
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION TABLES
The following table sets forth the compensation awarded to, earned by, or
paid to the chief executive officer and the four most highly compensated
executive officers other than the chief executive officer (collectively, the
"Named Executive Officers") during each of the last three fiscal years. All
stock information has been restated for the two-for-one stock split in February
2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------- ----------
SECURITIES
FISCAL OTHER UNDERLYING ALL
NAME AND YEAR ENDED ANNUAL OPTIONS/ OTHER
PRINCIPAL POSITION FEBRUARY 28(29) SALARY BONUS (1) COMPENSATION (2) SARS(#) COMPENSATION
------------------ --------------- ------ --------- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
JEFFREY H. SMULYAN 2000 765,175 765,175 - 1,200,000 130,000 (3)
President and 1999 762,656 271,301 - 200,000 40,000
Chairman of the Board 1998 681,717 140,000 - 200,000 101,735
DOYLE L. ROSE 2000 435,769 479,593 14,400 -
Radio Division 1999 433,867 - 14,400 300,000 -
President 1998 434,156 44,800 14,400 50,000 -
RICHARD F. CUMMINGS 2000 460,781 479,593 14,400 -
Executive Vice President 1999 408,855 - 14,400 300,000 -
-- Programming 1998 434,156 44,800 14,400 50,000 -
GREG A. NATHANSON 2000 435,769 119,745 14,400 50,000
Television Division 1999 243,227 75,000 8,400 - -
President 1998 - - - - -
WALTER Z. BERGER 2000 342,192 119,745 12,000 40,000 86,307 (4)
Executive Vice President, 1999 23,539 - - - -
Chief Financial Officer 1998 - - - - -
and Treasurer
</TABLE>
-----------------
(1) Includes both cash and stock bonuses. The bonuses for Mr. Cummings and Mr.
Rose include a signing bonus for entering into new employment agreements
with the Company.
(2) Represents automobile allowance.
(3) Represents the value of premiums accrued by Emmis on a split-dollar life
insurance policy.
(4) Represents reimbursement of relocation expenses.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
All stock information in the following tables has been restated for the
two-for-one stock split in February 2000.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS/SARS VALUE AT ASSUMED
UNDERLYING GRANTED TO EXERCISE ANNUAL RATES OF STOCK
OPTIONS/ EMPLOYEES OR BASE PRICE APPRECIATION
SARS IN PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Smulyan 200,000 12.5% $ 7.75 6/29/04 $ 7,468,000 $ 9,480,000
1,000,000 62.3% 28.25 10/23/09 30,260,000 63,490,000
Doyle L. Rose - - - - - -
Richard F. Cummings - - - - - -
Greg A. Nathanson 50,000 3.1% 22.6875 (1) 1,200,325 1,831,525
Walter Z. Berger 40,000 2.5% 22.6875 (1) 960,260 1,465,220
---------------
</TABLE>
(1) The options expire at a rate of 20% per year beginning February 28, 2003,
with all options expired by February 28, 2007.
73
<PAGE> 74
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR END AT FISCAL YEAR END
----------------------------------------------------
ACQUIRED ON VALUE EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE REALIZED CISABLE CISABLE CISABLE CISABLE
---------- -------- -------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
Jeffrey H. Smulyan 46,000 $1,691,223 800,000 1,000,000 $21,250,000 $8,250,000
Doyle L. Rose 54,800 2,471,238 114,400 250,000 (1) 3,305,200 4,125,000
Richard F. Cummings 4,800 172,800 164,400 250,000 (1) 4,742,700 4,125,000
Greg A. Nathanson - - - 50,000 - 690,625
Walter Z. Berger - - - 40,000 - 552,500
</TABLE>
----------------------
(1) Options relating to 35,000 of these shares lapsed immediately following
the end of the fiscal year because certain performance targets were not
achieved. The value of the remaining unexercisable in-the-money options at
fiscal year end was $3,547,500.
COMPENSATION OF DIRECTORS
Emmis Directors who are not officers or employees are compensated for their
services at the rate of $2,000 per meeting of the Board of Directors attended.
Pursuant to the Non-Employee Director Stock Option Plan, Directors who are not
officers or employees of Emmis also are entitled to receive options to purchase
10,000 shares of Emmis Class A Common Stock. The options are granted on the date
of the Emmis annual meeting at the closing price of the underlying shares on
that date. In addition to her duties as a director, Emmis separately engaged
Susan Bayh to continue to develop plans for the involvement of Emmis and each of
its stations and publications in various charitable organizations. During the
last fiscal year, Mrs. Bayh received approximately $50,000 as compensation for
such services. Nominees for election as a director of Emmis are selected by the
Board of Directors, acting as a nominating committee.
EMPLOYMENT AGREEMENTS
During the fiscal year ended February 28, 1994, Emmis entered into a
five-year employment agreement with Jeffrey H. Smulyan pursuant to which Mr.
Smulyan was employed as chief executive officer. This employment agreement
expired by its terms on February 28, 1999. Emmis and Mr. Smulyan entered into an
amendment to the employment agreement effective March 1, 1999 which extended the
term to February 29, 2004. Mr. Smulyan's base compensation during the last
fiscal year was approximately $765,000. In addition, the agreement as amended
provides for annual bonuses to be set by the Board of Directors ranging from a
minimum of $50,000 up to a maximum of 100% of Mr. Smulyan's annual base salary
(plus an adjustment for inflation). Mr. Smulyan also received options to
purchase 1,000,000 shares of common stock (after adjustment for the subsequent
stock split) at a price per share of $28.25 pursuant to the agreement. Under the
agreement, Mr. Smulyan retains the right to participate in all Emmis employee
benefit plans for which he is otherwise eligible. The agreement with Mr. Smulyan
is subject to termination by the Board of Directors or by Mr. Smulyan, either
without cause or for cause, at any time upon notice. In the event Emmis
terminates Mr. Smulyan's employment without cause (as defined in the agreement)
or in the event Mr. Smulyan terminates his employment for good reason (as
defined in the agreement), Mr. Smulyan is entitled to receive the present value
of the applicable base and incentive compensation through a date five years
after the date of termination. In addition, the agreement entitles Mr. Smulyan
to certain termination benefits upon disability, death or a change in control
(as defined in the agreement) of Emmis. Following a termination of Mr. Smulyan's
employment, other than a termination by Emmis without cause (as defined in the
agreement) or a termination by Mr. Smulyan with good reason (as defined in the
agreement), Mr. Smulyan is prohibited from engaging in a business in competition
with Emmis for a period of two years after the date of termination. In
connection with the payment of his annual bonus, Mr. Smulyan also entered into
a deferred compensation agreement with the Company pursuant to which Mr. Smulyan
deferred the amount of his bonus that would not be deductible to the Company
under Section 162(m) of the Internal Revenue Code. The amounts deferred will
generally be paid to Mr. Smulyan over the next four years and will accrue
interest at the Company's cost of senior debt, currently, approximately 8%.
Future annual bonuses paid to Mr. Smulyan will be structured, to the extent
practicable, to qualify as performanced-based under Section 162(m) of the
Internal Revenue Code.
74
<PAGE> 75
During the fiscal year ended February 29, 2000, the Company entered into
two-year employment agreements with each of Doyle L. Rose and Richard F.
Cummings, pursuant to which Mr. Rose was employed as Radio Division President
and Mr. Cummings was employed as Executive Vice President - Programming. Each
employment agreement provides for a $300,000 signing bonus and an annual base
salary of $433,000, respectively, for each of the three years covered thereby.
In addition, the agreements (i) provide for an annual cash bonus of up to
$150,000, (ii) provide for the award of 30,800 shares of Class A Common Stock to
each of Mr. Rose and Mr. Cummings if the officer remains employed by the
Corporation at the expiration of the agreement (or dies) (iii) incorporate the
terms of stock option grants made to Mr. Rose and Mr. Cummings in 1998, which
options are subject, in part, to forfeiture each year if the Radio Division
fails to achieve performance objectives specified in advance by the Compensation
Committee and (iv) permit Mr. Rose and Mr. Cummings to participate in all
employee benefit plans of the Corporation for which they would otherwise be
eligible.
Effective March 1, 1999, the Corporation entered into a three-year
employment agreement with Walter Z. Berger pursuant to which Mr. Berger is
employed as Executive Vice President and Chief Financial Officer of the
Corporation. The employment agreement provides for an annual base salary of
$340,000 for each of the three years covered thereby. In addition, the agreement
provides (i) for an annual cash bonus of up to 100,000, (ii) the award of 20,000
shares of Class A Common Stock if Mr. Berger remains employed by the Corporation
through the expiration of the agreement (or dies or becomes disabled, as defined
in the agreement), and (iii) for the award of options to purchase 40,000 shares
at their fair market value on March 1, 1999 and options to purchase 40,000
shares on the first day of each of the remaining contract years at the fair
market value of such shares on the date of the grant. Under the agreement, Mr.
Berger also retains the right to participate in all employee benefit plans of
the Corporation for which he is otherwise eligible.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows, as of April 30, 2000, the number and percentage
of shares of Common Stock held by each person known to Emmis who owned
beneficially more than five percent of the issued and outstanding Emmis common
stock, by the Emmis directors and nominees, and by certain executive officers:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------- --------------------
FIVE PERCENT SHAREHOLDERS, AMOUNT AND AMOUNT AND PERCENT
SELLING SHAREHOLDER, NATURE OF PERCENT NATURE OF PERCENT OF TOTAL
DIRECTORS AND CERTAIN BENEFICIAL OF BENEFICIAL OF VOTING
EXECUTIVE OFFICERS OWNERSHIP CLASS OWNERSHIP CLASS POWER
------------------ ---------------------------------------------------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey H. Smulyan 518,067 (1) 1.2% 5,538,582 (15) 100.0% 57.7%
Susan B. Bayh 32,700 (2) * - - *
Walter Z. Berger 40,000 (3) * - - *
Richard F. Cummings 229,140 (4) * - - *
Norman H. Gurwitz 200,481 (5) * - - *
Gary L. Kaseff 96,949 (6) * - - *
Richard A. Leventhal 68,800 (7) * - - *
Doyle L. Rose 140,962 (8) * - - *
Greg A. Nathanson 295,973 (9) * - - *
Frank V. Sica 10,000 (10) * - - *
Lawrence B. Sorrel 18,000 (11) * - - *
Liberty Media Corporation 5,400,000 (12) 13.0 - - 6.1
Westport Asset Management, Inc. 3,055,800 (13) 7.4 - - 3.4
All Officers and Directors
as a Group (11 persons) 1,641,331 (14) 4.0 5,538,582 (15) 100.0 58.4
</TABLE>
----------------------
* Less than 1%.
(1) Consists of 358,067 shares held by Mr. Smulyan as trustee for the Emmis
Communications Corporation Profit Sharing Trust, (the "Profit Sharing
Trust"), as to which Mr. Smulyan disclaims beneficial ownership of all but
3,413 held for his benefit, and 160,000 shares owned individually.
(2) Consists of 2,700 shares owned individually and 30,000 shares represented
by stock options exercisable within 60 days of April 30, 2000.
75
<PAGE> 76
(3) Consists of 40,000 shares represented by stock options exercisable within
60 days of April 30, 2000.
(4) Consists of 54,575 shares owned individually, 6,752 shares owned for the
benefit of Mr. Cummings' children, 3,413 shares held in the Profit Sharing
Trust, and 164,400 shares represented by stock options exercisable within
60 days of April 30, 2000.
(5) Consists of 24,140 shares owned jointly by Mr. Gurwitz and his spouse, 980
shares owned by Mr. Gurwitz's spouse, 5,476 shares owned for the benefit of
Mr. Gurwitz's children, 17,800 shares owned by a corporation of which Mr.
Gurwitz's spouse is a 50% owner, 2,225 shares held in the Profit Sharing
Trust, and 149,860 shares represented by stock options exercisable within
60 days of April 30, 2000.
(6) Consists of 8,521 shares owned individually by Mr. Kaseff, 2,738 shares
owned by Mr. Kaseff's spouse, 690 shares held in the Profit Sharing Trust,
and 85,000 shares represented by stock options exercisable within 60 days
of April 30, 2000.
(7) Consists of 8,000 shares owned individually, 3,000 shares owned by Mr.
Leventhal's spouse, 17,800 shares owned by a corporation of which Mr.
Leventhal is a 50% owner and 40,000 shares represented by stock options
exercisable within 60 days of April 30, 2000.
(8) Consists of 23,149 shares owned individually, 3,413 shares held in the
Profit Sharing Trust, and 114,400 shares represented by stock options
exercisable within 60 days of April 30, 2000.
(9) Consists of 201,973 shares owned individually or jointly with his spouse,
44,000 shares owned by a trust for the benefit of Mr. Nathanson's children
and 50,000 shares represented by stock options exercisable within 60 days
of April 30, 2000.
(10) Consists of shares represented by stock options exercisable within 60 days
of April 30, 2000.
(11) Consists of 8,000 shares owned individually and 10,000 shares represented
by stock options exercisable within 60 days of April 30, 2000.
(12) Information concerning these shares was obtained from a Schedule 13D filed
in November 1999 by Liberty Media Corporation, which has a mailing address
of 9197 South Peoria Street, Englewood, Colorado 80112.
(13) Information concerning these shares was obtained from an Amendment to
Schedule 13G filed in February 2000 by Westport Asset Management, Inc. on
behalf of itself and Westport Advisors LLC, each of which has a mailing
address of 253 Riverside Avenue, Westport, Connecticut 06880.
(14) Includes 693,660 shares represented by stock options exercisable within 60
days of April 30, 2000, and shares held in the Emmis Communications
Corporation Profit Sharing Trust.
(15) Consists of 4,738,582 shares owned individually and 800,000 shares
represented by stock options exercisable within 60 days of April 30, 2000.
76
<PAGE> 77
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Emmis has periodically made interest-bearing loans to various officers and
employees. The approximate amount of such indebtedness outstanding at April 30,
2000, and the largest aggregate amount of indebtedness outstanding at any month
end during the last fiscal year, was $1,024,979 and $1,016,205, respectively,
for Jeffrey H. Smulyan, Chairman and President, $167,442 and $166,149,
respectively, for Doyle L. Rose, Radio Division President and Director, $120,729
and $119,702, respectively, for Richard F. Cummings, Executive Vice
President-Programming, and $91,023 and $90,271, respectively, for Norman H.
Gurwitz, Executive Vice President-Human Resources and Secretary. These loans
bear interest at Emmis' cost of senior debt, which at April 30, 2000, was
approximately 7.5%. In addition, during the last fiscal year, Emmis purchased
approximately $157,000 in corporate gifts and specialty items from a company
owned by the spouse of Norman H. Gurwitz, Executive Vice President-Human
Resources and Secretary. Part of these purchases were awarded through
competitive bids.
During the last fiscal year, Emmis made payments of approximately $364,000
to N97EC, LLC, a company owned by Jeffrey H. Smulyan, for use by Emmis of an
airplane owned by that company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statements
The financial statements filed as a part of this report are set forth under
Item 8.
Financial Statement Schedules
The following financial statement schedule is filed as a part of this
report:
Report of Independent Public Accountants on Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves for the fiscal
years in the three year period ended February 29, 2000.
Reports on Form 8-K
The Company filed no reports on Form 8-K during its last fiscal quarter.
Exhibits
The following exhibits are filed or incorporated by reference as a part of this
report:
3.1 Second Amended and Restated Articles of Incorporation of Emmis
Communications Corporation. *
3.2 Amended and Restated Bylaws of Emmis Communications Corporation. *
3.3 Form of stock certificate for Class A common stock, incorporated by
reference from Exhibit 3.5 to the 1994 Emmis Registration Statement
on Form S-1, File No. 33-73218, the "1994 Registration Statement".
4.1 Indenture dated February 12, 1999 among Emmis Communications
Corporation, certain subsidiary guarantors and IBJ Whitehall Bank and
Trust Company, as trustee, including as an exhibit thereto the form
of note, incorporated by reference to Exhibit 4.1 to Emmis'
Registration Statement on Form S-4, File No.
333-74377, as amended (the "1999 Registration Statement").
10.1 Emmis Communications Corporation Profit Sharing Plan, incorporated by
reference from Exhibit 10.4 to the 1994 Registration Statement.++
77
<PAGE> 78
10.2 Emmis Communications Corporation 1994 Equity Incentive Plan,
incorporated by reference from Exhibit 10.5 to the 1994 Registration
Statement.++
10.3 The Emmis Communications Corporation 1995 Non-Employee Director Stock
Option Plan, incorporated by reference from Exhibit 10.15 to Emmis'
Annual Report on Form 10-K for the fiscal year ended February 28,
1995 (the "1995 10-K").++
10.4 The Emmis Communications Corporation 1995 Equity Incentive Plan
incorporated by reference from Exhibit 10.16 to the 1995 10-K.++
10.5 Emmis Communications Corporation 1997 Equity Incentive Plan,
incorporated by reference from Exhibit 10.5 to Emmis' Annual Report
on Form 10-K for the fiscal year ended February 28, 1998 (the "1998
10-K").++
10.6 Emmis Communications Corporation 1999 Equity Incentive Plan,
incorporated by reference from the Company's proxy statement dated
May 26, 1999.++
10.7 Employment Agreement dated as of March 1, 1994, by and between Emmis
Broadcasting Corporation and Jeffrey H. Smulyan, incorporated by
reference from Exhibit 10.13 to Emmis' Annual Report on Form 10-K for
the fiscal year ended February 28, 1994 and amendment to Employment
Agreement, effective March 1, 1999, between the Company and Jeffrey
H. Smulyan, incorporated by reference from Exhibit 10.2 to Emmis'
Quarterly Report on Form 10-Q for the quarter ended November 30,
1999.++
10.8 Employment Agreement dated as of March 1, 1999, by and between Emmis
Communications Corporation and Walter Z. Berger, incorporated by
reference from Exhibit 10.9 to Emmis' Annual Report on Form 10-K for
the fiscal year ended February 28, 1999.++
10.9 Employment Agreement, effective March 1, 1999, between the Company
and Doyle L. Rose, incorporated by reference from Exhibit 10.1 to
Emmis' Quarterly Report on Form 10-Q for the quarter ended August 31,
1999.++
10.10 Employment Agreement, effective March 1, 1999, between the Company
and Richard F. Cummings, incorporated by reference from Exhibit 10.3
to Emmis' Quarterly Report on Form 10-Q for the quarter ended August
31, 1999.++
10.11 Second Amended and Restated Revolving Credit and Term Loan Agreement,
and First Amendment to Second Amended and Restated Revolving Credit
and Term Loan Agreement, incorporated by reference to Exhibits 10.1
and 10.2, respectively, to Emmis' Quarterly Report on Form 10-Q for
the quarter ended August 31, 1998.
10.12 Second Amendment to Second Amended and Restated Revolving Credit and
Term Loan Agreement, incorporated by reference from Exhibit 10.11 to
Emmis' Annual Report on Form 10-K for the fiscal year ended February
28, 1999.
10.13 Stock Purchase Agreement dated October 25, 1999 by and between
Liberty Media Corporation and Emmis Communications Corporation with
Registration Rights Agreement as Exhibit A thereto, incorporated by
reference from Exhibit 10.1 to Emmis' Quarterly Report on Form 10-Q
for the quarter ended November 30, 1999.
10.14 Asset Purchase Agreement dated June 3, 1999 between Emmis
Communications Corporation and Press Communications Corporation,
incorporated by reference from Exhibit 10.1 to Emmis' Quarterly
Report on Form 10-Q for the quarter ended August 31, 1999.
10.15 Asset Purchase Agreement by and between Emmis Broadcasting
Corporation and Wabash Valley Broadcasting Corporation, dated March
20, 1998, incorporated by reference from Exhibit 10.15 to the 1998
10-K.
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10.16 Asset Purchase Agreement by and among SF Broadcasting of Honolulu,
Inc., SF Honolulu License Subsidiary, Inc., SF Broadcasting of New
Orleans, Inc., SF New Orleans License Subsidiary, Inc., SF
Broadcasting of Mobile, Inc., SF Mobile License Subsidiary, Inc., SF
Broadcasting of Green Bay, Inc., SF Green Bay License Subsidiary,
Inc. and Emmis Broadcasting Corporation, dated March 30, 1998,
incorporated by reference from Exhibit 10.16 to the 1998 10-K.
10.17 Asset Purchase Agreement by and among Emmis Communications
Corporation, Country Sampler, Inc. and Mark A. Nickel, dated as of
February 23, 1999, together with associated Consulting Agreement and
Letter Agreement, incorporated by reference from Exhibit 10.16 to
Emmis' Annual Report on Form 10-K for the fiscal year ended February
28, 1999.
21 Subsidiaries of Emmis.*
23 Consent of Accountants.*
24 Powers of Attorney.*
27 Financial Data Schedule (EDGAR-filed version only)
------------------------
* Filed with this report.
++ Management contract or compensatory plan or arrangement.
79
<PAGE> 80
Signatures.
Pursuant to the requirements of Section 13 or 15(d) 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: June 29, 2000 By: Jeffrey H. Smulyan *
-----------------------------------
Jeffrey H. Smulyan
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
Date: June 29, 2000 Jeffrey H. Smulyan * President, Chairman of the Board and
---------------------- Director (Principal Executive Officer)
Jeffrey H. Smulyan
Date: June 29, 2000 Walter Z. Berger * Executive Vice President, Treasurer
-------------------- and Chief Financial Officer
Walter Z. Berger (Principal Accounting Officer)
Date: June 29, 2000 Director
--------------
Susan B. Bayh
Date: June 29, 2000 Gary L. Kaseff* Executive Vice President, General
--------------- Counsel and Director
Gary L. Kaseff
Date: June 29, 2000 Richard A. Leventhal* Director
---------------------
Richard A. Leventhal
Date: June 29, 2000 Greg A. Nathanson* Television Division President and
------------------ Director
Greg A. Nathanson
Date: June 29, 2000 Doyle L. Rose* Radio Division President and
-------------- Director
Doyle L. Rose
Date: June 29, 2000 Director
--------------
Frank V. Sica
Date: June 29, 2000 Director
-------------------
Lawrence B. Sorrel
</TABLE>
*By: /s/ J. Scott Enright
----------------------------
J. Scott Enright
Attorney-in-Fact
80
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of Emmis Communications Corporation
and Subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of EMMIS COMMUNICATIONS CORPORATION AND
SUBSIDIARIES included in Item 8, in this Form 10-K, and have issued our report
thereon dated March 29, 2000. Our audit was made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in Item 14 is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
May 7, 2000.
81
<PAGE> 82
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS IN THE THREE YEAR PERIOD ENDED FEBRUARY 29, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
CLASSIFICATION OF YEAR PROVISION WRITE-OFFS OTHER OF YEAR
------------------------------------------ ------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS,
Year ended February 28, 1998 $ 820 $ 802 $ (981) $ 705(1) $ 1,346
Year ended February 28, 1999 1,346 1,745 (1,393) - 1,698
Year ended February 29, 2000 1,698 2,550 (2,324) - 1,924
</TABLE>
(1) Represents additions to the allowance for doubtful accounts associated with
certain acquisitions.
82
